ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | | |
Duke Energy | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations | |
Consolidated Statements of Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Carolinas | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Progress Energy | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Progress | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Florida | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Ohio | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Duke Energy Indiana | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| |
Piedmont | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Operations and Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Equity | |
| | | | | |
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Combined Notes to Consolidated Financial Statements | |
Note 1 – Summary of Significant Accounting Policies | |
Note 2 – Dispositions | |
Note 3 – Business Segments | |
Note 4 – Regulatory Matters | |
Note 5 – Commitments and Contingencies | |
Note 6 – Leases | |
Note 7 – Debt and Credit Facilities | |
Note 8 – Guarantees and Indemnifications | |
Note 9 – Joint Ownership of Generating and Transmission Facilities | |
Note 10 – Asset Retirement Obligations | |
Note 11 – Property, Plant and Equipment | |
Note 12 – Goodwill and Intangible Assets | |
Note 13 – Investments in Unconsolidated Affiliates | |
Note 14 – Related Party Transactions | |
Note 15 – Derivatives and Hedging | |
Note 16 – Investments in Debt and Equity Securities | |
Note 17 – Fair Value Measurements | |
Note 18 – Variable Interest Entities | |
Note 19 – Revenue | |
Note 20 – Stockholders' Equity | |
Note 21 – Severance | |
Note 22 – Stock-Based Compensation | |
Note 23 – Employee Benefit Plans | |
Note 24 – Income Taxes | |
Note 25 – Other Income and Expenses, Net | |
Note 26 – Subsequent Events | |
Note 27 – Quarterly Financial Data (Unaudited) | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Duke Energy Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Corporation and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Dispositions – Assessment of Held for Sale and Discontinued Operations Classification and Impairment Charge – Refer to Note 2 to the financial statements.
Critical Audit Matter Description
In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables business segment, excluding the offshore wind contract for Carolina Long Bay (“Commercial Renewables business segment”). As a result, the Commercial Renewables business segment was classified as held for sale and reported as discontinued operations and pretax impairment charges of approximately $1.7 billion were recorded to reduce the carrying amount of the assets to their estimated fair value, based on the expected selling price less cost to sell.
We identified the assessment of held for sale and discontinued operations classification and associated impairment charges as a critical audit matter because of the extensive effort required to audit the subjective and complex judgments associated with those matters, including:
•The assessment of whether the sale is probable and the transfer of assets will be completed within one year from period-end;
•The assessment of whether the sale of the segment represents a discontinued operation;
•The determination of the impairment charges; and
•The assessment of the fair value of the Commercial Renewables business segment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the classification of the Commercial Renewables business segment as held for sale and the associated impairment charges included the following, among others:
•We tested the effectiveness of management’s controls over (1) the evaluation and disclosure of the held for sale and discontinued operations classification and (2) the determination of the impairment charges, including controls over the reasonableness of the inputs and assumptions used in management’s estimates.
•We evaluated management’s assessment of held for sale and discontinued operations classification as follows:
–Inquired of executive officers, key members of management and members of the Board of Directors to obtain an understanding of plans to sell the Commercial Renewables business segment.
–Assessed management’s judgments in determining whether the Commercial Renewables business segment meets the held for sale and discontinued operations classification criteria through procedures performed, including, but not limited to, reviewing minutes from meetings of the Board of Directors, reviewing communications regarding the progression of the selling process, and assessing the Commercial Renewables business segment relative to the Company’s operations and financial results.
–Compared management’s conclusions against relevant guidance and tested the completeness and accuracy of information used in the Company’s evaluation.
•We evaluated the reasonableness of the determination of the fair value of the long-lived assets by using an internal fair value specialist to assess the reasonableness of the overall methodology and discount rates. Additionally, we evaluated the mathematical accuracy of the underlying calculations. Further, we tested forecasted information used to determine fair value.
•We evaluated the accuracy and completeness of the Company's reclassification of balances and activity and related disclosures.
•We obtained representation from management asserting to the appropriate presentation, measurement and timing of the Commercial Renewables business segment.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1, 4 and 10 to the financial statements.
Critical Audit Matter Description
The Company is subject to regulation by federal and state utility regulatory agencies (the “Commissions”), which have jurisdiction with respect to the rates of the Company’s electric and natural gas distribution companies. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As discussed in Note 4, regulatory proceedings in recent years have focused on the recoverability of storm costs, fuel costs, and asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders requires significant management judgment. As of December 31, 2022, the Company has approximately $18.1 billion of recorded regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions; to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matters Were Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We also evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 1947.
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions, except per share amounts) | 2022 | | 2021 | | 2020 |
Operating Revenues | | | | | |
Regulated electric | $ | 25,759 | | | $ | 22,319 | | | $ | 21,461 | |
Regulated natural gas | 2,724 | | | 2,008 | | | 1,642 | |
Nonregulated electric and other | 285 | | | 294 | | | 263 | |
Total operating revenues | 28,768 | | | 24,621 | | | 23,366 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 8,782 | | | 6,255 | | | 6,051 | |
Cost of natural gas | 1,276 | | | 705 | | | 460 | |
Operation, maintenance and other | 5,734 | | | 5,703 | | | 5,502 | |
Depreciation and amortization | 5,086 | | | 4,762 | | | 4,504 | |
Property and other taxes | 1,466 | | | 1,355 | | | 1,311 | |
Impairment of assets and other charges | 434 | | | 353 | | | 978 | |
Total operating expenses | 22,778 | | | 19,133 | | | 18,806 | |
Gains on Sales of Other Assets and Other, net | 22 | | | 12 | | | 11 | |
Operating Income | 6,012 | | | 5,500 | | | 4,571 | |
Other Income and Expenses | | | | | |
Equity in earnings (losses) of unconsolidated affiliates | 113 | | | 62 | | | (2,005) | |
| | | | | |
Other income and expenses, net | 392 | | | 636 | | | 451 | |
Total other income and expenses | 505 | | | 698 | | | (1,554) | |
Interest Expense | 2,439 | | | 2,207 | | | 2,097 | |
Income From Continuing Operations Before Income Taxes | 4,078 | | | 3,991 | | | 920 | |
Income Tax Expense (Benefit) From Continuing Operations | 300 | | | 268 | | | (169) | |
Income From Continuing Operations | 3,778 | | | 3,723 | | | 1,089 | |
Loss From Discontinued Operations, net of tax | (1,323) | | | (144) | | | (7) | |
Net Income | 2,455 | | | 3,579 | | | 1,082 | |
Add: Net Loss Attributable to Noncontrolling Interests | 95 | | | 329 | | | 295 | |
Net Income Attributable to Duke Energy Corporation | 2,550 | | | 3,908 | | | 1,377 | |
Less: Preferred Dividends | 106 | | | 106 | | | 107 | |
Net Income Available to Duke Energy Corporation Common Stockholders | $ | 2,444 | | | $ | 3,802 | | | $ | 1,270 | |
| | | | | |
Earnings Per Share – Basic and Diluted | | | | | |
Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 4.74 | | | $ | 4.68 | | | $ | 1.33 | |
| | | | | |
(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | (1.57) | | | $ | 0.26 | | | $ | 0.39 | |
| | | | | |
Net income available to Duke Energy Corporation common stockholders | | | | | |
Basic and Diluted | $ | 3.17 | | | $ | 4.94 | | | $ | 1.72 | |
| | | | | |
Weighted average shares outstanding | | | | | |
Basic | 770 | | | 769 | | | 737 | |
Diluted | 770 | | | 769 | | | 738 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Net Income | $ | 2,455 | | | $ | 3,579 | | | $ | 1,082 | |
Other Comprehensive Income (Loss), net of tax(a) | | | | | |
| | | | | |
Pension and OPEB adjustments | (19) | | | 7 | | | 6 | |
Net unrealized gains (losses) on cash flow hedges | 285 | | | (68) | | | (138) | |
Reclassification into earnings from cash flow hedges | (38) | | | 13 | | | 11 | |
Net unrealized losses on fair value hedges | (33) | | | — | | | — | |
Unrealized (losses) gains on available-for-sale securities | (21) | | | (8) | | | 3 | |
| | | | | |
Other Comprehensive Income (Loss), net of tax | 174 | | | (56) | | | (118) | |
Comprehensive Income | 2,629 | | | 3,523 | | | 964 | |
Add: Comprehensive Loss Attributable to Noncontrolling Interests | 84 | | | 319 | | | 306 | |
Comprehensive Income Attributable to Duke Energy Corporation | 2,713 | | | 3,842 | | | 1,270 | |
Less: Preferred Dividends | 106 | | | 106 | | | 107 | |
Comprehensive Income Available to Duke Energy Corporation Common Stockholders | $ | 2,607 | | | $ | 3,736 | | | $ | 1,163 | |
(a) Net of income tax expense of approximately $52 million for the year ended December 31, 2022, and income tax benefit of approximately $17 million and $35 million for the years ended December 31, 2021, and 2020, respectively.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 409 | | | $ | 341 | |
| | | |
Receivables (net of allowance for doubtful accounts of $40 at 2022 and $45 at 2021) | 1,309 | | | 1,085 | |
Receivables of VIEs (net of allowance for doubtful accounts of $176 at 2022 and $76 at 2021) | 3,106 | | | 2,437 | |
Inventory | 3,584 | | | 3,111 | |
Regulatory assets (includes $106 at 2022 and $105 at 2021 related to VIEs) | 3,485 | | | 2,150 | |
Assets held for sale | 262 | | | 232 | |
Other (includes $116 at 2022 and $41 at 2021 related to VIEs) | 1,067 | | | 584 | |
Total current assets | 13,222 | | | 9,940 | |
Property, Plant and Equipment | | | |
Cost | 163,839 | | | 154,496 | |
Accumulated depreciation and amortization | (52,100) | | | (49,104) | |
Facilities to be retired, net | 9 | | | 144 | |
Net property, plant and equipment | 111,748 | | | 105,536 | |
Other Noncurrent Assets | | | |
Goodwill | 19,303 | | | 19,303 | |
Regulatory assets (includes $1,715 at 2022 and $1,824 at 2021 related to VIEs) | 14,645 | | | 12,487 | |
Nuclear decommissioning trust funds | 8,637 | | | 10,401 | |
Operating lease right-of-use assets, net | 1,042 | | | 1,136 | |
Investments in equity method unconsolidated affiliates | 455 | | | 457 | |
Assets held for sale | 5,634 | | | 6,695 | |
Other (includes $52 at 2022 and $30 at 2021 related to VIEs) | 3,400 | | | 3,632 | |
Total other noncurrent assets | 53,116 | | | 54,111 | |
Total Assets | $ | 178,086 | | | $ | 169,587 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 4,754 | | | $ | 3,531 | |
Notes payable and commercial paper | 3,952 | | | 3,304 | |
Taxes accrued | 722 | | | 731 | |
Interest accrued | 626 | | | 530 | |
Current maturities of long-term debt (includes $350 at 2022 and $76 at 2021 related to VIEs) | 4,154 | | | 3,387 | |
Asset retirement obligations | 773 | | | 647 | |
Regulatory liabilities | 1,466 | | | 1,211 | |
Liabilities associated with assets held for sale | 259 | | | 167 | |
Other | 2,167 | | | 2,423 | |
Total current liabilities | 18,873 | | | 15,931 | |
Long-Term Debt (includes $3,108 at 2022 and $3,379 at 2021 related to VIEs) | 67,061 | | | 60,448 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 9,964 | | | 9,379 | |
Asset retirement obligations | 11,955 | | | 11,953 | |
Regulatory liabilities | 13,582 | | | 16,152 | |
Operating lease liabilities | 876 | | | 940 | |
Accrued pension and other post-retirement benefit costs | 832 | | | 855 | |
Investment tax credits | 849 | | | 833 | |
Liabilities associated with assets held for sale | 739 | | | 612 | |
Other | 1,502 | | | 1,348 | |
Total other noncurrent liabilities | 40,299 | | | 42,072 | |
Commitments and Contingencies | | | |
| | | |
Equity | | | |
Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2022 and 2021 | 973 | | | 973 | |
Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2022 and 2021 | 989 | | | 989 | |
Common stock, $0.001 par value, 2 billion shares authorized; 770 million and 769 million shares outstanding at 2022 and 2021 | 1 | | | 1 | |
Additional paid-in capital | 44,862 | | | 44,371 | |
Retained earnings | 2,637 | | | 3,265 | |
Accumulated other comprehensive loss | (140) | | | (303) | |
Total Duke Energy Corporation stockholders' equity | 49,322 | | | 49,296 | |
Noncontrolling interests | 2,531 | | | 1,840 | |
Total equity | 51,853 | | | 51,136 | |
Total Liabilities and Equity | $ | 178,086 | | | $ | 169,587 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 2,455 | | | $ | 3,579 | | | $ | 1,082 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 5,843 | | | 5,663 | | | 5,486 | |
Equity in (earnings) losses of unconsolidated affiliates | (114) | | | (28) | | | 2,005 | |
Equity component of AFUDC | (197) | | | (171) | | | (154) | |
| | | | | |
Impairment of assets and other charges | 2,183 | | | 356 | | | 984 | |
Deferred income taxes | (200) | | | 191 | | | 54 | |
Contributions to qualified pension plans | (58) | | | — | | | — | |
Payments for asset retirement obligations | (584) | | | (540) | | | (610) | |
Provision for rate refunds | (130) | | | (70) | | | (22) | |
Refund of AMT credit carryforwards | — | | | — | | | 572 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | 19 | | | 50 | | | 63 | |
Receivables | (788) | | | (297) | | | (56) | |
Inventory | (476) | | | (34) | | | 66 | |
Other current assets(a) | (1,498) | | | (1,136) | | | 205 | |
Increase (decrease) in | | | | | |
Accounts payable | 805 | | | 249 | | | (21) | |
Taxes accrued | 10 | | | 284 | | | 117 | |
Other current liabilities | (153) | | | (13) | | | (65) | |
Other assets(a) | (1,600) | | | 112 | | | (408) | |
Other liabilities | 410 | | | 95 | | | (442) | |
Net cash provided by operating activities | 5,927 | | | 8,290 | | | 8,856 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (11,367) | | | (9,715) | | | (9,907) | |
Contributions to equity method investments | (58) | | | (81) | | | (370) | |
| | | | | |
Return of investment capital | 6 | | | 44 | | | 133 | |
Purchases of debt and equity securities | (4,243) | | | (6,098) | | | (8,011) | |
Proceeds from sales and maturities of debt and equity securities | 4,333 | | | 6,103 | | | 7,949 | |
| | | | | |
Disbursements to canceled equity method investments | — | | | (855) | | | — | |
Other | (644) | | | (333) | | | (398) | |
Net cash used in investing activities | (11,973) | | | (10,935) | | | (10,604) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the: | | | | | |
Issuance of long-term debt | 11,874 | | | 9,052 | | | 6,330 | |
| | | | | |
Issuance of common stock | 9 | | | 5 | | | 2,745 | |
Payments for the redemption of long-term debt | (4,396) | | | (5,294) | | | (4,506) | |
Proceeds from the issuance of short-term debt with original maturities greater than 90 days | 80 | | | 332 | | | 3,009 | |
Payments for the redemption of short-term debt with original maturities greater than 90 days | (287) | | | (997) | | | (2,147) | |
Notes payable and commercial paper | 781 | | | 1,144 | | | (1,181) | |
| | | | | |
Contributions from noncontrolling interests | 1,377 | | | 1,575 | | | 426 | |
Dividends paid | (3,179) | | | (3,114) | | | (2,812) | |
| | | | | |
Other | (130) | | | (94) | | | (133) | |
Net cash provided by financing activities | 6,129 | | | 2,609 | | | 1,731 | |
| | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 83 | | | (36) | | | (17) | |
Cash, cash equivalents and restricted cash at beginning of period | 520 | | | 556 | | | 573 | |
Cash, cash equivalents and restricted cash at end of period | $ | 603 | | | $ | 520 | | | $ | 556 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 2,361 | | | $ | 2,248 | | | $ | 2,186 | |
Cash received from income taxes | (6) | | | (3) | | | (585) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 1,766 | | | 1,325 | | | 1,116 | |
Non-cash dividends | — | | | — | | | 110 | |
(a) Includes approximately $2.6 billion for impacts of under-collected deferred fuel regulatory assets for the year ended December 31, 2022.
See Notes to Consolidated Financial Statements
DUKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Duke Energy Corporation Stockholders' Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | | | | | | | Net Unrealized | | | | Total | | | | |
| | | | | | | | | | | Net Gains | | Gains (Losses) | | | | Duke Energy | | | | |
| | Common | | | Additional | | | | | | (Losses) | | on Available- | | Pension and | | Corporation | | | | |
| Preferred | Stock | Common | | Paid-in | | Retained | | | | on | | for-Sale- | | OPEB | | Stockholders' | | Noncontrolling | | Total |
(in millions) | Stock | Shares | Stock | | Capital | | Earnings | | | | Hedges(d) | | Securities | | Adjustments | | Equity | | Interests | | Equity |
Balance at December 31, 2019 | $ | 1,962 | | 733 | | $ | 1 | | | $ | 40,881 | | | $ | 4,108 | | | | | $ | (51) | | | $ | 3 | | | $ | (82) | | | $ | 46,822 | | | $ | 1,129 | | | $ | 47,951 | |
Net income (loss) | — | | — | | — | | | — | | | 1,270 | | | | | — | | | — | | | — | | | 1,270 | | | (295) | | | 975 | |
Other comprehensive (loss) income | — | | — | | — | | | — | | | — | | | | | (116) | | | 3 | | | 6 | | | (107) | | | (11) | | | (118) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 36 | | — | | | 2,902 | | | — | | | | | — | | | — | | | — | | | 2,902 | | | — | | | 2,902 | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | — | | | — | | | (2,815) | | | | | — | | | — | | | — | | | (2,815) | | | — | | | (2,815) | |
| | | | | | | | | | | | | | | | | | | | | |
Contribution from noncontrolling interest(a) | — | | — | | — | | | (17) | | | — | | | | | — | | | — | | | — | | | (17) | | | 426 | | | 409 | |
Distributions to noncontrolling interest in subsidiaries | — | | — | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (30) | | | (30) | |
Other(b) | — | | — | | — | | | 1 | | | (92) | | | | | — | | | — | | | — | | | (91) | | | 1 | | | (90) | |
Balance at December 31, 2020 | $ | 1,962 | | 769 | | $ | 1 | | | $ | 43,767 | | | $ | 2,471 | | | | | $ | (167) | | | $ | 6 | | | $ | (76) | | | $ | 47,964 | | | $ | 1,220 | | | $ | 49,184 | |
Net income (loss) | — | | — | | — | | | — | | | 3,802 | | | | | — | | | — | | | — | | | 3,802 | | | (329) | | | 3,473 | |
Other comprehensive (loss) income | — | | — | | — | | | — | | | — | | | | | (65) | | | (8) | | | 7 | | | (66) | | | 10 | | | (56) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | — | | — | | | 68 | | | — | | | | | — | | | — | | | — | | | 68 | | | — | | | 68 | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | — | | | — | | | (3,008) | | | | | — | | | — | | | — | | | (3,008) | | | — | | | (3,008) | |
Sale of noncontrolling interest(c) | — | | — | | — | | | 545 | | | — | | | | | — | | | — | | | — | | | 545 | | | 454 | | | 999 | |
Contribution from noncontrolling interest, net of transaction costs(a) | — | | — | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 550 | | | 550 | |
Distributions to noncontrolling interest in subsidiaries | — | | — | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (66) | | | (66) | |
Other | — | | — | | — | | | (9) | | | — | | | | | — | | | — | | | — | | | (9) | | | 1 | | | (8) | |
Balance at December 31, 2021 | $ | 1,962 | | 769 | | $ | 1 | | | $ | 44,371 | | | $ | 3,265 | | | | | $ | (232) | | | $ | (2) | | | $ | (69) | | | $ | 49,296 | | | $ | 1,840 | | | $ | 51,136 | |
Net income (loss) | — | | — | | — | | | — | | | 2,444 | | | | | — | | | — | | | — | | | 2,444 | | | (95) | | | 2,349 | |
Other comprehensive income (loss) | — | | — | | — | | | — | | | — | | | | | 203 | | | (21) | | | (19) | | | 163 | | | 11 | | | 174 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock issuances, including dividend reinvestment and employee benefits | — | | 1 | | — | | | 76 | | | — | | | | | — | | | — | | | — | | | 76 | | | — | | | 76 | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock dividends | — | | — | | — | | | — | | | (3,073) | | | | | — | | | — | | | — | | | (3,073) | | | — | | | (3,073) | |
Sale of noncontrolling interest(c) | — | | — | | — | | | 465 | | | — | | | | | — | | | — | | | — | | | 465 | | | 569 | | | 1,034 | |
Purchase of noncontrolling interest | — | | — | | — | | | (51) | | | — | | | | | — | | | — | | | — | | | (51) | | | 31 | | | (20) | |
Contribution from noncontrolling interest, net of transaction costs(a) | — | | — | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | 314 | | | 314 | |
Distributions to noncontrolling interests in subsidiaries | — | | — | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | | | (140) | | | (140) | |
Other | — | | — | | — | | | 1 | | | 1 | | | | | — | | | — | | | — | | | 2 | | | 1 | | | 3 | |
Balance at December 31, 2022 | $ | 1,962 | | 770 | | $ | 1 | | | $ | 44,862 | | | $ | 2,637 | | | | | $ | (29) | | | $ | (23) | | | $ | (88) | | | $ | 49,322 | | | $ | 2,531 | | | $ | 51,853 | |
(a) Relates to tax equity financing activity in the Commercial Renewables Disposal Groups.
(b) Amounts in Retained earnings primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.
(c) Relates primarily to the sale of a noncontrolling interest in Duke Energy Indiana. See Note 2 for additional discussion.
(d) See Duke Energy Consolidated Statements of Comprehensive Income for detailed activity related to Cash Flow and Fair Value Hedges.
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Carolinas, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Carolinas, LLC and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1, 4 and 10 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As discussed in Note 4, regulatory proceedings in recent years have focused on the recoverability of storm costs, fuel costs, and asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders requires significant management judgment. As of December 31, 2022, the Company has approximately $5.4 billion recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 1947.
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | $ | 7,857 | | | $ | 7,102 | | | $ | 7,015 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 2,015 | | | 1,601 | | | 1,682 | |
Operation, maintenance and other | 1,892 | | | 1,833 | | | 1,743 | |
Depreciation and amortization | 1,526 | | | 1,468 | | | 1,462 | |
Property and other taxes | 340 | | | 320 | | | 299 | |
Impairment of assets and other charges | 26 | | | 227 | | | 476 | |
Total operating expenses | 5,799 | | | 5,449 | | | 5,662 | |
Gains on Sales of Other Assets and Other, net | 4 | | | 2 | | | 1 | |
Operating Income | 2,062 | | | 1,655 | | | 1,354 | |
Other Income and Expenses, net | 221 | | | 270 | | | 177 | |
Interest Expense | 557 | | | 538 | | | 487 | |
Income Before Income Taxes | 1,726 | | | 1,387 | | | 1,044 | |
Income Tax Expense | 126 | | | 51 | | | 88 | |
Net Income | $ | 1,600 | | | $ | 1,336 | | | $ | 956 | |
Other Comprehensive Income, net of tax | | | | | |
| | | | | |
| | | | | |
Net unrealized gain on cash flow hedges | — | | | 1 | | | — | |
Other Comprehensive Income, net of tax | — | | | 1 | | | — | |
Comprehensive Income | $ | 1,600 | | | $ | 1,337 | | | $ | 956 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
ASSETS | | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 44 | | | $ | 7 | |
Receivables (net of allowance for doubtful accounts of $3 at 2022 and $1 at 2021) | | 338 | | | 300 | |
Receivables of VIEs (net of allowance for doubtful accounts of $65 at 2022 and $41 at 2021) | | 928 | | | 844 | |
Receivables from affiliated companies | | 390 | | | 190 | |
| | | | |
Inventory | | 1,164 | | | 1,026 | |
Regulatory assets (includes $12 at 2022 and 2021 related to VIEs) | | 1,095 | | | 544 | |
Other (includes $8 at 2022 related to VIEs) | | 216 | | | 95 | |
Total current assets | | 4,175 | | | 3,006 | |
Property, Plant and Equipment | | | | |
Cost | | 54,650 | | | 51,874 | |
Accumulated depreciation and amortization | | (18,669) | | | (17,854) | |
Facilities to be retired, net | | — | | | 102 | |
Net property, plant and equipment | | 35,981 | | | 34,122 | |
Other Noncurrent Assets | | | | |
| | | | |
Regulatory assets (includes $208 at 2022 and $220 at 2021 related to VIEs) | | 4,293 | | | 2,935 | |
Nuclear decommissioning trust funds | | 4,783 | | | 5,759 | |
Operating lease right-of-use assets, net | | 78 | | | 92 | |
Other | | 1,036 | | | 1,248 | |
Total other noncurrent assets | | 10,190 | | | 10,034 | |
Total Assets | | $ | 50,346 | | | $ | 47,162 | |
LIABILITIES AND EQUITY | | | | |
Current Liabilities | | | | |
Accounts payable | | $ | 1,472 | | | $ | 988 | |
Accounts payable to affiliated companies | | 209 | | | 266 | |
Notes payable to affiliated companies | | 1,233 | | | 226 | |
Taxes accrued | | 228 | | | 274 | |
Interest accrued | | 120 | | | 125 | |
Current maturities of long-term debt (includes $10 at 2022 and $5 at 2021 related to VIEs) | | 1,018 | | | 362 | |
Asset retirement obligations | | 261 | | | 249 | |
Regulatory liabilities | | 530 | | | 487 | |
Other | | 580 | | | 546 | |
Total current liabilities | | 5,651 | | | 3,523 | |
Long-Term Debt (includes $689 at 2022 and $703 at 2021 related to VIEs) | | 12,948 | | | 12,595 | |
Long-Term Debt Payable to Affiliated Companies | | 300 | | | 318 | |
Other Noncurrent Liabilities | | | | |
Deferred income taxes | | 4,153 | | | 3,634 | |
Asset retirement obligations | | 5,121 | | | 5,052 | |
Regulatory liabilities | | 5,783 | | | 7,198 | |
Operating lease liabilities | | 83 | | | 78 | |
Accrued pension and other post-retirement benefit costs | | 38 | | | 50 | |
Investment tax credits | | 300 | | | 287 | |
Other | | 527 | | | 536 | |
Total other noncurrent liabilities | | 16,005 | | | 16,835 | |
Commitments and Contingencies | | | | |
Equity | | | | |
Member's equity | | 15,448 | | | 13,897 | |
Accumulated other comprehensive loss | | (6) | | | (6) | |
Total equity | | 15,442 | | | 13,891 | |
Total Liabilities and Equity | | $ | 50,346 | | | $ | 47,162 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,600 | | | $ | 1,336 | | | $ | 956 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,787 | | | 1,743 | | | 1,731 | |
Equity component of AFUDC | (98) | | | (65) | | | (62) | |
| | | | | |
Impairment of assets and other charges | 26 | | | 227 | | | 476 | |
Deferred income taxes | 210 | | | (213) | | | (260) | |
Contributions to qualified pension plans | (15) | | | — | | | — | |
Payments for asset retirement obligations | (200) | | | (182) | | | (162) | |
Provision for rate refunds | (74) | | | (46) | | | (5) | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — | | | — | | | (4) | |
Receivables | (102) | | | (99) | | | 52 | |
Receivables from affiliated companies | (200) | | | (66) | | | (10) | |
Inventory | (138) | | | (16) | | | (14) | |
Other current assets(a) | (592) | | | (309) | | | 209 | |
Increase (decrease) in | | | | | |
Accounts payable | 377 | | | 5 | | | 55 | |
Accounts payable to affiliated companies | (75) | | | 85 | | | (11) | |
Taxes accrued | (46) | | | 206 | | | 30 | |
Other current liabilities | (91) | | | (39) | | | (56) | |
Other assets(a) | (764) | | | 21 | | | (102) | |
Other liabilities | (36) | | | 116 | | | (47) | |
Net cash provided by operating activities | 1,569 | | | 2,704 | | | 2,776 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (3,304) | | | (2,693) | | | (2,669) | |
| | | | | |
Purchases of debt and equity securities | (2,633) | | | (3,425) | | | (1,602) | |
Proceeds from sales and maturities of debt and equity securities | 2,633 | | | 3,425 | | | 1,602 | |
| | | | | |
| | | | | |
Other | (181) | | | (177) | | | (164) | |
Net cash used in investing activities | (3,485) | | | (2,870) | | | (2,833) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,441 | | | 1,651 | | | 998 | |
Payments for the redemption of long-term debt | (436) | | | (617) | | | (813) | |
Notes payable to affiliated companies | 1,007 | | | (280) | | | 477 | |
Distributions to parent | (50) | | | (600) | | | (600) | |
Other | (1) | | | (1) | | | (2) | |
Net cash provided by financing activities | 1,961 | | | 153 | | | 60 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 45 | | | (13) | | | 3 | |
Cash, cash equivalents and restricted cash at beginning of period | 8 | | | 21 | | | 18 | |
Cash, cash equivalents and restricted cash at end of period | $ | 53 | | | $ | 8 | | | $ | 21 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 546 | | | $ | 508 | | | $ | 481 | |
Cash (received from) paid for income taxes | (60) | | | 233 | | | 321 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 475 | | | 359 | | | 365 | |
(a) Includes approximately $1.3 billion for impacts of under-collected deferred fuel regulatory assets for the year ended December 31, 2022.
See Notes to Consolidated Financial Statements
DUKE ENERGY CAROLINAS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | |
| | | Accumulated Other | | |
| | | Comprehensive | | |
| | | Income (Loss) | | | | |
| | | Net Gains | | | | |
| | | (Losses) on | | | | |
| Member's | | Cash Flow | | | | Total |
(in millions) | Equity | | Hedges | | | | Equity |
Balance at December 31, 2019 | $ | 12,818 | | | $ | (7) | | | | | $ | 12,811 | |
Net income | 956 | | | — | | | | | 956 | |
| | | | | | | |
Distributions to parent | (600) | | | — | | | | | (600) | |
Other(a) | (13) | | | — | | | | | (13) | |
Balance at December 31, 2020 | $ | 13,161 | | | $ | (7) | | | | | $ | 13,154 | |
Net income | 1,336 | | | — | | | | | 1,336 | |
Other comprehensive income | — | | | 1 | | | | | 1 | |
Distributions to parent | (600) | | | — | | | | | (600) | |
| | | | | | | |
Balance at December 31, 2021 | $ | 13,897 | | | $ | (6) | | | | | $ | 13,891 | |
Net income | 1,600 | | | — | | | | | 1,600 | |
| | | | | | | |
Distributions to parent | (50) | | | — | | | | | (50) | |
Other | 1 | | | — | | | | | 1 | |
Balance at December 31, 2022 | $ | 15,448 | | | $ | (6) | | | | | $ | 15,442 | |
(a) Amounts primarily represent impacts due to implementation of a new accounting standard related to Credit Losses. See Note 1 for additional discussion.
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Progress Energy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Progress Energy, Inc. and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1, 4 and 10 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, South Carolina Public Service Commission and Florida Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As discussed in Note 4, regulatory proceedings in recent years have focused on the recoverability of storm costs, fuel costs, and asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders requires significant management judgment. As of December 31, 2022, the Company has approximately $9 billion recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 1930.
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | $ | 13,125 | | | $ | 11,057 | | | $ | 10,627 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 5,078 | | | 3,584 | | | 3,479 | |
Operation, maintenance and other | 2,458 | | | 2,529 | | | 2,479 | |
Depreciation and amortization | 2,142 | | | 1,929 | | | 1,818 | |
Property and other taxes | 607 | | | 542 | | | 545 | |
Impairment of assets and other charges | 12 | | | 82 | | | 495 | |
Total operating expenses | 10,297 | | | 8,666 | | | 8,816 | |
Gains on Sales of Other Assets and Other, net | 11 | | | 14 | | | 9 | |
Operating Income | 2,839 | | | 2,405 | | | 1,820 | |
Other Income and Expenses, net | 181 | | | 215 | | | 129 | |
Interest Expense | 844 | | | 794 | | | 790 | |
Income Before Income Taxes | 2,176 | | | 1,826 | | | 1,159 | |
Income Tax Expense | 348 | | | 227 | | | 113 | |
| | | | | |
| | | | | |
Net Income | 1,828 | | | 1,599 | | | 1,046 | |
Less: Net Income Attributable to Noncontrolling Interests | — | | | 1 | | | 1 | |
Net Income Attributable to Parent | $ | 1,828 | | | $ | 1,598 | | | $ | 1,045 | |
| | | | | |
Net Income | $ | 1,828 | | | $ | 1,599 | | | $ | 1,046 | |
Other Comprehensive Income, net of tax | | | | | |
Pension and OPEB adjustments | 5 | | | 1 | | | (1) | |
Net unrealized gain on cash flow hedges | 1 | | | 3 | | | 5 | |
| | | | | |
| | | | | |
Unrealized (losses) gains on available-for-sale securities | (6) | | | — | | | (1) | |
| | | | | |
Other Comprehensive Income, net of tax | — | | | 4 | | | 3 | |
Comprehensive Income | 1,828 | | | 1,603 | | | 1,049 | |
Less: Comprehensive Income Attributable to Noncontrolling Interests | — | | | 1 | | | 1 | |
Comprehensive Income Attributable to Parent | $ | 1,828 | | | $ | 1,602 | | | $ | 1,048 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 108 | | | $ | 70 | |
Receivables (net of allowance for doubtful accounts of $13 at 2022 and $11 at 2021) | 318 | | | 247 | |
Receivables of VIEs (net of allowance for doubtful accounts of $68 at 2022 and $25 at 2021) | 1,289 | | | 1,006 | |
Receivables from affiliated companies | 22 | | | 121 | |
| | | |
Inventory | 1,579 | | | 1,398 | |
Regulatory assets (includes $94 at 2022 and $93 at 2021 related to VIEs) | 1,833 | | | 1,030 | |
Other (includes $88 at 2022 and $39 at 2021 related to VIEs) | 342 | | | 125 | |
Total current assets | 5,491 | | | 3,997 | |
Property, Plant and Equipment | | | |
Cost | 64,822 | | | 60,894 | |
Accumulated depreciation and amortization | (20,584) | | | (19,214) | |
Facilities to be retired, net | — | | | 26 | |
Net property, plant and equipment | 44,238 | | | 41,706 | |
Other Noncurrent Assets | | | |
Goodwill | 3,655 | | | 3,655 | |
Regulatory assets (includes $1,507 at 2022 and $1,603 at 2021 related to VIEs) | 7,146 | | | 5,909 | |
Nuclear decommissioning trust funds | 3,855 | | | 4,642 | |
Operating lease right-of-use assets, net | 628 | | | 691 | |
Other | 1,066 | | | 1,242 | |
Total other noncurrent assets | 16,350 | | | 16,139 | |
Total Assets | $ | 66,079 | | | $ | 61,842 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 1,481 | | | $ | 1,099 | |
Accounts payable to affiliated companies | 712 | | | 506 | |
Notes payable to affiliated companies | 843 | | | 2,809 | |
Taxes accrued | 135 | | | 128 | |
Interest accrued | 206 | | | 192 | |
Current maturities of long-term debt (includes $340 at 2022 and $71 at 2021 related to VIEs) | 697 | | | 1,082 | |
Asset retirement obligations | 289 | | | 275 | |
Regulatory liabilities | 576 | | | 478 | |
Other | 782 | | | 868 | |
Total current liabilities | 5,721 | | | 7,437 | |
Long-Term Debt (includes $2,003 at 2022 and $2,293 at 2021 related to VIEs) | 21,592 | | | 19,591 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 5,147 | | | 4,564 | |
Asset retirement obligations | 5,892 | | | 5,837 | |
Regulatory liabilities | 4,753 | | | 5,566 | |
Operating lease liabilities | 546 | | | 606 | |
Accrued pension and other post-retirement benefit costs | 292 | | | 417 | |
Investment tax credits | 358 | | | 364 | |
Other | 222 | | | 162 | |
Total other noncurrent liabilities | 17,210 | | | 17,516 | |
Commitments and Contingencies | | | |
Equity | | | |
Common stock, $0.01 par value, 100 shares authorized and outstanding at 2022 and 2021 | — | | | — | |
Additional paid-in capital | 11,832 | | | 9,149 | |
Retained earnings | 9,585 | | | 8,007 | |
Accumulated other comprehensive loss | (11) | | | (11) | |
Total Progress Energy, Inc. stockholder's equity | 21,406 | | | 17,145 | |
Noncontrolling interests | — | | | 3 | |
Total equity | 21,406 | | | 17,148 | |
Total Liabilities and Equity | $ | 66,079 | | | $ | 61,842 | |
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,828 | | | $ | 1,599 | | | $ | 1,046 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion (including amortization of nuclear fuel) | 2,405 | | | 2,302 | | | 2,327 | |
Equity component of AFUDC | (68) | | | (51) | | | (42) | |
| | | | | |
Impairment of assets and other charges | 12 | | | 82 | | | 495 | |
Deferred income taxes | 364 | | | 247 | | | (197) | |
Contributions to qualified pension plans | (13) | | | — | | | — | |
Payments for asset retirement obligations | (291) | | | (288) | | | (384) | |
Provision for rate refunds | (58) | | | (36) | | | 2 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — | | | 51 | | | (9) | |
Receivables | (322) | | | (97) | | | (69) | |
Receivables from affiliated companies | 117 | | | 18 | | | (81) | |
Inventory | (183) | | | (26) | | | 49 | |
Other current assets(a) | (937) | | | (551) | | | 223 | |
Increase (decrease) in | | | | | |
Accounts payable | 222 | | | 59 | | | (62) | |
Accounts payable to affiliated companies | 206 | | | 217 | | | (21) | |
Taxes accrued | 8 | | | 13 | | | 75 | |
Other current liabilities | 96 | | | (32) | | | 139 | |
Other assets(a) | (1,116) | | | (110) | | | (137) | |
Other liabilities | 573 | | | (99) | | | (177) | |
Net cash provided by operating activities | 2,843 | | | 3,298 | | | 3,177 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (4,317) | | | (3,668) | | | (3,488) | |
| | | | | |
Purchases of debt and equity securities | (1,341) | | | (2,233) | | | (5,998) | |
Proceeds from sales and maturities of debt and equity securities | 1,417 | | | 2,322 | | | 6,010 | |
| | | | | |
Notes receivable from affiliated companies | — | | | — | | | 164 | |
Other | (137) | | | (156) | | | (160) | |
Net cash used in investing activities | (4,378) | | | (3,735) | | | (3,472) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 2,775 | | | 3,095 | | | 1,791 | |
Payments for the redemption of long-term debt | (1,173) | | | (1,883) | | | (2,157) | |
Notes payable to affiliated companies | 465 | | | (160) | | | 1,148 | |
Dividends to parent | (425) | | | (700) | | | (400) | |
Other | (36) | | | (2) | | | (13) | |
Net cash provided by financing activities | 1,606 | | | 350 | | | 369 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 71 | | | (87) | | | 74 | |
Cash, cash equivalents and restricted cash at beginning of period | 113 | | | 200 | | | 126 | |
Cash, cash equivalents and restricted cash at end of period | $ | 184 | | | $ | 113 | | | $ | 200 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 854 | | | $ | 813 | | | $ | 819 | |
Cash paid for income taxes | 79 | | | 14 | | | 149 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 663 | | | 501 | | | 363 | |
(a) Includes approximately $1.3 billion for impacts of under-collected deferred fuel regulatory assets for the year ended December 31, 2022.
See Notes to Consolidated Financial Statements
PROGRESS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | | | |
| | | | | | | Net Gains | | Net Unrealized | | | | Total Progress | | | | |
| | | Additional | | | | (Losses) on | | Gains (Losses) | | Pension and | | Energy, Inc. | | | | |
| | | Paid-in | | Retained | | Cash Flow | | on Available-for- | | OPEB | | Stockholder's | | Noncontrolling | | Total |
(in millions) | | | Capital | | Earnings | | Hedges | | Sale Securities | | Adjustments | | Equity | | Interests | | Equity |
Balance at December 31, 2019 | | | $ | 9,143 | | | $ | 6,465 | | | $ | (10) | | | $ | (1) | | | $ | (7) | | | $ | 15,590 | | | $ | 3 | | | $ | 15,593 | |
Net income | | | — | | | 1,045 | | | — | | | — | | | — | | | 1,045 | | | 1 | | | 1,046 | |
Other comprehensive income (loss) | | | — | | | — | | | 5 | | | (1) | | | (1) | | | 3 | | | — | | | 3 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Dividends to parent | | | — | | | (400) | | | — | | | — | | | — | | | (400) | | | — | | | (400) | |
| | | | | | | | | | | | | | | | | |
Other | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance at December 31, 2020 | | | $ | 9,143 | | | $ | 7,109 | | | $ | (5) | | | $ | (2) | | | $ | (8) | | | $ | 16,237 | | | $ | 4 | | | $ | 16,241 | |
Net income | | | — | | | 1,598 | | | — | | | — | | | — | | | 1,598 | | | 1 | | | 1,599 | |
Other comprehensive income | | | — | | | — | | | 3 | | | — | | | 1 | | | 4 | | | — | | | 4 | |
| | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Dividends to parent | | | — | | | (700) | | | — | | | — | | | — | | | (700) | | | — | | | (700) | |
| | | | | | | | | | | | | | | | | |
Other | | | 6 | | | — | | | — | | | — | | | — | | | 6 | | | (1) | | | 5 | |
Balance at December 31, 2021 | | | $ | 9,149 | | | $ | 8,007 | | | $ | (2) | | | $ | (2) | | | $ | (7) | | | $ | 17,145 | | | $ | 3 | | | $ | 17,148 | |
Net income | | | — | | | 1,828 | | | — | | | — | | | — | | | 1,828 | | | — | | | 1,828 | |
Other comprehensive income (loss) | | | — | | | — | | | 1 | | | (6) | | | 5 | | | — | | | — | | | — | |
Distributions to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | |
Dividends to parent | | | (175) | | | (250) | | | — | | | — | | | — | | | (425) | | | — | | | (425) | |
Equitization of certain notes payable to affiliates | | | 2,907 | | | — | | | — | | | — | | | — | | | 2,907 | | | — | | | 2,907 | |
Purchase of a noncontrolling interest | | | (51) | | | — | | | — | | | — | | | — | | | (51) | | | 31 | | | (20) | |
Other | | | 2 | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
Balance at December 31, 2022 | | | $ | 11,832 | | | $ | 9,585 | | | $ | (1) | | | $ | (8) | | | $ | (2) | | | $ | 21,406 | | | $ | — | | | $ | 21,406 | |
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Progress, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Progress, LLC and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1, 4 and 10 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission and by the South Carolina Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As discussed in Note 4, regulatory proceedings in recent years have focused on the recoverability of storm costs, fuel costs, and asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders requires significant management judgment. As of December 31, 2022, the Company has approximately $5.4 billion recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 1930.
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | $ | 6,753 | | | $ | 5,780 | | | $ | 5,422 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 2,492 | | | 1,778 | | | 1,743 | |
Operation, maintenance and other | 1,475 | | | 1,467 | | | 1,332 | |
Depreciation and amortization | 1,187 | | | 1,097 | | | 1,116 | |
Property and other taxes | 190 | | | 159 | | | 167 | |
Impairment of assets and other charges | 7 | | | 63 | | | 499 | |
Total operating expenses | 5,351 | | | 4,564 | | | 4,857 | |
Gains on Sales of Other Assets and Other, net | 4 | | | 13 | | | 8 | |
Operating Income | 1,406 | | | 1,229 | | | 573 | |
Other Income and Expenses, net | 114 | | | 143 | | | 75 | |
Interest Expense | 354 | | | 306 | | | 269 | |
Income Before Income Taxes | 1,166 | | | 1,066 | | | 379 | |
Income Tax Expense (Benefit) | 158 | | | 75 | | | (36) | |
Net Income and Comprehensive Income | $ | 1,008 | | | $ | 991 | | | $ | 415 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 49 | | | $ | 35 | |
Receivables (net of allowance for doubtful accounts of $4 at 2022 and 2021) | 167 | | | 127 | |
Receivables of VIEs (net of allowance for doubtful accounts of $40 at 2022 and $17 at 2021) | 793 | | | 574 | |
Receivables from affiliated companies | 25 | | | 65 | |
| | | |
Inventory | 1,006 | | | 921 | |
Regulatory assets (includes $39 at 2022 and 2021 related to VIEs) | 690 | | | 533 | |
Other (includes $42 at 2022 related to VIEs) | 174 | | | 83 | |
Total current assets | 2,904 | | | 2,338 | |
Property, Plant and Equipment | | | |
Cost | 38,875 | | | 37,018 | |
Accumulated depreciation and amortization | (14,201) | | | (13,387) | |
Facilities to be retired, net | — | | | 26 | |
Net property, plant and equipment | 24,674 | | | 23,657 | |
Other Noncurrent Assets | | | |
Regulatory assets (includes $681 at 2022 and $720 at 2021 related to VIEs) | 4,724 | | | 4,118 | |
Nuclear decommissioning trust funds | 3,430 | | | 4,089 | |
Operating lease right-of-use assets, net | 370 | | | 389 | |
Other | 650 | | | 792 | |
Total other noncurrent assets | 9,174 | | | 9,388 | |
Total Assets | $ | 36,752 | | | $ | 35,383 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 601 | | | $ | 476 | |
Accounts payable to affiliated companies | 508 | | | 310 | |
Notes payable to affiliated companies | 238 | | | 172 | |
Taxes accrued | 77 | | | 163 | |
Interest accrued | 101 | | | 96 | |
Current maturities of long-term debt (includes $34 at 2022 and $15 at 2021 related to VIEs) | 369 | | | 556 | |
Asset retirement obligations | 288 | | | 274 | |
Regulatory liabilities | 332 | | | 381 | |
Other | 384 | | | 448 | |
Total current liabilities | 2,898 | | | 2,876 | |
Long-Term Debt (includes $1,114 at 2022 and $1,097 at 2021 related to VIEs) | 10,568 | | | 9,543 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,477 | | | 2,208 | |
Asset retirement obligations | 5,535 | | | 5,401 | |
Regulatory liabilities | 4,120 | | | 4,868 | |
Operating lease liabilities | 335 | | | 350 | |
Accrued pension and other post-retirement benefit costs | 160 | | | 221 | |
Investment tax credits | 124 | | | 128 | |
Other | 76 | | | 87 | |
Total other noncurrent liabilities | 12,827 | | | 13,263 | |
Commitments and Contingencies | | | |
Equity | | | |
Member's Equity | 10,309 | | | 9,551 | |
| | | |
| | | |
| | | |
Total Liabilities and Equity | $ | 36,752 | | | $ | 35,383 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 1,008 | | | $ | 991 | | | $ | 415 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization (including amortization of nuclear fuel) | 1,371 | | | 1,286 | | | 1,299 | |
Equity component of AFUDC | (52) | | | (34) | | | (29) | |
| | | | | |
Impairment of assets and other charges | 7 | | | 63 | | | 499 | |
Deferred income taxes | 121 | | | (46) | | | (234) | |
Contributions to qualified pension plans | (8) | | | — | | | — | |
Payments for asset retirement obligations | (193) | | | (187) | | | (304) | |
Provisions for rate refunds | (58) | | | (36) | | | 2 | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — | | | 48 | | | 1 | |
Receivables | (228) | | | (52) | | | (4) | |
Receivables from affiliated companies | 58 | | | (33) | | | 2 | |
Inventory | (85) | | | (11) | | | 23 | |
Other current assets(a) | (207) | | | (147) | | | 98 | |
Increase (decrease) in | | | | | |
Accounts payable | 20 | | | 12 | | | (127) | |
Accounts payable to affiliated companies | 198 | | | 95 | | | 12 | |
Taxes accrued | (86) | | | 83 | | | 68 | |
Other current liabilities | 13 | | | (23) | | | 157 | |
Other assets(a) | (416) | | | (37) | | | (215) | |
Other liabilities | 38 | | | (16) | | | 3 | |
Net cash provided by operating activities | 1,501 | | | 1,956 | | | 1,666 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (2,070) | | | (1,746) | | | (1,581) | |
| | | | | |
Purchases of debt and equity securities | (1,148) | | | (1,931) | | | (1,555) | |
Proceeds from sales and maturities of debt and equity securities | 1,138 | | | 1,914 | | | 1,516 | |
| | | | | |
| | | | | |
Other | (29) | | | (20) | | | (57) | |
Net cash used in investing activities | (2,109) | | | (1,783) | | | (1,677) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,477 | | | 1,959 | | | 1,296 | |
Payments for the redemption of long-term debt | (645) | | | (1,308) | | | (1,085) | |
Notes payable to affiliated companies | 67 | | | (123) | | | 229 | |
Distributions to parent | (250) | | | (700) | | | (400) | |
Other | (1) | | | (1) | | | (12) | |
Net cash provided by (used in) financing activities | 648 | | | (173) | | | 28 | |
Net increase in cash, cash equivalents and restricted cash | 40 | | | — | | | 17 | |
Cash, cash equivalents and restricted cash at beginning of period | 39 | | | 39 | | | 22 | |
Cash, cash equivalents and restricted cash at end of period | $ | 79 | | | $ | 39 | | | $ | 39 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 386 | | | $ | 335 | | | $ | 301 | |
Cash paid for income taxes | 157 | | | 83 | | | 123 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 269 | | | 163 | | | 149 | |
(a) Includes approximately $402 million for impacts of under-collected deferred fuel regulatory assets for the year ended December 31, 2022.
See Notes to Consolidated Financial Statements
DUKE ENERGY PROGRESS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | | | Member's | | | | |
(in millions) | | | | | Equity | | | | |
Balance at December 31, 2019 | | | | | $ | 9,246 | | | | | |
Net income | | | | | 415 | | | | | |
Distribution to parent | | | | | (400) | | | | | |
| | | | | | | | | |
Other | | | | | (1) | | | | | |
Balance at December 31, 2020 | | | | | $ | 9,260 | | | | | |
Net income | | | | | 991 | | | | | |
Distribution to parent | | | | | (700) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2021 | | | | | $ | 9,551 | | | | | |
Net income | | | | | 1,008 | | | | | |
Distribution to parent | | | | | (250) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2022 | | | | | $ | 10,309 | | | | | |
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Florida, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Florida, LLC and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1 and 4 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Florida Public Service Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As discussed in Note 4, regulatory proceedings in recent years have focused on the recoverability of storm and fuel costs. As a result, assessing the potential outcomes of future regulatory orders in Florida requires significant management judgment. As of December 31, 2022, the Company has approximately $3.6 billion recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 2001.
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | $ | 6,353 | | | $ | 5,259 | | | $ | 5,188 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 2,586 | | | 1,806 | | | 1,737 | |
Operation, maintenance and other | 967 | | | 1,048 | | | 1,131 | |
Depreciation and amortization | 955 | | | 831 | | | 702 | |
Property and other taxes | 421 | | | 383 | | | 381 | |
Impairment of assets and other charges | 4 | | | 19 | | | (4) | |
Total operating expenses | 4,933 | | | 4,087 | | | 3,947 | |
Gains on Sales of Other Assets and Other, net | 2 | | | 1 | | | 1 | |
Operating Income | 1,422 | | | 1,173 | | | 1,242 | |
Other Income and Expenses, net | 74 | | | 71 | | | 53 | |
Interest Expense | 362 | | | 319 | | | 326 | |
Income Before Income Taxes | 1,134 | | | 925 | | | 969 | |
Income Tax Expense | 225 | | | 187 | | | 198 | |
Net Income | $ | 909 | | | $ | 738 | | | $ | 771 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other Comprehensive Loss, net of tax | | | | | |
Unrealized losses on available-for-sale securities | (5) | | | (1) | | | (1) | |
| | | | | |
| | | | | |
Other Comprehensive Loss, net of tax | (5) | | | (1) | | | (1) | |
Comprehensive Income | $ | 904 | | | $ | 737 | | | $ | 770 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 45 | | | $ | 23 | |
Receivables (net of allowance for doubtful accounts of $8 at 2022 and 2021) | 148 | | | 117 | |
Receivables of VIEs (net of allowance for doubtful accounts of $28 at 2022 and $8 at 2021) | 496 | | | 432 | |
Receivables from affiliated companies | 2 | | | 16 | |
| | | |
Inventory | 573 | | | 477 | |
Regulatory assets (includes $55 at 2022 and $54 at 2021 related to VIEs) | 1,143 | | | 497 | |
Other (includes $46 at 2022 and $39 at 2021 related to VIEs) | 108 | | | 80 | |
Total current assets | 2,515 | | | 1,642 | |
Property, Plant and Equipment | | | |
Cost | 25,940 | | | 23,865 | |
Accumulated depreciation and amortization | (6,377) | | | (5,819) | |
Net property, plant and equipment | 19,563 | | | 18,046 | |
Other Noncurrent Assets | | | |
| | | |
Regulatory assets (includes $826 at 2022 and $883 at 2021 related to VIEs) | 2,422 | | | 1,791 | |
Nuclear decommissioning trust funds | 424 | | | 553 | |
Operating lease right-of-use assets, net | 258 | | | 302 | |
Other | 372 | | | 399 | |
Total other noncurrent assets | 3,476 | | | 3,045 | |
Total Assets | $ | 25,554 | | | $ | 22,733 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 880 | | | $ | 623 | |
Accounts payable to affiliated companies | 177 | | | 209 | |
Notes payable to affiliated companies | 605 | | | 199 | |
Taxes accrued | 53 | | | 51 | |
Interest accrued | 80 | | | 68 | |
Current maturities of long-term debt (includes $306 at 2022 and $56 at 2021 related to VIEs) | 328 | | | 76 | |
Asset retirement obligations | 1 | | | 1 | |
Regulatory liabilities | 244 | | | 98 | |
Other | 363 | | | 408 | |
Total current liabilities | 2,731 | | | 1,733 | |
Long-Term Debt (includes $890 at 2022 and $1,196 at 2021 related to VIEs) | 9,381 | | | 8,406 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 2,789 | | | 2,434 | |
| | | |
Asset retirement obligations | 357 | | | 436 | |
Regulatory liabilities | 633 | | | 698 | |
Operating lease liabilities | 211 | | | 256 | |
Accrued pension and other post-retirement benefit costs | 111 | | | 166 | |
| | | |
Investment tax credits | 234 | | | 236 | |
Other | 84 | | | 73 | |
Total other noncurrent liabilities | 4,419 | | | 4,299 | |
Commitments and Contingencies | | | |
| | | |
Equity | | | |
Member's equity | 9,031 | | | 8,298 | |
| | | |
| | | |
Accumulated other comprehensive loss | (8) | | | (3) | |
Total equity | 9,023 | | | 8,295 | |
Total Liabilities and Equity | $ | 25,554 | | | $ | 22,733 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 909 | | | $ | 738 | | | $ | 771 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 1,032 | | | 1,011 | | | 1,019 | |
Equity component of AFUDC | (16) | | | (16) | | | (12) | |
| | | | | |
Impairment of assets and other charges | 4 | | | 19 | | | (4) | |
Deferred income taxes | 285 | | | 279 | | | 27 | |
Contributions to qualified pension plans | (5) | | | — | | | — | |
Payments for asset retirement obligations | (98) | | | (101) | | | (80) | |
| | | | | |
(Increase) decrease in | | | | | |
Net realized and unrealized mark-to-market and hedging transactions | — | | | — | | | (14) | |
Receivables | (93) | | | (45) | | | (64) | |
Receivables from affiliated companies | 14 | | | (13) | | | (3) | |
Inventory | (98) | | | (15) | | | 26 | |
Other current assets(a) | (640) | | | (451) | | | 40 | |
Increase (decrease) in | | | | | |
Accounts payable | 202 | | | 47 | | | 66 | |
Accounts payable to affiliated companies | (32) | | | 124 | | | (46) | |
Taxes accrued | 2 | | | (30) | | | 39 | |
Other current liabilities | 62 | | | (7) | | | (7) | |
Other assets(a) | (704) | | | (69) | | | 84 | |
Other liabilities | 18 | | | (69) | | | (181) | |
Net cash provided by operating activities | 842 | | | 1,402 | | | 1,661 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (2,247) | | | (1,923) | | | (1,907) | |
| | | | | |
Purchases of debt and equity securities | (193) | | | (302) | | | (4,443) | |
Proceeds from sales and maturities of debt and equity securities | 279 | | | 408 | | | 4,495 | |
| | | | | |
Notes receivable from affiliated companies | — | | | — | | | 173 | |
Other | (108) | | | (136) | | | (103) | |
Net cash used in investing activities | (2,269) | | | (1,953) | | | (1,785) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 1,298 | | | 1,135 | | | 495 | |
Payments for the redemption of long-term debt | (77) | | | (575) | | | (572) | |
Notes payable to affiliated companies | 406 | | | 3 | | | 196 | |
Distributions to parent | (175) | | | — | | | — | |
Other | (1) | | | — | | | (1) | |
Net cash provided by financing activities | 1,451 | | | 563 | | | 118 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 24 | | | 12 | | | (6) | |
Cash, cash equivalents and restricted cash at beginning of period | 62 | | | 50 | | | 56 | |
Cash, cash equivalents and restricted cash at end of period | $ | 86 | | | $ | 62 | | | $ | 50 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 339 | | | $ | 308 | | | $ | 321 | |
Cash (received from) paid for income taxes | (83) | | | (15) | | | 138 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 394 | | | 337 | | | 214 | |
| | | | | |
(a) Includes approximately $942 million for impacts of under-collected deferred fuel regulatory assets for the year ended December 31, 2022.
See Notes to Consolidated Financial Statements
DUKE ENERGY FLORIDA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | |
| | | | | | | Other | | |
| | | | | | | Comprehensive | | |
| | | | | | | Income (Loss) | | |
| | | | | | | Net Unrealized | | | | |
| | | | | | | Gains (Losses) on | | | | |
| | | | | Member's | | Available-for- | | | | Total |
(in millions) | | | | | Equity | | Sale Securities | | | | Equity |
Balance at December 31, 2019 | | | | | $ | 6,789 | | | $ | (1) | | | | | $ | 6,788 | |
Net income | | | | | 771 | | | — | | | | | 771 | |
Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2020 | | | | | $ | 7,560 | | | $ | (2) | | | | | $ | 7,558 | |
Net income | | | | | 738 | | | — | | | | | 738 | |
Other comprehensive loss | | | | | — | | | (1) | | | | | (1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at December 31, 2021 | | | | | $ | 8,298 | | | $ | (3) | | | | | $ | 8,295 | |
Net income | | | | | 909 | | | — | | | | | 909 | |
Other comprehensive loss | | | | | — | | | (5) | | | | | (5) | |
| | | | | | | | | | | |
Distribution to parent | | | | | (175) | | | — | | | | | (175) | |
Other | | | | | (1) | | | — | | | | | (1) | |
| | | | | | | | | | | |
Balance at December 31, 2022 | | | | | $ | 9,031 | | | $ | (8) | | | | | $ | 9,023 | |
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Ohio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Ohio, Inc. and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1 and 4 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Public Utilities Commission of Ohio and by the Kentucky Public Service Commission (collectively the “Commissions”), which have jurisdiction with respect to the electric and natural gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2022, the Company has approximately $684 million recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commissions, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 2002.
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | | | | | |
Regulated electric | $ | 1,798 | | | $ | 1,493 | | | $ | 1,405 | |
Regulated natural gas | 716 | | | 544 | | | 453 | |
| | | | | |
Total operating revenues | 2,514 | | | 2,037 | | | 1,858 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 657 | | | 409 | | | 339 | |
| | | | | |
Cost of natural gas | 261 | | | 136 | | | 73 | |
Operation, maintenance and other | 523 | | | 479 | | | 463 | |
Depreciation and amortization | 324 | | | 307 | | | 278 | |
Property and other taxes | 369 | | | 355 | | | 324 | |
Impairment of assets and other charges | (10) | | | 25 | | | — | |
Total operating expenses | 2,124 | | | 1,711 | | | 1,477 | |
Gains on Sales of Other Assets and Other, net | 1 | | | 1 | | | — | |
Operating Income | 391 | | | 327 | | | 381 | |
Other Income and Expenses, net | 19 | | | 18 | | | 16 | |
Interest Expense | 129 | | | 111 | | | 102 | |
Income Before Income Taxes | 281 | | | 234 | | | 295 | |
Income Tax (Benefit) Expense | (21) | | | 30 | | | 43 | |
| | | | | |
| | | | | |
Net Income and Comprehensive Income | $ | 302 | | | $ | 204 | | | $ | 252 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 16 | | | $ | 13 | |
Receivables (net of allowance for doubtful accounts of $6 at 2022 and $4 at 2021) | 73 | | | 96 | |
Receivables from affiliated companies | 247 | | | 122 | |
Notes receivable from affiliated companies | — | | | 15 | |
Inventory | 144 | | | 116 | |
| | | |
Regulatory assets | 103 | | | 72 | |
Other | 86 | | | 57 | |
Total current assets | 669 | | | 491 | |
Property, Plant and Equipment | | | |
Cost | 12,497 | | | 11,725 | |
Accumulated depreciation and amortization | (3,250) | | | (3,106) | |
Facilities to be retired, net | — | | | 6 | |
Net property, plant and equipment | 9,247 | | | 8,625 | |
Other Noncurrent Assets | | | |
Goodwill | 920 | | | 920 | |
Regulatory assets | 581 | | | 635 | |
Operating lease right-of-use assets, net | 18 | | | 19 | |
| | | |
| | | |
| | | |
Other | 71 | | | 84 | |
Total other noncurrent assets | 1,590 | | | 1,658 | |
Total Assets | $ | 11,506 | | | $ | 10,774 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 380 | | | $ | 348 | |
Accounts payable to affiliated companies | 72 | | | 64 | |
Notes payable to affiliated companies | 497 | | | 103 | |
Taxes accrued | 317 | | | 275 | |
Interest accrued | 29 | | | 30 | |
Current maturities of long-term debt | 475 | | | — | |
| | | |
Asset retirement obligations | 17 | | | 13 | |
Regulatory liabilities | 99 | | | 62 | |
Other | 74 | | | 82 | |
Total current liabilities | 1,960 | | | 977 | |
Long-Term Debt | 2,745 | | | 3,168 | |
Long-Term Debt Payable to Affiliated Companies | 25 | | | 25 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,136 | | | 1,050 | |
Asset retirement obligations | 137 | | | 123 | |
Regulatory liabilities | 534 | | | 739 | |
Operating lease liabilities | 17 | | | 18 | |
Accrued pension and other post-retirement benefit costs | 90 | | | 109 | |
| | | |
| | | |
Other | 96 | | | 101 | |
Total other noncurrent liabilities | 2,010 | | | 2,140 | |
Commitments and Contingencies | | | |
Equity | | | |
Common stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2022 and 2021 | 762 | | | 762 | |
Additional paid-in capital | 3,100 | | | 3,100 | |
Retained earnings | 904 | | | 602 | |
| | | |
Total equity | 4,766 | | | 4,464 | |
Total Liabilities and Equity | $ | 11,506 | | | $ | 10,774 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 302 | | | $ | 204 | | | $ | 252 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 328 | | | 311 | | | 283 | |
Equity component of AFUDC | (7) | | | (7) | | | (7) | |
| | | | | |
Impairment of assets and other charges | (10) | | | 25 | | | — | |
Deferred income taxes | (22) | | | 42 | | | 31 | |
Contributions to qualified pension plans | (3) | | | — | | | — | |
Payments for asset retirement obligations | (12) | | | (2) | | | (2) | |
Provision for rate refunds | 5 | | | 16 | | | 14 | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | 23 | | | 6 | | | (13) | |
Receivables from affiliated companies | (5) | | | (25) | | | 9 | |
Inventory | (28) | | | (6) | | | 25 | |
Other current assets | (55) | | | (60) | | | (18) | |
Increase (decrease) in | | | | | |
Accounts payable | 44 | | | 38 | | | 2 | |
Accounts payable to affiliated companies | 8 | | | (4) | | | — | |
Taxes accrued | 42 | | | 26 | | | 30 | |
Other current liabilities | (63) | | | 11 | | | 3 | |
Other assets | (29) | | | (43) | | | (32) | |
Other liabilities | 64 | | | 27 | | | (2) | |
Net cash provided by operating activities | 582 | | | 559 | | | 575 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (850) | | | (848) | | | (834) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Notes receivable from affiliated companies | (105) | | | (10) | | | (19) | |
Other | (67) | | | (60) | | | (48) | |
Net cash used in investing activities | (1,022) | | | (918) | | | (901) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 50 | | | 150 | | | 467 | |
Payments for the redemption of long-term debt | — | | | (50) | | | — | |
Notes payable to affiliated companies | 395 | | | (67) | | | (144) | |
Capital contribution from parent | — | | | 325 | | | — | |
| | | | | |
Other | (2) | | | — | | | — | |
Net cash provided by financing activities | 443 | | | 358 | | | 323 | |
Net increase (decrease) in cash and cash equivalents | 3 | | | (1) | | | (3) | |
Cash and cash equivalents at beginning of period | 13 | | | 14 | | | 17 | |
Cash and cash equivalents at end of period | $ | 16 | | | $ | 13 | | | $ | 14 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 126 | | | $ | 107 | | | $ | 97 | |
Cash (received from) paid for income taxes | (35) | | | 9 | | | — | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 123 | | | 135 | | | 104 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY OHIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Additional | | | | | | |
| Common | | Paid-in | | Retained | | | | Total |
(in millions) | Stock | | Capital | | Earnings | | | | Equity |
Balance at December 31, 2019 | $ | 762 | | | $ | 2,776 | | | $ | 145 | | | | | $ | 3,683 | |
Net income | — | | | — | | | 252 | | | | | 252 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2020 | $ | 762 | | | $ | 2,776 | | | $ | 397 | | | | | $ | 3,935 | |
Net income | — | | | — | | | 204 | | | | | 204 | |
Contribution from parent | — | | | 325 | | | — | | | | | 325 | |
| | | | | | | | | |
Other | — | | | (1) | | | 1 | | | | | — | |
Balance at December 31, 2021 | $ | 762 | | | $ | 3,100 | | | $ | 602 | | | | | $ | 4,464 | |
Net income | — | | | — | | | 302 | | | | | 302 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2022 | $ | 762 | | | $ | 3,100 | | | $ | 904 | | | | | $ | 4,766 | |
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Duke Energy Indiana, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Duke Energy Indiana, LLC and subsidiary (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1, 4 and 10 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the Indiana Utility Regulatory Commission (the “Commission”), which has jurisdiction with respect to the electric rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As discussed in Note 4, regulatory proceedings in recent years in Indiana have focused on the recoverability of fuel costs and asset retirement obligations specific to coal ash. As a result, assessing the potential outcomes of future regulatory orders requires significant management judgment. As of December 31, 2022, the Company has approximately $1.1 billion recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commission, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commission, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of the recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commission’s treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commission, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained an analysis from management and letters from internal legal counsel for asset retirement obligations specific to coal ash costs, regarding probability of recovery for deferred costs not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 2002.
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | $ | 3,922 | | | $ | 3,174 | | | $ | 2,795 | |
Operating Expenses | | | | | |
Fuel used in electric generation and purchased power | 1,819 | | | 985 | | | 767 | |
Operation, maintenance and other | 729 | | | 750 | | | 762 | |
Depreciation and amortization | 645 | | | 615 | | | 569 | |
Property and other taxes | 75 | | | 73 | | | 81 | |
Impairment of assets and other charges | 388 | | | 9 | | | — | |
Total operating expenses | 3,656 | | | 2,432 | | | 2,179 | |
| | | | | |
Operating Income | 266 | | | 742 | | | 616 | |
Other Income and Expenses, net | 36 | | | 42 | | | 37 | |
Interest Expense | 189 | | | 196 | | | 161 | |
Income Before Income Taxes | 113 | | | 588 | | | 492 | |
Income Tax (Benefit) Expense | (24) | | | 107 | | | 84 | |
Net Income and Comprehensive Income | $ | 137 | | | $ | 481 | | | $ | 408 | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 31 | | | $ | 6 | |
Receivables (net of allowance for doubtful accounts of $4 at 2022 and $3 at 2021) | 112 | | | 100 | |
Receivables from affiliated companies | 298 | | | 98 | |
Notes receivable from affiliated companies | — | | | 134 | |
Inventory | 489 | | | 418 | |
Regulatory assets | 249 | | | 277 | |
Other | 197 | | | 68 | |
Total current assets | 1,376 | | | 1,101 | |
Property, Plant and Equipment | | | |
Cost | 18,121 | | | 17,343 | |
Accumulated depreciation and amortization | (6,021) | | | (5,583) | |
| | | |
Net property, plant and equipment | 12,100 | | | 11,760 | |
Other Noncurrent Assets | | | |
Regulatory assets | 875 | | | 1,278 | |
Operating lease right-of-use assets, net | 49 | | | 53 | |
| | | |
Other | 254 | | | 296 | |
Total other noncurrent assets | 1,178 | | | 1,627 | |
Total Assets | $ | 14,654 | | | $ | 14,488 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 391 | | | $ | 282 | |
Accounts payable to affiliated companies | 206 | | | 221 | |
Notes payable to affiliated companies | 435 | | | — | |
Taxes accrued | 92 | | | 73 | |
Interest accrued | 48 | | | 49 | |
Current maturities of long-term debt | 303 | | | 84 | |
Asset retirement obligations | 207 | | | 110 | |
Regulatory liabilities | 187 | | | 127 | |
Other | 161 | | | 105 | |
Total current liabilities | 2,030 | | | 1,051 | |
Long-Term Debt | 3,854 | | | 4,089 | |
Long-Term Debt Payable to Affiliated Companies | 150 | | | 150 | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 1,299 | | | 1,303 | |
Asset retirement obligations | 744 | | | 877 | |
Regulatory liabilities | 1,454 | | | 1,565 | |
Operating lease liabilities | 47 | | | 50 | |
Accrued pension and other post-retirement benefit costs | 122 | | | 167 | |
Investment tax credits | 186 | | | 177 | |
Other | 65 | | | 44 | |
Total other noncurrent liabilities | 3,917 | | | 4,183 | |
Commitments and Contingencies | | | |
Equity | | | |
Member's equity | 4,702 | | | 5,015 | |
Accumulated other comprehensive income | 1 | | | — | |
Total equity | 4,703 | | | 5,015 | |
Total Liabilities and Equity | $ | 14,654 | | | $ | 14,488 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 137 | | | $ | 481 | | | $ | 408 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 648 | | | 619 | | | 572 | |
Equity component of AFUDC | (13) | | | (27) | | | (23) | |
| | | | | |
Impairment of assets and other charges | 388 | | | 9 | | | — | |
Deferred income taxes | (64) | | | 34 | | | 29 | |
Contributions to qualified pension plans | (5) | | | — | | | — | |
Payments for asset retirement obligations | (82) | | | (67) | | | (63) | |
| | | | | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | (3) | | | (33) | | | 8 | |
Receivables from affiliated companies | 20 | | | — | | | — | |
Inventory | (70) | | | 55 | | | 44 | |
Other current assets | (3) | | | (181) | | | (3) | |
Increase (decrease) in | | | | | |
Accounts payable | 105 | | | 76 | | | (12) | |
Accounts payable to affiliated companies | (3) | | | 8 | | | 1 | |
Taxes accrued | 34 | | | 12 | | | 13 | |
Other current liabilities | 9 | | | 13 | | | 6 | |
Other assets | (10) | | | 20 | | | (68) | |
Other liabilities | 13 | | | (15) | | | 26 | |
Net cash provided by operating activities | 1,101 | | | 1,004 | | | 938 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (877) | | | (818) | | | (888) | |
| | | | | |
Purchases of debt and equity securities | (61) | | | (142) | | | (37) | |
Proceeds from sales and maturities of debt and equity securities | 48 | | | 65 | | | 22 | |
| | | | | |
Notes receivable from affiliated companies | (86) | | | (120) | | | (33) | |
Other | (55) | | | 36 | | | 48 | |
Net cash used in investing activities | (1,031) | | | (979) | | | (888) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 67 | | | 300 | | | 544 | |
Payments for the redemption of long-term debt | (84) | | | (70) | | | (513) | |
Notes payable to affiliated companies | 435 | | | (131) | | | 101 | |
Distributions to parent | (462) | | | (125) | | | (200) | |
Other | (1) | | | — | | | — | |
Net cash used in financing activities | (45) | | | (26) | | | (68) | |
Net increase (decrease) in cash and cash equivalents | 25 | | | (1) | | | (18) | |
Cash and cash equivalents at beginning of period | 6 | | | 7 | | | 25 | |
Cash and cash equivalents at end of period | $ | 31 | | | $ | 6 | | | $ | 7 | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 186 | | | $ | 194 | | | $ | 164 | |
Cash paid for income taxes | 35 | | | 56 | | | 36 | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 122 | | | 118 | | | 101 | |
See Notes to Consolidated Financial Statements
DUKE ENERGY INDIANA, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated | | |
| | | | | | | | | Other | | |
| | | | | | | | | Comprehensive | | |
| | | | | | | | | Income | | |
| | | | | | | | | Pension | | |
| | | | | | | Member's | | and OPEB | | Total |
(in millions) | | | | | | | Equity | | Adjustments | | Equity |
Balance at December 31, 2019 | | | | | | | $ | 4,575 | | | $ | — | | | $ | 4,575 | |
Net income | | | | | | | 408 | | | — | | | 408 | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (200) | | | — | | | (200) | |
| | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | | $ | 4,783 | | | $ | — | | | $ | 4,783 | |
Net income | | | | | | | 481 | | | — | | | 481 | |
| | | | | | | | | | | |
Distributions to parent | | | | | | | (250) | | | — | | | (250) | |
Other | | | | | | | 1 | | | — | | | 1 | |
Balance at December 31, 2021 | | | | | | | $ | 5,015 | | | $ | — | | | $ | 5,015 | |
Net income | | | | | | | 137 | | | — | | | 137 | |
Distributions to parent | | | | | | | (450) | | | — | | | (450) | |
Other | | | | | | | — | | | 1 | | | 1 | |
Balance at December 31, 2022 | | | | | | | $ | 4,702 | | | $ | 1 | | | $ | 4,703 | |
See Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholder and the Board of Directors of Piedmont Natural Gas Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Piedmont Natural Gas Company, Inc. and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Matters – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1 and 4 to the financial statements.
Critical Audit Matter Description
The Company is subject to rate regulation by the North Carolina Utilities Commission, the Public Service Commission of South Carolina, and the Tennessee Public Utility Commission (collectively the “Commissions”), which have jurisdiction with respect to the gas rates of the Company. Management has determined it meets the criteria for the application of regulated operations accounting in preparing its financial statements under accounting principles generally accepted in the United States of America. Significant judgment can be required to determine if otherwise recognizable incurred costs qualify to be presented as a regulatory asset and deferred because such costs are probable of future recovery in customer rates. As of December 31, 2022, the Company has approximately $511 million recorded as regulatory assets.
We identified the impact of rate regulation related to regulatory assets as a critical audit matter due to the significant judgments made by management, including assumptions regarding the outcome of future decisions by the Commissions, to support its assertions on the likelihood of future recovery for deferred costs. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the ratemaking process due to its inherent complexities as it relates to regulatory assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the recovery of regulatory assets included the following, among others:
•We tested the effectiveness of management’s controls over the evaluation of the likelihood of recovery in future rates and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates.
•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
•We read relevant regulatory orders issued by the Commission, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded balances for completeness.
•For regulatory matters in process, we inspected the Company’s and intervenors’ filings with the Commissions, that may impact the Company’s future rates, for any evidence that might contradict management’s assertions.
•We evaluated the reasonableness of management’s judgments regarding the recoverability of regulatory asset balances by performing the following:
–We inquired of management regarding changes in regulatory orders and regulatory asset balances during the year.
–We evaluated the reasonableness of such changes based on our knowledge of commission-approved amortization, expected incurred costs, and recently approved regulatory orders, as applicable.
–We utilized trend analyses to evaluate the historical consistency of regulatory asset balances.
–We compared the recorded regulatory asset balance to an independently developed expectation of the corresponding balance.
•We obtained representation from management asserting that regulatory assets recorded in the financial statements are probable of recovery.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 1951.
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating Revenues | | | | | |
Regulated natural gas | $ | 2,100 | | | $ | 1,555 | | | $ | 1,286 | |
Nonregulated natural gas and other | 24 | | | 14 | | | 11 | |
| | | | | |
Total operating revenues | 2,124 | | | 1,569 | | | 1,297 | |
Operating Expenses | | | | | |
Cost of natural gas | 1,015 | | | 569 | | | 386 | |
Operation, maintenance and other | 368 | | | 327 | | | 322 | |
Depreciation and amortization | 222 | | | 213 | | | 180 | |
Property and other taxes | 57 | | | 55 | | | 53 | |
Impairment of assets and other charges | 18 | | | 10 | | | 7 | |
Total operating expenses | 1,680 | | | 1,174 | | | 948 | |
Gains on Sales of Other Assets and Other, net | 4 | | | — | | | — | |
Operating Income | 448 | | | 395 | | | 349 | |
Equity in earnings of unconsolidated affiliates | 8 | | | 9 | | | 9 | |
| | | | | |
Other income and expense, net | 46 | | | 55 | | | 51 | |
Total other income and expenses | 54 | | | 64 | | | 60 | |
Interest Expense | 140 | | | 119 | | | 118 | |
Income Before Income Taxes | 362 | | | 340 | | | 291 | |
Income Tax Expense | 39 | | | 30 | | | 18 | |
Net Income and Comprehensive Income | $ | 323 | | | $ | 310 | | | $ | 273 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
ASSETS | | | |
Current Assets | | | |
| | | |
Receivables (net of allowance for doubtful accounts of $14 at 2022 and $15 at 2021) | $ | 436 | | | $ | 318 | |
Receivables from affiliated companies | 11 | | | 11 | |
Inventory | 172 | | | 109 | |
Regulatory assets | 119 | | | 141 | |
| | | |
Other | 4 | | | 9 | |
Total current assets | 742 | | | 588 | |
Property, Plant and Equipment | | | |
Cost | 10,869 | | | 9,918 | |
Accumulated depreciation and amortization | (2,081) | | | (1,899) | |
Facilities to be retired, net | 9 | | | 11 | |
Net property, plant and equipment | 8,797 | | | 8,030 | |
Other Noncurrent Assets | | | |
Goodwill | 49 | | | 49 | |
Regulatory assets | 392 | | | 316 | |
Operating lease right-of-use assets, net | 4 | | | 16 | |
Investments in equity method unconsolidated affiliates | 79 | | | 95 | |
Other | 272 | | | 288 | |
Total other noncurrent assets | 796 | | | 764 | |
Total Assets | $ | 10,335 | | | $ | 9,382 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 345 | | | $ | 196 | |
Accounts payable to affiliated companies | 51 | | | 40 | |
| | | |
Notes payable to affiliated companies | 514 | | | 518 | |
Taxes accrued | 74 | | | 63 | |
Interest accrued | 40 | | | 37 | |
Current maturities of long-term debt | 45 | | | — | |
Regulatory liabilities | 74 | | | 56 | |
Other | 81 | | | 81 | |
Total current liabilities | 1,224 | | | 991 | |
Long-Term Debt | 3,318 | | | 2,968 | |
| | | |
Other Noncurrent Liabilities | | | |
Deferred income taxes | 870 | | | 815 | |
Asset retirement obligations | 26 | | | 22 | |
Regulatory liabilities | 1,024 | | | 1,058 | |
Operating lease liabilities | 13 | | | 14 | |
Accrued pension and other post-retirement benefit costs | 7 | | | 7 | |
Other | 180 | | | 158 | |
Total other noncurrent liabilities | 2,120 | | | 2,074 | |
Commitments and Contingencies | | | |
Equity | | | |
Common stock, no par value: 100 shares authorized and outstanding at 2022 and 2021 | 1,635 | | | 1,635 | |
| | | |
Retained earnings | 2,037 | | | 1,714 | |
| | | |
Total Piedmont Natural Gas Company, Inc. stockholder's equity | 3,672 | | | 3,349 | |
Noncontrolling interests | 1 | | | — | |
Total equity | 3,673 | | | 3,349 | |
Total Liabilities and Equity | $ | 10,335 | | | $ | 9,382 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 323 | | | $ | 310 | | | $ | 273 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 225 | | | 216 | | | 182 | |
Equity component of AFUDC | (11) | | | (20) | | | (19) | |
Gains on sales of other assets | (4) | | | — | | | — | |
Impairment of assets and other charges | 18 | | | 10 | | | 7 | |
Deferred income taxes | 5 | | | 4 | | | 53 | |
Contributions to qualified pension plans | (2) | | | — | | | — | |
Equity in earnings from unconsolidated affiliates | (8) | | | (9) | | | (9) | |
| | | | | |
Provision for rate refunds | (3) | | | (4) | | | (33) | |
(Increase) decrease in | | | | | |
| | | | | |
Receivables | (111) | | | (77) | | | 10 | |
Receivables from affiliated companies | — | | | (1) | | | — | |
Inventory | (63) | | | (40) | | | 3 | |
Other current assets | 32 | | | 33 | | | (66) | |
Increase (decrease) in | | | | | |
Accounts payable | 40 | | | (25) | | | 16 | |
Accounts payable to affiliated companies | 11 | | | (39) | | | 76 | |
Taxes accrued | 11 | | | 37 | | | 3 | |
Other current liabilities | 36 | | | (26) | | | (11) | |
Other assets | 9 | | | 26 | | | (11) | |
Other liabilities | (1) | | | (4) | | | 7 | |
Net cash provided by operating activities | 507 | | | 391 | | | 481 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (862) | | | (850) | | | (901) | |
Contributions to equity method investments | (8) | | | (9) | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | (26) | | | (31) | | | (28) | |
Net cash used in investing activities | (896) | | | (890) | | | (929) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Proceeds from the issuance of long-term debt | 394 | | | 347 | | | 394 | |
Payments for the redemption of long-term debt | — | | | (160) | | | — | |
Notes payable to affiliated companies | (4) | | | (13) | | | 54 | |
| | | | | |
| | | | | |
Capital contribution from parent | — | | | 325 | | | — | |
| | | | | |
Other | (1) | | | — | | | — | |
Net cash provided by financing activities | 389 | | | 499 | | | 448 | |
Net increase (decrease) in cash and cash equivalents | — | | | — | | | — | |
Cash and cash equivalents at beginning of period | — | | | — | | | — | |
Cash and cash equivalents at end of period | $ | — | | | $ | — | | | $ | — | |
Supplemental Disclosures: | | | | | |
Cash paid for interest, net of amount capitalized | $ | 135 | | | $ | 114 | | | $ | 115 | |
Cash paid for (received from) income taxes | 23 | | | (13) | | | (36) | |
Significant non-cash transactions: | | | | | |
Accrued capital expenditures | 207 | | | 97 | | | 106 | |
See Notes to Consolidated Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Total | | | | |
| | | | | | | Piedmont | | | | |
| | | | | | | Natural Gas | | | | |
| Common | | Retained | | | | Company, Inc. | | Noncontrolling | | Total |
(in millions) | Stock | | Earnings | | | | Equity | | Interests | | Equity |
Balance at December 31, 2019 | $ | 1,310 | | | $ | 1,133 | | | | | $ | 2,443 | | | $ | — | | | $ | 2,443 | |
Net income | — | | | 273 | | | | | 273 | | | — | | | 273 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | — | | | (1) | | | | | (1) | | | — | | | (1) | |
Balance at December 31, 2020 | $ | 1,310 | | | $ | 1,405 | | | | | $ | 2,715 | | | $ | — | | | $ | 2,715 | |
Net income | — | | | 310 | | | | | 310 | | | — | | | 310 | |
| | | | | | | | | | | |
Contribution from parent | 325 | | | — | | | | | 325 | | | — | | | 325 | |
| | | | | | | | | | | |
Other | — | | | (1) | | | | | (1) | | | — | | | (1) | |
Balance at December 31, 2021 | $ | 1,635 | | | $ | 1,714 | | | | | $ | 3,349 | | | $ | — | | | $ | 3,349 | |
Net income | — | | | 323 | | | | | 323 | | | — | | | 323 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | — | | | — | | | | | — | | | 1 | | | 1 | |
Balance at December 31, 2022 | $ | 1,635 | | | $ | 2,037 | | | | | $ | 3,672 | | | $ | 1 | | | $ | 3,673 | |
See Notes to Consolidated Financial Statements
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Index to Combined Notes To Consolidated Financial Statements
The notes to the consolidated financial statements are a combined presentation. The following table indicates the registrants to which the notes apply.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Applicable Notes |
Registrant | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 |
Duke Energy | • | • | • | • | • | • | • | • | • | • | • | • | • | | • | • | • | • | • | • | • | • | • | • | • | • | • |
Duke Energy Carolinas | • | | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Progress Energy | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Progress | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Florida | • | | • | • | • | • | • | | | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Duke Energy Ohio | • | | • | • | • | • | • | | | • | • | • | | • | • | | • | • | • | | • | • | • | • | • | • | |
Duke Energy Indiana | • | • | • | • | • | • | • | | • | • | • | • | | • | • | • | • | • | • | | • | • | • | • | • | • | |
Piedmont | • | | • | • | • | • | • | | | • | • | • | • | • | • | | • | | • | | • | • | • | • | • | • | |
Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that are not registrants and (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Consolidation
Duke Energy is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the FERC and other regulatory agencies listed below. Duke Energy operates in the U.S. primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas; Progress Energy; Duke Energy Progress; Duke Energy Florida; Duke Energy Ohio; Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its separate Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Consolidated Financial Statements. However, none of the Subsidiary Registrants make any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.
These Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries or VIEs where the respective Duke Energy Registrants have control. See Note 18 for additional information on VIEs. These Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities. See Note 9 for additional information on joint ownership. Substantially all of the Subsidiary Registrants' operations qualify for regulatory accounting.
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Progress Energy is a public utility holding company, which conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. Progress Energy is subject to regulation by FERC and other regulatory agencies listed below.
Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Florida. Duke Energy Florida is subject to the regulatory provisions of the FPSC, NRC and FERC.
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, the generation and sale of electricity in portions of Kentucky and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio conducts competitive auctions for retail electricity supply in Ohio whereby the energy price is recovered from retail customers and recorded in Operating Revenues on the Consolidated Statements of Operations and Comprehensive Income. Operations in Kentucky are conducted through its wholly owned subsidiary, 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 PUCO, KPSC and FERC.
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC.
Piedmont is a regulated public utility primarily engaged in the distribution of natural gas in portions of North Carolina, South Carolina and Tennessee. Piedmont is subject to the regulatory provisions of the NCUC, PSCSC, TPUC and FERC.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Other Current Assets and Liabilities
The following table provides a description of amounts included in Other within Current Assets or Current Liabilities that exceed 5% of total Current Assets or Current Liabilities on the Duke Energy Registrants' Consolidated Balance Sheets at either December 31, 2022, or 2021.
| | | | | | | | | | | | | | | | | |
| | | December 31, |
(in millions) | Location | | 2022 | | 2021 |
Duke Energy | | | | | |
Accrued compensation | Current Liabilities | | $ | 778 | | | $ | 915 | |
| | | | | |
Duke Energy Carolinas | | | | | |
Accrued compensation | Current Liabilities | | $ | 247 | | | $ | 277 | |
| | | | | |
Duke Energy Progress | | | | | |
Customer deposits | Current Liabilities | | $ | 106 | | | $ | 144 | |
Other accrued liabilities | Current Liabilities | | 124 | | | 163 | |
Duke Energy Florida | | | | | |
Customer deposits | Current Liabilities | | $ | 200 | | | $ | 200 | |
Other accrued liabilities | Current Liabilities | | 61 | | | 89 | |
Duke Energy Ohio | | | | | |
Gas Storage | Current Assets | | $ | 57 | | | $ | 25 | |
Collateral liabilities | Current Liabilities | | 53 | | | 57 | |
Duke Energy Indiana | | | | | |
Mark-to-market transactions | Current Assets | | $ | 110 | | | $ | 23 | |
| | | | | |
Discontinued Operations
Duke Energy has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. Unless otherwise noted, the notes to these consolidated financial statements exclude amounts related to discontinued operations for all periods presented. For the years ended December 31, 2022, 2021 and 2020, the Loss From Discontinued Operations, net of tax on Duke Energy's Consolidated Statements of Operations includes amounts related to noncontrolling interests. A portion of Noncontrolling interests on Duke Energy's Consolidated Balance Sheets relates to discontinued operations for the periods presented. See Note 2 for discussion of discontinued operations related to the Commercial Renewables Disposal Groups.
Noncontrolling Interest
Duke Energy maintains a controlling financial interest in certain less than wholly owned regulated and nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Consolidated Balance Sheet. Operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
Significant Accounting Policies
Use of Estimates
In preparing financial statements that conform to GAAP, the Duke Energy Registrants must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Regulatory Accounting
The majority of the Duke Energy Registrants’ operations are subject to price regulation for the sale of electricity and natural gas by state utility commissions or FERC. When prices are set on the basis of specific costs of the regulated operations and an effective franchise is in place such that sufficient natural gas or electric services can be sold to recover those costs, the Duke Energy Registrants apply regulatory accounting. Regulatory accounting changes the timing of the recognition of costs or revenues relative to a company that does not apply regulatory accounting. As a result, regulatory assets and regulatory liabilities are recognized on the Consolidated Balance Sheets. Regulatory assets and liabilities are amortized consistent with the treatment of the related cost in the ratemaking process. Regulatory assets are reviewed for recoverability each reporting period. If a regulatory asset is no longer deemed probable of recovery, the deferred cost is charged to earnings. See Note 4 for further information.
Regulatory accounting rules also require recognition of a disallowance (also called "impairment") loss if it becomes probable that part of the cost of a plant under construction (or a recently completed plant or an abandoned plant) will be disallowed for ratemaking purposes and a reasonable estimate of the amount of the disallowance can be made. For example, if a cost cap is set for a plant still under construction, the amount of the disallowance is a result of a judgment as to the ultimate cost of the plant. These disallowances can require judgments on allowed future rate recovery.
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
When it becomes probable that regulated generation, transmission or distribution assets will be abandoned, the cost of the asset is removed from plant in service. The value that may be retained as a regulatory asset on the balance sheet for the abandoned property is dependent upon amounts that may be recovered through regulated rates, including any return. As such, an impairment charge could be partially or fully offset by the establishment of a regulatory asset if rate recovery is probable. The impairment charge for a disallowance of costs for regulated plants under construction, recently completed or abandoned is based on discounted cash flows.
The Duke Energy Registrants utilize cost-tracking mechanisms, commonly referred to as fuel adjustment clauses or PGA clauses. These clauses allow for the recovery of fuel and fuel-related costs, portions of purchased power, natural gas costs and hedging costs through surcharges on customer rates. The difference between the costs incurred and the surcharge revenues is recorded either as an adjustment to Operating Revenues, Operating Expenses – Fuel used in electric generation or Operating Expenses – Cost of natural gas on the Consolidated Statements of Operations, with an off-setting impact on regulatory assets or liabilities.
Cash, Cash Equivalents and Restricted Cash
All highly liquid investments with maturities of three months or less at the date of acquisition are considered cash equivalents. Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. Duke Energy Carolinas and Duke Energy Progress have restricted cash balances related to VIEs from storm recovery bonds issued. See Note 18 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Consolidated Balance Sheets.
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| December 31, 2022 |
| | | Duke | | | | Duke | | Duke |
| Duke | | Energy | | Progress | | Energy | | Energy |
| Energy | | Carolinas | | Energy | | Progress | | Florida |
Current Assets | | | | | | | | | |
Cash and cash equivalents | $ | 409 | | | $ | 44 | | | $ | 108 | | | $ | 49 | | | $ | 45 | |
Other | 173 | | | 8 | | | 74 | | | 28 | | | 41 | |
Other Noncurrent Assets | | | | | | | | | |
Other | 11 | | | 1 | | | 2 | | | 2 | | | — | |
Total cash, cash equivalents and restricted cash | $ | 593 | | | $ | 53 | | | $ | 184 | | | $ | 79 | | | $ | 86 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke |
| Duke | | Energy | | Progress | | Energy | | Energy |
| Energy | | Carolinas | | Energy | | Progress | | Florida |
Current Assets | | | | | | | | | |
Cash and cash equivalents | $ | 341 | | | $ | 7 | | | $ | 70 | | | $ | 35 | | | $ | 23 | |
Other | 170 | | | — | | | 39 | | | — | | | 39 | |
Other Noncurrent Assets | | | | | | | | | |
Other | 6 | | | 1 | | | 4 | | | 4 | | | — | |
Total cash, cash equivalents and restricted cash | $ | 517 | | | $ | 8 | | | $ | 113 | | | $ | 39 | | | $ | 62 | |
| | | | | | | | | |
Inventory
Inventory related to regulated operations is valued at historical cost. Inventory related to nonregulated operations is valued at the lower of cost or market. Inventory is charged to expense or capitalized to property, plant and equipment when issued, primarily using the average cost method. Excess or obsolete inventory is written down to the lower of cost or net realizable value. Once inventory has been written down, it creates a new cost basis for the inventory that is not subsequently written up. Provisions for inventory write-offs were not material at December 31, 2022, and 2021, respectively. The components of inventory are presented in the tables below.
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| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Materials and supplies | $ | 2,604 | | | $ | 876 | | | $ | 1,232 | | | $ | 819 | | | $ | 413 | | | $ | 105 | | | $ | 342 | | | $ | 12 | |
Coal | 620 | | | 253 | | | 190 | | | 99 | | | 91 | | | 34 | | | 144 | | | — | |
Natural gas, oil and other | 360 | | | 35 | | | 157 | | | 88 | | | 69 | | | 5 | | | 3 | | | 160 | |
Total inventory | $ | 3,584 | | | $ | 1,164 | | | $ | 1,579 | | | $ | 1,006 | | | $ | 573 | | | $ | 144 | | | $ | 489 | | | $ | 172 | |
| | | | | |
FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Materials and supplies | $ | 2,309 | | | $ | 793 | | | $ | 1,067 | | | $ | 729 | | | $ | 338 | | | $ | 80 | | | $ | 311 | | | $ | 14 | |
Coal | 486 | | | 195 | | | 167 | | | 94 | | | 73 | | | 19 | | | 105 | | | — | |
Natural gas, oil and other | 316 | | | 38 | | | 164 | | | 98 | | | 66 | | | 17 | | | 2 | | | 95 | |
Total inventory | $ | 3,111 | | | $ | 1,026 | | | $ | 1,398 | | | $ | 921 | | | $ | 477 | | | $ | 116 | | | $ | 418 | | | $ | 109 | |
Investments in Debt and Equity Securities
The Duke Energy Registrants classify investments in equity securities as FV-NI and investments in debt securities as AFS. Both categories are recorded at fair value on the Consolidated Balance Sheets. Realized and unrealized gains and losses on securities classified as FV-NI are reported through net income. Unrealized gains and losses for debt securities classified as AFS are included in AOCI until realized, unless it is determined the carrying value of an investment has a credit loss. For certain investments of regulated operations, such as substantially all of the NDTF, realized and unrealized gains and losses (including any credit losses) on debt securities are recorded as a regulatory asset or liability. The credit loss portion of debt securities of nonregulated operations are included in earnings. Investments in debt and equity securities are classified as either current or noncurrent based on management’s intent and ability to sell these securities, taking into consideration current market liquidity. See Note 16 for further information.
Goodwill
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont perform annual goodwill impairment tests as of August 31 each year at the reporting unit level, which is determined to be a business segment or one level below. Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont update these tests between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. See Note 12 for further information.
Intangible Assets
Intangible assets are included in Other in Other Noncurrent Assets on the Consolidated Balance Sheets. Generally, intangible assets are amortized using an amortization method that reflects the pattern in which the economic benefits of the intangible asset are consumed or on a straight-line basis if that pattern is not readily determinable. Amortization of intangibles is reflected in Depreciation and amortization on the Consolidated Statements of Operations. Intangible assets are subject to impairment testing and if impaired, the carrying value is accordingly reduced.
RECs are used to measure compliance with renewable energy standards and are held primarily for consumption. See Note 12 for further information.
Long-Lived Asset Impairments
The Duke Energy Registrants evaluate long-lived assets that are held and used, excluding goodwill, for impairment when circumstances indicate the carrying value of those assets may not be recoverable. An impairment exists when a long-lived asset’s carrying value exceeds the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. The estimated cash flows may be based on alternative expected outcomes that are probability weighted. If the carrying value of the long-lived asset is not recoverable based on these estimated future undiscounted cash flows, the carrying value of the asset is written down to its then current estimated fair value and an impairment charge is recognized.
The Duke Energy Registrants assess fair value of long-lived assets that are held and used using various methods, including recent comparable third-party sales, internally developed discounted cash flow analysis and analysis from outside advisors. Triggering events to reassess cash flows may include, but are not limited to, significant changes in commodity prices, the condition of an asset or management’s interest in selling the asset.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Property, Plant and Equipment
Property, plant and equipment are stated at the lower of depreciated historical cost net of any disallowances or fair value, if impaired. The Duke Energy Registrants capitalize all construction-related direct labor and material costs, as well as indirect construction costs such as general engineering, taxes and financing costs. See “Allowance for Funds Used During Construction and Interest Capitalized” section below for information on capitalized financing costs. Costs of renewals and betterments that extend the useful life of property, plant and equipment are also capitalized. The cost of repairs, replacements and major maintenance projects, which do not extend the useful life or increase the expected output of the asset, are expensed as incurred. Depreciation is generally computed over the estimated useful life of the asset using the composite straight-line method. Depreciation studies are conducted periodically to update composite rates and are approved by state utility commissions and/or the FERC when required. The composite weighted average depreciation rates, excluding nuclear fuel, are included in the table that follows.
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| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Duke Energy | 3.0 | % | | 2.9 | % | | 3.0 | % |
Duke Energy Carolinas | 2.7 | % | | 2.7 | % | | 2.8 | % |
Progress Energy | 3.2 | % | | 3.1 | % | | 3.2 | % |
Duke Energy Progress | 3.0 | % | | 3.0 | % | | 3.1 | % |
Duke Energy Florida | 3.5 | % | | 3.3 | % | | 3.3 | % |
Duke Energy Ohio | 2.9 | % | | 2.9 | % | | 2.9 | % |
Duke Energy Indiana | 3.6 | % | | 3.6 | % | | 3.5 | % |
Piedmont | 2.1 | % | | 2.1 | % | | 2.3 | % |
In general, when the Duke Energy Registrants retire regulated property, plant and equipment, the original cost plus the cost of retirement, less salvage value and any depreciation already recognized, is charged to accumulated depreciation. However, when it becomes probable the asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the net amount is classified as Facilities to be retired, net on the Consolidated Balance Sheets. If the asset is no longer operating, the net amount is classified in Regulatory assets on the Consolidated Balance Sheets if deemed recoverable (see discussion of long-lived asset impairments above). The carrying value of the asset is based on historical cost if the Duke Energy Registrants are allowed to recover the remaining net book value and a return equal to at least the incremental borrowing rate. If not, an impairment is recognized to the extent the net book value of the asset exceeds the present value of future revenues discounted at the incremental borrowing rate.
When the Duke Energy Registrants sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from Property, Plant and Equipment on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body. See Note 11 for additional information.
Other Noncurrent Assets
Duke Energy, through a nonregulated subsidiary, was the winner of the Carolina Long Bay offshore wind auction in May 2022 and recorded an
asset of $150 million related to the contract in Other within Other noncurrent assets. In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables business segment, excluding the offshore wind contract for Carolina Long Bay, which was moved to the Electric Utilities and Infrastructure (EU&I) segment. See Notes 2 and 3 for further information.
Leases
Duke Energy determines if an arrangement is a lease at contract inception based on whether the arrangement involves the use of a physically distinct identified asset and whether Duke Energy has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period as well as the right to direct the use of the asset. As a policy election, Duke Energy does not evaluate arrangements with initial contract terms of less than one year as leases.
Operating leases are included in Operating lease ROU assets, net, Other current liabilities and Operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-Term Debt on the Consolidated Balance Sheets.
For lessee and lessor arrangements, Duke Energy has elected a policy to not separate lease and non-lease components for all asset classes. For lessor arrangements, lease and non-lease components are only combined under one arrangement and accounted for under the lease accounting framework if the non-lease components are not the predominant component of the arrangement and the lease component would be classified as an operating lease.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the Consolidated Balance Sheets.
Nuclear fuel in the front-end fuel processing phase is considered work in progress and not amortized until placed in service. Amortization of nuclear fuel is included within Fuel used in electric generation and purchased power on the Consolidated Statements of Operations. Amortization is recorded using the units-of-production method.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Allowance for Funds Used During Construction and Interest Capitalized
For regulated operations, the debt and equity costs of financing the construction of property, plant and equipment are reflected as AFUDC and capitalized as a component of the cost of property, plant and equipment. AFUDC equity is reported on the Consolidated Statements of Operations as non-cash income in Other income and expenses, net. AFUDC debt is reported as a non-cash offset to Interest Expense. After construction is completed, the Duke Energy Registrants are permitted to recover these costs through their inclusion in rate base and the corresponding subsequent depreciation or amortization of those regulated assets.
AFUDC equity, a permanent difference for income taxes, reduces the ETR when capitalized and increases the ETR when depreciated or amortized. See Note 24 for additional information.
Asset Retirement Obligations
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment. Substantially all AROs are related to regulated operations. When recording an ARO, the present value of the projected liability is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted over time. For operating plants, the present value of the liability is added to the cost of the associated asset and depreciated over the remaining life of the asset. For retired plants, the present value of the liability is recorded as a regulatory asset unless determined not to be probable of recovery.
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding timing of future cash flows, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Depreciation expense is adjusted prospectively for any changes to the carrying amount of the associated asset. The Duke Energy Registrants receive amounts to fund the cost of the ARO for regulated operations through a combination of regulated revenues and earnings on the NDTF. As a result, amounts recovered in regulated revenues, earnings on the NDTF, accretion expense and depreciation of the associated asset are netted and deferred as a regulatory asset or liability.
Accounts Payable
During 2020, Duke Energy established a supply chain finance program (the “program”) with a global financial institution. The program is voluntary and allows Duke Energy suppliers, at their sole discretion, to sell their receivables from Duke Energy to the financial institution at a rate that leverages Duke Energy’s credit rating and, which may result in favorable terms compared to the rate available to the supplier on their own credit rating. Suppliers participating in the program, determine at their sole discretion which invoices they will sell to the financial institution. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. The commercial terms negotiated between Duke Energy and its suppliers are consistent regardless of whether the supplier elects to participate in the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program.
The following table presents the outstanding accounts payable balance sold to the financial institution by our suppliers and the supplier invoices sold to the financial institution under the program included within Net cash provided by operating activities on the Consolidated Statements of Cash Flows as of December 31, 2022, and December 31, 2021.
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| December 31, 2022 | | |
| | Duke | | Duke | Duke | Duke | Duke | | | | | | | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | | | | | | | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont | | | | | | |
Outstanding Accounts Payable Balance Sold | $ | 87 | | $ | 6 | | $ | 19 | | $ | 8 | | $ | 11 | | $ | 5 | | $ | — | | $ | 57 | | | | | | | |
Suppliers Invoices Settled Through The Program | 301 | | 29 | | 85 | | 26 | | 59 | | 38 | | 2 | | 147 | | | | | | | |
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| December 30, 2021 |
| | | Duke | Duke | |
| Duke | Progress | Energy | Energy | |
(in millions) | Energy | Energy | Florida | Ohio | Piedmont |
Outstanding Accounts Payable Balance Sold | $ | 19 | | $ | 9 | | $ | 9 | | $ | 6 | | $ | 4 | |
Suppliers Invoices Settled Through The Program | 122 | | 10 | | 10 | | 12 | | 100 | |
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Revenue Recognition
Duke Energy recognizes revenue as customers obtain control of promised goods and services in an amount that reflects consideration expected in exchange for those goods or services. Generally, the delivery of electricity and natural gas results in the transfer of control to customers at the time the commodity is delivered and the amount of revenue recognized is equal to the amount billed to each customer, including estimated volumes delivered when billings have not yet occurred. See Note 19 for further information.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Derivatives and Hedging
Derivative and non-derivative instruments may be used in connection with commodity price and interest rate activities, including swaps, futures, forwards and options. All derivative instruments, except those that qualify for the NPNS exception, are recorded on the Consolidated Balance Sheets at fair value. Qualifying derivative instruments may be designated as either cash flow hedges or fair value hedges. Other derivative instruments (undesignated contracts) either have not been designated or do not qualify as hedges. The effective portion of the change in the fair value of cash flow hedges is recorded in AOCI. The effective portion of the change in the fair value of a fair value hedge is offset in net income by changes in the hedged item. For activity subject to regulatory accounting, gains and losses on derivative contracts are reflected as regulatory assets or liabilities and not as other comprehensive income or current period income. As a result, changes in fair value of these derivatives have no immediate earnings impact.
Formal documentation, including transaction type and risk management strategy, is maintained for all contracts accounted for as a hedge. At inception and at least every three months thereafter, the hedge contract is assessed to see if it is highly effective in offsetting changes in cash flows or fair values of hedged items.
See Note 15 for further information.
Captive Insurance Reserves
Duke Energy has captive insurance subsidiaries that provide coverage, on an indemnity basis, to the Subsidiary Registrants as well as certain third parties, on a limited basis, for financial losses, primarily related to property, workers’ compensation and general liability. Liabilities include provisions for estimated losses incurred but not reported (IBNR), as well as estimated provisions for known claims. IBNR reserve estimates are primarily based upon historical loss experience, industry data and other actuarial assumptions. Reserve estimates are adjusted in future periods as actual losses differ from experience.
Duke Energy, through its captive insurance entities, also has reinsurance coverage with third parties for certain losses above a per occurrence and/or aggregate retention. Receivables for reinsurance coverage are recognized when realization is deemed probable.
Preferred Stock
Preferred stock is reviewed to determine the appropriate balance sheet classification and embedded features, such as call options, are evaluated to determine if they should be bifurcated and accounted for separately. Costs directly related to the issuance of preferred stock are recorded as a reduction of the proceeds received. The liability for the dividend is recognized when declared. The accumulated dividends on the cumulative preferred stock is recognized to net income available to Duke Energy Corporation in the EPS calculation. See Note 20 for further information.
Loss Contingencies and Environmental Liabilities
Contingent losses are recorded when it is probable a loss has occurred and the loss can be reasonably estimated. When a range of the probable loss exists and no amount within the range is a better estimate than any other amount, the minimum amount in the range is recorded. Unless otherwise required by GAAP, legal fees are expensed as incurred.
Environmental liabilities are recorded on an undiscounted basis when environmental remediation or other liabilities become probable and can be reasonably estimated. Environmental expenditures related to past operations that do not generate current or future revenues are expensed. Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. Certain environmental expenditures receive regulatory accounting treatment and are recorded as regulatory assets.
See Notes 4 and 5 for further information.
Severance and Special Termination Benefits
Duke Energy maintains severance plans for the general employee population under which, in general, the longer a terminated employee worked prior to termination the greater the amount of severance benefits provided. A liability for involuntary severance is recorded once an involuntary severance plan is committed to by management if involuntary severances are probable and can be reasonably estimated. For involuntary severance benefits incremental to its ongoing severance plan benefits, the fair value of the obligation is expensed at the communication date if there are no future service requirements or over the required future service period. Duke Energy also offers special termination benefits under voluntary severance programs. Special termination benefits are recorded immediately upon employee acceptance absent a significant retention period. Otherwise, the cost is recorded over the remaining service period. Employee acceptance of voluntary severance benefits is determined by management based on the facts and circumstances of the benefits being offered. See Note 21 for further information.
Guarantees
If necessary, liabilities are recognized at the time of issuance or material modification of a guarantee for the estimated fair value of the obligation it assumes. Fair value is estimated using a probability weighted approach. The obligation is reduced over the term of the guarantee or related contract in a systematic and rational method as risk is reduced. Duke Energy recognizes a liability for the best estimate of its loss due to the nonperformance of the guaranteed party. This liability is recognized at the inception of a guarantee and is updated periodically. See Note 8 for further information.
Income Taxes
Duke Energy and its subsidiaries file a consolidated federal income tax return and other state and foreign jurisdictional returns. The Subsidiary Registrants are parties to a tax-sharing agreement with Duke Energy. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. Deferred income taxes have been provided for temporary differences between GAAP and tax bases of assets and liabilities because the differences create taxable or tax-deductible amounts for future periods. ITCs associated with regulated operations are deferred and amortized as a reduction of income tax expense over the estimated useful lives of the related properties.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Accumulated deferred income taxes are valued using the enacted tax rate expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be settled or realized. In the event of a change in tax rates, deferred tax assets and liabilities are remeasured as of the enactment date of the new rate. To the extent that the change in the value of the deferred tax represents an obligation to customers, the impact of the remeasurement is deferred to a regulatory liability. Remaining impacts are recorded in income from continuing operations. Duke Energy's results of operations could be impacted if the estimate of the tax effect of reversing temporary differences is not reflective of actual outcomes, is modified to reflect new developments or interpretations of the tax law, revised to incorporate new accounting principles, or changes in the expected timing or manner of a reversal.
Tax-related interest and penalties are recorded in Interest Expense and Other Income and Expenses, net in the Consolidated Statements of Operations.
See Note 24 for further information.
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. Taxes for which Duke Energy operates merely as a collection agent for the state and local government are accounted for on a net basis. Excise taxes accounted for on a gross basis within both Operating Revenues and Property and other taxes in the Consolidated Statements of Operations were as follows.
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| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Duke Energy | $ | 449 | | | $ | 420 | | | $ | 415 | |
Duke Energy Carolinas | 47 | | | 44 | | | 43 | |
Progress Energy | 290 | | | 250 | | | 249 | |
Duke Energy Progress | 25 | | | 22 | | | 26 | |
Duke Energy Florida | 265 | | | 228 | | | 223 | |
Duke Energy Ohio | 104 | | | 102 | | | 96 | |
Duke Energy Indiana | 7 | | | 23 | | | 25 | |
Piedmont | 1 | | | 1 | | | 2 | |
Dividend Restrictions and Unappropriated Retained Earnings
Duke Energy does not have any current legal, regulatory or other restrictions on paying common stock dividends to shareholders. However, if Duke Energy were to defer dividend payments on the preferred stock, the declaration of common stock dividends would be prohibited. See Note 20 for more information. Additionally, as further described in Note 4, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Indiana and Piedmont have restrictions on paying dividends or otherwise advancing funds to Duke Energy due to conditions established by regulators in conjunction with merger transaction approvals. At December 31, 2022, and 2021, an insignificant amount of Duke Energy’s consolidated Retained earnings balance represents undistributed earnings of equity method investments.
New Accounting Standards
The following accounting standard was adopted by the Duke Energy Registrants in 2021.
Leases with Variable Lease Payments. In July 2021, the FASB issued new accounting guidance requiring lessors to classify a lease with variable lease payments that do not depend on a reference index or rate as an operating lease if both of the following are met: (1) the lease would have to be classified as a sales-type or direct financing lease under prior guidance, and (2) the lessor would have recognized a day-one loss. Duke Energy elected to adopt the guidance immediately upon issuance of the new standard and will be applying the new standard prospectively to new lease arrangements meeting the criteria. Duke Energy did not have any lease arrangements that this new accounting guidance materially impacted.
The following accounting standard was adopted by the Duke Energy Registrants in 2020.
Current Expected Credit Losses. In June 2016, the FASB issued new accounting guidance for credit losses. Duke Energy adopted the new accounting guidance for credit losses effective January 1, 2020, using the modified retrospective method of adoption, which does not require restatement of prior year results. Duke Energy did not adopt any practical expedients.
Duke Energy recognizes allowances for credit losses based on management's estimate of losses expected to be incurred over the lives of certain assets or guarantees. Management monitors credit quality, changes in expected credit losses and the appropriateness of the allowance for credit losses on a forward-looking basis. Management reviews the risk of loss periodically as part of the existing assessment of collectability of receivables.
Duke Energy reviews the credit quality of its counterparties as part of its regular risk management process and requires credit enhancements, such as deposits or letters of credit, as appropriate and as allowed by regulators.
Duke Energy recorded cumulative effects of changes in accounting principles related to the adoption of the new credit loss standard for allowances and credit losses of trade and other receivables, insurance receivables and financial guarantees. These amounts are included in the Consolidated Balance Sheets in Receivables, Receivables of VIEs, Other Noncurrent Assets and Other Noncurrent Liabilities. See Notes 8 and 19 for more information.
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FINANCIAL STATEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Duke Energy recorded an adjustment for the cumulative effect of a change in accounting principle due to the adoption of this standard on January 1, 2020, as shown in the table below:
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| January 1, 2020 |
| | | Duke | | | | Duke | | Duke | | | | | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | | | | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | | | | | Piedmont |
Total pretax impact to Retained Earnings | $ | 120 | | | $ | 16 | | | $ | 2 | | | $ | 1 | | | $ | 1 | | | | | | | $ | 1 | |
2. DISPOSITIONS
The following table summarizes the Loss from Discontinued Operations, net of tax recorded on Duke Energy's Consolidated Statements of Operations:
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | 2021 | 2020 |
Commercial Renewables Disposal Groups | | $ | (1,349) | | $ | (151) | | $ | (14) | |
Other(a) | | 26 | | 7 | | 7 | |
Loss from Discontinued Operations, net of tax | | $ | (1,323) | | $ | (144) | | $ | (7) | |
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(a) Amount represents an income tax benefit resulting from tax adjustments for previously sold businesses not related to the Commercial Renewables Disposal Groups.
Sale of Commercial Renewables Segment
In August 2022, Duke Energy announced a strategic review of its commercial renewables business. Since 2007, Duke Energy has built a portfolio of commercial wind, solar and battery projects across the U.S., and established a development pipeline. Duke Energy has developed a strategy to focus on renewables, grid and other investment opportunities within its regulated operations. In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables business segment, excluding the offshore wind contract for Carolina Long Bay, which was moved to the Electric Utilities and Infrastructure (EU&I) segment. Duke Energy is actively marketing the business as two separate disposal groups, the utility-scale solar and wind group and the distributed generation group (collectively, Commercial Renewables Disposal Groups). The sales processes for both Disposal Groups are ongoing and Duke Energy expects to dispose of these groups in the second half of 2023.
Assets Held For Sale and Discontinued Operations
The Commercial Renewables Disposal Groups were classified as held for sale and as discontinued operations in the fourth quarter of 2022. No adjustments were made to the historical activity within the Consolidated Statements of Comprehensive Income, Consolidated Statements of Cash Flows or the Consolidated Statements of Changes in Equity. Unless otherwise noted, the notes to these consolidated financial statements exclude amounts related to discontinued operations for all periods presented.
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FINANCIAL STATEMENTS | DISPOSITIONS |
The following table presents the carrying values of the major classes of Assets held for sale and Liabilities associated with assets held for sale included in Duke Energy's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | |
| | December 31, | |
(in millions) | | 2022 | | 2021 | |
Current Assets Held for Sale | | | | | |
Cash and cash equivalents | | $ | 10 | | | $ | 3 | | |
Receivables, net | | 107 | | | 87 | | |
Inventory | | 88 | | | 86 | | |
Other | | 57 | | | 56 | | |
Total current assets held for sale | | 262 | | | 232 | | |
Noncurrent Assets Held for Sale | | | | | |
Property, Plant and Equipment | | | | | |
Cost | | 6,444 | | | 7,323 | | |
Accumulated depreciation and amortization | | (1,651) | | | (1,452) | | |
Net property, plant and equipment | | 4,793 | | | 5,871 | | |
Operating lease right-of-use assets, net | | 140 | | | 130 | | |
Investments in equity method unconsolidated affiliates | | 522 | | | 513 | | |
Other | | 179 | | | 181 | | |
Total other noncurrent assets held for sale | | 841 | | | 824 | | |
Total Assets Held for Sale | | $ | 5,896 | | | $ | 6,927 | | |
Current Liabilities Associated with Assets Held for Sale | | | | | |
Accounts payable | | $ | 122 | | | $ | 98 | | |
Taxes accrued | | 17 | | | 18 | | |
| | | | | |
Other | | 120 | | | 51 | | |
Total current liabilities associated with assets held for sale | | 259 | | | 167 | | |
Noncurrent Liabilities Associated with Assets Held for Sale | | | | | |
| | | | | |
| | | | | |
Operating lease liabilities | | 150 | | | 134 | | |
Asset retirement obligations | | 190 | | | 175 | | |
Other | | 399 | | | 303 | | |
Total other noncurrent liabilities associated with assets held for sale | | 739 | | | 612 | | |
Total Liabilities Associated with Assets Held for Sale | | $ | 998 | | | $ | 779 | | |
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As of December 31, 2022, the noncontrolling interest balance is $1.6 billion.
The following table presents the results of the Commercial Renewables Disposal Groups, which are included in Loss from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations.
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| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Operating revenues | $ | 465 | | | $ | 476 | | | $ | 502 | |
| | | | | |
| | | | | |
Operation, maintenance and other | 337 | | 343 | | 292 |
Depreciation and amortization(a) | 201 | | 227 | | 200 |
Property and other taxes | 36 | | 34 | | 26 |
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Other income and expenses, net | 2 | | | (27) | | | 1 |
Interest expense | 10 | | 72 | | 66 |
Loss on disposal | 1,748 | | | — | | | — | |
Loss before income taxes | (1,865) | | | (227) | | | (81) | |
Income tax benefit | (516) | | | (76) | | | (67) | |
Loss from discontinued operations | $ | (1,349) | | | $ | (151) | | | $ | (14) | |
Add: Net loss attributable to noncontrolling interest included in discontinued operations | 108 | | | 344 | | | 296 | |
Net income from discontinued operations attributable to Duke Energy Corporation | $ | (1,241) | | | $ | 193 | | | $ | 282 | |
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(a) Upon meeting the criteria for assets held for sale, beginning in November 2022 depreciation and amortization expense were ceased.
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FINANCIAL STATEMENTS | DISPOSITIONS |
The Commercial Renewables Disposal Groups' held for sale assets included pretax impairments of approximately $1.7 billion for the year ended December 31, 2022. The impairment was recorded to write-down the carrying amount of the property, plant and equipment assets to the estimated fair value of the business, based on the expected selling price less estimated cost to sell. These losses were included in Loss from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations and Comprehensive Income. The fair value was primarily determined from the income approach using discounted cash flows but also considered market information obtained through the bidding process. The discounted cash flow model utilized Level 2 and Level 3 inputs. The fair value hierarchy levels are further discussed in Note 17. The impairment will be updated, if necessary, based on the final sales price, after any adjustments at closing for working capital and capital expenditures.
Duke Energy has elected not to separately disclose discontinued operations on Duke Energy's Consolidated Statements of Cash Flows. The following table summarizes Duke Energy's cash flows from discontinued operations related to the Commercial Renewables Disposal Groups.
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| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Cash flows provided by (used in): | | | | | |
Operating activities | $ | 213 | | | $ | 62 | | | $ | 466 | |
Investing activities | (802) | | | (542) | | | (1,102) | |
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Other Sale Related Matters
Several Duke Energy renewables project companies, located in the Electric Reliability Council of Texas (ERCOT) market, were named in several lawsuits arising out of Texas Storm Uri, which occurred in February 2021. The legal actions related to these lawsuits will remain with Duke Energy and any future activity related to the matters will be presented in discontinued operations. See Note 5 for more information.
The Commercial Renewables Disposal Groups' debt and related interest rate swaps have not been classified as held for sale as they are not currently expected transfer to the buyer, but would be required to be extinguished as a result of the disposition. As of December 31, 2022, the balance of long-term debt including current maturities is $1.5 billion. If the debt and related interest rate swaps do not transfer to the buyer and are terminated early, the expected total loss on extinguishment is approximately $100 million, of which approximately $55 million is expected to be attributable to Duke Energy. The loss would be recorded in discontinued operations when the debt and swaps are terminated. Hedge accounting was discontinued on the related interest rate swaps when the Commercial Renewables Disposal Groups were classified as held for sale as the forecasted transactions being hedged are no longer probable. As a result, a gain of $72 million was recorded in Loss from Discontinued Operations, net of tax in Duke Energy's Consolidated Statements of Operations as of December 31, 2022, of which $54 million is attributable to Duke Energy.
Interest expense and debt issuance costs directly associated with the Commercial Renewables Disposal Groups was allocated to discontinued operations. No interest from corporate level debt was allocated to discontinued operations.
The Commercial Renewables Disposal Groups have entered into negotiations to modify or terminate certain PPAs under which the Commercial Renewables Disposal Groups sell power and RECs from renewable projects to offtakers. Duke Energy expects to pay offtakers approximately $95 million to modify the agreements. Charges related to the modifications will be reflected within Loss From Discontinued Operations in Duke Energy's Consolidated Statements of Operations.
Sale of Minority Interest in Duke Energy Indiana Holdco, LLC
On January 28, 2021, Duke Energy executed an agreement providing for an investment by an affiliate of GIC in Duke Energy Indiana in exchange for a 19.9% minority interest issued by Duke Energy Indiana Holdco, LLC, the holding company for Duke Energy Indiana. The transaction was completed following two closings for an aggregate purchase price of approximately $2.05 billion. The first closing, which occurred on September 8, 2021, resulted in Duke Energy Indiana Holdco, LLC issuing 11.05% of its membership interests in exchange for approximately $1.03 billion or 50% of the purchase price. The difference between the cash consideration received, net of transaction costs of approximately $27 million, and the carrying value of the noncontrolling interest is $545 million and was recorded as an increase to equity. The second closing was completed in December 2022 and resulted in Duke Energy Indiana Holdco, LLC issuing an additional 8.85% of its membership interests in exchange for approximately $1.03 billion. The difference between the cash consideration received, net of transaction costs of approximately $6 million, and the carrying value of the noncontrolling interest is $492 million and was recorded as an increase to equity. Duke Energy retained indirect control of these assets, and, therefore, no gain or loss was recognized on the Consolidated Statements of Operations for either transaction.
3. BUSINESS SEGMENTS
Reportable segments are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance of the business. Duke Energy evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated on the Consolidated Financial Statements. Certain governance costs are allocated to each segment. In addition, direct interest expense and income taxes are included in segment income.
Products and services are sold between affiliate companies and reportable segments of Duke Energy at cost. Segment assets as presented in the tables that follow exclude all intercompany assets.
Duke Energy
Due to Duke Energy's commitment in the fourth quarter of 2022 to sell the Commercial Renewables business segment, Duke Energy's segment structure now includes the following two segments: EU&I and GU&I. Prior period information has been recast to conform to the current segment structure. See Note 2 for further information on the Commercial Renewables Disposal Groups.
| | | | | |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
The EU&I segment includes Duke Energy's regulated electric utilities in the Carolinas, Florida and the Midwest. The regulated electric utilities conduct operations through the Subsidiary Registrants that are substantially all regulated and, accordingly, qualify for regulatory accounting treatment. EU&I also includes Duke Energy's electric transmission infrastructure investments and the offshore wind contract for Carolina Long Bay. Refer to Note 2 for further information.
The GU&I segment includes Piedmont, Duke Energy's natural gas local distribution companies in Ohio and Kentucky, and Duke Energy's natural gas storage, midstream pipeline, and renewable natural gas investments. GU&I's operations are substantially all regulated and, accordingly, qualify for regulatory accounting treatment.
The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of interest expense on holding company debt, unallocated corporate costs and Duke Energy’s wholly owned captive insurance company, Bison. Other also includes Duke Energy's interest in NMC. See Note 13 for additional information on the investment in NMC.
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
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| Year Ended December 31, 2022 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | | | Segments | | Other | | Eliminations | | Total |
Unaffiliated Revenues | $ | 25,990 | | | $ | 2,748 | | | | | $ | 28,738 | | | $ | 30 | | | $ | — | | | $ | 28,768 | |
Intersegment Revenues | 34 | | | 92 | | | | | 126 | | | 92 | | | (218) | | | — | |
Total Revenues | $ | 26,024 | | | $ | 2,840 | | | | | $ | 28,864 | | | $ | 122 | | | $ | (218) | | | $ | 28,768 | |
Interest Expense | $ | 1,565 | | | $ | 182 | | | | | $ | 1,747 | | | $ | 778 | | | $ | (86) | | | $ | 2,439 | |
Depreciation and amortization | 4,550 | | | 327 | | | | | 4,877 | | | 236 | | | (27) | | | 5,086 | |
Equity in earnings of unconsolidated affiliates | 7 | | | 20 | | | | | 27 | | | 86 | | | — | | | 113 | |
Income tax expense (benefit) | 536 | | | 8 | | | | | 544 | | | (244) | | | — | | | 300 | |
Segment income (loss)(a)(b) | 3,929 | | | 468 | | | | | 4,397 | | | (737) | | | (1) | | | 3,659 | |
Less noncontrolling interest | | | | | | | | | | | | | 95 | |
Add back preferred stock dividend | | | | | | | | | | | | | 106 | |
Discontinued operations | | | | | | | | | | | | | (1,215) | |
Net income | | | | | | | | | | | | | $ | 2,455 | |
Capital investments expenditures and acquisitions(c) | $ | 8,985 | | | $ | 1,295 | | | | | $ | 10,280 | | | $ | 1,139 | | | $ | — | | | $ | 11,419 | |
Segment assets(d) | 152,104 | | | 16,411 | | | | | 168,515 | | | 9,571 | | | — | | | 178,086 | |
(a) EU&I includes $386 million recorded within Impairment of assets and other charges, $46 million within Regulated electric revenues and $34 million within Noncontrolling Interests related to the Duke Energy Indiana court rulings on coal ash on the Consolidated Statements of Operations. See Note 4 for additional information.
(b) Other includes $72 million recorded within Impairment of assets and other charges, $71 million within Operations, maintenance and other and a $7 million gain within Gains on sales of other assets related to costs attributable to business transformation, including long-term real estate strategy changes and workforce realignment on the Consolidated Statements of Operations; it also includes $25 million recorded within Operations, maintenance and other related to litigation on the Consolidated Statements of Operations.
(c) Other includes capital investments expenditures and acquisitions related to the Commercial Renewables Disposal Groups.
(d) Other includes Assets Held for Sale balances related to the Commercial Renewables Disposal Groups. Refer to Note 2 for further information.
| | | | | |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | | | Segments | | Other | | Eliminations | | Total |
Unaffiliated Revenues | $ | 22,570 | | | $ | 2,022 | | | | | $ | 24,592 | | | $ | 29 | | | $ | — | | | $ | 24,621 | |
Intersegment Revenues | 33 | | | 90 | | | | | 123 | | | 84 | | | (207) | | | — | |
Total Revenues | $ | 22,603 | | | $ | 2,112 | | | | | $ | 24,715 | | | $ | 113 | | | $ | (207) | | | $ | 24,621 | |
Interest Expense | $ | 1,432 | | | $ | 142 | | | | | $ | 1,574 | | | $ | 643 | | | $ | (10) | | | $ | 2,207 | |
Depreciation and amortization | 4,251 | | | 303 | | | | | 4,554 | | | 236 | | | (28) | | | 4,762 | |
Equity in earnings of unconsolidated affiliates | 7 | | | 8 | | | | | 15 | | | 47 | | | — | | | 62 | |
Income tax expense (benefit) | 494 | | | 55 | | | | | 549 | | | (281) | | | — | | | 268 | |
Segment income (loss)(a)(b)(c) | 3,850 | | | 396 | | | | | 4,246 | | | (641) | | | (3) | | | 3,602 | |
Less noncontrolling interest | | | | | | | | | | | | | 329 | |
Add back preferred stock dividend | | | | | | | | | | | | | 106 | |
Discontinued operations | | | | | | | | | | | | | 200 | |
Net income | | | | | | | | | | | | | $ | 3,579 | |
Capital investments expenditures and acquisitions(d) | $ | 7,653 | | | $ | 1,271 | | | | | $ | 8,924 | | | $ | 828 | | | $ | — | | | $ | 9,752 | |
Segment assets(e) | 143,841 | | | 15,179 | | | | | 159,020 | | | 10,567 | | | — | | | 169,587 | |
(a) EU&I includes $160 million of expense recorded within Impairment of assets and other charges, $77 million of income within Other Income and expenses, $5 million of expense within Operations, maintenance and other, $13 million of income within regulated operating revenues, $3 million of expense within interest expense and $6 million of expense within Depreciation and amortization on the Duke Energy Carolinas' Consolidated Statement of Operations related to the South Carolina Supreme Court decision on coal ash and insurance proceeds; it also includes $42 million of expense recorded within Impairment of assets and other charges, $34 million of income within Other Income and expenses, $7 million of expense within Operations, maintenance, and other, $15 million of income within Regulated electric operating revenues, $5 million of expense within interest expense and $1 million of expense within Depreciation and amortization on the Duke Energy Progress' Consolidated Statement of Operations. See Notes 4 and 5 for more information.
(b) GU&I includes $20 million, recorded within Equity in earnings (losses) of unconsolidated affiliates on the Consolidated Statements of Operations, related to natural gas pipeline investments. See Note 4 for additional information.
(c) Other includes $133 million recorded within Impairment of assets and other charges, $42 million within Operations, maintenance and other, and $17 million within Depreciation and amortization on the Consolidated Statements of Operations, related to the workplace and workforce realignment. See Note 11 for additional information.
(d) Other includes capital investments expenditures and acquisitions related to the Commercial Renewables Disposal Groups.
(e) Other includes Assets Held for Sale balances related to the Commercial Renewables Disposal Groups. Refer to Note 2 for further information.
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| Year Ended December 31, 2020 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | | | Segments | | Other | | Eliminations | | Total |
Unaffiliated Revenues | $ | 21,687 | | | $ | 1,653 | | | | | $ | 23,340 | | | $ | 26 | | | $ | — | | | $ | 23,366 | |
Intersegment Revenues | 33 | | | 95 | | | | | 128 | | | 73 | | | (201) | | | — | |
Total Revenues | $ | 21,720 | | | $ | 1,748 | | | | | $ | 23,468 | | | $ | 99 | | | $ | (201) | | | $ | 23,366 | |
Interest Expense | $ | 1,320 | | | $ | 135 | | | | | $ | 1,455 | | | $ | 657 | | | $ | (15) | | | $ | 2,097 | |
Depreciation and amortization | 4,068 | | | 258 | | | | | 4,326 | | | 207 | | | (29) | | | 4,504 | |
Equity in (losses) earnings of unconsolidated affiliates | (1) | | | (2,017) | | | | | (2,018) | | | 13 | | | — | | | (2,005) | |
Income tax expense (benefit) | 340 | | | (349) | | | | | (9) | | | (160) | | | — | | | (169) | |
Segment income (loss)(a)(b)(c) | 2,669 | | | (1,266) | | | | | 1,403 | | | (418) | | | (4) | | | 981 | |
Less noncontrolling interest | | | | | | | | | | | | | 295 | |
Add back preferred stock dividend | | | | | | | | | | | | | 107 | |
Discontinued operations | | | | | | | | | | | | | 289 | |
Net income | | | | | | | | | | | | | $ | 1,082 | |
Capital investments expenditures and acquisitions(d) | $ | 7,629 | | | $ | 1,309 | | | | | $ | 8,938 | | | $ | 1,483 | | | $ | — | | | $ | 10,421 | |
Segment assets(e) | 138,225 | | | 13,849 | | | | | 152,074 | | | 10,314 | | | — | | | 162,388 | |
| | | | | |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
(a) EU&I includes $948 million of Impairment of assets and other charges and a reversal of $152 million included in Regulated electric operating revenue related to the CCR Settlement Agreement filed with the NCUC. Additionally, EU&I includes $19 million of Impairment of assets and other charges related to the Clemson University Combined Heat and Power Plant, $5 million of Impairment charges related to the natural gas pipeline assets and $16 million of shareholder contributions within Operations, maintenance and other related to Duke Energy Carolinas' and Duke Energy Progress' 2019 North Carolina rate cases. See Note 4 for additional information.
(b) GU&I includes $2.1 billion recorded within Equity in (losses) earnings of unconsolidated affiliates and $7 million of Impairment of assets and other charges related to natural gas pipeline investments. See Notes 4 and 13 for additional information.
(c) Other includes a $98 million reversal of 2018 severance costs due to a partial settlement in the Duke Energy Carolinas' 2019 North Carolina rate case. See Note 21 for additional information.
(d) Other includes capital investments expenditures and acquisitions related to the Commercial Renewables Disposal Groups.
(e) Other includes Assets Held for Sale balances related to the Commercial Renewables Disposal Groups. Refer to Note 2 for further information.
Geographical Information
Substantially all assets and revenues from continuing operations are within the U.S.
Major Customers
For the year ended December 31, 2022, revenues from one customer of Duke Energy Progress are $684 million. Duke Energy Progress has one reportable segment, Electric Utilities and Infrastructure. No other Subsidiary Registrant has an individual customer representing more than 10% of its revenues for the year ended December 31, 2022.
Products and Services
The following table summarizes revenues of the reportable segments by type.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail | | Wholesale | | Retail | | | | | | Total |
(in millions) | Electric | | Electric | | Natural Gas | | | | Other | | Revenues |
2022 | | | | | | | | | | | |
Electric Utilities and Infrastructure | $ | 22,036 | | | $ | 2,882 | | | $ | — | | | | | $ | 1,106 | | | $ | 26,024 | |
Gas Utilities and Infrastructure | — | | | — | | | 2,535 | | | | | 305 | | | 2,840 | |
| | | | | | | | | | | |
Total Reportable Segments | $ | 22,036 | | | $ | 2,882 | | | $ | 2,535 | | | | | $ | 1,411 | | | $ | 28,864 | |
2021 | | | | | | | | | | | |
Electric Utilities and Infrastructure | $ | 19,410 | | | $ | 2,216 | | | $ | — | | | | | $ | 977 | | | $ | 22,603 | |
Gas Utilities and Infrastructure | — | | | — | | | 2,025 | | | | | 87 | | | 2,112 | |
| | | | | | | | | | | |
Total Reportable Segments | $ | 19,410 | | | $ | 2,216 | | | $ | 2,025 | | | | | $ | 1,064 | | | $ | 24,715 | |
2020 | | | | | | | | | | | |
Electric Utilities and Infrastructure | $ | 18,898 | | | $ | 1,878 | | | $ | — | | | | | $ | 944 | | | $ | 21,720 | |
Gas Utilities and Infrastructure | — | | | — | | | 1,691 | | | | | 57 | | | 1,748 | |
| | | | | | | | | | | |
Total Reportable Segments | $ | 18,898 | | | $ | 1,878 | | | $ | 1,691 | | | | | $ | 1,001 | | | $ | 23,468 | |
Duke Energy Ohio
Duke Energy Ohio has two reportable segments, EU&I and GU&I.
EU&I transmits and distributes electricity in portions of Ohio and generates, distributes and sells electricity in portions of Northern Kentucky. GU&I transports and sells natural gas in portions of Ohio and Northern Kentucky. Both reportable segments conduct operations primarily through Duke Energy Ohio and its wholly owned subsidiary, Duke Energy Kentucky. The remainder of Duke Energy Ohio's operations is presented as Other.
All Duke Energy Ohio assets and revenues from continuing operations are within the U.S.
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| Year Ended December 31, 2022 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total revenues | $ | 1,798 | | | $ | 716 | | | $ | 2,514 | | | $ | — | | | $ | — | | | $ | 2,514 | |
Interest expense | $ | 86 | | | $ | 43 | | | $ | 129 | | | $ | — | | | $ | — | | | $ | 129 | |
Depreciation and amortization | 221 | | | 103 | | | 324 | | | — | | | — | | | 324 | |
Income tax expense (benefit) | 24 | | | (43) | | | (19) | | | (2) | | | — | | | (21) | |
Segment income (loss)/Net income | 189 | | | 121 | | | 310 | | | (8) | | | — | | | 302 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Capital expenditures | $ | 488 | | | $ | 362 | | | $ | 850 | | | $ | — | | | $ | — | | | $ | 850 | |
Segment assets | 7,504 | | | 4,164 | | | 11,668 | | | 14 | | | (176) | | | 11,506 | |
| | | | | |
FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total revenues | $ | 1,493 | | | $ | 544 | | | $ | 2,037 | | | $ | — | | | $ | — | | | $ | 2,037 | |
Interest expense | $ | 87 | | | $ | 24 | | | $ | 111 | | | $ | — | | | $ | — | | | $ | 111 | |
Depreciation and amortization | 217 | | | 90 | | | 307 | | | — | | | — | | | 307 | |
Income tax expense (benefit) | 15 | | | 19 | | | 34 | | | (4) | | | — | | | 30 | |
Segment income (loss)/Net Income | 141 | | | 78 | | | 219 | | | (15) | | | — | | | 204 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Capital expenditures | $ | 486 | | | $ | 362 | | | $ | 848 | | | $ | — | | | $ | — | | | $ | 848 | |
Segment assets | 6,882 | | | 3,892 | | | 10,774 | | | 29 | | | (29) | | | 10,774 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total revenues | $ | 1,405 | | | $ | 453 | | | $ | 1,858 | | | $ | — | | | $ | — | | | $ | 1,858 | |
Interest expense | $ | 85 | | | $ | 17 | | | $ | 102 | | | $ | — | | | $ | — | | | $ | 102 | |
Depreciation and amortization | 200 | | | 78 | | | 278 | | | — | | | — | | | 278 | |
Income tax expense (benefit) | 19 | | | 26 | | | 45 | | | (2) | | | — | | | 43 | |
Segment income (loss) | 162 | | | 96 | | | 258 | | | (6) | | | — | | | 252 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Capital expenditures | $ | 548 | | | $ | 286 | | | $ | 834 | | | $ | — | | | $ | — | | | $ | 834 | |
Segment assets | 6,615 | | | 3,380 | | | 9,995 | | | 32 | | | (2) | | | 10,025 | |
4. REGULATORY MATTERS
REGULATORY ASSETS AND LIABILITIES
The Duke Energy Registrants record regulatory assets and liabilities that result from the ratemaking process. See Note 1 for further information.
| | | | | |
FINANCIAL STATEMENTS | REGULATORY MATTERS |
The following tables present the regulatory assets and liabilities recorded on the Consolidated Balance Sheets of Duke Energy and Progress Energy. See separate tables below for balances by individual registrant.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy | | Progress Energy | | | | | | | | | | | | | | |
| December 31, | | December 31, | | | | | | | | | | | | | | |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 | | | | | | | | | | | | | | |
Regulatory Assets | | | | | | | | | | | | | | | | | | | | | |
AROs – coal ash | $ | 3,205 | | | $ | 3,408 | | | $ | 1,429 | | | $ | 1,399 | | | | | | | | | | | | | | | |
AROs – nuclear and other | 945 | | | 684 | | | 884 | | | 620 | | | | | | | | | | | | | | | |
Deferred fuel and purchased power | 3,866 | | | 1,253 | | | 2,060 | | | 718 | | | | | | | | | | | | | | | |
Accrued pension and OPEB | 2,336 | | | 2,017 | | | 759 | | | 725 | | | | | | | | | | | | | | | |
Storm cost securitized balance, net | 940 | | | 991 | | | 720 | | | 759 | | | | | | | | | | | | | | | |
Nuclear asset securitized balance, net | 881 | | | 937 | | | 881 | | | 937 | | | | | | | | | | | | | | | |
Debt fair value adjustment | 829 | | | 884 | | | — | | | — | | | | | | | | | | | | | | | |
Storm cost deferrals | 666 | | | 213 | | | 559 | | | 189 | | | | | | | | | | | | | | | |
Hedge costs deferrals | 378 | | | 348 | | | 128 | | | 137 | | | | | | | | | | | | | | | |
Post-in-service carrying costs (PISCC) and deferred operating expenses | 342 | | | 356 | | | 42 | | | 47 | | | | | | | | | | | | | | | |
Retired generation facilities | 316 | | | 357 | | | 243 | | | 265 | | | | | | | | | | | | | | | |
Deferred asset – Lee and Harris COLA | 288 | | | 317 | | | 21 | | | 21 | | | | | | | | | | | | | | | |
Advanced metering infrastructure (AMI) | 283 | | | 311 | | | 111 | | | 130 | | | | | | | | | | | | | | | |
Customer connect project | 271 | | | 242 | | | 136 | | | 124 | | | | | | | | | | | | | | | |
Costs of removal regulatory asset | 221 | | | 107 | | | 221 | | | 107 | | | | | | | | | | | | | | | |
Vacation accrual | 222 | | | 221 | | | 43 | | | 42 | | | | | | | | | | | | | | | |
Incremental COVID-19 expenses | 210 | | | 87 | | | 78 | | | 28 | | | | | | | | | | | | | | | |
CEP deferral | 190 | | | 161 | | | — | | | — | | | | | | | | | | | | | | | |
Demand side management (DSM)/Energy efficiency (EE) | 189 | | | 235 | | | 188 | | | 230 | | | | | | | | | | | | | | | |
Derivatives – natural gas supply contracts | 168 | | | 139 | | | — | | | — | | | | | | | | | | | | | | | |
NCEMPA deferrals | 157 | | | 165 | | | 157 | | | 165 | | | | | | | | | | | | | | | |
Nuclear deferral | 154 | | | 120 | | | 64 | | | 42 | | | | | | | | | | | | | | | |
Deferred pipeline integrity costs | 121 | | | 108 | | | — | | | — | | | | | | | | | | | | | | | |
COR settlement | 120 | | | 123 | | | 32 | | | 32 | | | | | | | | | | | | | | | |
Deferred coal ash handling system costs | 92 | | | 90 | | | 25 | | | 23 | | | | | | | | | | | | | | | |
Qualifying facility contract buyouts | 81 | | | 94 | | | 81 | | | 94 | | | | | | | | | | | | | | | |
Amounts due from customers | 57 | | | 85 | | | — | | | — | | | | | | | | | | | | | | | |
Propane caverns | 26 | | | — | | | — | | | — | | | | | | | | | | | | | | | |
Deferred severance charges | 21 | | | 54 | | | 7 | | | 18 | | | | | | | | | | | | | | | |
Manufactured gas plant (MGP) | — | | | 104 | | | — | | | — | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Other | 555 | | | 426 | | | 110 | | | 87 | | | | | | | | | | | | | | | |
Total regulatory assets | 18,130 | | | 14,637 | | | 8,979 | | | 6,939 | | | | | | | | | | | | | | | |
Less: current portion | 3,485 | | | 2,150 | | | 1,833 | | | 1,030 | | | | | | | | | | | | | | | |
Total noncurrent regulatory assets | $ | 14,645 | | | $ | 12,487 | | | $ | 7,146 | | | $ | 5,909 | | | | | | | | | | | | | | | |
Regulatory Liabilities | | | | | | | | | | | | | | | | | | | | | |
Net regulatory liability related to income taxes | $ | 6,462 | | | $ | 7,199 | | | $ | 2,192 | | | $ | 2,394 | | | | | | | | | | | | | | | |
Costs of removal | 5,151 | | | 6,150 | | | 2,269 | | | 2,955 | | | | | | | | | | | | | | | |
AROs – nuclear and other | 1,038 | | | 2,053 | | | — | | | — | | | | | | | | | | | | | | | |
Hedge cost deferrals | 683 | | | 364 | | | 252 | | | 155 | | | | | | | | | | | | | | | |
Accrued pension and OPEB | 211 | | | 213 | | | — | | | — | | | | | | | | | | | | | | | |
DOE Settlement | 154 | | | — | | | 154 | | | — | | | | | | | | | | | | | | | |
Provision for rate refunds | 78 | | | 274 | | | 28 | | | 87 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Amounts to be refunded to customers | 45 | | | — | | | — | | | — | | | | | | | | | | | | | | | |
Other | 1,226 | | | 1,110 | | | 434 | | | 453 | | | | | | | | | | | | | | | |
Total regulatory liabilities | 15,048 | | | 17,363 | | | 5,329 | | | 6,044 | | | | | | | | | | | | | | | |
Less: current portion | 1,466 | | | 1,211 | | | 576 | | | 478 | | | | | | | | | | | | | | | |
Total noncurrent regulatory liabilities | $ | 13,582 | | | $ | 16,152 | | | $ | 4,753 | | | $ | 5,566 | | | | | | | | | | | | | | | |
Descriptions of regulatory assets and liabilities summarized in the tables above and below follow. See tables below for recovery and amortization periods at the separate registrants.
AROs – coal ash. Represents deferred depreciation and accretion related to the legal obligation to close ash basins. The costs are deferred until recovery treatment has been determined. See Notes 1 and 10 for additional information.
| | | | | |
FINANCIAL STATEMENTS | REGULATORY MATTERS |
AROs – nuclear and other. Represents regulatory assets or liabilities, including deferred depreciation and accretion, related to legal obligations associated with the future retirement of property, plant and equipment, excluding amounts related to coal ash. The AROs relate primarily to decommissioning nuclear power facilities. The amounts also include certain deferred gains and losses on NDTF investments. See Notes 1 and 10 for additional information.
Deferred fuel and purchased power. Represents certain energy-related costs that are recoverable or refundable as approved by the applicable regulatory body.
Accrued pension and OPEB. Accrued pension and OPEB represent regulatory assets and liabilities related to each of the Duke Energy Registrants’ respective shares of unrecognized actuarial gains and losses and unrecognized prior service cost and credit attributable to Duke Energy’s pension plans and OPEB plans. The regulatory asset or liability is amortized with the recognition of actuarial gains and losses and prior service cost and credit to net periodic benefit costs for pension and OPEB plans. The accrued pension and OPEB regulatory assets are expected to be recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
Storm cost securitized balance, net. Represents the North Carolina portion of storm restoration expenditures related to Hurricane Florence, Hurricane Michael, Hurricane Dorian and Winter Storm Diego (2018 and 2019 events).
Nuclear asset securitized balance, net. Represents the balance associated with Crystal River Unit 3 retirement approved for recovery by the FPSC on September 15, 2015, and the upfront financing costs securitized in 2016 with issuance of the associated bonds. The regulatory asset balance is net of the AFUDC equity portion.
Debt fair value adjustment. Purchase accounting adjustments recorded to state the carrying value of Progress Energy and Piedmont at fair value in connection with the 2012 and 2016 mergers, respectively. Amount is amortized over the life of the related debt.
Storm cost deferrals. Represents deferred incremental costs incurred related to major weather-related events.
Hedge costs deferrals. Amounts relate to unrealized gains and losses on derivatives recorded as a regulatory asset or liability, respectively, until the contracts are settled.
Post-in-service carrying costs (PISCC) and deferred operating expenses. Represents deferred depreciation and operating expenses as well as carrying costs on the portion of capital expenditures placed in service but not yet reflected in retail rates as plant in service.
Retired generation facilities. Represents amounts to be recovered for facilities that have been retired and are probable of recovery.
Deferred asset – Lee and Harris COLA. Represents deferred costs incurred for the canceled Lee and Harris nuclear projects.
AMI. Represents deferred costs related to the installation of AMI meters and remaining net book value of non-AMI meters to be replaced at Duke Energy Carolinas, net book value of existing meters at Duke Energy Florida, Duke Energy Progress and Duke Energy Ohio and future recovery of net book value of electromechanical meters that have been replaced with AMI meters at Duke Energy Indiana.
Customer connect project. Represents incremental operating expenses and carrying costs on deferred amounts related to the deployment of the new customer information system.
Vacation accrual. Represents vacation entitlement, which is generally recovered in the following year.
Incremental COVID-19 expenses. Represents incremental costs related to ensuring continuity and quality of service in a safe manner during the COVID-19 pandemic.
CEP deferral. Represents deferred depreciation, PISCC and deferred property tax for Duke Energy Ohio Gas capital assets for the Capital Expenditure Program (CEP).
DSM/EE. Deferred costs related to various DSM and EE programs recoverable through various mechanisms.
Derivatives – natural gas supply contracts. Represents costs for certain long-dated, fixed quantity forward natural gas supply contracts, which are recoverable through PGA clauses.
NCEMPA deferrals. Represents retail allocated cost deferrals and returns associated with the additional ownership interest in assets acquired from NCEMPA in 2015.
Nuclear deferral. Includes amounts related to levelizing nuclear plant outage costs, which allows for the recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, resulting in the deferral of operations and maintenance costs associated with refueling.
Deferred pipeline integrity costs. Represents pipeline integrity management costs in compliance with federal regulations.
COR settlement. Represents approved COR settlements that are being amortized over the average remaining lives, at the time of approval, of the associated assets.
Deferred coal ash handling system costs. Represents deferred depreciation and returns associated with capital assets related to converting the ash handling system from wet to dry.
Qualifying facility contract buyouts. Represents termination payments for regulatory recovery through the capacity clause.
Amounts due from customers. Relates primarily to margin decoupling and IMR recovery mechanisms.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Costs of removal regulatory asset. Represents the excess of spend over funds received from customers to cover the future removal of property, plant and equipment from retired or abandoned sites as property is retired, net of certain deferred gains on NDTF investments.
Propane Caverns. Represents amounts for costs related to propane inventory, the net book value of remaining assets and decommissioning costs at Duke Energy Ohio.
MGP. Represents remediation costs incurred at former MGP sites and the deferral of costs to be incurred at Duke Energy Ohio's East End and West End sites.
Net regulatory liability related to income taxes. Amounts for all registrants include regulatory liabilities related primarily to impacts from the Tax Act. See Note 24 for additional information. Amounts have no immediate impact on rate base as regulatory assets are offset by deferred tax liabilities.
Costs of removal. Represents funds received from customers to cover the future removal of property, plant and equipment from retired or abandoned sites as property is retired. Also includes certain deferred gains on NDTF investments.
DOE Settlement. Represents litigation settlement funds received resulting from the DOE’s failure to accept spent nuclear fuel and other radioactive waste from the Crystal River Unit 3 during 2014-2018 as required under the Nuclear Waste Policy Act.
Provision for rate refunds. Represents estimated amounts due to customers based on recording interim rates subject to refund.
RESTRICTIONS ON THE ABILITY OF CERTAIN SUBSIDIARIES TO MAKE DIVIDENDS, ADVANCES AND LOANS TO DUKE ENERGY
As a condition to the approval of merger transactions, the NCUC, PSCSC, PUCO, KPSC and IURC imposed conditions on the ability of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio, Duke Energy Kentucky, Duke Energy Indiana and Piedmont to transfer funds to Duke Energy through loans or advances, as well as restricted amounts available to pay dividends to Duke Energy. Certain subsidiaries may transfer funds to the Parent by obtaining approval of the respective state regulatory commissions. These conditions imposed restrictions on the ability of the public utility subsidiaries to pay cash dividends as discussed below.
Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures, which in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Amounts restricted as a result of these provisions were not material at December 31, 2022.
Additionally, certain other subsidiaries of Duke Energy have restrictions on their ability to dividend, loan or advance funds to Duke Energy due to specific legal or regulatory restrictions, including, but not limited to, minimum working capital and tangible net worth requirements.
The restrictions discussed below were not a material amount of Duke Energy's and Progress Energy's net assets at December 31, 2022.
Duke Energy Carolinas
Duke Energy Carolinas must limit cumulative distributions subsequent to mergers to (i) the amount of retained earnings on the day prior to the closing of the mergers, plus (ii) any future earnings recorded.
Duke Energy Progress
Duke Energy Progress must limit cumulative distributions subsequent to the mergers between Duke Energy and Progress Energy and Duke Energy and Piedmont to (i) the amount of retained earnings on the day prior to the closing of the respective mergers, plus (ii) any future earnings recorded.
Duke Energy Ohio
Duke Energy Ohio will not declare and pay dividends out of capital or unearned surplus without the prior authorization of the PUCO. Duke Energy Ohio received FERC and PUCO approval to pay dividends from its equity accounts that are reflective of the amount that it would have in its retained earnings account had push-down accounting for the Cinergy merger not been applied to Duke Energy Ohio’s balance sheet. The conditions include a commitment from Duke Energy Ohio that equity, adjusted to remove the impacts of push-down accounting, will not fall below 30% of total capital.
Duke Energy Kentucky is required to pay dividends solely out of retained earnings and to maintain a minimum of 35% equity in its capital structure.
Duke Energy Indiana
Duke Energy Indiana must limit cumulative distributions subsequent to the merger between Duke Energy and Cinergy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded. In addition, Duke Energy Indiana will not declare and pay dividends out of capital or unearned surplus without prior authorization of the IURC.
Piedmont
Piedmont must limit cumulative distributions subsequent to the acquisition of Piedmont by Duke Energy to (i) the amount of retained earnings on the day prior to the closing of the merger, plus (ii) any future earnings recorded.
RATE-RELATED INFORMATION
The NCUC, PSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Carolinas and Duke Energy Progress
Hurricane Ian
In late September and early October 2022, Hurricane Ian inflicted severe damage to the Duke Energy Carolinas and Duke Energy Progress territories in North Carolina and South Carolina. Approximately 950,000 customers were impacted. Total estimated operation and maintenance expenses incurred for restoration efforts for the year ended December 31, 2022, were approximately $100 million, with an additional $9 million in capital investments. Approximately $83 million of the operation and maintenance expenses are deferred in Regulatory assets within Other Noncurrent Assets on the Consolidated Balance Sheets as of December 31, 2022 ($40 million and $43 million for Duke Energy Carolinas and Duke Energy Progress, respectively). Duke Energy Carolinas and Duke Energy Progress have regulatory tools to recover storm costs including deferral and securitization. These estimates could change as Duke Energy Carolinas and Duke Energy Progress receive additional information on actual costs.
Carbon Plan Proceeding
On October 13, 2021, North Carolina enacted legislation (Energy Solutions for North Carolina or HB 951) that established a framework overseen by the NCUC to advance North Carolina CO2 emission reductions from electric generating facilities in the state through the use of least cost planning while providing for continued reliability and affordable rates for customers. Among other things, HB 951 directed that the NCUC approve an initial carbon plan (Carbon Plan) by December 31, 2022, taking all reasonable steps to achieve a 70% reduction in CO2 emissions from public utilities’ electric generating facilities in the state by 2030 (from 2005 levels) and achieve carbon neutrality from electric generating facilities by 2050 while maintaining affordability and reliability for customers. On May 16, 2022, Duke Energy Carolinas and Duke Energy Progress filed their proposed Carolinas Carbon Plan (Proposed Plan) with the NCUC.
The NCUC issued an order on December 30, 2022, adopting the first Carbon Plan. The order recognizes the value of an “all-of-the-above” approach to achieving CO2 emission reductions and established a set of near-term procurement and development activities needed to continue progress towards the targeted CO2 reductions, along with the schedule for the future biennial updates to the Carbon Plan. The approved near-term action plan includes procurement and development of solar, storage and hydrogen-capable natural gas generation at levels consistent with the Proposed Plan, along with upgrading key transmission facilities to strengthen the grid, improve resilience for customers and interconnect new solar generation and stakeholder engagement activities for onshore wind generation (in all cases, subject to any further applicable regulatory processes). The order also approved early development activities for long lead-time resources, including new nuclear, pumped-hydro storage and offshore wind transmission development. The NCUC affirmed the utility ownership structure required in HB 951; all new generation facilities or other resources selected by the NCUC to achieve the CO2 emission reductions shall be owned and recovered on a cost-of-service basis by the utilities, with a carveout for 45% of solar and solar plus storage generation to be procured through long-term purchase power agreements with third parties. The order approves continued utilization of the remaining coal-fired generation assets, ensuring that appropriate replacement generating units and associated transmission infrastructure are in service before existing generating units are retired and providing an orderly transition out of coal generation by 2035.
Storm Cost Securitization Legislation
On June 15, 2022, the South Carolina General Assembly unanimously adopted S. 1077 (Act 227) in both the House and Senate and the bill was signed into law on June 17, 2022. The legislation enables the PSCSC to permit the issuance of bonds for the payment of storm costs and the creation of a storm charge for repayment.
On August 5, 2022, Duke Energy Progress filed a petition with the PSCSC for review and approval of deferred storm costs to be securitized of approximately $223 million. The evidentiary hearing is scheduled to begin on or after March 1, 2023. On February 7, 2023, a stipulation was reached with all parties in the proceeding regarding certain items identified through the Office of Regulatory Staff (ORS) audit of storm costs. The final amount for securitization will depend on the outcome of the hearing. Duke Energy Progress cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Carolinas
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Carolinas' Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2022 | 2021 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs – coal ash | $ | 1,391 | | $ | 1,227 | | | (g) | (b) |
| | | | | |
Deferred fuel and purchased power(i) | 1,614 | | 339 | | | (e) | 2024 |
Accrued pension and OPEB(c) | 614 | | 365 | | | Yes | (h) |
Storm cost securitized balance, net | 220 | | 232 | | | | 2041 |
| | | | | |
| | | | | |
Storm cost deferrals | 93 | | 22 | | | Yes | (b) |
Hedge costs deferrals(c) | 228 | | 171 | | | Yes | (b) |
PISCC and deferred operating expenses(c) | 30 | | 31 | | | Yes | (b) |
Retired generation facilities(c) | 39 | | 54 | | | Yes | (b) |
Deferred asset – Lee COLA | 267 | | 296 | | | | (b) |
AMI | 139 | | 140 | | | Yes | (b) |
Customer connect project | 62 | | 66 | | | Yes | (b) |
| | | | | |
Vacation accrual | 84 | | 83 | | | | 2023 |
Incremental COVID-19 expenses | 127 | | 51 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Nuclear deferral | 90 | | 78 | | | | 2024 |
| | | | | |
COR settlement | 88 | | 91 | | | Yes | (b) |
Deferred coal ash handling system costs | 67 | | 67 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 235 | | 166 | | | | (b) |
Total regulatory assets | 5,388 | | 3,479 | | | | |
Less: current portion | 1,095 | | 544 | | | | |
Total noncurrent regulatory assets | $ | 4,293 | | $ | 2,935 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes(d) | $ | 2,475 | | $ | 2,785 | | | | (b) |
Costs of removal(c) | 1,769 | | 2,009 | | | Yes | (f) |
AROs – nuclear and other | 1,038 | | 2,053 | | | | (b) |
Hedge cost deferrals | 350 | | 209 | | | | (b) |
Accrued pension and OPEB(c) | 44 | | 44 | | | Yes | (h) |
| | | | | |
Provision for rate refunds | 50 | | 124 | | | Yes | (b) |
| | | | | |
| | | | | |
Other | 587 | | 461 | | | | (b) |
Total regulatory liabilities | 6,313 | | 7,685 | | | | |
Less: current portion | 530 | | 487 | | | | |
Total noncurrent regulatory liabilities | $ | 5,783 | | $ | 7,198 | | | | |
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Included in rate base.
(d) Includes regulatory liabilities related to the change in the federal tax rate as a result of the Tax Act and the change in the North Carolina tax rate, both discussed in Note 24. Portions are included in rate base.
(e) Pays interest on over-recovered costs in North Carolina. Includes certain purchased power costs in North Carolina and South Carolina and costs of distributed energy in South Carolina.
(f) Recovered over the life of the associated assets.
(g) Earns a debt and equity return on coal ash expenditures for North Carolina and South Carolina retail customers as permitted by various regulatory orders.
(h) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
(i) Duke Energy Carolinas submitted a fuel filing to the NCUC in May 2022 for recovery of $327 million, which included deferrals through January 2022. This amount is expected to be recovered through August 2023. The next filing will be made in the first quarter of 2023. Duke Energy Carolinas submitted a fuel filing to the PSCSC in July 2022 for recovery of $79 million, which included deferrals through May 2022. The amount is expected to be recovered through September 2023. The next filing will be made in the third quarter of 2023.
2023 North Carolina Rate Case
On January 19, 2023, Duke Energy Carolinas filed a PBR application with the NCUC to request an increase in base rate retail revenues. The PBR Application includes an MYRP to recover projected capital investments during the three year MYRP period. In addition to the MYRP, the PBR Application includes an Earnings Sharing Mechanism, Residential Decoupling Mechanism and Performance Incentive Mechanisms as required by HB 951. If approved, the overall retail revenue increase would be $501 million in Year 1, $172 million in Year 2 and $150 million in Year 3, for a combined total of $823 million or 15.7% by early 2026. The rate increase is driven primarily by major transmission and distribution investments since the last rate case and projected in the MYRP, as well as investments in energy storage and solar assets included in the MYRP consistent with the Carbon Plan. Duke Energy Carolinas plans to implement temporary rates, subject to refund, on September 1, 2023, and has requested permanent rates be effective by January 1, 2024. Duke Energy Carolinas cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Oconee Nuclear Station Subsequent License Renewal
On June 7, 2021, Duke Energy Carolinas filed a subsequent license renewal (SLR) application for the Oconee Nuclear Station (ONS) with the U.S. Nuclear Regulatory Commission (NRC) to renew ONS’s operating license for an additional 20 years. The SLR would extend operations of the facility from 60 to 80 years. The current licenses for units 1 and 2 expire in 2033 and the license for unit 3 expires in 2034. By a Federal Register Notice dated July 28, 2021, the NRC provided a 60-day comment period for persons whose interest may be affected by the issuance of a subsequent renewed license for ONS to file a request for a hearing and a petition for leave to intervene. On September 27, 2021, Beyond Nuclear and Sierra Club (Petitioners) filed a Hearing Request and Petition to Intervene (Hearing Request) and a Petition for Waiver. The Hearing Request proposed three contentions and claimed that Duke Energy Carolinas did not satisfy the National Environmental Policy Act (NEPA) of 1969, as amended, or the NRC’s NEPA-implementing regulations. Following Duke Energy Carolinas' answer and the Petitioners' reply, on February 11, 2022, the Atomic Safety and Licensing Board (ASLB) issued its decision on the Hearing Request and found that the Petitioners failed to establish that the proposed contentions are litigable. The ASLB also denied the Petitioners' Petition for Waiver and terminated the proceeding.
On February 24, 2022, the NRC issued a decision in the SLR appeal related to Florida Power and Light's Turkey Point nuclear generating station in Florida. The NRC ruled that the NRC’s license renewal Generic Environmental Impact Statement (GEIS) does not apply to SLR because the GEIS does not address SLR. The decision overturned a 2020 NRC decision that found the GEIS applies to SLR. Although Turkey Point is not owned or operated by a Duke Energy Registrant, the NRC’s order applies to all SLR applicants, including ONS. The NRC order also indicated no subsequent renewed licenses will be issued until the NRC staff has completed an adequate NEPA review for each application. On April 5, 2022, the NRC approved a 24-month rulemaking plan that will enable the NRC staff to complete an adequate NEPA review. Although an SLR applicant may wait until the rulemaking is completed, the NRC also noted that an applicant may submit a supplement to its environmental report providing information on environmental impacts during the SLR period prior to the rulemaking being completed. On November 7, 2022, Duke Energy Carolinas submitted a supplement to its environmental report addressing environmental impacts during the SLR period. On December 19, 2022, the NRC published a notice in the Federal Register that the NRC will conduct a limited scoping process to gather additional information necessary to prepare an environmental impact statement (EIS) to evaluate the environmental impacts at ONS during the SLR period. The NRC received comments from the EPA and the Petitioners and these comments identify eighteen potential impacts that should be considered by the NRC in the EIS, which include, but are not limited to, climate change and flooding, environmental justice, severe accidents, and external events. Currently, the NRC expects to publish a draft EIS in October 2023.
On December 19, 2022, the NRC issued the Safety Evaluation Report (SER) for the safety portion of the SLR application. The NRC determined Duke Energy Carolinas met the requirements of the applicable regulations and identified actions that have been taken or will be taken to manage the effects of aging and address time-limited analyses. Duke Energy Carolinas and the NRC met with the Advisory Committee on Reactor Safeguards (ACRS) on February 2, 2023, to discuss issues regarding the SER and SLR application, after which the ACRS will issue a report discussing the result of its review.
Although the NRC’s GEIS applicability decision will delay completion of the SLR proceeding, Duke Energy Carolinas does not believe it changes the probability that the ONS subsequent renewed licenses will ultimately be issued, although Duke Energy Carolinas cannot guarantee the outcome of the license application process.
Duke Energy Carolinas and Duke Energy Progress intend to seek renewal of operating licenses and 20-year license extensions for all of their nuclear stations. New depreciation rates were implemented for all of the nuclear facilities during the second quarter of 2021. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of these additional relicensing proceedings.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Progress
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Progress' Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2022 | 2021 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs – coal ash | $ | 1,418 | | $ | 1,389 | | | (g) | (b) |
AROs – nuclear and other | 869 | | 613 | | | | (c) |
Deferred fuel and purchased power(l) | 705 | | 303 | | | (e) | 2024 |
Accrued pension and OPEB(d) | 417 | | 351 | | | Yes | (j) |
Storm cost securitized balance, net | 720 | | 759 | | | | 2041 |
| | | | | |
| | | | | |
Storm cost deferrals | 234 | | 170 | | | Yes | (b) |
Hedge costs deferrals | 55 | | 60 | | | | (b) |
PISCC and deferred operating expenses | 42 | | 47 | | | Yes | 2054 |
Retired generation facilities | 149 | | 171 | | | Yes | (b) |
Deferred asset - Harris COLA | 21 | | 21 | | | | (b) |
AMI | 81 | | 92 | | | Yes | (b) |
Customer connect project | 54 | | 57 | | | Yes | (b) |
| | | | | |
Vacation accrual | 43 | | 42 | | | | 2023 |
Incremental COVID-19 expenses | 78 | | 28 | | | Yes | (b) |
| | | | | |
DSM/EE(d) | 180 | | 218 | | | (h) | (h) |
| | | | | |
NCEMPA deferrals | 157 | | 165 | | | (f) | 2042 |
Nuclear deferral | 64 | | 42 | | | | 2024 |
| | | | | |
COR settlement | 32 | | 32 | | | Yes | (b) |
Deferred coal ash handling system costs | 25 | | 23 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 70 | | 68 | | | | (b) |
Total regulatory assets | 5,414 | | 4,651 | | | | |
Less: current portion | 690 | | 533 | | | | |
Total noncurrent regulatory assets | $ | 4,724 | | $ | 4,118 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes(k) | $ | 1,559 | | $ | 1,695 | | | | (b) |
Costs of removal(d) | 2,269 | | 2,955 | | | Yes | (i) |
| | | | | |
Hedge cost deferrals | 252 | | 155 | | | | (b) |
| | | | | |
| | | | | |
Provision for rate refunds | 28 | | 87 | | | Yes | (b) |
| | | | | |
| | | | | |
Other | 344 | | 357 | | | | (b) |
Total regulatory liabilities | 4,452 | | 5,249 | | | | |
Less: current portion | 332 | | 381 | | | | |
Total noncurrent regulatory liabilities | $ | 4,120 | | $ | 4,868 | | | | |
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Recovery period for costs related to nuclear facilities runs through the decommissioning period of each unit.
(d) Included in rate base.
(e) Pays interest on over-recovered costs in North Carolina. Includes certain purchased power costs in North Carolina and South Carolina and costs of distributed energy in South Carolina.
(f) South Carolina retail allocated costs are earning a return.
(g) Earns a debt and equity return on coal ash expenditures for North Carolina and South Carolina retail customers as permitted by various regulatory orders.
(h) Includes incentives on DSM/EE investments and is recovered through an annual rider mechanism.
(i) Recovered over the life of the associated assets.
(j) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
(k) Includes regulatory liabilities related to the change in the federal tax rate as a result of the Tax Act and the change in the North Carolina tax rate, both discussed in Note 24. Portions are included in rate base.
(l) Duke Energy Progress submitted a fuel filing to the NCUC in August 2022 for recovery of $251 million, which included deferrals through June 2022. This amount is expected to be recovered through November 2023. The next filing will be made in the second quarter of 2023. Duke Energy Progress submitted a fuel filing to the PSCSC in April 2022 for recovery of $44 million, which included deferrals through February 2022. This amount is expected to be recovered through June 2023. The next filing will be made in the second quarter of 2023.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
2022 North Carolina Rate Case
On October 6, 2022, Duke Energy Progress filed a PBR application with the NCUC to request an increase in base rate retail revenues. The rate request before the NCUC includes an MYRP to recover projected capital investments during the three year MYRP period. In addition to the MYRP, the PBR Application includes an Earnings Sharing Mechanism, Residential Decoupling Mechanism and Performance Incentive Mechanisms as required by HB 951. If approved, the overall retail revenue increase would be $326 million in Year 1, $151 million in Year 2 and $138 million in Year 3, for a combined total of $615 million or 16% by late 2025. The rate increase is driven primarily by major transmission and distribution investments since the last rate case and projected in the MYRP, as well as investments in energy storage and solar assets included in the MYRP consistent with the Carbon Plan. Duke Energy Progress plans to implement temporary rates, subject to refund, on June 1, 2023, and has requested permanent rates be effective by October 1, 2023. The evidentiary hearing has been scheduled to begin on May 1, 2023. Duke Energy Progress cannot predict the outcome of this matter.
2022 South Carolina Rate Case
On September 1, 2022, Duke Energy Progress filed an application with the PSCSC to request an increase in base rate retail revenues. On January 12, 2023, Duke Energy Progress and the ORS, as well as other consumer, environmental, and industrial intervening parties, filed a comprehensive Agreement and Stipulation of Settlement resolving all issues in the base rate proceeding. The major components of the stipulation include:
•A $52 million annual customer rate increase prior to the reduction from the accelerated return to customers of federal unprotected Property, Plant and Equipment related EDIT. After extending the remaining EDIT giveback to customers to 33 months, the net annual retail rate increase is approximately $36 million.
•ROE of 9.6% based upon a capital structure of 52.43% equity and 47.57% debt.
•Continuation of deferral treatment of coal ash basin closure costs. Supports an amortization period for remaining coal ash closure costs in this rate case of seven years. Duke Energy Progress agreed not to seek recovery of approximately $50 million of deferred coal ash expenditures related to retired sites in this rate case (South Carolina retail allocation).
•Accepts the 2021 Depreciation Study as proposed in this case, as adjusted for certain recommendations from ORS and includes accelerated retirement dates for certain coal units as originally proposed.
•Establishment of a storm reserve to help offset the costs of major storms.
The PSCSC held a hearing on January 17, 2023, to consider evidence supporting the stipulation and unanimously voted to approve the comprehensive agreement on February 9, 2023. The PSCSC voted to allow Duke Energy Progress to implement new customer rates by April 1, 2023. A final written order is due from the PSCSC by March 1, 2023.
FERC Return on Equity Complaint
On October 16, 2020, North Carolina Electric Membership Corporation (NCEMC) filed a complaint at the FERC against Duke Energy Progress pursuant to Section 206 of the Federal Power Act (FPA), alleging that the 11% stated ROE component in the demand formula rate in the Power Supply and Coordination Agreement between NCEMC and Duke Energy Progress is unjust and unreasonable. On June 16, 2022, Duke Energy Progress submitted to the FERC an Offer of Settlement and Settlement Agreement (Settlement Agreement) between NCEMC and Duke Energy Progress. The Settlement Agreement provides for an ROE of 10%, effective January 1, 2022, among other contract modifications. On November 7, 2022, the FERC approved the Settlement Agreement.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Florida
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Florida's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2022 | 2021 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs – coal ash | $ | 11 | | $ | 10 | | | | (b) |
AROs – nuclear and other | 15 | | 7 | | | | (b) |
Deferred fuel and purchased power(h) | 1,355 | | 415 | | | (f) | 2024 |
Accrued pension and OPEB(c) | 342 | | 374 | | | Yes | (g) |
| | | | | |
Nuclear asset securitized balance, net | 881 | | 937 | | | | 2036 |
| | | | | |
Storm cost deferrals(c) | 325 | | 19 | | | (f) | (b) |
Hedge costs deferrals(c) | 73 | | 77 | | | Yes | 2038 |
| | | | | |
Retired generation facilities(c) | 94 | | 94 | | | Yes | 2044 |
| | | | | |
AMI(c) | 30 | | 38 | | | Yes | 2032 |
Customer connect project(c) | 82 | | 67 | | | Yes | 2037 |
Costs of removal regulatory asset(c) | 221 | | 107 | | | (d) | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Qualifying facility contract buyouts(c) | 81 | | 94 | | | Yes | 2034 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 55 | | 49 | | | (d) | (b) |
Total regulatory assets | 3,565 | | 2,288 | | | | |
Less: current portion | 1,143 | | 497 | | | | |
Total noncurrent regulatory assets | $ | 2,422 | | $ | 1,791 | | | | |
| | | | | |
Net regulatory liability related to income taxes(c) | $ | 633 | | $ | 699 | | | | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
DOE Settlement | 154 | | — | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 90 | | 97 | | | (d) | (b) |
Total regulatory liabilities | 877 | | 796 | | | | |
Less: current portion | 244 | | 98 | | | | |
Total noncurrent regulatory liabilities | $ | 633 | | $ | 698 | | | | |
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Included in rate base.
(d) Certain costs earn/pay a return.
(e) Earns a debt return/interest once collections begin.
(f) Earns commercial paper rate.
(g) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
(h) Duke Energy Florida submitted a fuel filing to the FPSC in January 2023 for recovery of $795 million, which included the 2022 actual under-recovery of $1.2 billion, offset by projected declining fuel costs in 2023 due to lower natural gas prices. The expected recovery period is April 2023 through March 2024.
2021 Settlement Agreement
On January 14, 2021, Duke Energy Florida filed a Settlement Agreement (the “2021 Settlement”) with the FPSC. The parties to the 2021 Settlement include Duke Energy Florida, the Office of Public Counsel (OPC), the Florida Industrial Power Users Group, White Springs Agricultural Chemicals, Inc. d/b/a PCS Phosphate and NUCOR Steel Florida, Inc. (collectively, the “Parties”).
Pursuant to the 2021 Settlement, the Parties agreed to a base rate stay-out provision that expires year-end 2024; however, Duke Energy Florida is allowed an increase to its base rates of an incremental $67 million in 2022, $49 million in 2023 and $79 million in 2024, subject to adjustment in the event of tax reform during the years 2021, 2022 and 2023. The Parties also agreed to an ROE band of 8.85% to 10.85% with a midpoint of 9.85% based on a capital structure of 53% equity and 47% debt. The ROE band can be increased by 25 basis points if the average 30-year U.S. Treasury rate increases 50 basis points or more over a six-month period in which case the midpoint ROE would rise from 9.85% to 10.10%. On July 25, 2022, this provision was triggered. Duke Energy Florida filed a petition with the FPSC on August 12, 2022, to increase the ROE effective August 2022 with a base rate increase effective January 1, 2023. The FPSC approved this request on October 4, 2022. The 2021 Settlement Agreement also provided that Duke Energy Florida will be able to retain the $173 million retail portion of the expected DOE award from its lawsuit to recover spent nuclear fuel to mitigate customer rates over the term of the 2021 Settlement. In return, Duke Energy Florida is permitted to recognize the $173 million into earnings through the approved settlement period. The full amount of the $173 million is expected to be recognized between the years of 2023 and 2024, while also remaining within the approved ROE band. Duke Energy Florida settled the DOE lawsuit and received payment of approximately $180 million on June 15, 2022, of which the retail portion was approximately $154 million. The 2021 Settlement authorizes Duke Energy Florida to collect the difference between $173 million and the $154 million retail portion of the amount received through the capacity cost recovery clause.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
The 2021 Settlement also contained a provision to recover or flow-back the effects of tax law changes. As a result of the IRA enacted on August 16, 2022, Duke Energy Florida is eligible for PTCs associated with solar facilities placed in service beginning in January 2022. Duke Energy Florida filed a petition with the FPSC on October 17, 2022, to reduce base rates effective January 1, 2023, by $56 million to flow back the expected 2023 PTCs and to flow back the expected 2022 PTCs via an adjustment to the capacity cost recovery clause. On December 14, 2022, the FPSC issued an order approving Duke Energy Florida’s petition. See Note 24 for additional information on the IRA.
In addition to these terms, the 2021 Settlement contained provisions related to the accelerated depreciation of Crystal River Units 4-5, the approval of approximately $1 billion in future investments in new cost-effective solar power, the implementation of a new Electric Vehicle Charging Station Program and the deferral and recovery of costs in connection with the implementation of Duke Energy Florida’s Vision Florida program, which explores various emerging non-carbon emitting generation technology, distributed technologies and resiliency projects, among other things. The 2021 Settlement also resolved remaining unrecovered storm costs for Hurricane Michael and Hurricane Dorian.
The FPSC approved the 2021 Settlement on May 4, 2021, issuing an order on June 4, 2021. Revised customer rates became effective January 1, 2022, with subsequent base rate increases effective January 1, 2023, and January 1, 2024.
Clean Energy Connection
On July 1, 2020, Duke Energy Florida petitioned the FPSC for approval of a voluntary solar program. The program consists of 10 new solar generating facilities with combined capacity of approximately 750 MW. The program allows participants to support cost-effective solar development in Florida by paying a subscription fee based on per kilowatt subscriptions and receiving a credit on their bill based on the actual generation associated with their portion of the solar portfolio. The estimated cost of the 10 new solar generation facilities is approximately $1 billion and the projects are expected to be completed by the end of 2024. This investment will be included in base rates offset by the revenue from the subscription fees and the credits will be included for recovery in the fuel cost recovery clause. The FPSC approved the program in January 2021.
On February 24, 2021, the League of United Latin American Citizens (LULAC) filed a notice of appeal of the FPSC’s order approving the Clean Energy Connection to the Supreme Court of Florida. The Supreme Court of Florida heard the oral argument on February 9, 2022. On May 27, 2022, the Supreme Court of Florida issued an order remanding the case back to the FPSC so that the FPSC can amend its order to better address some of the arguments raised by LULAC. On September 23, 2022, the FPSC issued a revised order and submitted it on September 26, 2022, to the Supreme Court of Florida. The Supreme Court of Florida requested that the parties file supplemental briefs regarding the revised order, which were filed February 6, 2023. The FPSC approval order remains in effect pending the outcome of the appeal. Duke Energy Florida cannot predict the outcome of this matter.
Storm Protection Plan
On April 11, 2022, Duke Energy Florida filed a Storm Protection Plan for approval with the FPSC. The plan, which covers investments for the 2023-2032 time frame, reflects approximately $7 billion of capital investment in transmission and distribution meant to strengthen its infrastructure, reduce outage times associated with extreme weather events, reduce restoration costs and improve overall service reliability. The evidentiary hearing began on August 2, 2022. On October 4, 2022, the FPSC voted to approve Duke Energy Florida's plan with one modification to remove the transmission loop radially fed program, representing a reduction of approximately $80 million over the 10-year period starting in 2025. On December 9, 2022, the Office of Public Counsel filed a notice of appeal of this order to the Florida Supreme Court. Duke Energy Florida cannot predict the outcome of this matter.
Hurricane Ian
On September 28, 2022, much of Duke Energy Florida’s service territory was impacted by Hurricane Ian, which caused significant damage resulting in more than 1.1 million outages. Duke Energy Florida's December 31, 2022 Consolidated Balance Sheets include an estimate of approximately $353 million related to deferred Hurricane Ian storm costs, consistent with the FPSC's storm rule, in Regulatory assets within Other Noncurrent Assets. After depleting any existing storm reserves, which were approximately $107 million before Hurricane Ian, Duke Energy Florida is permitted to petition the FPSC for recovery of additional incremental operation and maintenance costs resulting from the storm and to replenish the retail customer storm reserve to approximately $132 million. Duke Energy Florida filed its petition for cost recovery of various storms, including Hurricane Ian, and replenishment of the storm reserve on January 23, 2023, seeking recovery of $442 million, for recovery over 12 months beginning with the first billing cycle in April 2023. Duke Energy Florida cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Ohio
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Ohio's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2022 | 2021 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs – coal ash | $ | — | | $ | 33 | | | Yes | (b) |
| | | | | |
Deferred fuel and purchased power | 54 | | 38 | | | | 2023 |
Accrued pension and OPEB | 129 | | 133 | | | | (e) |
| | | | | |
| | | | | |
| | | | | |
Storm cost deferrals | 14 | | 2 | | | | 2023 |
Hedge costs deferrals | 2 | | 5 | | | | (b) |
PISCC and deferred operating expenses(c) | 15 | | 16 | | | Yes | 2083 |
| | | | | |
| | | | | |
AMI | 18 | | 24 | | | | (b) |
Customer connect project | 54 | | 41 | | | | (b) |
| | | | | |
| | | | | |
| | | | | |
CEP deferral | 190 | | 161 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Deferred pipeline integrity costs | 28 | | 24 | | | Yes | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Propane caverns | 26 | | — | | | | (b) |
| | | | | |
Manufactured gas plant (MGP) | — | | 104 | | | | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 154 | | 126 | | | | (b) |
Total regulatory assets | 684 | | 707 | | | | |
Less: current portion | 103 | | 72 | | | | |
Total noncurrent regulatory assets | $ | 581 | | $ | 635 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes | $ | 496 | | $ | 602 | | | | (b) |
Costs of removal | 9 | | 39 | | | | (d) |
| | | | | |
| | | | | |
Accrued pension and OPEB | 21 | | 21 | | | | (e) |
| | | | | |
Provision for rate refunds | — | | 61 | | | | |
| | | | | |
| | | | | |
Other | 107 | | 78 | | | | (b) |
Total regulatory liabilities | 633 | | 801 | | | | |
Less: current portion | 99 | | 62 | | | | |
Total noncurrent regulatory liabilities | $ | 534 | | $ | 739 | | | | |
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Included in rate base.
(d) Recovery over the life of the associated assets.
(e) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
Duke Energy Ohio Electric Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application on October 1, 2021, with supporting testimony filed on October 15, 2021, requesting an increase in electric distribution base rates of approximately $55 million and an ROE of 10.3%. This is an approximate 3.3% average increase in the customer's total bill across all customer classes. The drivers for this case are capital invested since Duke Energy Ohio's last electric distribution base rate case in 2017. Duke Energy Ohio is also seeking to adjust the caps on its Distribution Capital Investment Rider (DCI Rider). The Staff of the PUCO (Staff) report was issued on May 19, 2022, recommending an increase in electric distribution base rates of $2 million to $15 million with an ROE range of 8.84% to 9.85%. On September 19, 2022, Duke Energy Ohio filed a Stipulation and Recommendation with the PUCO, which includes an increase in overall electric distribution base rates of approximately $23 million and an ROE of 9.5%. The stipulation is among all but one party to the proceeding. The PUCO issued an order on December 14, 2022, approving the Stipulation without material modification. Rates went into effect on January 3, 2023. The Ohio Consumers' Counsel (OCC) filed an application for rehearing on January 13, 2023. On February 8, 2023, the Commission granted the OCC's application for rehearing for further consideration. Duke Energy Ohio cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Energy Efficiency Cost Recovery
In response to changes in Ohio law that eliminated Ohio's energy efficiency mandates, the PUCO issued an order on February 26, 2020, directing utilities to wind down their demand-side management programs by September 30, 2020, and to terminate the programs by December 31, 2020. Duke Energy Ohio took the following actions:
•On March 27, 2020, Duke Energy Ohio filed an application for rehearing seeking clarification on the final true up and reconciliation process after 2020. On November 18, 2020, the PUCO issued an order replacing the cost cap previously imposed upon Duke Energy Ohio with a cap on shared savings recovery. On December 18, 2020, Duke Energy Ohio filed an additional application for rehearing challenging, among other things, the imposition of the cap on shared savings. On January 13, 2021, the application for rehearing was granted for further consideration.
•On October 9, 2020, Duke Energy Ohio filed an application to implement a voluntary energy efficiency program portfolio to commence on January 1, 2021. The application proposed a mechanism for recovery of program costs and a benefit associated with avoided transmission and distribution costs. This application remains under review.
•On November 18, 2020, the PUCO issued an order directing all utilities to set their energy efficiency riders to zero effective January 1, 2021, and to file a separate application for final reconciliation of all energy efficiency costs prior to December 31, 2020. Effective January 1, 2021, Duke Energy Ohio suspended its energy efficiency programs.
•On June 14, 2021, the PUCO requested each utility to file by July 15, 2021, a proposal to reestablish low-income programs through December 31, 2021. Duke Energy Ohio filed its application on July 14, 2021.
•On February 23, 2022, the PUCO issued its Fifth Entry on Rehearing that 1) affirmed its reduction in Duke Energy Ohio's shared savings cap; 2) denied rehearing/clarification regarding lost distribution revenues and shared savings recovery for periods after December 31, 2020; and 3) directed Duke Energy Ohio to submit an updated application with exhibits.
•On March 25, 2022, Duke Energy Ohio filed its Amended Application consistent with the PUCO's order.
Duke Energy Ohio cannot predict the outcome of this matter.
Duke Energy Ohio Natural Gas Base Rate Case
Duke Energy Ohio filed with the PUCO a natural gas base rate case application on June 30, 2022, with supporting testimony filed on July 14, 2022, requesting an increase in natural gas base rates of approximately $49 million and an ROE of 10.3%. This is an approximate 5.6% average increase in the customer's total bill across all customer classes. The drivers for this case are capital invested since Duke Energy Ohio's last natural gas base rate case in 2012. Duke Energy Ohio is also seeking to adjust the caps on its Capital Expenditure Program Rider (CEP Rider). The Staff of the PUCO (Staff) report was issued on December 21, 2022, recommending an increase in natural gas base rates of $24 million to $36 million, with an equity ratio of 52% and an ROE range of 9.03% to 10.04%. A procedural schedule was issued on December 22, 2022, scheduling the evidentiary hearing to commence on March 28, 2023. Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio installed a new natural gas pipeline (the Central Corridor Project) in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. Construction of the pipeline extension was completed and placed in service on March 14, 2022, with a total cost of approximately $170 million (excluding overheads and AFUDC).
MGP Cost Recovery
In an order issued in 2013, the PUCO approved Duke Energy Ohio's deferral and recovery of costs related to environmental remediation at two sites (East End and West End) that housed former MGP operations. Duke Energy Ohio made annual applications with the PUCO to recover its incremental remediation costs consistent with the PUCO’s directive in Duke Energy Ohio’s 2012 natural gas base rate case.
A Stipulation and Recommendation was filed jointly by Duke Energy Ohio, the Staff, the Office of the Ohio Consumers' Counsel and the Ohio Energy Group on August 31, 2021, which was approved without modification by the PUCO on April 20, 2022. The Stipulation and Recommendation resolved all open issues regarding MGP remediation costs incurred between 2013 and 2019, Duke Energy Ohio’s request for additional deferral authority beyond 2019 and the pending issues related to the Tax Act described below as it related to Duke Energy Ohio’s natural gas operations. As a result of the approval of the Stipulation and Recommendation, Duke Energy Ohio recognized pretax charges of approximately $15 million to Operating revenues, regulated natural gas and $58 million to Operation, maintenance and other and a tax benefit of $72 million to Income Tax (Benefit) Expense in the Consolidated Statements of Operations for the year ended December 31, 2022. The Stipulation and Recommendation further acknowledged Duke Energy Ohio’s ability to file a request for additional deferral authority in the future related to environmental remediation of any MGP impacts in the Ohio River, if necessary, subject to specific conditions. On June 15, 2022, the PUCO granted the rehearing requests of Interstate Gas Supply, Inc. (IGS) and The Retail Energy Supply Association (RESA), which were filed on May 20, 2022, for further consideration. Duke Energy Ohio cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Tax Act – Ohio
On December 21, 2018, Duke Energy Ohio filed an application to change its base rate tariffs and establish a new rider to implement the benefits of the Tax Act for natural gas customers. The new rider would flow through to customers the benefit of the reduction in the statutory federal tax rate from 35% to 21% since January 1, 2018, all future benefits of the lower tax rates and a full refund of deferred income taxes collected at the higher tax rates in prior years. Deferred income taxes subject to normalization rules would be refunded consistent with federal law and deferred income taxes not subject to normalization rules will be refunded over a 10-year period. An evidentiary hearing occurred on August 7, 2019. The Stipulation and Recommendation filed on August 31, 2021, and approved on April 20, 2022, disclosed in the MGP Cost Recovery matter above, resolves the outstanding issues in this proceeding by providing customers a one-time bill credit for the reduction in the statutory federal tax rate from 35% to 21% since January 1, 2018, through June 1, 2022, and reducing base rates going forward. Deferred income taxes subject to normalization rules will be refunded consistent with federal law through a new rider. Deferred income taxes not subject to normalization rules were written off. The commission granted the rehearing requests of IGS and RESA for further consideration. Duke Energy Ohio cannot predict the outcome of this matter.
Midwest Propane Caverns
Duke Energy Ohio used propane stored in caverns to meet peak demand during winter for several decades. Once the Central Corridor Project was complete and placed in service, the propane peaking facilities were no longer necessary and were retired. On October 7, 2021, Duke Energy Ohio requested deferral treatment of the property, plant and equipment as well as costs related to propane inventory and decommissioning costs. On January 6, 2022, the Staff issued a report recommending deferral authority for costs related to propane inventory and decommissioning costs, but not for the net book value of the remaining plant assets. As a result of the Staff's report, Duke Energy Ohio recorded a $19 million charge to Impairment of assets and other charges on the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2021. A Stipulation and Recommendation was filed jointly by Duke Energy Ohio and the Staff on April 27, 2022, recommending, among other things, approval of deferral treatment of a portion of the net book value of the property, plant and equipment prior to the 2021 impairment at the time of the next natural gas base rate case, excluding operations and maintenance savings, decommissioning costs not to exceed $7 million and costs related to propane inventory. The Stipulation and Recommendation states that Duke Energy Ohio will seek recovery of the deferral through its next natural gas base rate case proceeding with a proposed amortization period of at least 10 years and include an independent engineering study analyzing the necessity and prudency of the incremental investments made at the facilities since March 31, 2012. Duke Energy Ohio will not seek a return on the deferred amounts. An evidentiary hearing was held on September 8, 2022. On October 5, 2022, the PUCO issued an order approving the Stipulation and Recommendation as filed. As a result of the order, Duke Energy Ohio recorded a reversal of $12 million to Impairment of assets and other charges on the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2022.
Duke Energy Kentucky Electric Base Rate Case
On December 1, 2022, Duke Energy Kentucky filed a rate case with the KPSC requesting an annualized increase in electric base rates of approximately $75 million and an ROE of 10.35%. This is an overall increase in rates of approximately 17.8%. The request for rate increase is driven by capital investments to strengthen the electricity generation and delivery systems along with adjusted depreciation rates for the East Bend and Woodsdale generation stations to support the energy transition. Duke Energy Kentucky is also requesting new programs and tariff updates, including a voluntary community-based renewable subscription program and two EV charging programs. A procedural schedule was issued on December 19, 2022, scheduling the evidentiary hearing for May 9, 2023. New rates are anticipated to go into effect around July 15, 2023. Duke Energy Kentucky cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Indiana
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Duke Energy Indiana's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2022 | 2021 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
AROs – coal ash | $ | 385 | | $ | 749 | | | Yes | (b) |
| | | | | |
Deferred fuel and purchased power | 138 | | 158 | | | | 2023 |
Accrued pension and OPEB | 214 | | 222 | | | | (e) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Hedge costs deferrals | 20 | | 35 | | | | (b) |
PISCC and deferred operating expenses(c) | 255 | | 262 | | | Yes | (b) |
Retired generation facilities(c) | 34 | | 38 | | | Yes | 2030 |
| | | | | |
AMI | 15 | | 17 | | | | 2031 |
Customer connect project | 19 | | 11 | | | | (b) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 44 | | 63 | | | | (b) |
Total regulatory assets | 1,124 | | 1,555 | | | | |
Less: current portion | 249 | | 277 | | | | |
Total noncurrent regulatory assets | $ | 875 | | $ | 1,278 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes | $ | 840 | | $ | 908 | | | | (b) |
Costs of removal | 531 | | 575 | | | | (d) |
| | | | | |
Hedge cost deferrals | 81 | | — | | | | (b) |
Accrued pension and OPEB | 104 | | 113 | | | | (e) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Other | 85 | | 96 | | | | (b) |
Total regulatory liabilities | 1,641 | | 1,692 | | | | |
Less: current portion | 187 | | 127 | | | | |
Total noncurrent regulatory liabilities | $ | 1,454 | | $ | 1,565 | | | | |
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Included in rate base.
(d) Refunded over the life of the associated assets.
(e) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
2019 Indiana Rate Case
On July 2, 2019, Duke Energy Indiana filed a general rate case with the IURC for a rate increase for retail customers of approximately $395 million. The rebuttal case, filed on December 4, 2019, updated the requested revenue requirement to result in a 15.6% or $396 million average retail rate increase, including the impacts of the utility receipts tax. On June 29, 2020, the IURC issued an order in the rate case approving a revenue increase of $146 million before certain adjustments and ratemaking refinements. The order approved Duke Energy Indiana's requested forecasted rate base of $10.2 billion as of December 31, 2020, including the Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant. The IURC reduced Duke Energy Indiana's request by slightly more than $200 million, when accounting for the utility receipts tax and other adjustments. Approximately 50% of the reduction was due to a prospective change in depreciation and use of regulatory asset for the end-of-life inventory at retired generating plants, approximately 20% was due to the approved ROE of 9.7% versus the requested ROE of 10.4% and approximately 20% was related to miscellaneous earnings neutral adjustments. Step one rates were estimated to be approximately 75% of the total and became effective on July 30, 2020. Step two rates estimated to be the remaining 25% of the total rate increase were approved on July 28, 2021, and implemented in August 2021.
Several groups appealed the IURC order to the Indiana Court of Appeals. The Indiana Court of Appeals affirmed the IURC decision on May 13, 2021. However, upon appeal by the Indiana Office of Utility Consumer Counselor (OUCC) and the Duke Industrial Group on March 10, 2022, the Indiana Supreme Court found that the IURC erred in allowing Duke Energy Indiana to recover coal ash costs incurred before the IURC’s rate case order in June 2020. The Indiana Supreme Court found that allowing Duke Energy Indiana to recover coal ash costs incurred between rate cases that exceeded the amount built into base rates violated the prohibition against retroactive ratemaking. The IURC’s order has been remanded to the IURC for additional proceedings consistent with the Indiana Supreme Court’s opinion. As a result of the court's opinion, Duke Energy Indiana recognized pretax charges of approximately $211 million to Impairment of assets and other charges and $46 million to Operating revenues in the Consolidated Statements of Operations for the year ended December 31, 2022. Duke Energy Indiana filed a request for rehearing with the Supreme Court on April 11, 2022, which the court denied on May 26, 2022. Duke Energy Indiana filed its testimony in the remand proceeding on August 18, 2022. An evidentiary hearing is scheduled to begin March 3, 2023. Duke Energy Indiana cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
2020 Indiana Coal Ash Recovery Case
In Duke Energy Indiana’s 2019 rate case, the IURC also opened a subdocket for post-2018 coal ash related expenditures. Duke Energy Indiana filed testimony on April 15, 2020, in the coal ash subdocket requesting recovery for the post-2018 coal ash basin closure costs for plans that have been approved by the Indiana Department of Environmental Management (IDEM) as well as continuing deferral, with carrying costs, on the balance. An evidentiary hearing was held on September 14, 2020. Briefing was completed by mid-September 2021. On November 3, 2021, the IURC issued an order allowing recovery for post-2018 coal ash basin closure costs for the plans that have been approved by IDEM, as well as continuing deferral, with carrying costs, on the balance. The OUCC and the Duke Industrial Group appealed. The Indiana Court of Appeals issued its opinion on February 21, 2023, reversing the IURC's order to the extent that it allowed Duke Energy Indiana to recover federally mandated costs incurred prior to the IURC's November 3, 2021 order. In addition, the court found that any costs incurred pre-petition to determine federally mandated compliance options were not specifically authorized by the statute and should also be disallowed. Duke Energy Indiana is assessing its appellate options and must file a petition to transfer to the Indiana Supreme Court by April 7, 2023. As a result of the court's opinion, Duke Energy Indiana recognized a pretax charge of approximately $175 million to Impairment of assets and other charges for the year ended December 31, 2022. Duke Energy Indiana cannot predict the outcome of this matter.
TDSIC 2.0
On November 23, 2021, Duke Energy Indiana filed for approval of the Transmission, Distribution, Storage Improvement Charge 2.0 investment plan for 2023-2028 (TDSIC 2.0). On June 15, 2022, the IURC approved, without modification, TDSIC 2.0, which includes approximately $2 billion in transmission and distribution investments selected to improve customer reliability, harden and improve resiliency of the grid, enable expansion of renewable and distributed energy projects and encourage economic development. In addition, the IURC set up a subdocket to consider the targeted economic development project, which the IURC approved on March 2, 2022. On July 15, 2022, the OUCC filed a notice of appeal to the Indiana Court of Appeals in Duke Energy Indiana’s TDSIC 2.0 proceeding. An appellant brief was filed on October 28, 2022, and Duke Energy Indiana filed its responsive brief on December 28, 2022. Duke Energy Indiana cannot predict the outcome of this matter.
Piedmont
Regulatory Assets and Liabilities
The following tables present the regulatory assets and liabilities recorded on Piedmont's Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | |
| December 31, | | Earns/Pays | Recovery/Refund |
(in millions) | 2022 | 2021 | | a Return | Period Ends |
Regulatory Assets(a) | | | | | |
| | | | | |
AROs – nuclear and other | $ | 27 | | $ | 22 | | | | (d) |
| | | | | |
Accrued pension and OPEB(c) | 119 | | 82 | | | | (g) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Vacation accrual | 12 | | 12 | | | | 2023 |
| | | | | |
| | | | | |
| | | | | |
Derivatives – natural gas supply contracts(f) | 168 | | 139 | | | | |
| | | | | |
| | | | | |
Deferred pipeline integrity costs(c) | 93 | | 84 | | | | 2025 |
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Amounts due from customers | 57 | | 85 | | | (e) | (b) |
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Other | 35 | | 33 | | | | (b) |
Total regulatory assets | 511 | | 457 | | | | |
Less: current portion | 119 | | 141 | | | | |
Total noncurrent regulatory assets | $ | 392 | | $ | 316 | | | | |
Regulatory Liabilities(a) | | | | | |
Net regulatory liability related to income taxes | $ | 459 | | $ | 510 | | | | (b) |
Costs of removal(c) | 573 | | 572 | | | | (d) |
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Other | 66 | | 32 | | | (e) | (b) |
Total regulatory liabilities | 1,098 | | 1,114 | | | | |
Less: current portion | 74 | | 56 | | | | |
Total noncurrent regulatory liabilities | $ | 1,024 | | $ | 1,058 | | | | |
(a) Regulatory assets and liabilities are excluded from rate base unless otherwise noted.
(b) The expected recovery or refund period varies or has not been determined.
(c) Included in rate base.
(d) Recovery over the life of the associated assets.
(e) Certain costs earn/pay a return.
(f) Balance will fluctuate with changes in the market. Current contracts extend into 2031.
(g) Recovered primarily over the average remaining service periods or life expectancies of employees covered by the benefit plans. See Note 23 for additional detail.
2022 South Carolina Rate Case
On April 1, 2022, Piedmont filed an application with the PSCSC for a rate increase for retail customers of approximately $7 million, which represents an approximate 3.4% increase in retail revenues. An evidentiary hearing was held on August 15, 2022. On September 15, 2022, the PSCSC delivered its decision, which included an ROE of 9.3% and a capital structure of 52.2% equity and 47.8% debt and issued its final order on October 6, 2022. Revised customer rates became effective in October 2022 and resulted in a rate decrease for retail customers of approximately $1 million.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Tennessee Annual Review Mechanism
On October 10, 2022, the TPUC approved Piedmont’s petition to adopt an Annual Review Mechanism (ARM) as allowed by Tennessee law. Under the ARM, Piedmont will adjust rates annually to achieve its allowed 9.80% ROE over the upcoming year and to true up any variance between its allowed ROE and actual ROE from the prior calendar year. The initial year subject to the true up is 2022, and the initial rate adjustments request will be filed in May 2023 for rates effective October 1, 2023.
OTHER REGULATORY MATTERS
Atlantic Coast Pipeline, LLC
Atlantic Coast Pipeline (ACP pipeline) was planned to be an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. Duke Energy indirectly owns a 47% interest, which is accounted for as an equity method investment through its Gas Utilities and Infrastructure segment.
As a result of the uncertainty created by various legal rulings, the potential impact on the cost and schedule for the project, the ongoing legal challenges and the risk of additional legal challenges and delays through the construction period and Dominion’s decision to sell substantially all of its gas transmission and storage segment assets, Duke Energy's Board of Directors and management decided that it was not prudent to continue to invest in the project. On July 5, 2020, Duke Energy and Dominion announced the cancellation of the ACP pipeline project.
As part of the pretax charges to earnings of approximately $2.1 billion recorded for the year ended December 31, 2020, within Equity in earnings (losses) of unconsolidated affiliates on the Duke Energy Consolidated Statements of Operations, Duke Energy established liabilities related to the cancellation of the ACP pipeline project. In February 2021, Duke Energy paid approximately $855 million to fund ACP's outstanding debt, relieving Duke Energy of its guarantee. At December 31, 2022, there is $59 million and $47 million within Other Current Liabilities and Other Noncurrent Liabilities, respectively, in the Gas Utilities and Infrastructure segment. The liabilities represent Duke Energy's obligation of approximately $106 million to satisfy remaining ARO requirements to restore construction sites.
See Notes 8 and 13 for additional information regarding this transaction.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file IRPs with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina and Indiana earlier than their current estimated useful lives. The NCUC concluded in its Carbon Plan order that the projected retirements dates presented by Duke Energy Carolinas and Duke Energy Progress in their Carbon Plan for coal-fired generating facilities were reasonable for planning purposes and further directed that appropriate steps be taken to optimally retire the coal fleet according to such schedule. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs or Carbon Plan as evaluated for potential retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Consolidated Balance Sheets as of December 31, 2022, and exclude capitalized asset retirement costs.
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| | | | | | | | | Remaining Net | | | | |
| Capacity | | | | | | | | Book Value | | | | |
| (in MW) | | | | | | | | (in millions) | | | | |
Duke Energy Carolinas | | | | | | | | | | | | | |
Allen Steam Station Unit 1(a) | 167 | | | | | | | | | $ | 10 | | | | | |
Allen Steam Station Unit 5(b) | 259 | | | | | | | | | 233 | | | | | |
Cliffside Unit 5(b) | 546 | | | | | | | | | 344 | | | | | |
Marshall Units 1-2(b) | 760 | | | | | | | | 428 | | | | |
Duke Energy Progress | | | | | | | | | | | | | |
Mayo Unit 1(b) | 713 | | | | | | | | | 639 | | | | | |
Roxboro Units 3-4(b) | 1,409 | | | | | | | | | 425 | | | | | |
Duke Energy Florida | | | | | | | | | | | | | |
Crystal River Units 4-5(c) | 1,442 | | | | | | | | | 1,549 | | | | | |
Duke Energy Indiana | | | | | | | | | | | | | |
Gibson Units 1-5(d) | 2,845 | | | | | | | | | 2,043 | | | | | |
Cayuga Units 1-2(d) | 1,005 | | | | | | | | | 622 | | | | | |
Total Duke Energy | 9,146 | | | | | | | | | $ | 6,293 | | | | | |
(a) As part of the 2015 resolution of a lawsuit involving alleged New Source Review violations, Duke Energy Carolinas must retire Allen Steam Station Unit 1 by December 31, 2024.
(b) These units were included in the IRP filed by Duke Energy Carolinas and Duke Energy Progress in South Carolina on September 1, 2020, and in the Carbon Plan adopted by the NCUC in December 2022. The long-term energy options considered could result in retirement of these units earlier than their current estimated useful lives.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
(c) On January 14, 2021, Duke Energy Florida filed the 2021 Settlement agreement with the FPSC, which proposed depreciation rates reflecting retirement dates for Duke Energy Florida's last two coal-fired generating facilities, Crystal River Units 4-5, eight years ahead of schedule in 2034 rather than in 2042. The FPSC approved the 2021 Settlement on May 4, 2021. The remaining net book value reflected in the table above excludes $200 million of accelerated deprecation collected from retail customers pursuant to Duke Energy Florida's 2017 Settlement.
(d) The rate case filed July 2, 2019, included proposed depreciation rates reflecting retirement dates from 2026 to 2038. The depreciation rates reflecting these updated retirement dates were approved by the IURC as part of the rate case order issued on June 29, 2020.
5. COMMITMENTS AND CONTINGENCIES
INSURANCE
General Insurance
The Duke Energy Registrants have insurance and reinsurance coverage either directly or through indemnification from Duke Energy’s captive insurance company, Bison, and its affiliates, consistent with companies engaged in similar commercial operations with similar type properties. The Duke Energy Registrants’ coverage includes (i) commercial general liability coverage for liabilities arising to third parties for bodily injury and property damage; (ii) workers’ compensation; (iii) automobile liability coverage; and (iv) property coverage for all real and personal property damage. Real and personal property damage coverage excludes electric transmission and distribution lines, but includes damages arising from boiler and machinery breakdowns, earthquakes, flood damage and extra expense, but not outage or replacement power coverage. All coverage is subject to certain deductibles or retentions, sublimits, exclusions, terms and conditions common for companies with similar types of operations. The Duke Energy Registrants self-insure their electric transmission and distribution lines against loss due to storm damage and other natural disasters. As discussed further in Note 4, Duke Energy Florida maintains a storm damage reserve and has a regulatory mechanism to recover the cost of named storms on an expedited basis.
The cost of the Duke Energy Registrants’ coverage can fluctuate from year to year reflecting claims history and conditions of the insurance and reinsurance markets.
In the event of a loss, terms and amounts of insurance and reinsurance available might not be adequate to cover claims and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on the Duke Energy Registrants’ results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available.
Nuclear Insurance
Duke Energy Carolinas owns and operates McGuire and Oconee and operates and has a partial ownership interest in Catawba. McGuire and Catawba each have two reactors. Oconee has three reactors. The other joint owners of Catawba reimburse Duke Energy Carolinas for certain expenses associated with nuclear insurance per the Catawba joint owner agreements.
Duke Energy Progress owns and operates Robinson, Brunswick and Harris. Robinson and Harris each have one reactor. Brunswick has two reactors.
Duke Energy Florida owns Crystal River Unit 3, which permanently ceased operation in 2013 and achieved a SAFSTOR condition in July 2019. On October 1, 2020, Crystal River Unit 3 changed decommissioning strategies from SAFSTOR to DECON.
In the event of a loss, terms and amounts of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered by other sources, could have a material effect on Duke Energy Carolinas’, Duke Energy Progress’ and Duke Energy Florida’s results of operations, cash flows or financial position. Each company is responsible to the extent losses may be excluded or exceed limits of the coverage available.
Nuclear Liability Coverage
The Price-Anderson Act requires owners of nuclear reactors to provide for public nuclear liability protection per nuclear incident up to a maximum total financial protection liability. The maximum total financial protection liability, which is approximately $13.7 billion, is subject to change every five years for inflation and for the number of licensed reactors. Total nuclear liability coverage consists of a combination of private primary nuclear liability insurance coverage and a mandatory industry risk-sharing program to provide for excess nuclear liability coverage above the maximum reasonably available private primary coverage. The U.S. Congress could impose revenue-raising measures on the nuclear industry to pay claims.
Primary Liability Insurance
Duke Energy Carolinas and Duke Energy Progress have purchased the maximum reasonably available private primary nuclear liability insurance as required by law, which is $450 million per station. Duke Energy Florida has purchased $100 million primary nuclear liability insurance for Crystal River in compliance with the law.
Excess Liability Program
This program provides $13.2 billion of coverage per incident through the Price-Anderson Act’s mandatory industrywide excess secondary financial protection program of risk pooling. This amount is the product of potential cumulative retrospective premium assessments of $138 million times the current 96 licensed commercial nuclear reactors in the U.S. Under this program, operating unit licensees could be assessed retrospective premiums to compensate for public nuclear liability damages in the event of a nuclear incident at any licensed facility in the U.S. Retrospective premiums may be assessed at a rate not to exceed $20.5 million per year per licensed reactor for each incident. The assessment may be subject to state premium taxes.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
Nuclear Property and Accidental Outage Coverage
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are members of Nuclear Electric Insurance Limited (NEIL), an industry mutual insurance company, which provides property damage, nuclear accident decontamination and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due to accidents or acts of terrorism. Additionally, NEIL provides accidental outage coverage for losses in the event of a major accidental outage at an insured nuclear station.
Pursuant to regulations of the NRC, each company’s property damage insurance policies provide that all proceeds from such insurance be applied, first, to place the plant in a safe and stable condition after a qualifying accident and second, to decontaminate the plant before any proceeds can be used for decommissioning, plant repair or restoration.
Losses resulting from acts of terrorism are covered as common occurrences, such that if terrorist acts occur against one or more commercial nuclear power plants insured by NEIL within a 12-month period, they would be treated as one event and the owners of the plants where the act occurred would share one full limit of liability. The full limit of liability is currently $3.2 billion. NEIL sublimits the total aggregate for all of their policies for non-nuclear terrorist events to approximately $1.8 billion.
Each nuclear facility has accident property damage, nuclear accident decontamination and premature decommissioning liability insurance from NEIL with limits of $1.5 billion, except for Crystal River Unit 3. Crystal River Unit 3’s limit is $50 million and is on an actual cash value basis. All nuclear facilities except for Catawba and Crystal River Unit 3 also share an additional $1.25 billion nuclear accident insurance limit above their dedicated underlying limit. This shared additional excess limit is not subject to reinstatement in the event of a loss. Catawba has a dedicated $1.25 billion of additional nuclear accident insurance limit above its dedicated underlying limit. Catawba and Oconee also have an additional $750 million of non-nuclear accident property damage limit. All coverages are subject to sublimits and significant deductibles.
NEIL’s Accidental Outage policy provides some coverage, similar to business interruption, for losses in the event of a major accident property damage outage of a nuclear unit. Coverage is provided on a weekly limit basis after a significant waiting period deductible and at 100% of the applicable weekly limits for 52 weeks and 80% of the applicable weekly limits for up to the next 110 weeks. Coverage is provided until these applicable weekly periods are met, where the accidental outage policy limit will not exceed $490 million for Catawba, McGuire, Harris, Brunswick, Oconee and Robinson. NEIL sublimits the accidental outage recovery up to the first 104 weeks of coverage not to exceed $328 million from non-nuclear accidental property damage. Coverage amounts decrease in the event more than one unit at a station is out of service due to a common accident. All coverages are subject to sublimits and significant deductibles.
Potential Retroactive Premium Assessments
In the event of NEIL losses, NEIL’s board of directors may assess member companies' retroactive premiums of amounts up to 10 times their annual premiums for up to six years after a loss. NEIL has never exercised this assessment. The maximum aggregate annual retrospective premium obligations for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are $151 million, $93 million and $1 million, respectively. Duke Energy Carolinas' maximum assessment amount includes 100% of potential obligations to NEIL for jointly owned reactors. Duke Energy Carolinas would seek reimbursement from the joint owners for their portion of these assessment amounts.
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all of the Duke Energy Registrants.
Remediation Activities
In addition to AROs recorded as a result of various environmental regulations, discussed in Note 10, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined at all sites. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other in the Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
The following table contains information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Other Noncurrent Liabilities on the Consolidated Balance Sheets.
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(in millions) | December 31, 2022 | | December 31, 2021 | |
Reserves for Environmental Remediation | | | | |
Duke Energy | $ | 84 | | | $ | 88 | | |
Duke Energy Carolinas | 22 | | | 19 | | |
Progress Energy | 19 | | | 23 | | |
Duke Energy Progress | 8 | | | 11 | | |
Duke Energy Florida | 11 | | | 11 | | |
Duke Energy Ohio | 33 | | | 34 | | |
Duke Energy Indiana | 3 | | | 4 | | |
Piedmont | 7 | | | 9 | | |
Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material.
LITIGATION
Duke Energy
Michael Johnson et al. v. Duke Energy Corporation et al.
On September 23, 2020, plaintiff Michael Johnson, a former Duke Energy employee and participant in the Duke Energy Retirement Savings Plan (Plan) brought suit on his own behalf and on behalf of other participants and beneficiaries similarly situated against Duke Energy Corporation, the Duke Energy Benefits Committee, and other unnamed individual defendants. The complaint, which was subsequently amended to add a current participant as a plaintiff on November 23, 2020, alleges that the defendants breached their fiduciary duties with respect to certain fees associated with the Plan in violation of the Employee Retirement Income Security Act of 1974 and seeks certification of a class of all individuals who were participants or beneficiaries of the Plan at any time on or after September 23, 2014. The defendants filed a motion to dismiss the plaintiffs’ amended complaint on December 18, 2020. On January 31, 2022, the court denied the defendants' motion to dismiss. On February 28, 2022, Duke Energy responded to the amended complaint. Discovery commenced and the parties exchanged preliminary disclosures. After review of these disclosures, the plaintiffs agreed to voluntarily dismiss the suit and the parties subsequently filed a joint stipulation of voluntary dismissal with prejudice on April 29, 2022, ending this litigation.
Texas Storm Uri Tort Litigation
Duke Energy Corporation and several Duke Energy renewables project companies in the ERCOT market were named in more than thirty lawsuits arising out of Texas Storm Uri, which occurred in February 2021. Duke Energy Corporation was dismissed from the suits, leaving two suits in which individual wind and solar projects are named. These lawsuits seek recovery for property damages, personal injury and wrongful death allegedly caused by the power outages that plaintiffs claim were the collective failure of generators, transmission and distribution utilities ("TDUs"), retail energy providers, natural gas providers, co-ops and municipalities that generate power and ERCOT, all of which were originally sued by all plaintiffs. The cases were consolidated into a Texas state court multidistrict litigation (MDL) proceeding for discovery and pre-trial motions. Five cases were designated for motions to dismiss and all other cases were stayed. On January 28, 2023, the Court denied the generators' and TDUs' motions to dismiss the negligence claims but dismissed the tortious interference and conspiracy claims. The motions to dismiss ERCOT and the natural gas defendants were also granted. The generator and TDU defendants filed a petition for mandamus in each of the five cases seeking to overturn the denials on February 10, 2023. If the Texas Court of Appeals accepts the appeals, it will set a briefing schedule. The remaining cases that are part of the MDL are currently stayed, except that plaintiffs have been given leave to amend their pleadings. Plaintiffs began amending existing lawsuits and filing new lawsuits on behalf of hundreds of plaintiffs against hundreds of defendants, including in some cases, by again naming Duke Energy Corporation and naming, for the first time, Duke Energy Renewables, LLC. Plaintiffs have also re-named ERCOT as a defendant. As new cases are served, they are being brought into the MDL and are subject to the stay in the MDL proceeding. Duke Energy cannot predict the outcomes of these matters. See Note 2 for more information related to the sale of the Commercial Renewables Disposal Groups.
Duke Energy Carolinas
Ruben Villano, et al. v. Duke Energy Carolinas, LLC
On June 16, 2021, a group of nine individuals went over a low head dam adjacent to the Dan River Steam Station in Eden, North Carolina, while water tubing. Emergency personnel rescued four people and five others were confirmed deceased. On August 11, 2021, Duke Energy Carolinas was served with the complaint filed in Durham County Superior Court on behalf of four survivors, which was later amended to include all the decedents along with the survivors. The lawsuit alleges that Duke Energy Carolinas knew that the river was used for recreational purposes and that Duke Energy did not adequately warn about the dam and that Duke Energy Carolinas created a dangerous and hidden hazard on the Dan River in building and maintaining the low head dam. Discovery has commenced and is scheduled to be completed on or before August 23, 2023. The parties are preparing for mediation, which is scheduled for March 22, 2023. Dispositive motions are due to be filed by September 6, 2023, and the case is scheduled to be trial-ready by October 2, 2023. Duke Energy Carolinas cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
NTE Carolinas II, LLC Litigation
In November 2017, Duke Energy Carolinas entered into a standard FERC large generator interconnection agreement (LGIA) with NTE Carolinas II, LLC (NTE), a company that proposed to build a combined-cycle natural gas plant in Rockingham County, North Carolina. On September 6, 2019, Duke Energy Carolinas filed a lawsuit in Mecklenburg County Superior Court against NTE for breach of contract, alleging that NTE's failure to pay benchmark payments for Duke Energy Carolinas' transmission system upgrades required under the interconnection agreement constituted a termination of the interconnection agreement. Duke Energy Carolinas sought a monetary judgment against NTE because NTE failed to make multiple milestone payments. The lawsuit was moved to federal court in North Carolina. NTE filed a motion to dismiss Duke Energy Carolinas’ complaint and brought counterclaims alleging anti-competitive conduct and violations of state and federal statutes. Duke Energy Carolinas filed a motion to dismiss NTE's counterclaims. Both NTE's and Duke Energy Carolinas' motions to dismiss were subsequently denied by the court.
On May 21, 2020, in response to an NTE petition challenging Duke Energy Carolinas' termination of the LGIA, FERC issued a ruling that 1) it has exclusive jurisdiction to determine whether a transmission provider may terminate a LGIA; 2) FERC approval is required to terminate a conforming LGIA if objected to by the interconnection customer; and 3) Duke Energy may not announce the termination of a conforming LGIA unless FERC has approved the termination. FERC's Office of Enforcement also initiated an investigation of Duke Energy Carolinas into matters pertaining to the LGIA. Duke Energy Carolinas is cooperating with the Office of Enforcement but cannot predict the outcome of this investigation.
Following completion of discovery, Duke Energy Carolinas filed a motion for summary judgment seeking a ruling in its favor as to some of its affirmative claims against NTE and to all of NTE’s counterclaims. On June 24, 2022, the court issued an order partially granting Duke Energy Carolinas' motion by dismissing NTE's counterclaims that Duke Energy Carolinas engaged in anti-competitive behavior in violation of state and federal statutes. On October 12, 2022, the parties executed a settlement agreement with respect to the remaining breach of contract claims in the litigation and a Stipulation of Dismissal was filed with the court on October 13, 2022. On November 11, 2022, NTE filed its Notice of Appeal to the U.S. Court of Appeals for the Fourth Circuit as to the District Court's summary judgment ruling in Duke Energy Carolinas' favor on NTE's antitrust and unfair competition claims. Briefing on NTE's appeal will be completed on May 3, 2023. Duke Energy Carolinas cannot predict the outcome of this matter.
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.
Duke Energy Carolinas has recognized asbestos-related reserves of $457 million and $501 million at December 31, 2022, and 2021, respectively. These reserves are classified in Other within Other Noncurrent Liabilities and Other within Current Liabilities on the Consolidated Balance Sheets. The change in the reserves is a result of a third-party study completed in 2021 as well as settlements made throughout the year. These reserves are based upon Duke Energy Carolinas' best estimate for current and future asbestos claims through 2042 and are recorded on an undiscounted basis. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2042 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. Receivables for insurance recoveries were $595 million and $644 million at December 31, 2022, and 2021, respectively. These amounts are classified in Other within Other Noncurrent Assets and Receivables within Current Assets on the Consolidated Balance Sheets. Any future payments up to the policy limit will be reimbursed by the third-party insurance carrier. 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.
The reserve for credit losses for insurance receivables for the asbestos-related injuries and damages is $12 million for Duke Energy and Duke Energy Carolinas as of December 31, 2022, and December 31, 2021. The insurance receivable is evaluated based on the risk of default and the historical losses, current conditions and expected conditions around collectability. Management evaluates the risk of default annually based on payment history, credit rating and changes in the risk of default from credit agencies.
Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On June 18, 2018, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims for damages incurred for the period 2014 through 2018. The lawsuit claimed the DOE breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage in the amount of $100 million and $200 million for Duke Energy Progress and Duke Energy Florida, respectively.
On March 30, 2022, the DOE and Duke Energy Progress executed a settlement agreement, pursuant to which Duke Energy Progress would receive damages for costs incurred between 2014 and 2018 and would be able to submit future costs on a defined schedule. In April 2022, Duke Energy Progress received $87 million in proceeds that related to damages incurred in 2014 through 2018.
On May 2, 2022, the DOE and Duke Energy Florida executed a settlement agreement, pursuant to which Duke Energy Florida would receive damages for costs incurred between 2014 and 2018 and would be able to submit costs incurred in 2019 and 2020 pursuant to an audit process. In June 2022, Duke Energy Florida received $180 million in proceeds that related to damages incurred in 2014 through 2018.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
Duke Energy Indiana
Coal Ash Basin Closure Plan Appeal
On January 27, 2020, Hoosier Environmental Council (HEC) filed a Petition for Administrative Review with the Indiana Office of Environmental Adjudication challenging the Indiana Department of Environmental Management’s (IDEM's) December 10, 2019 partial approval of Duke Energy Indiana’s ash pond closure plan at Duke Energy's Gallagher power station. After hearing oral arguments in early April 2021 on Duke Energy Indiana's and HEC's competing Motions for Summary Judgment, on May 4, 2021, the administrative court rejected all of HEC’s claims and issued a ruling in favor of Duke Energy Indiana. On June 3, 2021, HEC filed an appeal in Superior Court to seek judicial review of the order. Briefing on the appeal was completed on December 13, 2021.
On January 11, 2022, Duke Energy Indiana received a compliance obligation letter from the EPA notifying the company that the two basins at issue in the litigation are subject to requirements of the CCR Rule. The letter does not provide a deadline for compliance. Duke Energy Indiana is proceeding with surface impoundment closure at its Indiana sites consistent with EPA’s guidance, the federal CCR rule, and Indiana law, as applicable.
On April 21, 2022, HEC filed a motion requesting that the court hold a hearing within 45 days and also take judicial notice of the EPA's January 11, 2022 letter. On April 22, 2022, Duke Energy Indiana sent IDEM a letter withdrawing the closure plans for the Gallagher North Ash Pond and Primary Pond Ash Fill. After acknowledgment by IDEM of withdrawal of these closure plans, Duke Energy Indiana filed a Motion to Dismiss the litigation as moot on April 28, 2022, which IDEM supported, and the court granted the Motion to Dismiss on July 8, 2022.
Coal Ash Insurance Coverage Litigation
In June 2022, Duke Energy Indiana filed a civil action in Indiana Superior Court against various insurance companies seeking declaratory relief with respect to insurance coverage for coal combustion residuals-related expenses and liabilities covered by third-party liability insurance policies. The insurance policies cover the 1969-1972 and 1984-1985 periods and provide third-party liability insurance for claims and suits alleging property damage, bodily injury and personal injury (or a combination thereof). A trial date has not yet been set. Duke Energy Indiana cannot predict the outcome of this matter.
Other Litigation and Legal Proceedings
The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position for the years presented. Reserves are classified on the Consolidated Balance Sheets in Other within Other Noncurrent Liabilities and Other within Current Liabilities.
OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Consolidated Balance Sheets and have uncapped 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. See Note 8 for more information.
Purchase Obligations
Purchased Power
Duke Energy Progress, Duke Energy Florida and Duke Energy Ohio have ongoing purchased power contracts, including renewable energy contracts, with other utilities, wholesale marketers, co-generators and qualified facilities. These purchased power contracts generally provide for capacity and energy payments. In addition, Duke Energy Progress and Duke Energy Florida have various contracts to secure transmission rights.
The following table presents executory purchased power contracts with terms exceeding one year, excluding contracts classified as leases.
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| | | Minimum Purchase Amount at December 31, 2022 |
| Contract | | | | | | | | | | | | | | |
(in millions) | Expiration | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
Duke Energy Progress(a) | 2028-2032 | | $ | 22 | | | $ | 21 | | | $ | 22 | | | $ | 18 | | | $ | 19 | | | $ | 27 | | | $ | 129 | |
Duke Energy Florida(b) | 2024-2025 | | 300 | | | 267 | | | 91 | | | — | | | — | | | — | | | 658 | |
Duke Energy Ohio(c) | 2024 | | 55 | | | 36 | | | — | | | — | | | — | | | — | | | 91 | |
(a) Contracts represent between 18% and 100% of net plant output.
(b) Contracts represent 100% of net plant output.
(c) Share of net plant output varies. Excludes PPA with OVEC.
| | | | | |
FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
Gas Supply and Capacity Contracts
Duke Energy Ohio and Piedmont routinely enter into long-term natural gas supply commodity and capacity commitments and other agreements that commit future cash flows to acquire services needed in their businesses. These commitments include pipeline and storage capacity contracts and natural gas supply contracts to provide service to customers. Costs arising from the natural gas supply commodity and capacity commitments, while significant, are pass-through costs to customers and are generally fully recoverable through the fuel adjustment or PGA procedures and prudence reviews in North Carolina and South Carolina and under the Tennessee Incentive Plan in Tennessee. In the Midwest, these costs are recovered via the Gas Cost Recovery Rate in Ohio or the Gas Cost Adjustment Clause in Kentucky. The time periods for fixed payments under pipeline and storage capacity contracts are up to 20 years. The time periods for fixed payments under natural gas supply contracts are up to four years. The time period for the natural gas supply purchase commitments is up to nine years.
Certain storage and pipeline capacity contracts require the payment of demand charges that are based on rates approved by the FERC in order to maintain rights to access the natural gas storage or pipeline capacity on a firm basis during the contract term. The demand charges that are incurred in each period are recognized in the Consolidated Statements of Operations and Comprehensive Income as part of natural gas purchases and are included in Cost of natural gas.
The following table presents future unconditional purchase obligations under natural gas supply and capacity contracts as of December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | 2023 | | 2024 | | 2025 | | 2026 | 2027 | Thereafter | Total |
Duke Energy Ohio | $ | 85 | | | $ | 101 | | | $ | 85 | | | $ | 56 | | $ | 52 | | $ | 616 | | $ | 995 | |
Piedmont | 319 | | | 313 | | | 267 | | | 213 | | 203 | | 587 | | 1,902 | |
| | | | | | | | | | |
6. LEASES
As part of its operations, Duke Energy leases certain aircraft, space on communication towers, industrial equipment, fleet vehicles, fuel transportation (barges and railcars), land and office space under various terms and expiration dates. Additionally, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Indiana have finance leases related to firm natural gas pipeline transportation capacity. Duke Energy Progress and Duke Energy Florida have entered into certain PPAs, which are classified as finance and operating leases.
Duke Energy has certain lease agreements, which include variable lease payments that are based on the usage of an asset. These variable lease payments are not included in the measurement of the ROU assets or operating lease liabilities on the Consolidated Financial Statements.
Certain Duke Energy lease agreements include options for renewal and early termination. The intent to renew a lease varies depending on the lease type and asset. Renewal options that are reasonably certain to be exercised are included in the lease measurements. The decision to terminate a lease early is dependent on various economic factors. No termination options have been included in any of the lease measurements.
Duke Energy Carolinas entered into a sale-leaseback arrangement in December 2019, to construct and occupy an office tower. The lease agreement was evaluated as a sale-leaseback of real estate and it was determined that the transaction did not qualify for sale-leaseback accounting. As a result, the transaction is being accounted for as a financing. For this transaction, Duke Energy Carolinas will continue to record the real estate on the Consolidated Balance Sheets within Property, Plant and Equipment as if it were the legal owner and will continue to recognize depreciation expense over the estimated useful life. In addition, the failed sale-leaseback obligation is reported within Long-Term Debt on the Consolidated Balance Sheets, with the monthly lease payments commencing after the construction phase being split between interest expense and principal pay down of the debt.
Piedmont has certain agreements with Duke Energy Carolinas for the construction and transportation of natural gas pipelines to supply its natural gas plant needs. Piedmont accounts for these pipeline lateral contracts as sales-type leases since the present value of the sum of the lease payments equals the fair value of the assets. These pipeline lateral assets owned by Piedmont had a current net investment basis of $2 million as of December 31, 2022, and 2021, and a long-term net investment basis of $201 million and $203 million as of December 31, 2022, and 2021, respectively. These assets are classified in Other, within Current Assets and Other Noncurrent Assets, respectively, on Piedmont's Consolidated Balance Sheets. Duke Energy Carolinas accounts for the contracts as finance leases. The activity for these contracts is eliminated in consolidation at Duke Energy.
| | | | | |
FINANCIAL STATEMENTS | LEASES |
The following tables present the components of lease expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Operating lease expense(a) | $ | 229 | | | $ | 39 | | | $ | 153 | | | $ | 83 | | | $ | 70 | | | $ | 10 | | | $ | 19 | | | $ | 6 | |
Short-term lease expense(a) | 4 | | | — | | | 1 | | | — | | | 1 | | | — | | | 2 | | | — | |
Variable lease expense(a) | 61 | | | (1) | | | 60 | | | 37 | | | 23 | | | — | | | — | | | 1 | |
Finance lease expense | | | | | | | | | | | | | | | |
Amortization of leased assets(b) | 151 | | | 6 | | | 61 | | | 41 | | | 20 | | | — | | | — | | | — | |
Interest on lease liabilities(c) | 50 | | | 32 | | | 49 | | | 45 | | | 4 | | | — | | | 1 | | | — | |
Total finance lease expense | 201 | | | 38 | | | 110 | | | 86 | | | 24 | | | — | | | 1 | | | — | |
Total lease expense | $ | 495 | | | $ | 76 | | | $ | 324 | | | $ | 206 | | | $ | 118 | | | $ | 10 | | | $ | 22 | | | $ | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Operating lease expense(a) | $ | 245 | | | $ | 43 | | | $ | 155 | | | $ | 83 | | | $ | 72 | | | $ | 11 | | | $ | 18 | | | $ | 7 | |
Short-term lease expense(a) | 5 | | | — | | | 2 | | | 1 | | | 1 | | | — | | | 2 | | | — | |
Variable lease expense(a) | 41 | | | 17 | | | 22 | | | 10 | | | 12 | | | — | | | — | | | 1 | |
Finance lease expense | | | | | | | | | | | | | | | |
Amortization of leased assets(b) | 219 | | | 5 | | | 37 | | | 18 | | | 19 | | | — | | | 1 | | | — | |
Interest on lease liabilities(c) | 55 | | | 33 | | | 48 | | | 42 | | | 6 | | | — | | | — | | | — | |
Total finance lease expense | 274 | | | 38 | | | 85 | | | 60 | | | 25 | | | — | | | 1 | | | — | |
Total lease expense | $ | 565 | | | $ | 98 | | | $ | 264 | | | $ | 154 | | | $ | 110 | | | $ | 11 | | | $ | 21 | | | $ | 8 | |
(a) Included in Operations, maintenance and other or, for barges and railcars, Fuel used in electric generation and purchased power on the Consolidated Statements of Operations.
(b) Included in Depreciation and amortization on the Consolidated Statements of Operations.
(c) Included in Interest Expense on the Consolidated Statements of Operations.
The following table presents operating lease maturities and a reconciliation of the undiscounted cash flows to operating lease liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
2023 | $ | 225 | | | $ | 23 | | | $ | 118 | | | $ | 64 | | | $ | 54 | | | $ | 2 | | | $ | 6 | | | $ | 4 | |
2024 | 207 | | | 21 | | | 110 | | | 56 | | | 54 | | | 2 | | | 5 | | | 4 | |
2025 | 175 | | | 14 | | | 96 | | | 42 | | | 54 | | | 2 | | | 5 | | | 4 | |
2026 | 161 | | | 13 | | | 99 | | | 45 | | | 54 | | | 2 | | | 4 | | | — | |
2027 | 134 | | | 9 | | | 73 | | | 46 | | | 27 | | | 2 | | | 4 | | | — | |
Thereafter | 322 | | | 37 | | | 253 | | | 209 | | | 44 | | | 15 | | | 45 | | | 1 | |
Total operating lease payments | 1,224 | | | 117 | | | 749 | | | 462 | | | 287 | | | 25 | | | 69 | | | 13 | |
Less: present value discount | (169) | | | (20) | | | (107) | | | (76) | | | (31) | | | (7) | | | (18) | | | — | |
Total operating lease liabilities(a) | $ | 1,055 | | | $ | 97 | | | $ | 642 | | | $ | 386 | | | $ | 256 | | | $ | 18 | | | $ | 51 | | | $ | 13 | |
(a) Certain operating lease payments include renewal options that are reasonably certain to be exercised.
| | | | | |
FINANCIAL STATEMENTS | LEASES |
The following table presents finance lease maturities and a reconciliation of the undiscounted cash flows to finance lease liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | | | Indiana | | |
2023 | $ | 198 | | | $ | 38 | | | $ | 103 | | | $ | 78 | | | $ | 25 | | | | | $ | 1 | | | |
2024 | 143 | | | 38 | | | 88 | | | 79 | | | 9 | | | | | 1 | | | |
2025 | 76 | | | 38 | | | 85 | | | 80 | | | 5 | | | | | 1 | | | |
2026 | 77 | | | 38 | | | 86 | | | 81 | | | 5 | | | | | 1 | | | |
2027 | 74 | | | 38 | | | 82 | | | 81 | | | 1 | | | | | 1 | | | |
Thereafter | 584 | | | 427 | | | 555 | | | 555 | | | — | | | | | 23 | | | |
Total finance lease payments | 1,152 | | | 617 | | | 999 | | | 954 | | | 45 | | | | | 28 | | | |
Less: amounts representing interest | (388) | | | (333) | | | (371) | | | (367) | | | (4) | | | | | (19) | | | |
Total finance lease liabilities | $ | 764 | | | $ | 284 | | | $ | 628 | | | $ | 587 | | | $ | 41 | | | | | $ | 9 | | | |
The following tables contain additional information related to leases.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Classification | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Assets | | | | | | | | | | | | | | | | |
Operating | Operating lease ROU assets, net | $ | 1,042 | | | $ | 78 | | | $ | 628 | | | $ | 370 | | | $ | 258 | | | $ | 18 | | | $ | 49 | | | $ | 4 | |
Finance | Net property, plant and equipment | 810 | | | 284 | | | 674 | | | 590 | | | 84 | | | — | | | 6 | | | — | |
Total lease assets | | $ | 1,852 | | | $ | 362 | | | $ | 1,302 | | | $ | 960 | | | $ | 342 | | | $ | 18 | | | $ | 55 | | | $ | 4 | |
Liabilities | | | | | | | | | | | | | | | | |
Current | | | | | | | | | | | | | | | | |
Operating | Other current liabilities | $ | 179 | | | $ | 14 | | | $ | 96 | | | $ | 51 | | | $ | 45 | | | $ | 1 | | | $ | 4 | | | $ | — | |
Finance | Current maturities of long-term debt | 153 | | | 7 | | | 57 | | | 35 | | | 22 | | | — | | | — | | | — | |
Noncurrent | | | | | | | | | | | | | | | | |
Operating | Operating lease liabilities | 876 | | | 83 | | | 546 | | | 335 | | | 211 | | | 17 | | | 47 | | | 13 | |
Finance | Long-Term Debt | 611 | | | 277 | | | 571 | | | 552 | | | 19 | | | — | | | 9 | | | — | |
Total lease liabilities | | $ | 1,819 | | | $ | 381 | | | $ | 1,270 | | | $ | 973 | | | $ | 297 | | | $ | 18 | | | $ | 60 | | | $ | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Classification | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Assets | | | | | | | | | | | | | | | | |
Operating | Operating lease ROU assets, net | $ | 1,136 | | | $ | 92 | | | $ | 691 | | | $ | 389 | | | $ | 302 | | | $ | 19 | | | $ | 53 | | | $ | 16 | |
Finance | Net property, plant and equipment | 950 | | | 302 | | | 729 | | | 627 | | | 102 | | | — | | | 7 | | | — | |
Total lease assets | | $ | 2,086 | | | $ | 394 | | | $ | 1,420 | | | $ | 1,016 | | | $ | 404 | | | $ | 19 | | | $ | 60 | | | $ | 16 | |
Liabilities | | | | | | | | | | | | | | | | |
Current | | | | | | | | | | | | | | | | |
Operating | Other current liabilities | $ | 184 | | | $ | 22 | | | $ | 94 | | | $ | 50 | | | $ | 44 | | | $ | 1 | | | $ | 4 | | | $ | 5 | |
Finance | Current maturities of long-term debt | 151 | | | 6 | | | 61 | | | 41 | | | 20 | | | — | | | — | | | — | |
Noncurrent | | | | | | | | | | | | | | | | |
Operating | Operating lease liabilities | 940 | | | 78 | | | 606 | | | 350 | | | 256 | | | 18 | | | 50 | | | 14 | |
Finance | Long-Term Debt | 764 | | | 283 | | | 629 | | | 588 | | | 41 | | | — | | | 10 | | | — | |
Total lease liabilities | | $ | 2,039 | | | $ | 389 | | | $ | 1,390 | | | $ | 1,029 | | | $ | 361 | | | $ | 19 | | | $ | 64 | | | $ | 19 | |
| | | | | |
FINANCIAL STATEMENTS | LEASES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Cash paid for amounts included in the measurement of lease liabilities(a) | | | | | | | | | | | | | | | |
Operating cash flows from operating leases | $ | 230 | | | $ | 24 | | | $ | 118 | | | $ | 63 | | | $ | 55 | | | $ | 2 | | | $ | 6 | | | $ | 4 | |
Operating cash flows from finance leases | 50 | | | 32 | | | 49 | | | 45 | | | 4 | | | — | | | 1 | | | — | |
Financing cash flows from finance leases | 151 | | | 6 | | | 61 | | | 41 | | | 20 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Lease assets obtained in exchange for new lease liabilities (non-cash) | | | | | | | | | | | | | | | |
Operating(b) | $ | 111 | | | $ | 10 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Cash paid for amounts included in the measurement of lease liabilities(a) | | | | | | | | | | | | | | | |
Operating cash flows from operating leases | $ | 245 | | | $ | 25 | | | $ | 117 | | | $ | 62 | | | $ | 55 | | | $ | 2 | | | $ | 6 | | | $ | 5 | |
Operating cash flows from finance leases | 55 | | | 33 | | | 48 | | | 42 | | | 6 | | | — | | | — | | | — | |
Financing cash flows from finance leases | 219 | | | 5 | | | 37 | | | 18 | | | 19 | | | — | | | 1 | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Lease assets obtained in exchange for new lease liabilities (non-cash) | | | | | | | | | | | | | | | |
Operating(b) | $ | 182 | | | $ | 4 | | | $ | 99 | | | $ | 99 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Finance | 322 | | | — | | | 322 | | | 322 | | | — | | | — | | | — | | | — | |
(a) No amounts were classified as investing cash flows from operating leases.
(b) Does not include ROU assets recorded as a result of the adoption of the new lease standard.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Weighted average remaining lease term (years) | | | | | | | | | | | | | | | |
Operating leases | 8 | | 10 | | 8 | | 9 | | 6 | | 15 | | 15 | | 1 |
Finance leases | 10 | | 17 | | 12 | | 12 | | 12 | | — | | | 23 | | — | |
Weighted average discount rate(a) | | | | | | | | | | | | | | | |
Operating leases | 3.4 | % | | 3.8 | % | | 3.6 | % | | 3.5 | % | | 3.8 | % | | 4.2 | % | | 4.0 | % | | 3.3 | % |
Finance leases | 7.7 | % | | 11.5 | % | | 9.1 | % | | 9.1 | % | | 8.0 | % | | — | % | | 11.9 | % | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Weighted average remaining lease term (years) | | | | | | | | | | | | | | | |
Operating leases | 8 | | 9 | | 8 | | 10 | | 7 | | 16 | | 16 | | 4 |
Finance leases | 10 | | 18 | | 13 | | 13 | | 11 | | — | | | 24 | | — | |
Weighted average discount rate(a) | | | | | | | | | | | | | | | |
Operating leases | 3.5 | % | | 3.5 | % | | 3.6 | % | | 3.4 | % | | 3.8 | % | | 4.2 | % | | 4.1 | % | | 3.6 | % |
Finance leases | 7.3 | % | | 11.6 | % | | 9.0 | % | | 9.0 | % | | 8.2 | % | | — | % | | 11.9 | % | | — | % |
(a) The discount rate is calculated using the rate implicit in a lease if it is readily determinable. Generally, the rate used by the lessor is not provided to Duke Energy and in these cases the incremental borrowing rate is used. Duke Energy will typically use its fully collateralized incremental borrowing rate as of the commencement date to calculate and record the lease. The incremental borrowing rate is influenced by the lessee’s credit rating and lease term and as such may differ for individual leases, embedded leases or portfolios of leased assets.
| | | | | |
FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
7. DEBT AND CREDIT FACILITIES
Summary of Debt and Related Terms
The following tables summarize outstanding debt and includes debt attributable to the Commercial Renewables Disposal Groups. See Note 2 for further details.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Weighted | | | | | | | | | |
| Average | | | Duke | | Duke | Duke | Duke | Duke | |
| Interest | | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Rate | | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unsecured debt, maturing 2023-2082 | 4.20 | % | | $ | 29,585 | | $ | 1,150 | | $ | 2,600 | | $ | — | | $ | 950 | | $ | 1,330 | | $ | 697 | | $ | 3,390 | |
Secured debt, maturing 2023-2052 | 4.11 | % | | 5,632 | | 1,317 | | 2,383 | | 1,155 | | 1,228 | | — | | — | | — | |
First mortgage bonds, maturing 2023-2052(a) | 3.89 | % | | 32,645 | | 11,306 | | 16,350 | | 8,776 | | 7,576 | | 1,850 | | 3,138 | | — | |
Finance leases, maturing 2023-2051(b) | 7.90 | % | | 764 | | 284 | | 628 | | 587 | | 41 | | — | | 9 | | — | |
| | | | | | | | | | |
Tax-exempt bonds, maturing 2027-2046(c) | 3.84 | % | | 1,331 | | — | | 500 | | 500 | | — | | 77 | | 352 | | — | |
Notes payable and commercial paper(d) | 4.50 | % | | 4,582 | | — | | — | | — | | — | | — | | — | | — | |
Money pool/intercompany borrowings | | | — | | 1,533 | | 993 | | 389 | | 605 | | 522 | | 585 | | 514 | |
Fair value hedge carrying value adjustment | | | (5) | | — | | — | | — | | — | | — | | — | | — | |
Unamortized debt discount and premium, net(e) | | | 1,016 | | (21) | | (40) | | (23) | | (16) | | (25) | | (17) | | (9) | |
Unamortized debt issuance costs(f) | | | (383) | | (70) | | (132) | | (59) | | (70) | | (12) | | (22) | | (18) | |
Total debt | 4.09 | % | | $ | 75,167 | | $ | 15,499 | | $ | 23,282 | | $ | 11,325 | | $ | 10,314 | | $ | 3,742 | | $ | 4,742 | | $ | 3,877 | |
Short-term notes payable and commercial paper | | | (3,952) | | — | | — | | — | | — | | — | | — | | — | |
Short-term money pool/intercompany borrowings | | | — | | (1,233) | | (843) | | (238) | | (605) | | (497) | | (435) | | (514) | |
Current maturities of long-term debt(g) | | | (4,154) | | (1,018) | | (697) | | (369) | | (328) | | (475) | | (303) | | (45) | |
Total long-term debt(g) | | | $ | 67,061 | | $ | 13,248 | | $ | 21,742 | | $ | 10,718 | | $ | 9,381 | | $ | 2,770 | | $ | 4,004 | | $ | 3,318 | |
(a)Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b)Duke Energy includes $164 million of finance lease purchase accounting adjustments related to Duke Energy Florida related to PPAs that are not accounted for as finance leases in their respective financial statements because of grandfathering provisions in GAAP.
(c)Substantially all tax-exempt bonds are secured by first mortgage bonds, letters of credit or the Master Credit Facility.
(d)Includes $625 million classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy's commercial paper program was 15 days.
(e)Duke Energy includes $1,057 million and $85 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively.
(f)Duke Energy includes $27 million in purchase accounting adjustments primarily related to the merger with Progress Energy.
(g)Refer to Note 18 for additional information on amounts from consolidated VIEs.
| | | | | |
FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Weighted | | | | | | | | | |
| Average | | | Duke | | Duke | Duke | Duke | Duke | |
| Interest | | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Rate | | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unsecured debt, maturing 2022-2082 | 3.71 | % | | $ | 24,564 | | $ | 1,150 | | $ | 2,250 | | $ | — | | $ | 150 | | $ | 1,330 | | $ | 700 | | $ | 2,990 | |
Secured debt, maturing 2022-2052 | 2.50 | % | | 5,584 | | 1,094 | | 2,397 | | 1,120 | | 1,278 | | — | | — | | — | |
First mortgage bonds, maturing 2022-2051(a) | 3.87 | % | | 31,026 | | 10,507 | | 15,450 | | 8,375 | | 7,075 | | 1,850 | | 3,219 | | — | |
Finance leases, maturing 2022-2051(b) | 5.81 | % | | 915 | | 289 | | 690 | | 629 | | 61 | | — | | 10 | | — | |
| | | | | | | | | | |
Tax-exempt bonds, maturing 2027-2041(c) | 0.65 | % | | 360 | | — | | 48 | | 48 | | — | | 27 | | 285 | | — | |
Notes payable and commercial paper(d) | 0.35 | % | | 3,929 | | — | | — | | — | | — | | — | | — | | — | |
Money pool/intercompany borrowings | | | — | | 526 | | 2,959 | | 322 | | 199 | | 128 | | 150 | | 518 | |
Fair value hedge carrying value adjustment | | | 4 | | 4 | | — | | — | | — | | — | | — | | — | |
Unamortized debt discount and premium, net(e) | | | 1,119 | | (21) | | (34) | | (19) | | (14) | | (27) | | (18) | | (6) | |
Unamortized debt issuance costs(f) | | | (362) | | (67) | | (128) | | (54) | | (68) | | (13) | | (23) | | (16) | |
Total debt | 3.50 | % | | $ | 67,139 | | $ | 13,482 | | $ | 23,632 | | $ | 10,421 | | $ | 8,681 | | $ | 3,295 | | $ | 4,323 | | $ | 3,486 | |
Short-term notes payable and commercial paper | | | (3,304) | | — | | — | | — | | — | | — | | — | | — | |
Short-term money pool/intercompany borrowings | | | — | | (226) | | (2,809) | | (172) | | (199) | | (103) | | — | | (518) | |
Current maturities of long-term debt(g) | | | (3,387) | | (362) | | (1,082) | | (556) | | (76) | | — | | (84) | | — | |
Total long-term debt(g) | | | $ | 60,448 | | $ | 12,894 | | $ | 19,741 | | $ | 9,693 | | $ | 8,406 | | $ | 3,192 | | $ | 4,239 | | $ | 2,968 | |
(a) Substantially all electric utility property is mortgaged under mortgage bond indentures.
(b) Duke Energy includes $256 million of finance lease purchase accounting adjustments related to Duke Energy Florida related to PPAs that are not accounted for as finance leases in their respective financial statements because of grandfathering provisions in GAAP.
(c) Substantially all tax-exempt bonds are secured by first mortgage bonds, letters of credit or the Master Credit Facility.
(d) Includes $625 million that was classified as Long-Term Debt on the Consolidated Balance Sheets due to the existence of long-term credit facilities that backstop these commercial paper balances, along with Duke Energy’s ability and intent to refinance these balances on a long-term basis. The weighted average days to maturity for Duke Energy's commercial paper programs was 15 days.
(e) Duke Energy includes $1,121 million and $100 million in purchase accounting adjustments related to Progress Energy and Piedmont, respectively.
(f) Duke Energy includes $29 million in purchase accounting adjustments primarily related to the merger with Progress Energy.
(g) Refer to Note 18 for additional information on amounts from consolidated VIEs.
Current Maturities of Long-Term Debt
The following table shows the significant components of Current maturities of Long-Term Debt on the Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings.
| | | | | | | | | | | | | | | | | |
(in millions) | Maturity Date | | Interest Rate | | December 31, 2022 |
Unsecured Debt | | | | | |
Duke Energy (Parent) | April 2023 | | 2.875 | % | | $ | 350 | |
Duke Energy (Parent)(a) | June 2023 | | 3.469 | % | | 500 | |
Duke Energy (Parent) | October 2023 | | 3.950 | % | | 400 | |
Duke Energy Ohio(a) | October 2023 | | 4.272 | % | | 150 | |
Duke Energy Indiana(a) | October 2023 | | 4.118 | % | | 300 | |
| | | | | |
| | | | | |
| | | | | |
First Mortgage Bonds | | | | | |
Duke Energy Carolinas | March 2023 | | 2.500 | % | | 500 | |
Duke Energy Carolinas | March 2023 | | 3.050 | % | | 500 | |
Duke Energy Progress | September 2023 | | 3.375 | % | | 300 | |
Duke Energy Ohio | September 2023 | | 3.800 | % | | 300 | |
| | | | | |
Other(b) | | | | | 854 | |
Current maturities of long-term debt | | | | | $ | 4,154 | |
(a) Debt has a floating interest rate.
(b) Includes finance lease obligations, amortizing debt, tax-exempt bonds with mandatory put options and small bullet maturities.
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FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
Maturities and Call Options
The following table shows the annual maturities of long-term debt for the next five years and thereafter. Amounts presented exclude short-term notes payable, commercial paper and money pool borrowings and debt issuance costs for the Subsidiary Registrants.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy(a) | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
2023 | $ | 4,154 | | | $ | 1,018 | | | $ | 697 | | | $ | 369 | | | $ | 328 | | | $ | 475 | | | $ | 303 | | | $ | 45 | |
2024 | 3,216 | | | 19 | | | 939 | | | 72 | | | 867 | | | — | | | 4 | | | 40 | |
2025 | 4,322 | | | 491 | | | 1,040 | | | 975 | | | 65 | | | 245 | | | 4 | | | 205 | |
2026 | 2,682 | | | 621 | | | 345 | | | 279 | | | 66 | | | 45 | | | 4 | | | 40 | |
2027 | 3,203 | | | 323 | | | 947 | | | 233 | | | 714 | | | 102 | | | 177 | | | 300 | |
Thereafter | 52,999 | | | 11,884 | | | 18,642 | | | 9,238 | | | 7,753 | | | 2,415 | | | 3,853 | | | 2,760 | |
Total long-term debt, including current maturities | $ | 70,576 | | | $ | 14,356 | | | $ | 22,610 | | | $ | 11,166 | | | $ | 9,793 | | | $ | 3,282 | | | $ | 4,345 | | | $ | 3,390 | |
(a) Excludes $1,169 million in purchase accounting adjustments related to the Progress Energy merger and the Piedmont acquisition.
The Duke Energy Registrants have the ability under certain debt facilities to call and repay the obligation prior to its scheduled maturity. Therefore, the actual timing of future cash repayments could be materially different than as presented above.
Short-Term Obligations Classified as Long-Term Debt
Tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder and certain commercial paper issuances and money pool borrowings are classified as Long-Term Debt on the Consolidated Balance Sheets. These tax-exempt bonds, commercial paper issuances and money pool borrowings, which are short-term obligations by nature, are classified as long-term due to Duke Energy’s intent and ability to utilize such borrowings as long-term financing. As Duke Energy’s Master Credit Facility and other bilateral letter of credit agreements have non-cancelable terms in excess of one year as of the balance sheet date, Duke Energy has the ability to refinance these short-term obligations on a long-term basis. The following tables show short-term obligations classified as long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 and 2021 |
| | | Duke | | Duke | | Duke | | Duke |
| Duke | | Energy | | Energy | | Energy | | Energy |
(in millions) | Energy | | Carolinas | | Progress | | Ohio | | Indiana |
Tax-exempt bonds | $ | 312 | | | $ | — | | | $ | — | | | $ | 27 | | | $ | 285 | |
Commercial paper(a) | 625 | | | 300 | | | 150 | | | 25 | | | 150 | |
| | | | | | | | | |
Total | $ | 937 | | | $ | 300 | | | $ | 150 | | | $ | 52 | | | $ | 435 | |
(a) Progress Energy amounts are equal to Duke Energy Progress amounts.
Summary of Significant Debt Issuances
In January 2023, Duke Energy Carolinas issued $1.8 billion of first mortgage bonds. The issuance was split between a $900 million,10-year tranche at 4.95% and a $900 million, 30-year tranche at 5.35%. The net proceeds will be used to refinance $1 billion of Duke Energy Carolinas bonds maturing in March 2023, to pay down short-term debt and for general company purposes.
| | | | | |
FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
The following tables summarize significant debt issuances (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2022 |
| | | | | | | Duke | | Duke | | Duke | | Duke | | | | | | |
| Maturity | | Interest | | Duke | | Energy | | Energy | | Energy | | Energy | | | | | | |
Issuance Date | Date | | Rate | | Energy | | (Parent) | | Carolinas | | Progress | | Florida | | | | | | Piedmont |
Unsecured Debt | | | | | | | | | | | | | | | | | | | |
May 2022(a) | May 2052 | | 5.050 | % | | $ | 400 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | 400 | |
June 2022(b) | June 2028 | | 4.750 | % | | 645 | | | 645 | | | — | | | — | | | — | | | | | | | — | |
June 2022(b) | June 2034 | | 5.306 | % | | 537 | | | 537 | | | — | | | — | | | — | | | | | | | — | |
August 2022(c) | March 2028 | | 4.300 | % | | 900 | | | 900 | | | — | | | — | | | — | | | | | | | — | |
August 2022(c) | August 2032 | | 4.500 | % | | 1,150 | | | 1,150 | | | — | | | — | | | — | | | | | | | — | |
August 2022(c) | August 2052 | | 5.000 | % | | 1,150 | | | 1,150 | | | — | | | — | | | | | | | | | — | |
December 2022(d) | December 2025 | | 5.000 | % | | 500 | | | 500 | | | — | | | — | | | — | | | | | | | — | |
December 2022(d) | December 2027 | | 5.000 | % | | 500 | | | 500 | | | — | | | — | | | — | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
First Mortgage Bonds | | | | | | | | | | | | | | | | | | |
March 2022(e) | March 2032 | | 2.850 | % | | 500 | | | — | | | 500 | | | — | | | — | | | | | | | — | |
March 2022(e) | March 2052 | | 3.550 | % | | 650 | | | — | | | 650 | | | — | | | — | | | | | | | — | |
March 2022(e) | April 2032 | | 3.400 | % | | 500 | | | — | | | — | | | 500 | | | — | | | | | | | — | |
March 2022(e) | April 2052 | | 4.000 | % |
| 400 | | | — | | | — | | | 400 | | | — | | | | | | | — | |
November 2022(f) | November 2052 | | 5.950 | % | | 500 | | | — | | | — | | | — | | | 500 | | | | | | | — | |
Tax-exempt Bonds | | | | | | | | | | | | | | | | | | |
June 2022(g) | September 2030 | | 4.000 | % | | 168 | | | 168 | | | — | | | — | | | — | | | | | | | — | |
June 2022(g) | November 2039 | | 4.250 | % | | 234 | | | 234 | | | — | | | — | | | — | | | | | | | — | |
September 2022(h) | October 2046 | | 3.300 | % | | 200 | | | — | | | — | | | 200 | | | | | | | | | — | |
September 2022(i) | October 2046 | | 3.700 | % | | 210 | | | — | | | — | | | 210 | | | | | | | | | — | |
September 2022(i) | October 2046 | | 4.000 | % | | 42 | | | — | | | — | | | 42 | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | |
Total issuances | | | | | $ | 9,186 | | | $ | 5,784 | | | $ | 1,150 | | | $ | 1,352 | | | $ | 500 | | | | | | | $ | 400 | |
(a)Debt issued to repay a portion of outstanding intercompany short-term debt and for general corporate purposes.
(b)Duke Energy (Parent) issued 600 million euros aggregate principal amount of 3.10% senior notes due June 2028 and 500 million euros aggregate principal amount of 3.85% senior notes due June 2034. Debt issued to repay a $500 million debt maturity, pay down short-term debt and for general corporate purposes. Duke Energy's obligations under its euro-denominated fixed-rate notes were effectively converted to fixed-rate U.S. dollars at issuance through cross-currency swaps, mitigating foreign currency exchange risk associated with the interest and principal payments. See Note 15 for additional information.
(c)Debt issued to repay a portion of short-term debt and for general corporate purposes.
(d)Proceeds will be used to repay a portion of commercial paper and for general corporate purposes.
(e)Debt issued to finance or refinance, in whole or in part, existing or new eligible projects under the sustainable financing framework.
(f)Debt issued to repay a portion of outstanding intercompany short-term debt and for general company purposes.
(g)Debt issued to refund the Ohio Air Quality Development Revenue Refunding bonds, previously held in treasury, which were used to finance or refinance portions of certain solid waste disposal facilities. The mandatory purchase date of these bonds is June 1, 2027.
(h)Debt issued to provide funds to refund the prior bonds, which were used to finance or refinance portions of certain air and water pollution control equipment and solid waste disposal equipment. The mandatory purchase date of these bonds is October 1, 2026.
(i)Debt issued to provide funds to refund the prior bonds, which were used to finance or refinance portions of certain air and water pollution control equipment and solid waste disposal equipment. The mandatory purchase date of these bonds is October 1, 2030.
| | | | | |
FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2021 |
| | | | | | | Duke | | Duke | | Duke | | Duke | | | | | | |
| Maturity | | Interest | | Duke | | Energy | | Energy | | Energy | | Energy | | | | | | |
Issuance Date | Date | | Rate | | Energy | | (Parent) | | Carolinas | | Progress | | Florida | | | | | | Piedmont |
Unsecured Debt | | | | | | | | | | | | | | | | | | | |
March 2021a) | March 2031 | | 2.500 | % | | $ | 350 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | $ | 350 | |
June 2021(b)(c) | June 2023 | | 0.299 | % | | 500 | | | 500 | | | — | | | — | | | — | | | | | | | — | |
June 2021(c) | June 2031 | | 2.550 | % | | 1,000 | | | 1,000 | | | — | | | — | | | — | | | | | | | — | |
June 2021(c) | June 2041 | | 3.300 | % | | 750 | | | 750 | | | — | | | — | | | — | | | | | | | — | |
June 2021(c) | June 2051 | | 3.500 | % | | 750 | | | 750 | | | — | | | — | | | — | | | | | | | — | |
September 2021(d) | January 2082 | | 3.250 | % | | 500 | | | 500 | | | — | | | — | | | — | | | | | | | — | |
Secured Debt | | | | | | | | | | | | | | | | | | | |
November 2021(e) | July 2031 | | 1.679 | % | | 100 | | | — | | | 100 | | | — | | | — | | | | | | | — | |
November 2021(e) | July 2041 | | 2.617 | % | | 137 | | | — | | | 137 | | | — | | | — | | | | | | | — | |
November 2021(e) | July 2028 | | 1.295 | % | | 221 | | | — | | | — | | | 221 | | | — | | | | | | | — | |
November 2021(e) | July 2037 | | 2.387 | % | | 352 | | | — | | | — | | | 352 | | | — | | | | | | | — | |
November 2021(e) | July 2041 | | 2.799 | % | | 197 | | | — | | | — | | | 197 | | | — | | | | | | | — | |
First Mortgage Bonds | | | | | | | | | | | | | | | | | | |
April 2021(f) | April 2031 | | 2.550 | % | | 550 | | | — | | | 550 | | | — | | | — | | | | | | | — | |
April 2021(f) | April 2051 | | 3.450 | % | | 450 | | | — | | | 450 | | | — | | | — | | | | | | | — | |
August 2021(g) | August 2031 | | 2.000 | % | | 650 | | | — | | | — | | | 650 | | | — | | | | | | | — | |
August 2021(g) | August 2051 | | 2.900 | % | | 450 | | | — | | | — | | | 450 | | | — | | | | | | | — | |
December 2021(h) | December 2031 | | 2.400 | % | | 650 | | | — | | | — | | | — | | | 650 | | | | | | | — | |
December 2021(h) | December 2051 | | 3.000 | % | | 500 | | | — | | | — | | | — | | | 500 | | | | | | | — | |
Total issuances | | | | | $ | 8,107 | | | $ | 3,500 | | | $ | 1,237 | | | $ | 1,870 | | | $ | 1,150 | | | | | | | $ | 350 | |
(a)Debt issued to repay at maturity $160 million senior unsecured notes due June 2021, pay down short-term debt and for general corporate purposes.
(b)Debt has a floating interest rate.
(c)Debt issued to repay $1.75 billion of Duke Energy (Parent) debt maturities, to repay a portion of short-term debt and for general corporate purposes.
(d)Debt issued to repay in October 2021 $500 million of Duke Energy (Parent) unsecured notes. The interest rate resets every five years.
(e)Debt issued to finance the North Carolina portion of storm restoration expenditures related to Hurricane Florence, Hurricane Michael, Hurricane Dorian and Winter Storm Diego.
(f)Debt issued to repay at maturity $500 million first mortgage bonds due June 2021, pay down short-term debt and for general company purposes.
(g)Debt issued to repay at maturity a total of $600 million first mortgage bonds due September 2021, pay down short-term debt and for general company purposes.
(h)Proceeds were used to finance or refinance, in whole or in part, existing or new eligible projects under the sustainable financing framework.
AVAILABLE CREDIT FACILITIES
Master Credit Facility
In March 2022, Duke Energy amended its existing Master Credit Facility to increase the amount of the facility from $8 billion to $9 billion and to extend the termination date to March 2027. The Duke Energy Registrants, excluding Progress Energy, have borrowing capacity under the Master Credit Facility up to a specified sublimit for each borrower. Duke Energy has the unilateral ability at any time to increase or decrease the borrowing sublimits of each borrower, subject to a maximum sublimit for each borrower. The amount available under the Master Credit Facility has been reduced to backstop issuances of commercial paper, certain letters of credit and variable-rate demand tax-exempt bonds that may be put to the Duke Energy Registrants at the option of the holder.
| | | | | |
FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
The table below includes the current borrowing sublimits and available capacity under these credit facilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | Duke | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Energy | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | (Parent) | | Carolinas | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Facility size(a) | $ | 9,000 | | | $ | 2,375 | | | $ | 1,925 | | | $ | 800 | | | $ | 1,150 | | | $ | 900 | | | $ | 1,050 | | | $ | 800 | |
Reduction to backstop issuances | | | | | | | | | | | | | | | |
Commercial paper(b) | (3,685) | | | 463 | | | (1,533) | | | (389) | | | (605) | | | (522) | | | (585) | | | (514) | |
Outstanding letters of credit | (40) | | | (27) | | | (4) | | | (2) | | | (7) | | | — | | | — | | | — | |
Tax-exempt bonds | (81) | | | — | | | — | | | — | | | — | | | — | | | (81) | | | — | |
| | | | | | | | | | | | | | | |
Available capacity | $ | 5,194 | | | $ | 2,811 | | | $ | 388 | | | $ | 409 | | | $ | 538 | | | $ | 378 | | | $ | 384 | | | $ | 286 | |
(a) Represents the sublimit of each borrower.
(b) Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies in the Consolidated Balance Sheets.
Duke Energy (Parent) Term Loan Facility
On March 9, 2022, Duke Energy (Parent) entered into a Term Loan Credit Agreement (Credit Agreement) with commitments totaling $1.4 billion maturing on March 9, 2024. The maturity date of the Credit Agreement may be extended for up to two years by request of Duke Energy (Parent), upon satisfaction of certain conditions contained in the Credit Agreement. Borrowings under the facility were used to repay amounts drawn under the Three-Year Revolving Credit Facility and for general corporate purposes, including repayment of a portion of Duke Energy's outstanding commercial paper. In December 2022, Duke Energy (Parent) repaid $400 million of the term loan. The balance is classified as Long-Term Debt on Duke Energy's Consolidated Balance Sheets. The Three-Year Revolving Credit Facility was terminated in March 2022.
Duke Energy Florida Term Loan Facility
In October 2022, Duke Energy Florida entered into a term loan facility with commitments totaling $800 million expiring in April 2024. The term loan was fully drawn at the time of closing In October and borrowings were used for storm costs, under-collected fuel and general company purposes. The balance is classified as Long-Term Debt on Duke Energy Florida's Consolidated Balance Sheet.
Other Debt Matters
In September 2022, 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, including preferred stock, in the future at amounts, prices and with terms to be determined at the time of future offerings. The registration statement was filed to replace a similar prior filing upon expiration of its three-year term and also allows for the issuance of common and preferred stock by Duke Energy.
Also in September 2022, to replace another similar prior filing, Duke Energy filed an effective Form S-3 with the SEC to sell up to $4 billion of variable denomination floating-rate demand notes, called PremierNotes. The Form S-3 states that no more than $2 billion of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, are non-transferable and may be redeemed in whole or in part by Duke Energy or at the investor’s option at any time. The balance as of December 31, 2022, and 2021, was $897 million and $1,066 million, respectively. The notes are short-term debt obligations of Duke Energy and are reflected as Notes payable and commercial paper on Duke Energy’s Consolidated Balance Sheets.
Money Pool and Intercompany Credit Agreements
The Subsidiary Registrants, excluding Progress Energy, are eligible to receive support for their short-term borrowing needs through participation with Duke Energy and certain of its subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating in this arrangement. The money pool is structured such that the Subsidiary Registrants, excluding Progress Energy, separately manage their cash needs and working capital requirements. Accordingly, there is no net settlement of receivables and payables between money pool participants. Duke Energy (Parent), may loan funds to its participating subsidiaries, but may not borrow funds through the money pool. Accordingly, as the money pool activity is between Duke Energy and its subsidiaries, all money pool balances are eliminated within Duke Energy’s Consolidated Balance Sheets.
Money pool receivable balances are reflected within Notes receivable from affiliated companies on the Subsidiary Registrants’ Consolidated Balance Sheets. Money pool payable balances are reflected within either Notes payable to affiliated companies or Long-Term Debt Payable to Affiliated Companies on the Subsidiary Registrants’ Consolidated Balance Sheets.
In March 2022, Progress Energy closed a revolving credit agreement with Duke Energy (Parent), which allowed up to $2.5 billion in intercompany borrowings.
| | | | | |
FINANCIAL STATEMENTS | DEBT AND CREDIT FACILITIES |
Restrictive Debt Covenants
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio not to exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of December 31, 2022, Duke Energy presented approximately $131 million of long-term debt as current on the Consolidated Balance Sheet as a result of a technical default due to the bankruptcy filing of a Duke Energy customer. The Duke Energy Registrants were in compliance with all other covenants related to their debt agreements as of December 31, 2022. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.
Other Loans
As of December 31, 2022, and 2021, Duke Energy had loans outstanding of $852 million, including $33 million at Duke Energy Progress and $819 million, including $34 million at Duke Energy Progress, respectively, against the cash surrender value of life insurance policies it owns on the lives of its executives. The amounts outstanding were carried as a reduction of the related cash surrender value that is included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
8. GUARANTEES AND INDEMNIFICATIONS
Duke Energy has various financial and performance guarantees and indemnifications with non-consolidated entities, which are issued in the normal course of business. As discussed below, these contracts include performance guarantees, standby letters of credit, debt guarantees and indemnifications and include guarantees and indemnifications related to Commercial Renewables Disposal Groups. Duke Energy enters into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. At December 31, 2022, Duke Energy does not believe conditions are likely for significant performance under these guarantees. To the extent liabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included on the accompanying Consolidated Balance Sheets.
On January 2, 2007, Duke Energy completed the spin-off of its previously wholly owned natural gas businesses to shareholders. Guarantees issued by Duke Energy or its affiliates, or assigned to Duke Energy prior to the spin-off, remained with Duke Energy subsequent to the spin-off. Guarantees issued by Spectra Energy Capital, LLC (Spectra Capital) or its affiliates prior to the spin-off remained with Spectra Capital subsequent to the spin-off, except for guarantees that were later assigned to Duke Energy. Duke Energy has indemnified Spectra Capital against any losses incurred under certain of the guarantee obligations that remain with Spectra Capital. At December 31, 2022, the maximum potential amount of future payments associated with these guarantees were $40 million, the majority of which expire by 2028.
In October 2017, ACP executed a $3.4 billion revolving credit facility with a stated maturity date of October 2021. Duke Energy entered into a guarantee agreement to support its share of the ACP revolving credit facility. In July 2020, ACP reduced the size of the credit facility to $1.9 billion. Duke Energy's maximum exposure to loss under the terms of the guarantee was $860 million as of December 31, 2020. This amount represented 47% of the outstanding borrowings under the credit facility and was recognized within Other Current Liabilities on the Consolidated Balance Sheets at December 31, 2020, of which $95 million was previously recognized due the adoption of new guidance for credit losses effective January 1, 2020. In February 2021, Duke Energy paid approximately $855 million to fund ACP's outstanding debt, relieving Duke Energy of its guarantee. See Notes 4 and 13 for more information.
In addition to the Spectra Capital and ACP revolving credit facility guarantees above, Duke Energy has issued performance guarantees to customers and other third parties that guarantee the payment and performance of other parties, including certain non-wholly owned entities, as well as guarantees of debt of certain non-consolidated entities. If such entities were to default on payments or performance, Duke Energy would be required under the guarantees to make payments on the obligations of these entities. The maximum potential amount of future payments required under these guarantees as of December 31, 2022, was $33 million of which all expire between 2024 and 2030, with the remaining performance guarantees having no contractual expiration. Additionally, certain guarantees have uncapped maximum potential payments; however, Duke Energy does not believe these guarantees will have a material effect on its results of operations, cash flows or financial position.
Duke Energy uses bank-issued standby letters of credit to secure the performance of wholly owned and non-wholly owned entities to a third party or customer. Under these arrangements, Duke Energy has payment obligations to the issuing bank that are triggered by a draw by the third party or customer due to the failure of the wholly owned or non-wholly owned entity to perform according to the terms of its underlying contract. At December 31, 2022, Duke Energy had issued a total of $667 million in letters of credit, which expire between 2023 and 2028. The unused amount under these letters of credit was $35 million.
Duke Energy recognized $2 million and $3 million as of December 31, 2022, and 2021, respectively, primarily in Other within Other Noncurrent Liabilities on the Consolidated Balance Sheets, for the guarantees discussed above. As current estimates change, additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded by the Duke Energy Registrants in the future.
9. JOINT OWNERSHIP OF GENERATING AND TRANSMISSION FACILITIES
The Duke Energy Registrants maintain ownership interests in certain jointly owned generating and transmission facilities. The Duke Energy Registrants are entitled to a share of the generating capacity and output of each unit equal to their respective ownership interests. The Duke Energy Registrants pay their ownership share of additional construction costs, fuel inventory purchases and operating expenses. The Duke Energy Registrants share of revenues and operating costs of the jointly owned facilities is included within the corresponding line in the Consolidated Statements of Operations. Each participant in the jointly owned facilities must provide its own financing.
| | | | | |
FINANCIAL STATEMENTS | JOINT OWNERSHIP OF GENERATING AND TRANSMISSION FACILITIES |
The following table presents the Duke Energy Registrants' interest of jointly owned plant or facilities and amounts included on the Consolidated Balance Sheets. All facilities are operated by the Duke Energy Registrants and are included in the Electric Utilities and Infrastructure segment.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | | | | | Construction |
| Ownership | | Property, Plant | | Accumulated | | Work in |
(in millions except for ownership interest) | Interest | | and Equipment | | Depreciation | | Progress |
Duke Energy Carolinas | | | | | | | |
Catawba (units 1 and 2)(a) | 19.25 | % | | $ | 1,047 | | | $ | 546 | | | $ | 32 | |
W.S. Lee CC(b) | 87.27 | % | | 613 | | | 86 | | | 48 | |
Duke Energy Indiana | | | | | | | |
Gibson (unit 5)(c) | 50.05 | % | | 450 | | | 241 | | | 2 | |
Vermillion(d) | 62.50 | % | | 182 | | | 113 | | | 1 | |
Transmission and local facilities(c) | Various | | 6,718 | | | 1,510 | | | 157 | |
(a) Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and PMPA.
(b) Jointly owned with NCEMC.
(c) Jointly owned with WVPA and IMPA.
(d) Jointly owned with WVPA.
10. ASSET RETIREMENT OBLIGATIONS
Duke Energy records an ARO 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. Certain assets of the Duke Energy Registrants have an indeterminate life, such as transmission and distribution facilities, and thus the fair value of the retirement obligation is not reasonably estimable. A liability for these AROs will be recorded when a fair value is determinable.
The Duke Energy Registrants’ regulated operations accrue costs of removal for property that does not have an associated legal retirement obligation based on regulatory orders from state commissions. These costs of removal are recorded as a regulatory liability in accordance with regulatory accounting treatment. The Duke Energy Registrants do not accrue the estimated cost of removal for any nonregulated assets. See Note 4 for the estimated cost of removal for assets without an associated legal retirement obligation, which are included in Regulatory liabilities on the Consolidated Balance Sheets.
The following table presents the AROs recorded on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Decommissioning of nuclear power facilities(a) | $ | 7,261 | | | $ | 3,009 | | | $ | 4,217 | | | $ | 3,948 | | | $ | 270 | | | $ | — | | | $ | — | | | $ | — | |
Closure of ash impoundments | 5,176 | | | 2,309 | | | 1,862 | | | 1,833 | | | 29 | | | 95 | | | 911 | | | — | |
Other | 291 | | | 64 | | | 102 | | | 42 | | | 59 | | | 59 | | | 40 | | | 26 | |
Total asset retirement obligation | $ | 12,728 | | | $ | 5,382 | | | $ | 6,181 | | | $ | 5,823 | | | $ | 358 | | | $ | 154 | | | $ | 951 | | | $ | 26 | |
Less: Current portion | 773 | | | 261 | | | 289 | | | 288 | | | 1 | | | 17 | | | 207 | | | — | |
Total noncurrent asset retirement obligation | $ | 11,955 | | | $ | 5,121 | | | $ | 5,892 | | | $ | 5,535 | | | $ | 357 | | | $ | 137 | | | $ | 744 | | | $ | 26 | |
(a) Duke Energy amount includes purchase accounting adjustments related to the merger with Progress Energy.
Nuclear Decommissioning Liability
AROs related to nuclear decommissioning are based on site-specific cost studies. The NCUC, PSCSC and FPSC require updated cost estimates for decommissioning nuclear plants every five years.
The following table summarizes information about the most recent site-specific nuclear decommissioning cost studies. Decommissioning costs are stated in 2018 or 2019 dollars, depending on the year of the cost study, and include costs to decommission plant components not subject to radioactive contamination.
| | | | | | | | | | | | | | | | | |
| Annual Funding | | Decommissioning | | |
(in millions) | Requirement(a) | | Costs(a) | | Year of Cost Study |
Duke Energy | $ | 10 | | | $ | 9,105 | | | 2018 or 2019 |
Duke Energy Carolinas(b)(c) | — | | | 4,365 | | | 2018 |
Duke Energy Progress(d) | 10 | | | 4,181 | | | 2019 |
Duke Energy Florida(e) | — | | | 559 | | | N/A |
| | | | | |
FINANCIAL STATEMENTS | ASSET RETIREMENT OBLIGATIONS |
(a) Amount represents annual funding requirement for the current fiscal year. Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida.
(b) Decommissioning costs for Duke Energy Carolinas reflects its ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c) Duke Energy Carolinas' site-specific nuclear decommissioning cost study completed in 2018 was filed with the NCUC and PSCSC in 2019. A new funding study was also completed and filed with the NCUC and PSCSC in 2019.
(d) Duke Energy Progress' site-specific nuclear decommissioning cost study completed in 2019 was filed with the NCUC and PSCSC in March 2020. Duke Energy Progress also completed a funding study, which was filed with the NCUC and PSCSC in July 2020. In October 2021, Duke Energy Progress filed the 2019 nuclear decommissioning cost study with the FERC, as well as a revised rate schedule for decommissioning expense to be collected from wholesale customers. The FERC accepted the filing, as filed on December 9, 2021.
(e) During 2019, Duke Energy Florida reached an agreement to transfer decommissioning work for Crystal River Unit 3 to a third party and decommissioning costs are based on the agreement with this third party rather than a cost study. Regulatory approval was received from the NRC and the FPSC in April 2020 and August 2020, respectively.
Nuclear Decommissioning Trust Funds
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida each maintain NDTFs that are intended to pay for the decommissioning costs of their respective nuclear power plants. The NDTF investments are managed and invested in accordance with applicable requirements of various regulatory bodies including the NRC, FERC, NCUC, PSCSC, FPSC and the IRS.
Use of the NDTF investments is restricted to nuclear decommissioning activities including license termination, spent fuel and site restoration. The license termination and spent fuel obligations relate to contaminated decommissioning and are recorded as AROs. The site restoration obligation relates to non-contaminated decommissioning and is recorded to cost of removal within Regulatory liabilities on the Consolidated Balance Sheets.
The following table presents the fair value of NDTF assets legally restricted for purposes of settling AROs associated with nuclear decommissioning. Duke Energy Florida entered into an agreement with a third party to decommission Crystal River Unit 3 and was granted an exemption from the NRC, which allows for use of the NDTF for all aspects of nuclear decommissioning. The entire balance of Duke Energy Florida's NDTF may be applied toward license termination, spent fuel and site restoration costs incurred to decommission Crystal River Unit 3 and is excluded from the table below. See Note 17 for additional information related to the fair value of the Duke Energy Registrants' NDTFs.
| | | | | | | | | | | |
| December 31, |
(in millions) | 2022 | | 2021 |
Duke Energy | $ | 7,466 | | | $ | 8,933 | |
Duke Energy Carolinas | 4,208 | | | 5,068 | |
Duke Energy Progress | 3,258 | | | 3,865 | |
Nuclear Operating Licenses
As described in Note 4, Duke Energy Carolinas and Duke Energy Progress intend to seek renewal of operating licenses and 20-year license extensions for all of their nuclear stations. The following table includes the current expiration of nuclear operating licenses.
| | | | | |
Unit | Year of Expiration |
Duke Energy Carolinas | |
Catawba Units 1 and 2 | 2043 |
| |
McGuire Unit 1 | 2041 |
McGuire Unit 2 | 2043 |
Oconee Units 1 and 2 | 2033 |
| |
Oconee Unit 3 | 2034 |
Duke Energy Progress | |
Brunswick Unit 1 | 2036 |
Brunswick Unit 2 | 2034 |
Harris | 2046 |
Robinson | 2030 |
| |
| |
The NRC has acknowledged permanent cessation of operation and permanent removal of fuel from the reactor vessel at Crystal River Unit 3. Therefore, the license no longer authorizes operation of the reactor. During 2019, Duke Energy Florida entered into an agreement for the accelerated decommissioning of Crystal River Unit 3. Regulatory approval was received from the NRC and the FPSC in April 2020 and August 2020, respectively. See Note 4 for more information.
Closure of Ash Impoundments
The Duke Energy Registrants are subject to state and federal regulations covering the closure of coal ash impoundments, including the EPA CCR rule and the Coal Ash Act, and other agreements. AROs recorded on the Duke Energy Registrants' Consolidated Balance Sheets include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of these regulations and agreements.
| | | | | |
FINANCIAL STATEMENTS | ASSET RETIREMENT OBLIGATIONS |
The ARO amount recorded on the Consolidated Balance Sheets is based upon estimated closure costs for impacted ash impoundments. The amount recorded represents the discounted cash flows for estimated closure costs based upon specific closure plans. 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 ash basins, consolidating material as necessary 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 federal and state regulations and other agreements. The ARO amount will be adjusted as additional information is gained through the closure and post-closure process, including acceptance and approval of compliance approaches, which may change management assumptions, and may result in a material change to the balance. See ARO Liability Rollforward section below for information on revisions made to the coal ash liability during 2022 and 2021.
Asset retirement costs associated with the AROs for operating plants and retired plants are included in Net property, plant and equipment and Regulatory assets, respectively, on the Consolidated Balance Sheets. See Note 4 for additional information on Regulatory assets related to AROs and Note 5 for additional information on commitments and contingencies.
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 4 for additional information on recovery of coal ash costs.
ARO Liability Rollforward
The following tables present changes in the liability associated with AROs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Balance at December 31, 2020 | $ | 12,854 | | | $ | 5,350 | | | $ | 6,149 | | | $ | 5,635 | | | $ | 514 | | | $ | 111 | | | $ | 1,176 | | | $ | 20 | |
| | | | | | | | | | | | | | | |
Accretion expense(a) | 504 | | | 242 | | | 229 | | | 212 | | | 17 | | | 4 | | | 35 | | | 1 | |
Liabilities settled(b) | (613) | | | (210) | | | (324) | | | (214) | | | (110) | | | (3) | | | (77) | | | — | |
Liabilities incurred in the current year | 14 | | | 8 | | | 6 | | | — | | | 6 | | | — | | | — | | | — | |
Revisions in estimates of cash flows(c) | (159) | | | (89) | | | 52 | | | 42 | | | 10 | | | 24 | | | (147) | | | 1 | |
Balance at December 31, 2021 | 12,600 | | | 5,301 | | | 6,112 | | | 5,675 | | | 437 | | | 136 | | | 987 | | | 22 | |
| | | | | | | | | | | | | | | |
Accretion expense(a) | 501 | | | 242 | | | 229 | | | 215 | | | 14 | | | 6 | | | 30 | | | 1 | |
Liabilities settled(b) | (680) | | | (234) | | | (334) | | | (228) | | | (106) | | | (13) | | | (98) | | | — | |
Liabilities incurred in the current year | 22 | | | — | | | 18 | | | — | | | 18 | | | — | | | 5 | | | — | |
Revisions in estimates of cash flows(c) | 285 | | | 73 | | | 156 | | | 161 | | | (5) | | | 25 | | | 27 | | | 3 | |
Balance at December 31, 2022 | $ | 12,728 | | | $ | 5,382 | | | $ | 6,181 | | | $ | 5,823 | | | $ | 358 | | | $ | 154 | | | $ | 951 | | | $ | 26 | |
(a) Substantially all accretion expense for the years ended December 31, 2022, and 2021, relates to Duke Energy’s regulated operations and has been deferred in accordance with regulatory accounting treatment.
(b) Amounts primarily relate to ash impoundment closures and nuclear decommissioning.
(c) The amounts recorded represent the discounted cash flows for estimated closure costs as evaluated on a site-by-site basis. The increases in 2022 primarily relate to higher unit costs associated with basin closure and routine maintenance. The decreases in 2021 primarily relate to revised basin closure cost estimates, partially offset by increases related to new closure plan approvals, post closure maintenance and beneficiation costs.
| | | | | |
FINANCIAL STATEMENTS | PROPERTY, PLANT AND EQUIPMENT |
11. PROPERTY, PLANT AND EQUIPMENT
The following tables summarize the property, plant and equipment for Duke Energy and its subsidiary registrants.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Average | | | | | | | | | | | | | | | | |
| Remaining | | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Useful Life | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | (Years) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Land | | | $ | 2,232 | | | $ | 565 | | | $ | 993 | | | $ | 496 | | | $ | 497 | | | $ | 230 | | | $ | 124 | | | $ | 295 | |
Plant – Regulated | | | | | | | | | | | | | | | | | |
Electric generation, distribution and transmission | 39 | | 126,016 | | | 46,640 | | | 55,872 | | | 33,336 | | | 22,536 | | | 6,900 | | | 16,604 | | | — | |
Natural gas transmission and distribution | 56 | | 13,174 | | | — | | | — | | | — | | | — | | | 3,773 | | | — | | | 9,401 | |
Other buildings and improvements | 40 | | 2,537 | | | 973 | | | 647 | | | 341 | | | 306 | | | 398 | | | 336 | | | 183 | |
Plant – Nonregulated | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other buildings and improvements | 10 | | 369 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nuclear fuel | | | 3,081 | | | 1,723 | | | 1,358 | | | 1,358 | | | — | | | — | | | — | | | — | |
Equipment | 13 | | 2,959 | | | 710 | | | 936 | | | 567 | | | 369 | | | 441 | | | 356 | | | 125 | |
Construction in process | | | 7,381 | | | 2,671 | | | 3,073 | | | 1,317 | | | 1,756 | | | 375 | | | 381 | | | 478 | |
Other | 15 | | 6,090 | | | 1,368 | | | 1,943 | | | 1,460 | | | 476 | | | 380 | | | 320 | | | 387 | |
Total property, plant and equipment(a) | | | 163,839 | | | 54,650 | | | 64,822 | | | 38,875 | | | 25,940 | | | 12,497 | | | 18,121 | | | 10,869 | |
Total accumulated depreciation – regulated(b)(c) | | | (50,544) | | | (18,669) | | | (20,584) | | | (14,201) | | | (6,377) | | | (3,250) | | | (6,021) | | | (2,081) | |
Total accumulated depreciation – nonregulated(d) | | | (1,556) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Facilities to be retired, net | | | 9 | | | — | | | — | | | — | | | — | | | — | | | — | | | 9 | |
Total net property, plant and equipment | | | $ | 111,748 | | | $ | 35,981 | | | $ | 44,238 | | | $ | 24,674 | | | $ | 19,563 | | | $ | 9,247 | | | $ | 12,100 | | | $ | 8,797 | |
(a) Includes finance leases of $816 million, $335 million, $674 million, $590 million, $84 million and $10 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $233 million, $81 million and $152 million, respectively, of accumulated amortization of finance leases.
(b) Includes $1,683 million, $934 million, $749 million and $749 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(c) Includes accumulated amortization of finance leases of $7 million, $51 million and $4 million at Duke Energy, Duke Energy Carolinas and Duke Energy Indiana, respectively.
(d) Includes accumulated amortization of finance leases of ($1 million) at Duke Energy.
| | | | | |
FINANCIAL STATEMENTS | PROPERTY, PLANT AND EQUIPMENT |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Average | | | | | | | | | | | | | | | | |
| Remaining | | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Useful Life | | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | (Years) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Land | | | $ | 2,145 | | | $ | 543 | | | $ | 957 | | | $ | 482 | | | $ | 475 | | | $ | 219 | | | $ | 122 | | | $ | 279 | |
Plant – Regulated | | | | | | | | | | | | | | | | | |
Electric generation, distribution and transmission | 40 | | 120,855 | | | 44,910 | | | 53,447 | | | 32,417 | | | 21,030 | | | 6,573 | | | 15,925 | | | — | |
Natural gas transmission and distribution | 54 | | 12,079 | | | — | | | — | | | — | | | — | | | 3,347 | | | — | | | 8,732 | |
Other buildings and improvements | 37 | | 1,921 | | | 550 | | | 514 | | | 228 | | | 286 | | | 381 | | | 321 | | | 155 | |
Plant – Nonregulated | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other buildings and improvements | 11 | | 401 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Nuclear fuel | | | 3,181 | | | 1,856 | | | 1,325 | | | 1,325 | | | — | | | — | | | — | | | — | |
Equipment | 13 | | 2,659 | | | 614 | | | 791 | | | 497 | | | 294 | | | 403 | | | 262 | | | 122 | |
Construction in process | | | 5,979 | | | 2,078 | | | 2,297 | | | 954 | | | 1,343 | | | 515 | | | 460 | | | 262 | |
Other | 14 | | 5,276 | | | 1,323 | | | 1,563 | | | 1,115 | | | 437 | | | 287 | | | 253 | | | 368 | |
Total property, plant and equipment(a) | | | 154,496 | | | 51,874 | | | 60,894 | | | 37,018 | | | 23,865 | | | 11,725 | | | 17,343 | | | 9,918 | |
Total accumulated depreciation – regulated(b)(c) | | | (47,611) | | | (17,854) | | | (19,214) | | | (13,387) | | | (5,819) | | | (3,106) | | | (5,583) | | | (1,899) | |
Total accumulated depreciation – nonregulated(d) | | | (1,493) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Facilities to be retired, net | | | 144 | | | 102 | | | 26 | | | 26 | | | — | | | 6 | | | — | | | 11 | |
Total net property, plant and equipment | | | $ | 105,536 | | | $ | 34,122 | | | $ | 41,706 | | | $ | 23,657 | | | $ | 18,046 | | | $ | 8,625 | | | $ | 11,760 | | | $ | 8,030 | |
(a) Includes finance leases of $958 million, $335 million, $729 million, $627 million, $102 million, and $10 million at Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana, respectively, primarily within Plant – Regulated. The Progress Energy, Duke Energy Progress and Duke Energy Florida amounts are net of $178 million, $45 million and $133 million, respectively, of accumulated amortization of finance leases.
(b) Includes $1,799 million, $1,064 million, $735 million and $735 million of accumulated amortization of nuclear fuel at Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(c) Includes accumulated amortization of finance leases of $9 million, $33 million, and $3 million at Duke Energy, Duke Energy Carolinas and Duke Energy Indiana, respectively.
(d) Includes accumulated amortization of finance leases of ($1 million) at Duke Energy.
Duke Energy continues to execute on its business transformation strategy, including the evaluation of in-office work policies considering the experience with the COVID-19 pandemic and also workforce realignment of roles and responsibilities. In May 2021, Duke Energy management approved the sale of certain properties and entered into an agreement to exit certain leased space on December 31, 2021. The sale of the properties is subject to abandonment accounting and resulted in an impairment charge. Additionally, the exit of the leased space resulted in the impairment of related furniture, fixtures and equipment. During the year ended December 31, 2021, Duke Energy recorded a pretax charge to earnings of $192 million on the Consolidated Statements of Operations, which includes $133 million within Impairment of assets and other charges, $42 million within Operations, maintenance and other and $17 million within Depreciation and amortization.
The following table presents capitalized interest, which includes the debt component of AFUDC.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Duke Energy | $ | 118 | | | $ | 66 | | | $ | 96 | |
Duke Energy Carolinas | 50 | | | 29 | | | 28 | |
Progress Energy | 26 | | | 20 | | | 17 | |
Duke Energy Progress | 19 | | | 14 | | | 12 | |
Duke Energy Florida | 7 | | | 6 | | | 5 | |
Duke Energy Ohio | 14 | | | 20 | | | 26 | |
Duke Energy Indiana(a) | 3 | | | (17) | | | 10 | |
Piedmont | 4 | | | 9 | | | 8 | |
(a) In 2021, Duke Energy Indiana is primarily compromised of ($24 million) of PISCC amortization, which is partially offset by $7 million of the debt component of AFUDC.
| | | | | |
FINANCIAL STATEMENTS | GOODWILL AND INTANGIBLE ASSETS |
12. GOODWILL AND INTANGIBLE ASSETS
GOODWILL
Duke Energy
Duke Energy's Goodwill balance of $19.3 billion is allocated $17.4 billion to EU&I and $1.9 billion to GU&I on Duke Energy's Consolidated Balance Sheets at December 31, 2022, and 2021. There are no accumulated impairment charges.
Duke Energy Ohio
Duke Energy Ohio's Goodwill balance of $920 million, allocated $596 million to EU&I and $324 million to GU&I, is presented net of accumulated impairment charges of $216 million on the Consolidated Balance Sheets at December 31, 2022, and 2021.
Progress Energy
Progress Energy's Goodwill is included in the EU&I segment and there are no accumulated impairment charges.
Piedmont
Piedmont's Goodwill is included in the GU&I segment and there are no accumulated impairment charges.
Goodwill Impairment Testing
Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont are required to perform an annual goodwill impairment test as of the same date each year and, accordingly, perform their annual impairment testing of goodwill as of August 31. Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont update their test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. As the fair value for Duke Energy, Progress Energy, Duke Energy Ohio and Piedmont exceeded their respective carrying values at the date of the annual impairment analysis, no goodwill impairment charges were recorded in 2022.
INTANGIBLE ASSETS
The following tables show the carrying amount and accumulated amortization of intangible assets included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets of the Duke Energy Registrants at December 31, 2022, and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Emission allowances | $ | 8 | | | $ | — | | | $ | 5 | | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | 2 | | | $ | — | |
Renewable energy certificates | 210 | | | 84 | | | 124 | | | 124 | | | — | | | 2 | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | 55 | | | — | | | 4 | | | 1 | | | 3 | | | — | | | — | | | 22 | |
Total gross carrying amounts | 273 | | | 84 | | | 133 | | | 127 | | | 6 | | | 2 | | | 2 | | | 22 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Accumulated amortization – other | (8) | | | — | | | (1) | | | — | | | (1) | | | — | | | — | | | (2) | |
Total accumulated amortization | (8) | | | — | | | (1) | | | — | | | (1) | | | — | | | — | | | (2) | |
Total intangible assets, net | $ | 265 | | | $ | 84 | | | $ | 132 | | | $ | 127 | | | $ | 5 | | | $ | 2 | | | $ | 2 | | | $ | 20 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Emission allowances | $ | 8 | | | $ | — | | | $ | 5 | | | $ | 2 | | | $ | 3 | | | $ | — | | | $ | 2 | | | $ | — | |
Renewable energy certificates | 204 | | | 73 | | | 131 | | | 131 | | | — | | | — | | | — | | | — | |
Natural gas, coal and power contracts | 24 | | | — | | | — | | | — | | | — | | | — | | | 24 | | | — | |
| | | | | | | | | | | | | | | |
Other | 28 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total gross carrying amounts | 264 | | | 73 | | | 136 | | | 133 | | | 3 | | | — | | | 26 | | | — | |
Accumulated amortization – natural gas, coal and power contracts | (24) | | | — | | | — | | | — | | | — | | | — | | | (24) | | | — | |
| | | | | | | | | | | | | | | |
Accumulated amortization – other | (4) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total accumulated amortization | (28) | | | — | | | — | | | — | | | — | | | — | | | (24) | | | — | |
Total intangible assets, net | $ | 236 | | | $ | 73 | | | $ | 136 | | | $ | 133 | | | $ | 3 | | | $ | — | | | $ | 2 | | | $ | — | |
Amortization Expense
Amortization expense amounts for other intangible assets are immaterial for the years ended December 31, 2022, 2021 and 2020, and are expected to be immaterial for the next five years as of December 31, 2022.
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN UNCONSOLIDATED AFFILIATES |
13. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
EQUITY METHOD INVESTMENTS
Investments in affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method.
The following table presents Duke Energy’s investments in unconsolidated affiliates accounted for under the equity method, as well as the respective equity in earnings, by segment, for periods presented in this filing.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | | | 2020 |
| | | Equity in | | | | Equity in | | | | Equity in |
| | | earnings | | | | earnings | | | | earnings |
(in millions) | Investments | | (losses) | | Investments | | (losses) | | | | (losses) |
Electric Utilities and Infrastructure | $ | 99 | | | $ | 7 | | | $ | 104 | | | $ | 7 | | | | | $ | (1) | |
Gas Utilities and Infrastructure | 240 | | | 21 | | | 231 | | | 8 | | | | | (2,017) | |
| | | | | | | | | | | |
Other | 116 | | | 85 | | | 122 | | | 47 | | | | | 13 | |
Total | $ | 455 | | | $ | 113 | | | $ | 457 | | | $ | 62 | | | | | $ | (2,005) | |
During the years ended December 31, 2022, 2021 and 2020, Duke Energy received distributions from equity investments of $111 million, $56 million and $34 million, respectively, which are included in Other assets within Cash Flows from Operating Activities on the Consolidated Statements of Cash Flows. During the years ended December 31, 2022, 2021 and 2020, Duke Energy received distributions from equity investments of $6 million, $14 million and $23 million, respectively, which are included in Return of investment capital within Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows.
During the years ended December 31, 2022, 2021 and 2020, Piedmont received distributions from equity investments of $31 million, $8 million and $2 million, respectively, which are included in Other assets within Cash Flows from Operating Activities. During the years ended December 31, 2021, and 2020, Piedmont received distributions from equity investments of $2 million and $2 million, respectively, which are included within Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows. Amounts received during the year ended December 31, 2022, included in Cash Flows from Investing Activities on the Consolidated Statements of Cash Flows were immaterial.
Significant investments in affiliates accounted for under the equity method are discussed below.
Electric Utilities and Infrastructure
Duke Energy owns 50% interests in both DATC and Pioneer, which build, own and operate electric transmission facilities in North America.
Gas Utilities and Infrastructure
Pipeline Investments
Piedmont owns a 21.49% investment in Cardinal, an intrastate pipeline located in North Carolina.
Duke Energy owns a 7.5% interest in Sabal Trail, a 517-mile interstate natural gas pipeline, which provides natural gas to Duke Energy Florida and Florida Power and Light.
Duke Energy owns a 47% interest in the ACP pipeline. In 2020, Duke Energy determined it would no longer continue its investment in the construction of the ACP pipeline. See Notes 4 and 8 for further information.
Storage Facilities
Piedmont owns a 45% interest in Pine Needle, an interstate LNG storage facility located in North Carolina, and a 50% interest in Hardy Storage, an underground interstate natural gas storage facility located in West Virginia.
Renewable Natural Gas Investments
Duke Energy owns a 29.68% investment in SustainRNG, a developer of renewable natural gas projects, a 70% interest in Sustain T&W, SustainRNG's renewable natural gas project located in Georgia, and a 70% interest in Sustain Liberty, SustainRNG's renewable natural gas project located in North Carolina.
Other
Duke Energy has a 17.5% indirect economic ownership interest and a 25% board representation and voting rights interest in NMC, which owns and operates a methanol and MTBE business in Jubail, Saudi Arabia.
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN UNCONSOLIDATED AFFILIATES |
Significant Subsidiaries
For the year ended December 31, 2020, Duke Energy's investment in ACP met the requirements of S-X Rule 4-08(g) to provide summarized financial information. The following table provides summary information for ACP as required under S-X Rule 1-02(bb) for the period of significance in Duke Energy's consolidated statements of operations. For the years ended December 31, 2022, and 2021, there were no investments that met the significance requirements.
| | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | Year Ended |
| | | | | December 31, 2020 |
Net revenues | | | | | $ | — | |
Operating loss | | | | | (4,612) | |
| | | | | |
Net loss | | | | | (4,512) | |
| | | | | |
Net loss attributable to Duke Energy | | | | | $ | (2,121) | |
| | | | | |
14. RELATED PARTY TRANSACTIONS
The Subsidiary Registrants engage in related party transactions in accordance with the applicable state and federal commission regulations. Refer to the Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included in the Consolidated Statements of Operations and Comprehensive Income are presented in the following table.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Duke Energy Carolinas | | | | | |
Corporate governance and shared service expenses(a) | $ | 838 | | | $ | 894 | | | $ | 753 | |
Indemnification coverages(b) | 28 | | | 24 | | | 20 | |
Joint Dispatch Agreement (JDA) revenue(c) | 109 | | | 41 | | | 25 | |
JDA expense(c) | 600 | | | 207 | | | 114 | |
Intercompany natural gas purchases(d) | 12 | | | 11 | | | 15 | |
Progress Energy | | | | | |
Corporate governance and shared service expenses(a) | $ | 818 | | | $ | 856 | | | $ | 715 | |
Indemnification coverages(b) | 43 | | | 41 | | | 36 | |
JDA revenue(c) | 600 | | | 207 | | | 114 | |
JDA expense(c) | 109 | | | 41 | | | 25 | |
Intercompany natural gas purchases(d) | 76 | | | 75 | | | 75 | |
Duke Energy Progress | | | | | |
Corporate governance and shared service expenses(a) | $ | 469 | | | $ | 504 | | | $ | 420 | |
Indemnification coverages(b) | 20 | | | 19 | | | 17 | |
JDA revenue(c) | 600 | | | 207 | | | 114 | |
JDA expense(c) | 109 | | | 41 | | | 25 | |
Intercompany natural gas purchases(d) | 76 | | | 75 | | | 75 | |
Duke Energy Florida | | | | | |
Corporate governance and shared service expenses(a) | $ | 349 | | | $ | 352 | | | $ | 295 | |
Indemnification coverages(b) | 23 | | | 22 | | | 19 | |
Duke Energy Ohio | | | | | |
Corporate governance and shared service expenses(a) | $ | 334 | | | $ | 329 | | | $ | 326 | |
Indemnification coverages(b) | 5 | | | 4 | | | 4 | |
Duke Energy Indiana | | | | | |
Corporate governance and shared service expenses(a) | $ | 447 | | | $ | 409 | | | $ | 401 | |
Indemnification coverages(b) | 8 | | | 8 | | | 8 | |
Piedmont | | | | | |
Corporate governance and shared service expenses(a) | $ | 155 | | | $ | 139 | | | $ | 140 | |
Indemnification coverages(b) | 3 | | | 3 | | | 3 | |
Intercompany natural gas sales(d) | 88 | | | 86 | | | 90 | |
Natural gas storage and transportation costs(e) | 23 | | | 22 | | | 23 | |
| | | | | |
FINANCIAL STATEMENTS | RELATED PARTY TRANSACTIONS |
(a)The Subsidiary Registrants are charged their proportionate share of corporate governance and other shared services costs, primarily related to human resources, employee benefits, information technology, legal and accounting fees, as well as other third-party costs. These amounts are primarily recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
(b)The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Consolidated Statements of Operations and Comprehensive Income.
(c)Duke Energy Carolinas and Duke Energy Progress participate in a JDA, which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power and expenses from the purchase of power pursuant to the JDA are recorded in Operating Revenues and Fuel used in electric generation and purchased power, respectively, on the Consolidated Statements of Operations and Comprehensive Income.
(d)Piedmont provides long-term natural gas delivery service to certain Duke Energy Carolinas and Duke Energy Progress natural gas-fired generation facilities. Piedmont records the sales in Operating Revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases as a component of Fuel used in electric generation and purchased power on their respective Consolidated Statements of Operations and Comprehensive Income. These intercompany revenues and expenses are eliminated in consolidation.
(e)Piedmont has related party transactions as a customer of its equity method investments in Pine Needle, Hardy Storage, and Cardinal natural gas storage and transportation facilities. These expenses are included in Cost of natural gas on Piedmont's Consolidated Statements of Operations and Comprehensive Income.
In addition to the amounts presented above, the Subsidiary Registrants have other affiliate transactions, including rental of office space, participation in a money pool arrangement, other operational transactions and their proportionate share of certain charged expenses. See Note 7 for more information regarding money pool. These transactions of the Subsidiary Registrants are incurred in the ordinary course of business and are eliminated in consolidation.
As discussed in Note 18, certain trade receivables have been sold by Duke Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary of Duke Energy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from CRC for a portion of the purchase price.
Intercompany Income Taxes
Duke Energy and the Subsidiary Registrants file a consolidated federal income tax return and other state and jurisdictional returns. The Subsidiary Registrants have a tax sharing agreement with Duke Energy for the allocation of consolidated tax liabilities and benefits. Income taxes recorded represent amounts the Subsidiary Registrants would incur as separate C-Corporations. The following table includes the balance of intercompany income tax receivables and payables for the Subsidiary Registrants.
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke | | Duke | Duke | Duke | Duke | |
| Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
December 31, 2022 | | | | | | | |
Intercompany income tax receivable | $ | — | | $ | 95 | | $ | 36 | | $ | 17 | | $ | — | | $ | — | | $ | — | |
Intercompany income tax payable | 37 | | — | | — | | — | | 17 | | 18 | | 38 | |
| | | | | | | |
December 31, 2021 | | | | | | | |
Intercompany income tax receivable | $ | — | | $ | — | | $ | — | | $ | 40 | | $ | 19 | | $ | — | | $ | — | |
Intercompany income tax payable | 62 | | — | | 84 | | — | | — | | 10 | | 27 | |
15. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity, interest rate and foreign currency contracts to manage commodity price risk, interest rate risk and foreign currency exchange rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into natural gas supply contracts to provide diversification, reliability and natural gas cost benefits to its customers. Interest rate derivatives are used to manage interest rate risk associated with borrowings. Foreign currency derivatives are used to manage risk related to foreign currency exchange rates on certain issuances of debt. Derivatives related to interest rate risk for the Commercial Renewables Disposal Groups are included in the following disclosures. See Note 2 for further information.
All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Consolidated Statements of Cash Flows.
INTEREST RATE RISK
The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps or Treasury locks may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt.
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FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
Cash Flow Hedges
For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once the future transaction impacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. See Note 2 for information on the de-designation of interest rate swaps and related gain reclassified out of AOCI for the year ended December 31, 2022, related to the Commercial Renewables Disposal Groups. Gains and losses reclassified out of AOCI for the years ended December 31, 2021, and 2020, were not material. Duke Energy's interest rate derivatives designated as hedges include forward-starting interest rate swaps not accounted for under regulatory accounting.
Undesignated Contracts
Undesignated contracts primarily include contracts not designated as a hedge because they are accounted for under regulatory accounting or contracts that do not qualify for hedge accounting.
Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense on the Duke Energy Registrant's Consolidated Statements of Operations and Comprehensive Income.
The following tables show notional amounts of outstanding derivatives related to interest rate risk.
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| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Indiana | | Ohio |
Cash flow hedges | $ | 500 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Undesignated contracts | 2,979 | | | 1,250 | | | 800 | | | 500 | | | 300 | | | 300 | | | 27 | |
Total notional amount | $ | 3,479 | | | $ | 1,250 | | | $ | 800 | | | $ | 500 | | | $ | 300 | | | $ | 300 | | | $ | 27 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Indiana | | Ohio |
Cash flow hedges | $ | 2,415 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Undesignated contracts | 1,177 | | | 350 | | | 500 | | | 500 | | | 300 | | | 27 | |
Total notional amount | $ | 3,592 | | | $ | 350 | | | $ | 500 | | | $ | 500 | | | $ | 300 | | | $ | 27 | |
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and natural gas purchases, including Piedmont's natural gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. To manage risk associated with commodity prices, the Duke Energy Registrants may enter into long-term power purchase or sales contracts and long-term natural gas supply agreements.
Undesignated Contracts
For the Subsidiary Registrants, bulk power electricity and natural gas purchases flow through fuel adjustment clauses, formula-based contracts or other cost sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce natural gas cost volatility for customers.
Volumes
The tables below include volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown.
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| December 31, 2022 |
| | | Duke | | | | Duke | | | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | | | Ohio | | Indiana | | Piedmont |
Electricity (GWh) | 14,086 | | | — | | | — | | | — | | | | | 1,820 | | | 12,266 | | | — | |
Natural gas (millions of Dth) | 909 | | | 307 | | | 292 | | | 292 | | | | | — | | | 11 | | | 299 | |
| | | | | |
FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
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| December 31, 2021 |
| | | Duke | | | | Duke | | | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | | | Energy | | Energy | | |
| Energy | | Carolinas | | Energy | | Progress | | | | Ohio | | Indiana | | Piedmont |
Electricity (GWh) | 12,369 | | | — | | | — | | | — | | | | | 1,681 | | | 10,688 | | | — | |
Natural gas (millions of Dth) | 823 | | | 264 | | | 215 | | | 215 | | | | | — | | | 8 | | | 336 | |
FOREIGN CURRENCY RISK
Duke Energy may enter into foreign currency derivatives to hedge exposure to changes in foreign currency exchange rates, such as that arising from the issuance of debt denominated in a currency other than U.S. dollars.
Fair Value Hedges
Derivatives related to existing fixed rate securities are accounted for as fair value hedges, where the derivatives’ fair value gains or losses and hedged items’ fair value gains or losses are both recorded directly to earnings on the same income statement line item, including foreign currency gains or losses arising from changes in the U.S. currency exchange rates. Duke Energy has elected to exclude the cross-currency basis spread from the assessment of effectiveness in the fair value hedges of its foreign currency risk and record any difference between the change in the fair value of the excluded components and the amounts recognized in earnings as a component of other comprehensive income or loss.
The following table shows Duke Energy's outstanding derivatives related to foreign currency risk. There were no fair value hedges in 2021.
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| December 31, 2022 |
| | | | | Receive | | | | | | | | Fair Value |
| Pay Notional | | | | Notional | | Receive | | | | Hedge | | Gain (Loss)(a) |
| (in millions) | | Pay Rate | | (in millions) | | Rate | | | | Maturity Date | | (in millions) |
Fair value hedges | | | | | | | | | | | | | | |
| $ | 645 | | | 4.75 | % | | 600 | | euros | | 3.10 | % | | | | June 2028 | | $ | (3) | |
| 537 | | | 5.31 | % | | 500 | | euros | | 3.85 | % | | | | June 2034 | | (2) | |
Total notional amount | $ | 1,182 | | | | | 1,100 | | euros | | | | | | | | $ | (5) | |
(a) Amounts are recorded in Other Income and expenses, net on the Consolidated Statement of Operations, which offsets an equal translation adjustment of the foreign denominated debt. See the Consolidated Statements of Comprehensive Income for amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded.
LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the 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.
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Derivative Assets | | December 31, 2022 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Commodity Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 265 | | | $ | 132 | | | $ | 99 | | | $ | 99 | | | $ | — | | | $ | 5 | | | $ | 29 | | | $ | — | |
Noncurrent | | 213 | | | 104 | | | 108 | | | 108 | | | — | | | — | | | — | | | — | |
Total Derivative Assets – Commodity Contracts | | $ | 478 | | | $ | 236 | | | $ | 207 | | | $ | 207 | | | $ | — | | | $ | 5 | | | $ | 29 | | | $ | — | |
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 101 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 228 | | | $ | 94 | | | $ | 41 | | | $ | 23 | | | $ | 17 | | | $ | — | | | $ | 81 | | | $ | — | |
Noncurrent | | 29 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Derivative Assets – Interest Rate Contracts | | $ | 358 | | | $ | 94 | | | $ | 41 | | | $ | 23 | | | $ | 17 | | | $ | — | | | $ | 81 | | | $ | — | |
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| | | | | | | | | | | | | | | | |
Total Derivative Assets | | $ | 836 | | | $ | 330 | | | $ | 248 | | | $ | 230 | | | $ | 17 | | | $ | 5 | | | $ | 110 | | | $ | — | |
| | | | | |
FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
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Derivative Liabilities | | December 31, 2022 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Commodity Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 175 | | | $ | 96 | | | $ | 36 | | | $ | 18 | | | $ | 19 | | | $ | — | | | $ | 16 | | | $ | 27 | |
Noncurrent | | 202 | | | 31 | | | 30 | | | 30 | | | — | | | — | | | — | | | 141 | |
Total Derivative Liabilities – Commodity Contracts | | $ | 377 | | | $ | 127 | | | $ | 66 | | | $ | 48 | | | $ | 19 | | | $ | — | | | $ | 16 | | | $ | 168 | |
Interest Rate Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Noncurrent | | 2 | | | — | | | — | | | — | | | — | | | 2 | | | — | | | — | |
Total Derivative Liabilities – Interest Rate Contracts | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | — | |
Foreign Currency Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 18 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Noncurrent | | 40 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total Derivative Liabilities – Foreign Currency Contracts | | $ | 58 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total Derivative Liabilities | | $ | 437 | | | $ | 127 | | | $ | 66 | | | $ | 48 | | | $ | 19 | | | $ | 2 | | | $ | 16 | | | $ | 168 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2021 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Commodity Contracts | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 199 | | | $ | 99 | | | $ | 72 | | | $ | 72 | | | $ | — | | | $ | 2 | | | $ | 23 | | | $ | 3 | |
Noncurrent | | 113 | | | 63 | | | 50 | | | 50 | | | — | | | — | | | — | | | — | |
Total Derivative Assets – Commodity Contracts | | $ | 312 | | | $ | 162 | | | $ | 122 | | | $ | 122 | | | $ | — | | | $ | 2 | | | $ | 23 | | | $ | 3 | |
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Noncurrent | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Total Derivative Assets – Interest Rate Contracts | | $ | 8 | | | $ | — | | | $ | 2 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total Derivative Assets | | $ | 320 | | | $ | 162 | | | $ | 124 | | | $ | 124 | | | $ | — | | | $ | 2 | | | $ | 23 | | | $ | 3 | |
| | | | | |
FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2021 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 72 | | | $ | 18 | | | $ | 19 | | | $ | 5 | | | $ | 14 | | | $ | — | | | $ | 13 | | | $ | 21 | |
Noncurrent | | 132 | | | 9 | | | 5 | | | 5 | | | — | | | — | | | — | | | 118 | |
Total Derivative Liabilities – Commodity Contracts | | $ | 204 | | | $ | 27 | | | $ | 24 | | | $ | 10 | | | $ | 14 | | | $ | — | | | $ | 13 | | | $ | 139 | |
Interest Rate Contracts | | | | | | | | | | | | | | | | |
Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | $ | 75 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Noncurrent | | 21 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Not Designated as Hedging Instruments | | | | | | | | | | | | | | | | |
Current | | 10 | | | 8 | | | — | | | — | | | — | | | 1 | | | — | | | — | |
Noncurrent | | 18 | | | — | | | — | | | — | | | — | | | 4 | | | 14 | | | — | |
Total Derivative Liabilities – Interest Rate Contracts | | $ | 124 | | | $ | 8 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | | | $ | 14 | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total Derivative Liabilities | | $ | 328 | | | $ | 35 | | | $ | 24 | | | $ | 10 | | | $ | 14 | | | $ | 5 | | | $ | 27 | | | $ | 139 | |
OFFSETTING ASSETS AND LIABILITIES
The following tables present the line items on the Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The gross amounts offset in the tables below show the effect of these netting arrangements on financial position and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2022 | | |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 594 | | | $ | 226 | | | $ | 140 | | | $ | 122 | | | $ | 17 | | | $ | 5 | | | $ | 110 | | | $ | — | |
Gross amounts offset | | (64) | | | (33) | | | (30) | | | (30) | | | — | | | — | | | — | | | — | |
Net amounts presented in Current Assets: Other | | $ | 530 | | | $ | 193 | | | $ | 110 | | | $ | 92 | | | $ | 17 | | | $ | 5 | | | $ | 110 | | | $ | — | |
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 242 | | | $ | 104 | | | $ | 108 | | | $ | 108 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Gross amounts offset | | (97) | | | (40) | | | (57) | | | (57) | | | — | | | — | | | — | | | — | |
Net amounts presented in Other Noncurrent Assets: Other | | $ | 145 | | | $ | 64 | | | $ | 51 | | | $ | 51 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2022 | | |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 193 | | | $ | 96 | | | $ | 36 | | | $ | 18 | | | $ | 19 | | | $ | — | | | $ | 16 | | | $ | 27 | |
Gross amounts offset | | (49) | | | (15) | | | (18) | | | (18) | | | — | | | — | | | (16) | | | — | |
Net amounts presented in Current Liabilities: Other | | $ | 144 | | | $ | 81 | | | $ | 18 | | | $ | — | | | $ | 19 | | | $ | — | | | $ | — | | | $ | 27 | |
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 244 | | | $ | 31 | | | $ | 30 | | | $ | 30 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 141 | |
Gross amounts offset | | (59) | | | (29) | | | (30) | | | (30) | | | — | | | — | | | — | | | — | |
Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 185 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 141 | |
| | | | | |
FINANCIAL STATEMENTS | DERIVATIVES AND HEDGING |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Assets | | December 31, 2021 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 204 | | | $ | 99 | | | $ | 74 | | | $ | 74 | | | $ | — | | | $ | 2 | | | $ | 23 | | | $ | 3 | |
Gross amounts offset | | (25) | | | (16) | | | (9) | | | (9) | | | — | | | — | | | — | | | — | |
Net amounts presented in Current Assets: Other | | $ | 179 | | | $ | 83 | | | $ | 65 | | | $ | 65 | | | $ | — | | | $ | 2 | | | $ | 23 | | | $ | 3 | |
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 116 | | | $ | 63 | | | $ | 50 | | | $ | 50 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Gross amounts offset | | (23) | | | (15) | | | (8) | | | (8) | | | — | | | — | | | — | | | — | |
Net amounts presented in Other Noncurrent Assets: Other | | $ | 93 | | | $ | 48 | | | $ | 42 | | | $ | 42 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | December 31, 2021 |
| | | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| | Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Current | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 157 | | | $ | 26 | | | $ | 19 | | | $ | 5 | | | $ | 14 | | | $ | 1 | | | $ | 13 | | | $ | 21 | |
Gross amounts offset | | (11) | | | (6) | | | (5) | | | (5) | | | — | | | — | | | — | | | — | |
Net amounts presented in Current Liabilities: Other | | $ | 146 | | | $ | 20 | | | $ | 14 | | | $ | — | | | $ | 14 | | | $ | 1 | | | $ | 13 | | | $ | 21 | |
Noncurrent | | | | | | | | | | | | | | | | |
Gross amounts recognized | | $ | 171 | | | $ | 9 | | | $ | 5 | | | $ | 5 | | | $ | — | | | $ | 4 | | | $ | 14 | | | $ | 118 | |
Gross amounts offset | | (12) | | | (8) | | | (5) | | | (5) | | | — | | | — | | | — | | | — | |
Net amounts presented in Other Noncurrent Liabilities: Other | | $ | 159 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 14 | | | $ | 118 | |
OBJECTIVE CREDIT CONTINGENT FEATURES
Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit risk-related payment provisions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | | |
Aggregate fair value of derivatives in a net liability position | $ | 141 | | | $ | 86 | | | $ | 55 | | | $ | 48 | | | $ | 7 | | | | |
Fair value of collateral already posted | — | | | — | | | — | | | — | | | — | | | | |
Additional cash collateral or letters of credit in the event credit risk-related contingent features were triggered | 141 | | | 86 | | | 55 | | | 48 | | | 7 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke |
| Duke | | Energy | | Progress | | Energy | | Energy |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida |
Aggregate fair value of derivatives in a net liability position | $ | 32 | | | $ | 18 | | | $ | 14 | | | $ | 10 | | | $ | 4 | |
Fair value of collateral already posted | — | | | — | | | — | | | — | | | — | |
Additional cash collateral or letters of credit in the event credit risk-related contingent features were triggered | 32 | | | 18 | | | 14 | | | 10 | | | 4 | |
The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement.
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
16. INVESTMENTS IN DEBT AND EQUITY SECURITIES
Duke Energy’s investments in debt and equity securities are primarily comprised of investments held in (i) the NDTF at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, (ii) the grantor trusts at Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana related to OPEB plans and (iii) Bison. The Duke Energy Registrants classify investments in debt securities as AFS and investments in equity securities as FV-NI.
For investments in debt securities classified as AFS, the unrealized gains and losses are included in other comprehensive income until realized, at which time they are reported through net income. For investments in equity securities classified as FV-NI, both realized and unrealized gains and losses are reported through net income. Substantially all of Duke Energy’s investments in debt and equity securities qualify for regulatory accounting, and accordingly, all associated realized and unrealized gains and losses on these investments are deferred as a regulatory asset or liability.
Duke Energy classifies the majority of investments in debt and equity securities as long term, unless otherwise noted.
Investment Trusts
The investments within the Investment Trusts are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the investment manager agreements and trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt securities within the Investment Trusts are recognized immediately and deferred to regulatory accounts where appropriate.
Other AFS Securities
Unrealized gains and losses on all other AFS securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment has a credit loss. The Duke Energy Registrants analyze all investment holdings each reporting period to determine whether a decline in fair value is related to a credit loss. If a credit loss exists, the unrealized credit loss is included in earnings. There were no material credit losses as of December 31, 2022, and 2021.
Other Investments amounts are recorded in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
DUKE ENERGY
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
(in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 215 | | | $ | — | | | $ | — | | | $ | 160 | |
Equity securities | 3,658 | | | 105 | | | 5,871 | | | 4,905 | | | 43 | | | 7,350 | |
Corporate debt securities | 1 | | | 85 | | | 641 | | | 39 | | | 6 | | | 829 | |
Municipal bonds | — | | | 39 | | | 330 | | | 14 | | | 1 | | | 314 | |
U.S. government bonds | 2 | | | 112 | | | 1,423 | | | 31 | | | 12 | | | 1,568 | |
Other debt securities | — | | | 18 | | | 156 | | | 3 | | | 1 | | | 180 | |
Total NDTF Investments | $ | 3,661 | | | $ | 359 | | | $ | 8,636 | | | $ | 4,992 | | | $ | 63 | | | $ | 10,401 | |
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 22 | | | $ | — | | | $ | — | | | $ | 36 | |
Equity securities | 21 | | | 16 | | | 128 | | | 36 | | | — | | | 156 | |
Corporate debt securities | — | | | 12 | | | 84 | | | 2 | | | 1 | | | 119 | |
Municipal bonds | — | | | 3 | | | 78 | | | 3 | | | 1 | | | 80 | |
U.S. government bonds | — | | | 2 | | | 62 | | | — | | | — | | | 56 | |
Other debt securities | — | | | 3 | | | 41 | | | — | | | 1 | | | 45 | |
Total Other Investments | $ | 21 | | | $ | 36 | | | $ | 415 | | | $ | 41 | | | $ | 3 | | | $ | 492 | |
Total Investments | $ | 3,682 | | | $ | 395 | | | $ | 9,051 | | | $ | 5,033 | | | $ | 66 | | | $ | 10,893 | |
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2022, 2021 and 2020, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
FV-NI: | | | | | |
Realized gains | $ | 201 | | | $ | 724 | | | $ | 366 | |
Realized losses | 316 | | | 141 | | | 174 | |
AFS: | | | | | |
Realized gains | 28 | | | 56 | | | 96 | |
Realized losses | 151 | | | 54 | | | 51 | |
DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
(in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 117 | | | $ | — | | | $ | — | | | $ | 53 | |
Equity securities | 2,147 | | | 51 | | | 3,367 | | | 2,887 | | | 19 | | | 4,265 | |
Corporate debt securities | 1 | | | 62 | | | 401 | | | 24 | | | 4 | | | 506 | |
Municipal bonds | — | | | 10 | | | 64 | | | 2 | | | — | | | 48 | |
U.S. government bonds | 1 | | | 51 | | | 685 | | | 16 | | | 3 | | | 712 | |
Other debt securities | — | | | 18 | | | 148 | | | 3 | | | 1 | | | 175 | |
Total NDTF Investments | $ | 2,149 | | | $ | 192 | | | $ | 4,782 | | | $ | 2,932 | | | $ | 27 | | | $ | 5,759 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2022, 2021 and 2020, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
FV-NI: | | | | | |
Realized gains | $ | 124 | | | $ | 440 | | | $ | 64 | |
Realized losses | 177 | | | 96 | | | 99 | |
AFS: | | | | | |
Realized gains | 22 | | | 38 | | | 60 | |
Realized losses | 86 | | | 37 | | | 37 | |
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
PROGRESS ENERGY
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
(in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 98 | | | $ | — | | | $ | — | | | $ | 107 | |
Equity securities | 1,511 | | | 54 | | | 2,504 | | | 2,018 | | | 24 | | | 3,085 | |
Corporate debt securities | — | | | 23 | | | 240 | | | 15 | | | 2 | | | 323 | |
Municipal bonds | — | | | 29 | | | 266 | | | 12 | | | 1 | | | 266 | |
U.S. government bonds | 1 | | | 61 | | | 738 | | | 15 | | | 9 | | | 856 | |
Other debt securities | — | | | — | | | 8 | | | — | | | — | | | 5 | |
Total NDTF Investments | $ | 1,512 | | | $ | 167 | | | $ | 3,854 | | | $ | 2,060 | | | $ | 36 | | | $ | 4,642 | |
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 11 | | | $ | — | | | $ | — | | | $ | 20 | |
Municipal bonds | — | | | — | | | 25 | | | 2 | | | — | | | 26 | |
Total Other Investments | $ | — | | | $ | — | | | $ | 36 | | | $ | 2 | | | $ | — | | | $ | 46 | |
Total Investments | $ | 1,512 | | | $ | 167 | | | $ | 3,890 | | | $ | 2,062 | | | $ | 36 | | | $ | 4,688 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2022, 2021 and 2020, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
FV-NI: | | | | | |
Realized gains | $ | 77 | | | $ | 284 | | | $ | 302 | |
Realized losses | 139 | | | 45 | | | 75 | |
AFS: | | | | | |
Realized gains | 6 | | | 16 | | | 24 | |
Realized losses | 48 | | | 14 | | | 13 | |
DUKE ENERGY PROGRESS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
(in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 56 | | | $ | — | | | $ | — | | | $ | 94 | |
Equity securities | 1,431 | | | 54 | | | 2,411 | | | 1,915 | | | 23 | | | 2,970 | |
Corporate debt securities | — | | | 22 | | | 230 | | | 15 | | | 2 | | | 282 | |
Municipal bonds | — | | | 29 | | | 266 | | | 12 | | | 1 | | | 266 | |
U.S. government bonds | 1 | | | 37 | | | 460 | | | 15 | | | 3 | | | 472 | |
Other debt securities | — | | | — | | | 7 | | | — | | | — | | | 5 | |
Total NDTF Investments | $ | 1,432 | | | $ | 142 | | | $ | 3,430 | | | $ | 1,957 | | | $ | 29 | | | $ | 4,089 | |
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 9 | | | $ | — | | | $ | — | | | $ | 16 | |
Total Other Investments | $ | — | | | $ | — | | | $ | 9 | | | $ | — | | | $ | — | | | $ | 16 | |
Total Investments | $ | 1,432 | | | $ | 142 | | | $ | 3,439 | | | $ | 1,957 | | | $ | 29 | | | $ | 4,105 | |
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2022, 2021 and 2020, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
FV-NI: | | | | | |
Realized gains | $ | 76 | | | $ | 283 | | | $ | 52 | |
Realized losses | 136 | | | 44 | | | 59 | |
AFS: | | | | | |
Realized gains | 6 | | | 15 | | | 24 | |
Realized losses | 44 | | | 13 | | | 13 | |
DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
(in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
NDTF | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 42 | | | $ | — | | | $ | — | | | $ | 13 | |
Equity securities | 80 | | | — | | | 93 | | | 103 | | | 1 | | | 115 | |
Corporate debt securities | — | | | 1 | | | 10 | | | — | | | — | | | 41 | |
| | | | | | | | | | | |
U.S. government bonds | — | | | 24 | | | 278 | | | — | | | 6 | | | 384 | |
Other debt securities | — | | | — | | | 1 | | | — | | | — | | | — | |
Total NDTF Investments(a) | $ | 80 | | | $ | 25 | | | $ | 424 | | | $ | 103 | | | $ | 7 | | | $ | 553 | |
Other Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 3 | |
Municipal bonds | — | | | — | | | 25 | | | 2 | | | — | | | 26 | |
Total Other Investments | $ | — | | | $ | — | | | $ | 26 | | | $ | 2 | | | $ | — | | | $ | 29 | |
Total Investments | $ | 80 | | | $ | 25 | | | $ | 450 | | | $ | 105 | | | $ | 7 | | | $ | 582 | |
(a) During the years ended December 31, 2022, and 2021, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of the Crystal River Unit 3.
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2022, 2021 and 2020, were as follows.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
FV-NI: | | | | | |
Realized gains | $ | 1 | | | $ | 1 | | | $ | 250 | |
Realized losses | 3 | | | 1 | | | 16 | |
AFS: | | | | | |
Realized gains | — | | | 1 | | | — | |
Realized losses | 4 | | | 1 | | | — | |
| | | | | |
FINANCIAL STATEMENTS | INVESTMENTS IN DEBT AND EQUITY SECURITIES |
DUKE ENERGY INDIANA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are measured at FV-NI and debt investments are classified as AFS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross | | Gross | | | | Gross | | Gross | | |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | | |
| Holding | | Holding | | Estimated | | Holding | | Holding | | Estimated |
(in millions) | Gains | | Losses | | Fair Value | | Gains | | Losses | | Fair Value |
Investments | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
Equity securities | 2 | | | 16 | | | 79 | | | 6 | | | — | | | 97 | |
Corporate debt securities | — | | | 1 | | | 8 | | | — | | | — | | | 6 | |
Municipal bonds | — | | | 3 | | | 45 | | | 1 | | | 1 | | | 46 | |
U.S. government bonds | — | | | — | | | 7 | | | — | | | — | | | 12 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total Investments | $ | 2 | | | $ | 20 | | | $ | 140 | | | $ | 7 | | | $ | 1 | | | $ | 161 | |
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the years ended December 31, 2022, 2021 and 2020, were immaterial.
DEBT SECURITY MATURITIES
The table below summarizes the maturity date for debt securities.
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Duke | | Duke | Duke | Duke |
| Duke | Energy | Progress | Energy | Energy | Energy |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Indiana |
Due in one year or less | $ | 137 | | $ | 7 | | $ | 89 | | $ | 24 | | $ | 65 | | $ | 8 | |
Due after one through five years | 807 | | 287 | | 443 | | 244 | | 199 | | 22 | |
Due after five through 10 years | 469 | | 230 | | 193 | | 178 | | 15 | | 6 | |
Due after 10 years | 1,402 | | 774 | | 552 | | 517 | | 35 | | 24 | |
Total | $ | 2,815 | | $ | 1,298 | | $ | 1,277 | | $ | 963 | | $ | 314 | | $ | 60 | |
17. 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 the use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.
Fair value measurements are classified in three levels based on the fair value hierarchy as defined by GAAP. Certain investments are not categorized within the fair value hierarchy. These investments are measured at fair value using the net asset value per share practical expedient. The net asset value is derived based on the investment cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.
Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.
Valuation methods of the primary fair value measurements disclosed below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as the NYSE and Nasdaq Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.
Investments in debt securities
Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3.
| | | | | |
FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. Commodity derivatives with observable forward curves are classified as Level 2. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for natural gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.
Interest rate derivatives
Most over-the-counter interest rate contract derivatives are valued using financial models that utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties. Derivatives related to interest rate risk for the Commercial Renewables Disposal Groups are included in the following disclosures. See Note 2 for further information.
Other fair value considerations
See Note 2 for further information on the valuation of the Commercial Renewables Disposal Groups. See Note 12 for a discussion of the valuation of goodwill and intangible assets.
DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets. Derivative amounts in the tables below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 15. See Note 16 for additional information related to investments by major security type for the Duke Energy Registrants.
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | Not Categorized |
NDTF cash and cash equivalents | $ | 215 | | $ | 215 | | $ | — | | $ | — | | $ | — | |
NDTF equity securities | 5,871 | | 5,829 | | — | | — | | 42 | |
NDTF debt securities | 2,550 | | 780 | | 1,770 | | — | | — | |
Other equity securities | 128 | | 128 | | — | | — | | — | |
Other debt securities | 265 | | 55 | | 210 | | — | | — | |
Other cash and cash equivalents | 22 | | 22 | | — | | — | | — | |
Derivative assets | 836 | | 1 | | 801 | | 34 | | — | |
Total assets | 9,887 | | 7,030 | | 2,781 | | 34 | | 42 | |
| | | | | |
Derivative liabilities | (437) | | (16) | | (421) | | — | | — | |
Net assets (liabilities) | $ | 9,450 | | $ | 7,014 | | $ | 2,360 | | $ | 34 | | $ | 42 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
(in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | Not Categorized |
NDTF cash and cash equivalents | $ | 160 | | $ | 160 | | $ | — | | $ | — | | $ | — | |
NDTF equity securities | 7,350 | | 7,300 | | — | | — | | 50 | |
NDTF debt securities | 2,891 | | 967 | | 1,924 | | — | | — | |
Other equity securities | 156 | | 156 | | — | | — | | — | |
Other debt securities | 300 | | 45 | | 255 | | — | | — | |
Other cash and cash equivalents | 36 | | 36 | | — | | — | | — | |
Derivative assets | 320 | | 3 | | 293 | | 24 | | — | |
Total assets | 11,213 | | 8,667 | | 2,472 | | 24 | | 50 | |
| | | | | |
Derivative liabilities | (327) | | (13) | | (314) | | — | | — | |
Net assets (liabilities) | $ | 10,886 | | $ | 8,654 | | $ | 2,158 | | $ | 24 | | $ | 50 | |
| | | | | |
FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
The following table provides reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
| | | | | | | | | | | | | | | | | | | |
| | | Derivatives (net) | | |
| | | Years Ended December 31, | | |
| | | | | | | | | | | |
(in millions) | | | 2022 | | | | | | 2021 | | |
Balance at beginning of period | | | $ | 24 | | | | | | | $ | 8 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases, sales, issuances and settlements: | | | | | | | | | | | |
Purchases | | | 78 | | | | | | | 21 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Settlements | | | (36) | | | | | | | (20) | | | |
| | | | | | | | | | | |
Total gains (losses) included on the Consolidated Balance Sheet | | | (32) | | | | | | | 15 | | | |
Balance at end of period | | | $ | 34 | | | | | | | $ | 24 | | | |
| | | | | | | | | | | |
DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | |
| December 31, 2022 |
(in millions) | Total Fair Value | Level 1 | Level 2 | | Not Categorized |
NDTF cash and cash equivalents | $ | 117 | | $ | 117 | | $ | — | | | $ | — | |
NDTF equity securities | 3,367 | | 3,325 | | — | | | 42 | |
NDTF debt securities | 1,298 | | 323 | | 975 | | | — | |
| | | | | |
Derivative assets | 330 | | — | | 330 | | | — | |
Total assets | 5,112 | | 3,765 | | 1,305 | | | 42 | |
Derivative liabilities | (127) | | — | | (127) | | | — | |
Net assets | $ | 4,985 | | $ | 3,765 | | $ | 1,178 | | | $ | 42 | |
| | | | | | | | | | | | | | | |
| December 31, 2021 |
(in millions) | Total Fair Value | Level 1 | Level 2 | | Not Categorized |
NDTF cash and cash equivalents | $ | 53 | | $ | 53 | | $ | — | | | $ | — | |
NDTF equity securities | 4,265 | | 4,215 | | — | | | 50 | |
NDTF debt securities | 1,441 | | 339 | | 1,102 | | | — | |
| | | | | |
Derivative assets | 162 | | — | | 162 | | | — | |
Total assets | 5,921 | | 4,607 | | 1,264 | | | 50 | |
Derivative liabilities | (35) | | — | | (35) | | | — | |
Net assets | $ | 5,886 | | $ | 4,607 | | $ | 1,229 | | | $ | 50 | |
PROGRESS ENERGY
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
(in millions) | Total Fair Value | Level 1 | Level 2 | | | Total Fair Value | Level 1 | Level 2 | |
NDTF cash and cash equivalents | $ | 98 | | $ | 98 | | $ | — | | | | $ | 107 | | $ | 107 | | $ | — | | |
NDTF equity securities | 2,504 | | 2,504 | | — | | | | 3,085 | | 3,085 | | — | | |
NDTF debt securities | 1,252 | | 457 | | 795 | | | | 1,450 | | 628 | | 822 | | |
Other debt securities | 25 | | — | | 25 | | | | 26 | | — | | 26 | | |
Other cash and cash equivalents | 11 | | 11 | | — | | | | 20 | | 20 | | — | | |
Derivative assets | 248 | | — | | 248 | | | | 124 | | — | | 124 | | |
Total assets | 4,138 | | 3,070 | | 1,068 | | | | 4,812 | | 3,840 | | 972 | | |
| | | | | | | | | |
Derivative liabilities | (66) | | — | | (66) | | | | (24) | | — | | (24) | | |
Net assets | $ | 4,072 | | $ | 3,070 | | $ | 1,002 | | | | $ | 4,788 | | $ | 3,840 | | $ | 948 | | |
| | | | | |
FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
DUKE ENERGY PROGRESS
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | |
(in millions) | Total Fair Value | Level 1 | Level 2 | | | Total Fair Value | Level 1 | Level 2 | |
NDTF cash and cash equivalents | $ | 56 | | $ | 56 | | $ | — | | | | $ | 94 | | $ | 94 | | $ | — | | |
NDTF equity securities | 2,411 | | 2,411 | | — | | | | 2,970 | | 2,970 | | — | | |
NDTF debt securities | 963 | | 225 | | 738 | | | | 1,025 | | 289 | | 736 | | |
| | | | | | | | | |
Other cash and cash equivalents | 9 | | 9 | | — | | | | 16 | | 16 | | — | | |
Derivative assets | 230 | | — | | 230 | | | | 124 | | — | | 124 | | |
Total assets | 3,669 | | 2,701 | | 968 | | | | 4,229 | | 3,369 | | 860 | | |
Derivative liabilities | (48) | | — | | (48) | | | | (10) | | — | | (10) | | |
Net assets | $ | 3,621 | | $ | 2,701 | | $ | 920 | | | | $ | 4,219 | | $ | 3,369 | | $ | 850 | | |
DUKE ENERGY FLORIDA
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | |
(in millions) | Total Fair Value | Level 1 | Level 2 | | Total Fair Value | Level 1 | Level 2 | |
NDTF cash and cash equivalents | $ | 42 | | $ | 42 | | $ | — | | | $ | 13 | | $ | 13 | | $ | — | | |
NDTF equity securities | 93 | | 93 | | — | | | 115 | | 115 | | — | | |
NDTF debt securities | 289 | | 232 | | 57 | | | 425 | | 339 | | 86 | | |
Other debt securities | 25 | | — | | 25 | | | 26 | | — | | 26 | | |
Other cash and cash equivalents | 1 | | 1 | | — | | | 3 | | 3 | | — | | |
Derivative assets | 17 | | — | | 17 | | | — | | — | | — | | |
Total assets | 467 | | 368 | | 99 | | | 582 | | 470 | | 112 | | |
| | | | | | | | |
Derivative liabilities | (19) | | — | | (19) | | | (14) | | — | | (14) | | |
Net assets | $ | 448 | | $ | 368 | | $ | 80 | | | $ | 568 | | $ | 470 | | $ | 98 | | |
DUKE ENERGY OHIO
The recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets were not material at December 31, 2022, and 2021.
DUKE ENERGY INDIANA
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
(in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | | Total Fair Value | Level 1 | Level 2 | Level 3 |
Other equity securities | $ | 79 | | $ | 79 | | $ | — | | $ | — | | | $ | 97 | | $ | 97 | | $ | — | | $ | — | |
Other debt securities | 60 | | — | | 60 | | — | | | 64 | | — | | 64 | | — | |
Other cash equivalents | 1 | | 1 | | — | | — | | | — | | — | | — | | — | |
Derivative assets | 110 | | — | | 81 | | 29 | | | 23 | | 1 | | — | | 22 | |
Total assets | 250 | | 80 | | 141 | | 29 | | | 184 | | 98 | | 64 | | 22 | |
Derivative liabilities | (16) | | (16) | | — | | — | | | (27) | | (13) | | (14) | | — | |
Net assets | $ | 234 | | $ | 64 | | $ | 141 | | $ | 29 | | | $ | 157 | | $ | 85 | | $ | 50 | | $ | 22 | |
| | | | | |
FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
| | | | | | | | | | | |
| Derivatives (net) |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 |
Balance at beginning of period | $ | 22 | | | $ | 6 | |
| | | |
| | | |
Purchases, sales, issuances and settlements: | | | |
Purchases | 74 | | | 18 | |
| | | |
| | | |
Settlements | (32) | | | (16) | |
| | | |
Total (losses) gains included on the Consolidated Balance Sheet | (35) | | | 14 | |
Balance at end of period | $ | 29 | | | $ | 22 | |
PIEDMONT
The following table provides recorded balances for assets and liabilities measured at fair value on a recurring basis on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
(in millions) | Total Fair Value | Level 1 | Level 2 | | | Total Fair Value | Level 1 | | Level 2 |
| | | | | | | | | |
| | | | | | | | | |
Derivative assets | $ | — | | $ | — | | $ | — | | | | $ | 3 | | $ | 3 | | | $ | — | |
| | | | | | | | | |
Derivative liabilities | (168) | | — | | (168) | | | | (139) | | — | | | (139) | |
Net (liabilities) assets | $ | (168) | | $ | — | | $ | (168) | | | | $ | (136) | | $ | 3 | | | $ | (139) | |
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | |
| | | | | | | Weighted |
| Fair Value | | | | | | Average |
Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range | Range |
| | | | | | | |
| | | | | | | |
Duke Energy Ohio | | | | | | | |
FTRs | $ | 5 | | RTO auction pricing | FTR price – per MWh | $ | 0.89 | | – | $ | 6.25 | | $ | 3.35 | |
Duke Energy Indiana | | | | | | | |
FTRs | 29 | | RTO auction pricing | FTR price – per MWh | 0.09 | | – | 21.79 | | 2.74 | |
| | | | | | | |
| | | | | | | |
Duke Energy | | | | | | | |
Total Level 3 derivatives | $ | 34 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | |
| | | | | | | Weighted |
| Fair Value | | | | | | Average |
Investment Type | (in millions) | Valuation Technique | Unobservable Input | Range | Range |
| | | | | | | |
| | | | | | | |
Duke Energy Ohio | | | | | | | |
FTRs | $ | 2 | | RTO auction pricing | FTR price – per MWh | $ | 0.06 | | – | $ | 1.79 | | $ | 0.96 | |
Duke Energy Indiana | | | | | | | |
FTRs | 22 | | RTO auction pricing | FTR price – per MWh | (1.18) | | – | 13.11 | | 2.68 | |
| | | | | | | |
| | | | | | | |
Duke Energy | | | | | | | |
Total Level 3 derivatives | $ | 24 | | | | | | | |
| | | | | |
FINANCIAL STATEMENTS | FAIR VALUE MEASUREMENTS |
OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. The following disclosures include debt attributable to the Commercial Renewables Disposal Groups. See Note 2 for further details. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
(in millions) | Book Value | | Fair Value | | Book Value | | Fair Value |
Duke Energy(a) | $ | 71,215 | | | $ | 63,454 | | | $ | 63,835 | | | $ | 69,683 | |
Duke Energy Carolinas | 14,266 | | | 12,943 | | | 13,275 | | | 15,101 | |
Progress Energy | 22,439 | | | 20,467 | | | 20,823 | | | 23,751 | |
Duke Energy Progress | 11,087 | | | 9,689 | | | 10,249 | | | 11,252 | |
Duke Energy Florida | 9,709 | | | 8,991 | | | 8,482 | | | 9,772 | |
Duke Energy Ohio | 3,245 | | | 2,927 | | | 3,193 | | | 3,570 | |
Duke Energy Indiana | 4,307 | | | 3,913 | | | 4,323 | | | 5,067 | |
Piedmont | 3,363 | | | 2,940 | | | 2,968 | | | 3,278 | |
(a) Book value of long-term debt includes $1.17 billion as of December 31, 2022, and $1.25 billion as of December 31, 2021, of unamortized debt discount and premium, net in purchase accounting adjustments related to the mergers with Progress Energy and Piedmont that are excluded from fair value of long-term debt.
At both December 31, 2022, and December 31, 2021, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.
18. 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.
CONSOLIDATED VIEs
The obligations of the consolidated VIEs discussed in the following paragraphs are nonrecourse to the Duke Energy Registrants. The registrants have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs.
No financial support was provided to any of the consolidated VIEs during the years ended December 31, 2022, 2021 and 2020, or is expected to be provided in the future, that was not previously contractually required.
Receivables Financing – DERF/DEPR/DEFR
DERF, DEPR and DEFR are bankruptcy remote, special purpose subsidiaries of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, respectively. DERF, DEPR and DEFR are wholly owned LLCs with separate legal existence from their parent companies, and their assets are not generally available to creditors of their parent companies. On a revolving basis, DERF, DEPR and DEFR buy certain accounts receivable arising from the sale of electricity and related services from their parent companies.
DERF, DEPR and DEFR borrow amounts under credit facilities to buy these receivables. Borrowing availability from the credit facilities is limited to the amount of qualified receivables purchased, which generally exclude receivables past due more than a predetermined number of days and reserves for expected past-due balances. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities are reflected on the Consolidated Balance Sheets as Long-Term Debt.
The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are considered the primary beneficiaries and consolidate DERF, DEPR and DEFR, respectively, as they make those decisions.
Receivables Financing – CRC
CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity, natural gas and related services from Duke Energy Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC, which generally exclude receivables past due more than a predetermined number of days and reserves for expected past-due balances. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. Amounts borrowed under the credit facility are reflected on Duke Energy's Consolidated Balance Sheets as Long-Term Debt.
| | | | | |
FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are approximately 75% cash and 25% in the form of a subordinated note from CRC. The subordinated note is a retained interest in the receivables sold. Depending on collection experience, additional equity infusions to CRC may be required by Duke Energy to maintain a minimum equity balance of $3 million.
CRC is considered a VIE because (i) equity capitalization is insufficient to support its operations, (ii) power to direct the activities that most significantly impact the economic performance of the entity is not held by the equity holder and (iii) deficiencies in net worth of CRC are funded by Duke Energy. The most significant activities that impact the economic performance of CRC are decisions made to manage delinquent receivables. Duke Energy is considered the primary beneficiary and consolidates CRC as it makes these decisions. Neither Duke Energy Ohio nor Duke Energy Indiana consolidate CRC.
Receivables Financing – Credit Facilities
The following table summarizes the amounts and expiration dates of the credit facilities and associated restricted receivables described above.
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy |
| | | Duke Energy | | Duke Energy | | Duke Energy |
| | | Carolinas | | Progress | | Florida |
(in millions) | CRC | | DERF | | DEPR | | DEFR |
Expiration date | February 2025 | | January 2025 | | April 2025 | | April 2023 |
Credit facility amount | $ | 350 | | | $ | 500 | | | $ | 400 | | | $ | 250 | |
Amounts borrowed at December 31, 2022 | 350 | | | 471 | | | 400 | | | 250 | |
Amounts borrowed at December 31, 2021 | 350 | | | 475 | | | 350 | | | 250 | |
Restricted Receivables at December 31, 2022 | 917 | | | 928 | | | 793 | | | 490 | |
Restricted Receivables at December 31, 2021 | 587 | | | 844 | | | 574 | | | 427 | |
Nuclear Asset-Recovery Bonds – Duke Energy Florida Project Finance, LLC (DEFPF)
DEFPF is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida's unrecovered regulatory asset related to Crystal River Unit 3.
In 2016, DEFPF issued senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by the nuclear asset-recovery property and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Florida.
DEFPF is considered a VIE primarily because the equity capitalization is insufficient to support its operations. Duke Energy Florida has the power to direct the significant activities of the VIE as described above and therefore Duke Energy Florida is considered the primary beneficiary and consolidates DEFPF.
The following table summarizes the impact of DEFPF on Duke Energy Florida's Consolidated Balance Sheets.
| | | | | | | | |
| December 31, |
(in millions) | 2022 | 2021 |
Receivables of VIEs | $ | 6 | | $ | 5 | |
Regulatory Assets: Current | 55 | | 54 | |
Current Assets: Other | 41 | | 39 | |
Other Noncurrent Assets: Regulatory assets | 826 | | 883 | |
Current Liabilities: Other | 9 | | 9 | |
Current maturities of long-term debt | 56 | | 56 | |
Long-Term Debt | 890 | | 946 | |
Storm Recovery Bonds – Duke Energy Carolinas NC Storm Funding and Duke Energy Progress NC Storm Funding
Duke Energy Carolinas NC Storm Funding, LLC. (DECNCSF) and Duke Energy Progress NC Storm Funding, LLC. (DEPNCSF) are bankruptcy remote, wholly owned special purpose subsidiaries of Duke Energy Carolinas and Duke Energy Progress, respectively. These entities were formed in 2021 for the sole purpose of issuing storm recovery bonds to finance certain of Duke Energy Carolinas’ and Duke Energy Progress’ unrecovered regulatory assets related to storm costs.
In November 2021, DECNCSF and DEPNCSF issued $237 million and $770 million of senior secured bonds, respectively and used the proceeds to acquire storm recovery property from Duke Energy Carolinas and Duke Energy Progress. The storm recovery property was created by state legislation and NCUC financing orders for the purpose of financing storm costs incurred in 2018 and 2019. The storm recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable charge from all Duke Energy Carolinas’ and Duke Energy Progress’ retail customers until the bonds are paid in full and all financing costs have been recovered. The storm recovery bonds are secured by the storm recovery property and cash collections from the storm recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Carolinas or Duke Energy Progress. For additional information, see Notes 4 and 7.
| | | | | |
FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
DECNCSF and DEPNCSF are considered VIEs primarily because the equity capitalization is insufficient to support their operations. Duke Energy Carolinas and Duke Energy Progress have the power to direct the significant activities of the VIEs as described above and therefore Duke Energy Carolinas and Duke Energy Progress are considered the primary beneficiaries and consolidate DECNCSF and DEPNCSF, respectively.
The following table summarizes the impact of these VIEs on Duke Energy Carolinas’ and Duke Energy Progress’ Consolidated Balance Sheets.
| | | | | | | | | | | | | | |
| Duke Energy Carolinas | Duke Energy Progress |
| December 31, | December 31, |
(in millions) | 2022 | 2021 | 2022 | 2021 |
Regulatory Assets: Current | $ | 12 | | $ | 12 | | $ | 39 | | $ | 39 | |
Current Assets: Other | 8 | | — | | 29 | | — | |
Other Noncurrent Assets: Regulatory assets | 208 | | 220 | | 681 | | 720 | |
Other Noncurrent Assets: Other | 1 | | 1 | | 2 | | 4 | |
| | | | |
Current maturities of long-term debt | 10 | | 5 | | 34 | | 15 | |
Current Liabilities: Other | 3 | | 1 | | 8 | | 2 | |
Long-Term Debt | 219 | | 228 | | 714 | | 747 | |
NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Duke Energy | | Duke | | Duke |
| Natural Gas | | | | | | | | Energy | | Energy |
(in millions) | Investments | | | | | | | | Ohio | | Indiana |
Receivables from affiliated companies | $ | — | | | | | | | | | $ | 198 | | | $ | 317 | |
| | | | | | | | | | | |
Investments in equity method unconsolidated affiliates | 43 | | | | | | | | | — | | | — | |
Other noncurrent assets | 45 | | | | | | | | | — | | | — | |
Total assets | $ | 88 | | | | | | | | | $ | 198 | | | $ | 317 | |
| | | | | | | | | | | |
Other current liabilities | 59 | | | | | | | | | — | | | — | |
| | | | | | | | | | | |
Other noncurrent liabilities | 47 | | | | | | | | | — | | | — | |
Total liabilities | $ | 106 | | | | | | | | | $ | — | | | $ | — | |
Net (liabilities) assets | $ | (18) | | | | | | | | | $ | 198 | | | $ | 317 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Duke Energy | | Duke | | Duke |
| Natural Gas | | | | | | | | Energy | | Energy |
(in millions) | Investments | | | | | | | | Ohio | | Indiana |
Receivables from affiliated companies | $ | — | | | | | | | | | $ | 79 | | | $ | 97 | |
| | | | | | | | | | | |
Investments in equity method unconsolidated affiliates | 15 | | | | | | | | | — | | | — | |
Other noncurrent assets | 61 | | | | | | | | | — | | | — | |
Total assets | $ | 76 | | | | | | | | | $ | 79 | | | $ | 97 | |
| | | | | | | | | | | |
Other current liabilities | 47 | | | | | | | | | — | | | — | |
| | | | | | | | | | | |
Other noncurrent liabilities | 54 | | | | | | | | | — | | | — | |
Total liabilities | $ | 101 | | | | | | | | | $ | — | | | $ | — | |
Net (liabilities) assets | $ | (25) | | | | | | | | | $ | 79 | | | $ | 97 | |
The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above.
Natural Gas Investments
Duke Energy has investments in various joint ventures including pipeline and renewable natural gas projects. These entities are considered VIEs due to having insufficient equity to finance their own activities without subordinated financial support. Duke Energy does not have the power to direct the activities that most significantly impact the economic performance, the obligation to absorb losses or the right to receive benefits of these VIEs and therefore does not consolidate these entities.
Duke Energy has a 47% ownership interest in ACP. In 2020, Duke Energy determined that it would no longer invest in the construction of the ACP pipeline. In February 2021, Duke Energy paid approximately $855 million to fund ACP's outstanding debt, relieving Duke Energy of its guarantee. See Notes 4, 8 and 13 for further information regarding this transaction.
| | | | | |
FINANCIAL STATEMENTS | VARIABLE INTEREST ENTITIES |
CRC
See discussion under Consolidated VIEs for additional information related to CRC.
Amounts included in Receivables from affiliated companies in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value. Carrying values of retained interests are determined by allocating carrying value of the receivables between assets sold and interests retained based on relative fair value. The allocated bases of the subordinated notes are not materially different than their face value because (i) the receivables generally 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% and a 20% unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. 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.
Key assumptions used in estimating fair value are detailed in the following table.
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
| 2022 | | 2021 | | 2022 | | 2021 |
Anticipated credit loss ratio | 0.5 | % | | 0.5 | % | | 0.3 | % | | 0.3 | % |
Discount rate | 2.7 | % | | 1.1 | % | | 2.7 | % | | 1.1 | % |
Receivable turnover rate | 13.5 | % | | 13.5 | % | | 11.3 | % | | 11.3 | % |
The following table shows the gross and net receivables sold.
| | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
| December 31, | | December 31, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Receivables sold | $ | 423 | | | $ | 269 | | | $ | 508 | | | $ | 328 | |
Less: Retained interests | 198 | | | 79 | | | 317 | | | 97 | |
Net receivables sold | $ | 225 | | | $ | 190 | | | $ | 191 | | | $ | 231 | |
The following table shows sales and cash flows related to receivables sold.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Duke Energy Ohio | | Duke Energy Indiana |
| Years Ended December 31, | | Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Sales | | | | | | | | | | | |
Receivables sold | $ | 2,562 | | | $ | 2,023 | | | $ | 1,905 | | | $ | 3,744 | | | $ | 2,909 | | | $ | 2,631 | |
Loss recognized on sale | 18 | | | 10 | | | 10 | | | 26 | | | 13 | | | 12 | |
Cash flows | | | | | | | | | | | |
Cash proceeds from receivables sold | 2,424 | | | 2,018 | | | 1,875 | | | 3,498 | | | 2,909 | | | 2,586 | |
Collection fees received | 1 | | | 1 | | | 1 | | | 2 | | | 1 | | | 1 | |
Return received on retained interests | 10 | | | 4 | | | 4 | | | 15 | | | 6 | | | 5 | |
Cash flows from sales of receivables are reflected within Cash Flows From Operating Activities and Cash Flows from Investing Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Cash Flows.
Collection fees received in connection with servicing transferred accounts receivable are included in Operation, maintenance and other on Duke Energy Ohio’s and Duke Energy Indiana’s Consolidated Statements of Operations and Comprehensive Income. The loss recognized on sales of receivables is calculated monthly by multiplying receivables sold during the month by the required discount. The required discount is derived monthly utilizing a three-year weighted average formula that considers charge-off history, late charge history and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is the prior month-end Daily Simple SOFR plus a fixed rate of 1%.
19. REVENUE
Duke Energy recognizes revenue consistent with amounts billed under tariff offerings or at contractually agreed upon rates based on actual physical delivery of electric or natural gas service, including estimated volumes delivered when billings have not yet occurred. As such, the majority of Duke Energy’s revenues have fixed pricing based on the contractual terms of the published tariffs, with variability in expected cash flows attributable to the customer’s volumetric demand and ultimate quantities of energy or natural gas supplied and used during the billing period. The stand-alone selling price of related sales are designed to support recovery of prudently incurred costs and an appropriate return on invested assets and are primarily governed by published tariff rates or contractual agreements approved by relevant regulatory bodies. As described in Note 1, certain excise taxes and franchise fees 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 as part of revenues. Duke Energy elects to account for all other taxes net of revenues.
| | | | | |
FINANCIAL STATEMENTS | REVENUE |
Performance obligations are satisfied over time as energy or natural gas is delivered and consumed with billings generally occurring monthly and related payments due within 30 days, depending on regulatory requirements. In no event does the timing between payment and delivery of the goods and services exceed one year. Using this output method for revenue recognition provides a faithful depiction of the transfer of electric and natural gas service as customers obtain control of the commodity and benefit from its use at delivery. Additionally, Duke Energy has an enforceable right to consideration for energy or natural gas delivered at any discrete point in time and will recognize revenue at an amount that reflects the consideration to which Duke Energy is entitled for the energy or natural gas delivered.
As described above, the majority of Duke Energy’s tariff revenues are at-will and, as such, related contracts with customers have an expected duration of one year or less and will not have future performance obligations for disclosure. Additionally, other long-term revenue streams, including wholesale contracts, generally provide services that are part of a single performance obligation, the delivery of electricity or natural gas. As such, other than material fixed consideration under long-term contracts, related disclosures for future performance obligations are also not applicable.
Duke Energy earns substantially all of its revenues through its reportable segments, EU&I and GU&I.
Electric Utilities and Infrastructure
EU&I earns the majority of its revenues through retail and wholesale electric service through the generation, transmission, distribution and sale of electricity. Duke Energy generally provides retail and wholesale electric service customers with their full electric load requirements or with supplemental load requirements when the customer has other sources of electricity.
Retail electric service is generally marketed throughout Duke Energy's electric service territory through standard service offers. The standard service offers are through tariffs determined by regulators in Duke Energy's regulated service territory. Each tariff, which is assigned to customers based on customer class, has multiple components such as an energy charge, a demand charge, a basic facilities charge and applicable riders. Duke Energy considers each of these components to be aggregated into a single performance obligation for providing electric service, or in the case of distribution only customers in Duke Energy Ohio, for delivering electricity. Electricity is considered a single performance obligation satisfied over time consistent with the series guidance and is provided and consumed over the billing period, generally one month. Retail electric service is typically provided to at-will customers who can cancel service at any time, without a substantive penalty. Additionally, Duke Energy adheres to applicable regulatory requirements in each jurisdiction to ensure the collectability of amounts billed and appropriate mitigating procedures are followed when necessary. As such, revenue from contracts with customers for such contracts is equivalent to the electricity supplied and billed in that period (including unbilled estimates).
Wholesale electric service is generally provided under long-term contracts using cost-based pricing. FERC regulates costs that may be recovered from customers and the amount of return companies are permitted to earn. Wholesale contracts include both energy and demand charges. For full requirements contracts, Duke Energy considers both charges as a single performance obligation for providing integrated electric service. For contracts where energy and demand charges are considered separate performance obligations, energy and demand are each a distinct performance obligation under the series guidance and are satisfied as energy is delivered and stand-ready service is provided on a monthly basis. This service represents consumption over the billing period and revenue is recognized consistent with billings and unbilled estimates, which generally occur monthly. Contractual amounts owed are typically trued up annually based upon incurred costs in accordance with FERC published filings and the specific customer’s actual peak demand. Estimates of variable consideration related to potential additional billings or refunds owed are updated quarterly.
The majority of wholesale revenues are full requirements contracts where the customers purchase the substantial majority of their energy needs and do not have a fixed quantity of contractually required energy or capacity. As such, related forecasted revenues are considered optional purchases. Supplemental requirements contracts that include contracted blocks of energy and capacity at contractually fixed prices have the following estimated remaining performance obligations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Performance Obligations |
(in millions) | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
| | | | | | | |
Progress Energy | $ | 61 | | $ | 66 | | $ | 7 | | $ | 7 | | $ | 7 | | $ | 36 | | $ | 184 | |
Duke Energy Progress | 8 | | 8 | | — | | — | | — | | — | | 16 | |
Duke Energy Florida | 53 | | 58 | | 7 | | 7 | | 7 | | 36 | | 168 | |
Duke Energy Indiana | 11 | | 16 | | 17 | | 15 | | 7 | | 5 | | 71 | |
Revenues for block sales are recognized monthly as energy is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates.
Gas Utilities and Infrastructure
GU&I earns its revenue through retail and wholesale natural gas service through the transportation, distribution and sale of natural gas. Duke Energy generally provides retail and wholesale natural gas service customers with all natural gas load requirements. Additionally, while natural gas can be stored, substantially all natural gas provided by Duke Energy is consumed by customers simultaneously with receipt of delivery.
Retail natural gas service is marketed throughout Duke Energy's natural gas service territory using published tariff rates. The tariff rates are established by regulators in Duke Energy's service territories. Each tariff, which is assigned to customers based on customer class, have multiple components, such as a commodity charge, demand charge, customer or monthly charge and transportation costs. Duke Energy considers each of these components to be aggregated into a single performance obligation for providing natural gas service. For contracts where Duke Energy provides all of the customer’s natural gas needs, the delivery of natural gas is considered a single performance obligation satisfied over time, and revenue is recognized monthly based on billings and unbilled estimates as service is provided and the commodity is consumed over the billing period. Additionally, natural gas service is typically at-will and customers can cancel service at any time, without a substantive penalty. Duke Energy also adheres to applicable regulatory requirements to ensure the collectability of amounts billed and receivable and appropriate mitigating procedures are followed when necessary.
| | | | | |
FINANCIAL STATEMENTS | REVENUE |
Certain long-term individually negotiated contracts exist to provide natural gas service. These contracts are regulated and approved by state commissions. The negotiated contracts have multiple components, including a natural gas and a demand charge, similar to retail natural gas contracts. Duke Energy considers each of these components to be a single performance obligation for providing natural gas service. This service represents consumption over the billing period, generally one month.
Fixed capacity payments under long-term contracts for the GU&I segment include minimum margin contracts and supply arrangements with municipalities and power generation facilities. Revenues for related sales are recognized monthly as natural gas is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates. Estimated remaining performance obligations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Remaining Performance Obligations |
(in millions) | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
Piedmont | $ | 68 | | $ | 62 | | $ | 61 | | $ | 51 | | $ | 49 | | $ | 241 | | $ | 532 | |
Other
The remainder of Duke Energy’s operations is presented as Other, which does not include material revenues from contracts with customers.
Disaggregated Revenues
For the EU&I and GU&I segments, revenue by customer class is most meaningful to Duke Energy as each respective customer class collectively represents unique customer expectations of service, generally has different energy and demand requirements, and operates under tailored, regulatory approved pricing structures. Additionally, each customer class is impacted differently by weather and a variety of economic factors including the level of population growth, economic investment, employment levels, and regulatory activities in each of Duke Energy’s jurisdictions. As such, analyzing revenues disaggregated by customer class allows Duke Energy to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Disaggregated revenues are presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
(in millions) | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
By market or type of customer | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Electric Utilities and Infrastructure | | | | | | | | |
Residential | $ | 11,377 | | $ | 3,275 | | $ | 5,812 | | $ | 2,378 | | $ | 3,434 | | $ | 862 | | $ | 1,430 | | $ | — | |
General | 7,356 | | 2,396 | | 3,396 | | 1,480 | | 1,916 | | 517 | | 1,049 | | — | |
Industrial | 3,504 | | 1,251 | | 1,095 | | 770 | | 325 | | 202 | | 956 | | — | |
Wholesale | 2,856 | | 561 | | 1,785 | | 1,346 | | 439 | | 127 | | 383 | | — | |
Other revenues | 795 | | 372 | | 994 | | 768 | | 226 | | 61 | | 19 | | — | |
Total Electric Utilities and Infrastructure revenue from contracts with customers | $ | 25,888 | | $ | 7,855 | | $ | 13,082 | | $ | 6,742 | | $ | 6,340 | | $ | 1,769 | | $ | 3,837 | | $ | — | |
| | | | | | | | |
Gas Utilities and Infrastructure | | | | | | | | |
Residential | $ | 1,462 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 488 | | $ | — | | $ | 974 | |
Commercial | 765 | | — | | — | | — | | — | | 180 | | — | | 585 | |
Industrial | 170 | | — | | — | | — | | — | | 24 | | — | | 144 | |
Power Generation | — | | — | | — | | — | | — | | — | | — | | 94 | |
Other revenues | 360 | | — | | — | | — | | — | | 25 | | — | | 271 | |
Total Gas Utilities and Infrastructure revenue from contracts with customers | $ | 2,757 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 717 | | $ | — | | $ | 2,068 | |
| | | | | | | | |
Other | | | | | | | | |
Revenue from contracts with customers | $ | 30 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
Total revenue from contracts with customers | $ | 28,675 | | $ | 7,855 | | $ | 13,082 | | $ | 6,742 | | $ | 6,340 | | $ | 2,486 | | $ | 3,837 | | $ | 2,068 | |
| | | | | | | | |
Other revenue sources(a) | $ | 93 | | $ | 2 | | $ | 43 | | $ | 11 | | $ | 13 | | $ | 28 | | $ | 85 | | $ | 56 | |
Total revenues | $ | 28,768 | | $ | 7,857 | | $ | 13,125 | | $ | 6,753 | | $ | 6,353 | | $ | 2,514 | | $ | 3,922 | | $ | 2,124 | |
(a) Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
| | | | | |
FINANCIAL STATEMENTS | REVENUE |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | Duke | | Duke | Duke | Duke | Duke | |
(in millions) | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
By market or type of customer | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Electric Utilities and Infrastructure | | | | | | | | |
Residential | $ | 10,097 | | $ | 3,054 | | $ | 5,084 | | $ | 2,156 | | $ | 2,928 | | $ | 767 | | $ | 1,188 | | $ | — | |
General | 6,375 | | 2,210 | | 2,883 | | 1,378 | | 1,505 | | 440 | | 825 | | — | |
Industrial | 2,924 | | 1,145 | | 894 | | 634 | | 260 | | 135 | | 750 | | — | |
Wholesale | 2,199 | | 472 | | 1,385 | | 1,164 | | 221 | | 56 | | 285 | | — | |
Other revenues | 879 | | 264 | | 716 | | 387 | | 329 | | 83 | | 86 | | — | |
Total Electric Utilities and Infrastructure revenue from contracts with customers | $ | 22,474 | | $ | 7,145 | | $ | 10,962 | | $ | 5,719 | | $ | 5,243 | | $ | 1,481 | | $ | 3,134 | | $ | — | |
| | | | | | | | |
Gas Utilities and Infrastructure | | | | | | | | |
Residential | $ | 1,131 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 354 | | $ | — | | $ | 777 | |
Commercial | 561 | | — | | — | | — | | — | | 143 | | — | | 418 | |
Industrial | 158 | | — | | — | | — | | — | | 20 | | — | | 137 | |
Power Generation | — | | — | | — | | — | | — | | — | | — | | 92 | |
Other revenues | 133 | | — | | — | | — | | — | | 28 | | — | | 45 | |
Total Gas Utilities and Infrastructure revenue from contracts with customers | $ | 1,983 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 545 | | $ | — | | $ | 1,469 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other | | | | | | | | |
Revenue from contracts with customers | $ | 29 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
Total revenue from contracts with customers | $ | 24,486 | | $ | 7,145 | | $ | 10,962 | | $ | 5,719 | | $ | 5,243 | | $ | 2,026 | | $ | 3,134 | | $ | 1,469 | |
| | | | | | | | |
Other revenue sources(a) | $ | 135 | | $ | (43) | | $ | 95 | | $ | 61 | | $ | 16 | | $ | 11 | | $ | 40 | | $ | 100 | |
Total revenues | $ | 24,621 | | $ | 7,102 | | $ | 11,057 | | $ | 5,780 | | $ | 5,259 | | $ | 2,037 | | $ | 3,174 | | $ | 1,569 | |
(a) Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
| | | | | |
FINANCIAL STATEMENTS | REVENUE |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | Duke | | Duke | Duke | Duke | Duke | |
(in millions) | Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
By market or type of customer | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Electric Utilities and Infrastructure | | | | | | | | |
Residential | $ | 9,806 | | $ | 2,997 | | $ | 5,017 | | $ | 2,059 | | $ | 2,958 | | $ | 726 | | $ | 1,064 | | $ | — | |
General | 6,194 | | 2,233 | | 2,779 | | 1,312 | | 1,467 | | 442 | | 740 | | — | |
Industrial | 2,859 | | 1,137 | | 901 | | 649 | | 252 | | 137 | | 683 | | — | |
Wholesale | 1,864 | | 380 | | 1,228 | | 1,034 | | 194 | | 32 | | 224 | | — | |
Other revenues | 914 | | 281 | | 596 | | 294 | | 302 | | 82 | | 72 | | — | |
Total Electric Utilities and Infrastructure revenue from contracts with customers | $ | 21,637 | | $ | 7,028 | | $ | 10,521 | | $ | 5,348 | | $ | 5,173 | | $ | 1,419 | | $ | 2,783 | | $ | — | |
| | | | | | | | |
Gas Utilities and Infrastructure | | | | | | | | |
Residential | $ | 930 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 300 | | $ | — | | $ | 630 | |
Commercial | 446 | | — | | — | | — | | — | | 117 | | — | | 329 | |
Industrial | 127 | | — | | — | | — | | — | | 17 | | — | | 110 | |
Power Generation | — | | — | | — | | — | | — | | — | | — | | 34 | |
Other revenues | 87 | | — | | — | | — | | — | | 17 | | — | | 70 | |
Total Gas Utilities and Infrastructure revenue from contracts with customers | $ | 1,590 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 451 | | $ | — | | $ | 1,173 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other | | | | | | | | |
Revenue from contracts with customers | $ | 26 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | | |
Total revenue from contracts with customers | $ | 23,253 | | $ | 7,028 | | $ | 10,521 | | $ | 5,348 | | $ | 5,173 | | $ | 1,870 | | $ | 2,783 | | $ | 1,173 | |
| | | | | | | | |
Other revenue sources(a) | $ | 113 | | $ | (13) | | $ | 106 | | $ | 74 | | $ | 15 | | $ | (12) | | $ | 12 | | $ | 124 | |
Total revenues | $ | 23,366 | | $ | 7,015 | | $ | 10,627 | | $ | 5,422 | | $ | 5,188 | | $ | 1,858 | | $ | 2,795 | | $ | 1,297 | |
(a) Other revenue sources include revenues from leases, derivatives and alternative revenue programs that are not considered revenues from contracts with customers. Alternative revenue programs in certain jurisdictions include regulatory mechanisms that periodically adjust for over or under collection of related revenues.
As described in Note 1, Duke Energy adopted the new guidance for credit losses effective January 1, 2020, using the modified retrospective method of adoption, which does not require restatement of prior year reported results. The following table presents the reserve for credit losses for trade and other receivables based on adoption of the new standard.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Balance at December 31, 2019 | $ | 76 | | $ | 10 | | $ | 16 | | $ | 8 | | $ | 7 | | $ | 4 | | $ | 3 | | $ | 6 | |
Cumulative Change in Accounting Principle | 5 | | 1 | | 2 | | 1 | | 1 | | — | | — | | 1 | |
Write-Offs | (58) | | (13) | | (23) | | (8) | | (14) | | — | | — | | (6) | |
Credit Loss Expense | 75 | | 13 | | 29 | | 9 | | 20 | | — | | — | | 11 | |
Other Adjustments | 48 | | 12 | | 13 | | 13 | | — | | — | | — | | — | |
Balance at December 31, 2020 | $ | 146 | | $ | 23 | | $ | 37 | | $ | 23 | | $ | 14 | | $ | 4 | | $ | 3 | | $ | 12 | |
Write-Offs | (58) | | (21) | | (25) | | (12) | | (13) | | — | | — | | (9) | |
Credit Loss Expense | 53 | | 27 | | 25 | | 11 | | 14 | | — | | — | | 7 | |
Other Adjustments | (20) | | 13 | | (1) | | (1) | | 1 | | — | | — | | 5 | |
Balance at December 31, 2021 | $ | 121 | | $ | 42 | | $ | 36 | | $ | 21 | | $ | 16 | | $ | 4 | | $ | 3 | | $ | 15 | |
Write-Offs | (158) | | (73) | | (70) | | (36) | | (34) | | — | | — | | (12) | |
Credit Loss Expense | 160 | | 40 | | 72 | | 17 | | 55 | | 2 | | 1 | | 11 | |
Other Adjustments | 93 | | 59 | | 43 | | 42 | | (1) | | — | | — | | — | |
Balance at December 31, 2022 | $ | 216 | | $ | 68 | | $ | 81 | | $ | 44 | | $ | 36 | | $ | 6 | | $ | 4 | | $ | 14 | |
Trade and other receivables are evaluated based on an estimate of the risk of loss over the life of the receivable and current and historical conditions using supportable assumptions. Management evaluates the risk of loss for trade and other receivables by comparing the historical write-off amounts to total revenue over a specified period. Historical loss rates are adjusted due to the impact of current conditions, as well as forecasted conditions over a reasonable time period. The calculated write-off rate can be applied to the receivable balance for which an established reserve does not already exist. Management reviews the assumptions and risk of loss periodically for trade and other receivables.
| | | | | |
FINANCIAL STATEMENTS | REVENUE |
The aging of trade receivables is presented in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unbilled Receivables(a)(b) | $ | 1,457 | | $ | 486 | | $ | 355 | | $ | 232 | | $ | 123 | | $ | 20 | | $ | 28 | | $ | 160 | |
Current | 2,347 | | 577 | | 1,059 | | 637 | | 417 | | 15 | | 52 | | 265 | |
1-30 days past due | 261 | | 96 | | 60 | | 15 | | 45 | | 5 | | 17 | | 15 | |
31-60 days past due | 123 | | 23 | | 61 | | 49 | | 12 | | 6 | | 2 | | 3 | |
61-90 days past due | 74 | | 25 | | 18 | | 9 | | 9 | | 3 | | 11 | | 2 | |
91+ days past due | 209 | | 70 | | 74 | | 27 | | 47 | | 26 | | 6 | | 4 | |
Deferred Payment Arrangements(c) | 160 | | 57 | | 62 | | 35 | | 27 | | 4 | | — | | 1 | |
Trade and Other Receivables | $ | 4,631 | | $ | 1,334 | | $ | 1,689 | | $ | 1,004 | | $ | 680 | | $ | 79 | | $ | 116 | | $ | 450 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unbilled Receivables(a)(b) | $ | 922 | | $ | 316 | | $ | 266 | | $ | 193 | | $ | 73 | | $ | 4 | | $ | 27 | | $ | 106 | |
Current | 1,941 | | 592 | | 716 | | 405 | | 311 | | 42 | | 50 | | 202 | |
1-30 days past due | 288 | | 77 | | 128 | | 44 | | 82 | | 4 | | 5 | | 12 | |
31-60 days past due | 98 | | 30 | | 49 | | 21 | | 28 | | 1 | | 10 | | 2 | |
61-90 days past due | 118 | | 32 | | 48 | | 28 | | 20 | | 23 | | 5 | | 4 | |
91+ days past due | 161 | | 84 | | 37 | | 9 | | 28 | | 24 | | 6 | | 3 | |
Deferred Payment Arrangements(c) | 115 | | 55 | | 45 | | 22 | | 23 | | 2 | | — | | 4 | |
Trade and Other Receivables | $ | 3,643 | | $ | 1,186 | | $ | 1,289 | | $ | 722 | | $ | 565 | | $ | 100 | | $ | 103 | | $ | 333 | |
(a) Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy or natural gas delivered but not yet billed and are included within Receivables and Receivables of VIEs on the Consolidated Balance Sheets.
(b) Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, to an affiliate, CRC, and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 18 for further information. These receivables for unbilled revenues are $148 million and $260 million for Duke Energy Ohio and Duke Energy Indiana, respectively, as of December 31, 2022, and $82 million and $121 million for Duke Energy Ohio and Duke Energy Indiana, respectively, as of December 31, 2021.
(c) Due to ongoing financial hardships impacting customers, Duke Energy has permitted customers to defer payment of past-due amounts through installment payment plans.
20. STOCKHOLDERS' EQUITY
Basic EPS is computed by dividing net income available to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities and accumulated preferred dividends, by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income available to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities and accumulated preferred dividends, 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 equity forward sale agreements, were exercised or settled. Duke Energy’s participating securities are RSUs that are entitled to dividends declared on Duke Energy common stock during the RSUs vesting periods. Dividends declared on preferred stock are recorded on the Consolidated Statements of Operations as a reduction of net income to arrive at net income available to Duke Energy common stockholders. Dividends accumulated on preferred stock are an adjustment to net income used in the calculation of basic and diluted EPS.
| | | | | |
FINANCIAL STATEMENTS | STOCKHOLDERS' EQUITY |
The following table presents Duke Energy’s basic and diluted EPS calculations, the weighted average number of common shares outstanding and common and preferred share dividends declared.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions, except per share amounts) | 2022 | | 2021 | | 2020 |
Net Income available to Duke Energy common stockholders | $ | 2,444 | | | $ | 3,802 | | | $ | 1,270 | |
Less: (Loss) Income from discontinued operations attributable to Duke Energy common stockholders | (1,215) | | | 200 | | | 289 | |
Accumulated preferred stock dividends adjustment | — | | | — | | | 1 | |
Less: Impact of participating securities | 2 | | | 3 | | | 2 | |
Income from continuing operations available to Duke Energy common stockholders | $ | 3,657 | | | $ | 3,599 | | | $ | 980 | |
| | | | | |
Loss from discontinued operations, net of tax | $ | (1,323) | | | $ | (144) | | | $ | (7) | |
Add: Loss attributable to NCI | 108 | | | 344 | | | 296 | |
(Loss) Income from discontinued operations attributable to Duke Energy common stockholders | $ | (1,215) | | | $ | 200 | | | $ | 289 | |
Weighted average common shares outstanding – basic | 770 | | | 769 | | | 737 | |
| | | | | |
Equity forwards | — | | | — | | | 1 | |
Weighted average common shares outstanding – diluted | 770 | | | 769 | | | 738 | |
EPS from continuing operations available to Duke Energy common stockholders | | | | | |
Basic and Diluted | $ | 4.74 | | | $ | 4.68 | | | $ | 1.33 | |
| | | | | |
(Loss) Earnings Per Share from discontinued operations attributable to Duke Energy common stockholders | | | | | |
Basic and Diluted | $ | (1.57) | | | $ | 0.26 | | | $ | 0.39 | |
Potentially dilutive items excluded from the calculation(a) | 2 | | | 2 | | | 2 | |
Dividends declared per common share | $ | 3.98 | | | $ | 3.90 | | | $ | 3.82 | |
Dividends declared on Series A preferred stock per depositary share(b) | $ | 1.437 | | | $ | 1.437 | | | $ | 1.437 | |
Dividends declared on Series B preferred stock per share(c) | $ | 48.750 | | | $ | 48.750 | | | $ | 49.292 | |
(a) Performance stock awards were not included in the dilutive securities calculation because the performance measures related to the awards had not been met.
(b) 5.75% Series A Cumulative Redeemable Perpetual Preferred Stock dividends are payable quarterly in arrears on the 16th day of March, June, September and December. The preferred stock has a $25 liquidation preference per depositary share.
(c) 4.875% Series B Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock dividends are payable semiannually in arrears on the 16th day of March and September. The preferred stock has a $1,000 liquidation preference per share. On September 16, 2024, the First Call Date, and any fifth anniversary of the First Call Date, the dividend rate will reset based on the then current five-year U.S. Treasury rate plus a spread of 3.388%.
Common Stock
In November 2022, Duke Energy filed a prospectus supplement and executed an EDA under which it may sell up to $1.5 billion of its common stock through a new ATM offering program, including an equity forward sales component. Under the terms of the EDA, Duke Energy may issue and sell shares of common stock through September 2025.
Preferred Stock
The Series A Preferred Stock has no maturity or mandatory redemption date, is not redeemable at the option of the holders and includes separate call options. The first call option allows Duke Energy to call the Series A Preferred Stock at a redemption price of $25.50 per depositary share prior to June 15, 2024, in whole but not in part, at any time within 120 days after a ratings event where a rating agency amends, clarifies or changes the criteria it uses to assign equity credit for securities such as the preferred stock. The second call option allows Duke Energy to call the preferred stock, in whole or in part, at any time, on or after June 15, 2024, at a redemption price of $25 per depositary share. Duke Energy is also required to redeem all accumulated and unpaid dividends if either call option is exercised.
The Series B Preferred Stock has no maturity or mandatory redemption date, is not redeemable at the option of the holders and includes separate call options. The first call option allows Duke Energy to call the Series B Preferred Stock at a redemption price of $1,020 per share, in whole but not in part, at any time within 120 days after a ratings event. The second call option allows Duke Energy to call the preferred stock, in whole or in part, on the First Call Date or any subsequent Reset Date at a redemption price in cash equal to $1,000 per share. Duke Energy is also required to redeem all accumulated and unpaid dividends if either call option is exercised.
Dividends issued on its Series A and Series B Preferred Stock are subject to approval by the Board of Directors. However, the deferral of dividend payments on the preferred stock prohibits the declaration of common stock dividends.
The Series A and Series B Preferred Stock rank, with respect to dividends and distributions upon liquidation or dissolution:
•senior to Common Stock and to each other class or series of capital stock established after the original issue date of the Series A and Series B Preferred Stock that is expressly made subordinated to the Series A and Series B Preferred Stock;
•on a parity with any class or series of capital stock established after the original issue date of the Series A and Series B Preferred Stock that is not expressly made senior or subordinated to the Series A or Series B Preferred Stock;
| | | | | |
FINANCIAL STATEMENTS | STOCKHOLDERS' EQUITY |
•junior to any class or series of capital stock established after the original issue date of the Series A and Series B Preferred Stock that is expressly made senior to the Series A or Series B Preferred Stock;
•junior to all existing and future indebtedness (including indebtedness outstanding under Duke Energy's credit facilities, unsecured senior notes, junior subordinated debentures and commercial paper) and other liabilities with respect to assets available to satisfy claims against Duke Energy; and
•structurally subordinated to existing and future indebtedness and other liabilities of Duke Energy's subsidiaries and future preferred stock of subsidiaries.
Holders of Series A and Series B Preferred Stock have no voting rights with respect to matters that generally require the approval of voting stockholders. The limited voting rights of holders of Series A and Series B Preferred Stock include the right to vote as a single class, respectively, on certain matters that may affect the preference or special rights of the preferred stock, except in the instance that Duke Energy elects to defer the payment of dividends for a total of six quarterly full dividend periods for Series A Preferred Stock or three semiannual full dividend periods for Series B Preferred Stock. If dividends are deferred for a cumulative total of six quarterly full dividend periods for Series A Preferred Stock or three semiannual full dividend periods for Series B Preferred Stock, whether or not for consecutive dividend periods, holders of the respective preferred stock have the right to elect two additional Board members to the Board of Directors.
21. SEVERANCE
During 2022, Duke Energy identified opportunities to eliminate work and create sustainable savings through a workload reduction initiative with a focus on process improvement through digital technology, governance simplification and elimination of low-value work. As a result, Duke Energy extended involuntary severance benefits to certain employees in specific areas as a part of this initiative.
During 2021, Duke Energy reviewed its operations and identified opportunities for improvement to better serve its customers. This operational review included workforce realignment to ensure the company is staffed with the right skill sets and number of teammates to execute the long-term vision for Duke Energy. As such, Duke Energy extended involuntary severance benefits to certain employees in specific areas as a part of these workforce realignment efforts.
During 2020, as a result of partial settlements between Duke Energy Carolinas, Duke Energy Progress and the Public Staff, Duke Energy Carolinas and Duke Energy Progress deferred as Regulatory assets on the Consolidated Balance Sheets, approximately $65 million and $33 million, respectively, of previously recorded severance charges within Operation, maintenance and other on the Consolidated Statements of Operations. These severance charges were previously recorded during 2018, as Duke Energy reviewed its operations and identified opportunities for improvement to better serve its customers. This operational review included the company's workforce strategy and staffing levels to ensure the company was staffed with the right skill sets and number of teammates to execute the long-term vision for Duke Energy. As such, Duke Energy extended voluntary and involuntary severance benefits to certain employees in specific areas as a part of workforce planning and digital transformation efforts.
The following table presents the direct and allocated severance and related charges accrued for approximately 233 employees in 2022, 290 employees in 2021 and 30 employees in 2020, by the Duke Energy Registrants within Operation, maintenance and other on the Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Year Ended December 31, 2022(a)(b) | $ | 65 | | $ | 40 | | $ | 20 | | $ | 17 | | $ | 3 | | $ | 1 | | $ | 2 | | $ | 2 | |
Year Ended December 31, 2021(c)(d) | 69 | | 33 | | 26 | | 20 | | 6 | | 2 | | 3 | | 2 | |
Year Ended December 31, 2020(e)(f) | (85) | | (58) | | (28) | | (31) | | 3 | | — | | — | | — | |
(a) Includes amortization of deferred severance charges of approximately $33 million, $22 million, $11 million and $11 million for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(b) Includes adjustments associated with 2021 severance charges of approximately $(19) million, $(6) million, $(8) million, $(4) million, $(4) million, $(1) million, $(2) million and $(1) million for Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont, respectively.
(c) Includes amortization of deferred severance charges of approximately $33 million, $22 million, $11 million and $11 million for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(d) Includes adjustments associated with 2018 severance charges of approximately $(3) million, $(2) million and $(1) million for Duke Energy, Duke Energy Carolinas and Duke Energy Indiana, respectively.
(e) Includes unamortized deferred severance charges of approximately $(86) million, $(57) million, $(29) million and $(29) million for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
(f) Includes adjustments associated with 2018 severance charges of approximately $(6) million, $(2) million, $(3) million and $(2) million for Duke Energy, Duke Energy Carolinas, Progress Energy and Duke Energy Progress, respectively.
| | | | | |
FINANCIAL STATEMENTS | SEVERANCE |
The table below presents the severance liability for past and ongoing severance plans including the plans described above.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Balance at December 31, 2020 | $ | 11 | | $ | 2 | | $ | 3 | | $ | 1 | | $ | 2 | | $ | — | | $ | 1 | | $ | — | |
Provision/Adjustments | 36 | | 1 | | 1 | | 1 | | — | | — | | — | | — | |
Cash Reductions | (8) | | (1) | | (2) | | (1) | | (1) | | — | | (1) | | — | |
Balance at December 31, 2021 | $ | 39 | | $ | 2 | | $ | 2 | | $ | 1 | | $ | 1 | | $ | — | | $ | — | | $ | — | |
Provision/Adjustments | 33 | | 14 | | 4 | | 3 | | 1 | | — | | — | | 1 | |
Cash Reductions | (8) | | (1) | | — | | — | | — | | — | | — | | — | |
Balance at December 31, 2022 | $ | 64 | | $ | 15 | | $ | 6 | | $ | 4 | | $ | 2 | | $ | — | | $ | — | | $ | 1 | |
22. STOCK-BASED COMPENSATION
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 reserved 10 million shares of common stock for issuance. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or vest in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.
The following table summarizes the total expense recognized by the Duke Energy Registrants, net of tax, for stock-based compensation.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Duke Energy | $ | 74 | | | $ | 64 | | | $ | 61 | |
Duke Energy Carolinas | 27 | | | 23 | | | 22 | |
Progress Energy | 27 | | | 24 | | | 23 | |
Duke Energy Progress | 17 | | | 15 | | | 15 | |
Duke Energy Florida | 10 | | | 9 | | | 9 | |
Duke Energy Ohio | 5 | | | 5 | | | 4 | |
Duke Energy Indiana | 7 | | | 6 | | | 6 | |
Piedmont | 4 | | | 3 | | | 3 | |
Duke Energy's pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense and stock-based compensation costs capitalized are included in the following table.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
RSU awards | $ | 58 | | | $ | 49 | | | $ | 46 | |
Performance awards | 42 | | | 39 | | | 38 | |
| | | | | |
Pretax stock-based compensation cost | $ | 100 | | | $ | 88 | | | $ | 84 | |
Stock-based compensation costs capitalized | 5 | | | 5 | | | 5 | |
Stock-based compensation expense | $ | 95 | | | $ | 83 | | | $ | 79 | |
Tax benefit associated with stock-based compensation expense | $ | 21 | | | $ | 19 | | | $ | 18 | |
RESTRICTED STOCK UNIT AWARDS
RSU awards generally vest over periods from immediate to three years. Fair value amounts are based on the market price of Duke Energy's common stock on the grant date. The following table includes information related to RSU awards.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Shares granted (in thousands) | 654 | | | 673 | | | 498 | |
Fair value (in millions) | $ | 64 | | | $ | 59 | | | $ | 50 | |
| | | | | |
FINANCIAL STATEMENTS | STOCK-BASED COMPENSATION |
The following table summarizes information about RSU awards outstanding.
| | | | | | | | | | | |
| | | Weighted Average |
| Shares | | Grant Date Fair Value |
| (in thousands) | | (per share) |
Outstanding at December 31, 2021 | 1,043 | | | $ | 92 | |
Granted | 654 | | | 98 | |
Vested | (527) | | | 93 | |
Forfeited | (73) | | | 94 | |
Outstanding at December 31, 2022 | 1,097 | | | 95 | |
RSU awards expected to vest | 1,056 | | | 95 | |
The total grant date fair value of shares vested during the years ended December 31, 2022, 2021 and 2020, was $49 million, $45 million and $43 million, respectively. At December 31, 2022, Duke Energy had $34 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of 23 months.
PERFORMANCE AWARDS
Stock-based performance awards generally vest after three years to the extent performance targets are met. The actual number of shares issued will range from zero to 200% of target shares, depending on the level of performance achieved.
Performance awards contain performance conditions and a market condition. The performance conditions are based on Duke Energy's cumulative adjusted EPS and total incident case rate (total incident case rate is one of our key employee safety metrics). The market condition is based on TSR of Duke Energy relative to a predefined peer group.
Relative TSR is valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant are incorporated within the model. For performance awards granted in 2022, the model used a risk-free interest rate of 1.78%, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 26.8% based on Duke Energy's historical volatility over three years using daily stock prices.
The following table includes information related to stock-based performance awards.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Shares granted assuming target performance (in thousands) | 408 | | | 380 | | | 319 | |
Fair value (in millions) | $ | 40 | | | $ | 33 | | | $ | 34 | |
The following table summarizes information about stock-based performance awards outstanding and assumes payout at the target level.
| | | | | | | | | | | |
| | | Weighted Average |
| Shares | | Grant Date Fair Value |
| (in thousands) | | (per share) |
Outstanding at December 31, 2021 | 952 | | | $ | 93 | |
Granted | 408 | | | 99 | |
| | | |
| | | |
Vested | (297) | | | 86 | |
Forfeited | (30) | | | 96 | |
Outstanding at December 31, 2022 | 1,033 | | | 97 | |
Stock-based performance awards expected to vest | 1,006 | | | 97 | |
The total grant date fair value of shares vested during the years ended December 31, 2022, and 2021, was $25 million and $25 million, respectively. At December 31, 2022, Duke Energy had $22 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of 22 months.
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
23. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy and certain subsidiaries maintain, and the Subsidiary Registrants participate in, qualified, non-contributory defined benefit retirement plans, which consist of the Duke Energy Retirement Cash Balance Plan (RCBP), which is an active plan, and the Duke Energy Legacy Pension Plan (DELPP), which is an inactive plan. These plans cover most employees using a cash balance formula. Under a cash balance formula, a plan participant accumulates a retirement benefit consisting of pay credits based upon a percentage of current eligible earnings, age or age and years of service and interest credits. Certain employees are eligible for benefits that use a final average earnings formula. Under these final average earnings formulas, a plan participant accumulates a retirement benefit equal to the sum of percentages of their (i) highest three-, four-, or five-year average earnings, (ii) highest three-, four-, or five-year average earnings in excess of covered compensation per year of participation (maximum of 35 years) or (iii) highest three-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 that cover certain executives. The qualified and non-qualified, non-contributory defined benefit plans are closed to new participants.
Duke Energy uses a December 31 measurement date for its defined benefit retirement plan assets and obligations. Actuarial losses experienced by the defined benefit retirement plans in remeasuring plan assets on December 31, 2022, were primarily attributable to actual investment performance that was less than expected investment performance. Actuarial gains experienced by the defined benefit retirement plans in remeasuring plan obligations as of December 31, 2022, were primarily attributable to the increase in the discount rate used to measure plan obligations. Actuarial losses experienced by the defined benefit retirement plans in remeasuring plan assets as of December 31, 2021, were primarily attributable to actual investment performance that was less than expected investment performance. Actuarial gains experienced by the defined benefit retirement plans in remeasuring plan obligations as of December 31, 2021, were primarily attributable to the increase in the discount rate used to measure plan obligations.
As a result of the application of settlement accounting due to total lump-sum benefit payments exceeding the settlement threshold (defined as the sum of service cost and interest cost on projected benefit obligation components of net periodic benefit costs) for one of its qualified pension plans, Duke Energy recognized settlement charges of $117 million, of which $95 million was recorded to Regulatory Assets within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets and $22 million was recorded to Other Income and Expenses, net, within the Condensed Consolidated Statement of Operations as of December 31, 2022.
Settlement charges recognized by the Subsidiary Registrants as of December 31, 2022, which represent amounts allocated by Duke Energy for employees of the Subsidiary Registrants and allocated charges for their proportionate share of settlement charges for employees of Duke Energy's shared services affiliate, and recorded to Regulatory Assets within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets were $35 million for Duke Energy Carolinas, $23 million for Progress Energy, $16 million for Duke Energy Progress, $7 million for Duke Energy Florida, $8 million for Duke Energy Indiana and $29 million for Piedmont. Settlement charges recognized by the Subsidiary Registrants as of December 31, 2022, recorded to Other Income and Expenses, net, within the Condensed Consolidated Statement of Operations were $3 million for Duke Energy Carolinas, $5 million for Progress Energy, $5 million for Duke Energy Progress, $1 million for Duke Energy Florida, $5 million for Duke Energy Ohio and $6 million for Piedmont.
The settlement charges reflect the recognition of a pro-rata portion of previously unrecognized actuarial losses, equal to the percentage of reduction in the projected benefit obligation resulting from total lump-sum benefit payments as of December 31, 2022. Settlement charges recognized as a regulatory asset within Other Noncurrent Assets on the Consolidated Balance Sheets are amortized over the average remaining service period for participants in the plan. Amortization of settlement charges is disclosed in the tables below as a component of net periodic pension costs.
Effective December 31, 2022, Duke Energy Florida changed its method for calculating the market related value of plan assets (MRVA) from the fair value method to a method that recognizes changes in fair value of its plan assets over a five-year period. This represents a change in regulatory treatment that will serve to mitigate the impact of market volatility on retail customer rates, resulting in the timing of net periodic pension cost recognition that is more consistent with treatment of the related cost in the ratemaking process. The three-year retrospective impact of this method change of $24 million was recognized by Duke Energy, Progress Energy and Duke Energy Florida, respectively, and was recorded to Other Income and Expenses, net, within the Condensed Consolidated Statement of Operations and has been disclosed in the tables below as a component of net periodic pension costs.
Net periodic benefit costs disclosed in the tables below represent the cost of the respective benefit plan for the periods presented prior to capitalization of amounts reflected as Net property, plant and equipment, on the Consolidated Balance Sheets. Only the service cost component of net periodic benefit costs is eligible to be capitalized. The remaining non-capitalized portions of net periodic benefit costs are classified as either: (1) service cost, which is recorded in Operations, maintenance and other on the Consolidated Statements of Operations; or as (2) components of non-service cost, which is recorded in Other income and expenses, net on the Consolidated Statements of Operations. Amounts presented in the tables below for the Subsidiary Registrants represent the amounts of pension and other post-retirement benefit cost allocated by Duke Energy for employees of the Subsidiary Registrants. Additionally, the Consolidated Statements of Operations of the Subsidiary Registrants also include allocated net periodic benefit costs for their proportionate share of pension and post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the Subsidiary Registrants. However, in the tables below, these amounts are only presented within the Duke Energy column (except for amortization of settlement charges). These allocated amounts are included in the governance and shared service costs discussed in Note 14.
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Duke Energy’s policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants. The following table includes information related to the Duke Energy Registrants’ contributions to its qualified defined benefit pension plans. There were no contributions made in the years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Contributions Made: | | | | | | | | | | | | | | | |
2022 | $ | 58 | | | $ | 15 | | | $ | 13 | | | $ | 8 | | | $ | 5 | | | $ | 3 | | | $ | 5 | | | $ | 2 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
QUALIFIED PENSION PLANS
Components of Net Periodic Pension Costs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Service cost | $ | 152 | | | $ | 48 | | | $ | 43 | | | $ | 25 | | | $ | 17 | | | $ | 4 | | | $ | 9 | | | $ | 5 | |
Interest cost on projected benefit obligation | 249 | | | 59 | | | 77 | | | 35 | | | 41 | | | 13 | | | 20 | | | 8 | |
Expected return on plan assets | (558) | | | (152) | | | (183) | | | (88) | | | (94) | | | (23) | | | (37) | | | (24) | |
Amortization of actuarial loss | 81 | | | 16 | | | 23 | | | 12 | | | 12 | | | 4 | | | 9 | | | 5 | |
Amortization of prior service credit | (18) | | | (3) | | | — | | | — | | | — | | | — | | | (2) | | | (7) | |
Amortization of settlement charges(c) | 32 | | | 9 | | | 8 | | | 7 | | | 1 | | | 5 | | | 1 | | | 7 | |
MRVA method change | 24 | | | — | | | 24 | | | — | | | 24 | | | — | | | — | | | — | |
Net periodic pension costs(a)(b) | $ | (38) | | | $ | (23) | | | $ | (8) | | | $ | (9) | | | $ | 1 | | | $ | 3 | | | $ | — | | | $ | (6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Service cost | $ | 176 | | | $ | 56 | | | $ | 50 | | | $ | 29 | | | $ | 21 | | | $ | 5 | | | $ | 10 | | | $ | 6 | |
Interest cost on projected benefit obligation | 220 | | | 51 | | | 70 | | | 30 | | | 39 | | | 13 | | | 18 | | | 7 | |
Expected return on plan assets | (558) | | | (141) | | | (187) | | | (84) | | | (102) | | | (28) | | | (40) | | | (20) | |
Amortization of actuarial loss | 133 | | | 29 | | | 38 | | | 18 | | | 20 | | | 7 | | | 13 | | | 10 | |
Amortization of prior service credit | (29) | | | (8) | | | (2) | | | (1) | | | (1) | | | (1) | | | (2) | | | (9) | |
Amortization of settlement charges | 9 | | | 5 | | | 2 | | | 2 | | | 1 | | | — | | | — | | | 1 | |
Net periodic pension costs(a)(b) | $ | (49) | | | $ | (8) | | | $ | (29) | | | $ | (6) | | | $ | (22) | | | $ | (4) | | | $ | (1) | | | $ | (5) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Service cost | $ | 165 | | | $ | 51 | | | $ | 48 | | | $ | 27 | | | $ | 21 | | | $ | 5 | | | $ | 9 | | | $ | 6 | |
Interest cost on projected benefit obligation | 269 | | | 62 | | | 85 | | | 38 | | | 46 | | | 15 | | | 22 | | | 9 | |
Expected return on plan assets | (572) | | | (145) | | | (190) | | | (87) | | | (101) | | | (28) | | | (42) | | | (21) | |
Amortization of actuarial loss | 128 | | | 28 | | | 41 | | | 18 | | | 23 | | | 6 | | | 12 | | | 9 | |
Amortization of prior service credit | (32) | | | (8) | | | (3) | | | (2) | | | (1) | | | — | | | (2) | | | (9) | |
Amortization of settlement charges(c) | 18 | | | 9 | | | 7 | | | 6 | | | 1 | | | — | | | 1 | | | 1 | |
Net periodic pension costs(a)(b) | $ | (24) | | | $ | (3) | | | $ | (12) | | | $ | — | | | $ | (11) | | | $ | (2) | | | $ | — | | | $ | (5) | |
(a) Duke Energy amounts exclude $3 million, $3 million and $4 million for the years ended December 2022, 2021 and 2020, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006.
(b) Duke Energy Ohio amounts exclude $1 million, $1 million and $2 million for the years ended December 2022, 2021 and 2020, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006.
(c) Includes settlement charges not deferred as a regulatory asset.
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Regulatory assets, net increase (decrease) | $ | 367 | | | $ | 221 | | | $ | 107 | | | $ | 101 | | | $ | 5 | | | $ | (1) | | | $ | (12) | | | $ | 9 | |
Accumulated other comprehensive loss (income) | | | | | | | | | | | | | | | |
Deferred income tax expense | $ | (7) | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Amortization of prior year service credit | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Amortization of prior year actuarial losses | 37 | | | — | | | 2 | | | — | | | — | | | — | | | — | | | — | |
Net amount recognized in accumulated other comprehensive income | $ | 30 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Regulatory assets, net decrease | $ | (261) | | | $ | (57) | | | $ | (128) | | | $ | (31) | | | $ | (97) | | | $ | (17) | | | $ | (19) | | | $ | (5) | |
Accumulated other comprehensive loss (income) | | | | | | | | | | | | | | | |
Deferred income tax expense | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Amortization of prior year service credit | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Amortization of prior year actuarial losses | (8) | | | — | | | (1) | | | — | | | — | | | — | | | — | | | — | |
Net amount recognized in accumulated other comprehensive income | $ | (6) | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Reconciliation of Funded Status to Net Amount Recognized
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Change in Projected Benefit Obligation | | | | | | | | | | | | | | | |
Obligation at prior measurement date | $ | 8,207 | | | $ | 1,903 | | | $ | 2,560 | | | $ | 1,153 | | | $ | 1,392 | | | $ | 450 | | | $ | 680 | | | $ | 273 | |
| | | | | | | | | | | | | | | |
Service cost | 145 | | | 47 | | | 40 | | | 24 | | | 16 | | | 4 | | | 8 | | | 5 | |
Interest cost | 249 | | | 59 | | | 77 | | | 35 | | | 41 | | | 13 | | | 20 | | | 8 | |
Actuarial gain | (1,490) | | | (301) | | | (513) | | | (197) | | | (312) | | | (84) | | | (143) | | | (47) | |
Benefits paid | (753) | | | (159) | | | (184) | | | (101) | | | (82) | | | (50) | | | (66) | | | (69) | |
| | | | | | | | | | | | | | | |
Transfers | — | | | 5 | | | (5) | | | (5) | | | — | | | — | | | — | | | — | |
Obligation at measurement date | $ | 6,358 | | | $ | 1,554 | | | $ | 1,975 | | | $ | 909 | | | $ | 1,055 | | | $ | 333 | | | $ | 499 | | | $ | 170 | |
Accumulated Benefit Obligation at measurement date | $ | 6,324 | | | $ | 1,556 | | | $ | 1,959 | | | $ | 910 | | | $ | 1,038 | | | $ | 327 | | | $ | 495 | | | $ | 170 | |
Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | |
Plan assets at prior measurement date | $ | 9,235 | | | $ | 2,365 | | | $ | 3,053 | | | $ | 1,421 | | | $ | 1,610 | | | $ | 438 | | | $ | 669 | | | $ | 334 | |
| | | | | | | | | | | | | | | |
Employer contributions | 58 | | | 15 | | | 13 | | | 8 | | | 5 | | | 3 | | | 5 | | | 2 | |
Actual return on plan assets | (1,547) | | | (411) | | | (506) | | | (240) | | | (262) | | | (68) | | | (107) | | | (64) | |
Benefits paid | (753) | | | (159) | | | (184) | | | (101) | | | (82) | | | (50) | | | (66) | | | (69) | |
| | | | | | | | | | | | | | | |
Transfers | — | | | 5 | | | (5) | | | (5) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Plan assets at measurement date | $ | 6,993 | | | $ | 1,815 | | | $ | 2,371 | | | $ | 1,083 | | | $ | 1,271 | | | $ | 323 | | | $ | 501 | | | $ | 203 | |
Funded status of plan | $ | 635 | | | $ | 261 | | | $ | 396 | | | $ | 174 | | | $ | 216 | | | $ | (10) | | | $ | 2 | | | $ | 33 | |
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FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Change in Projected Benefit Obligation | | | | | | | | | | | | | | | |
Obligation at prior measurement date | $ | 8,634 | | | $ | 1,988 | | | $ | 2,715 | | | $ | 1,193 | | | $ | 1,507 | | | $ | 502 | | | $ | 715 | | | $ | 293 | |
| | | | | | | | | | | | | | | |
Service cost | 168 | | | 54 | | | 48 | | | 28 | | | 20 | | | 5 | | | 9 | | | 6 | |
Interest cost | 220 | | | 51 | | | 70 | | | 30 | | | 39 | | | 13 | | | 18 | | | 7 | |
Actuarial gain | (200) | | | (42) | | | (108) | | | (18) | | | (89) | | | (10) | | | (10) | | | (5) | |
Benefits paid | (615) | | | (148) | | | (161) | | | (80) | | | (81) | | | (50) | | | (52) | | | (28) | |
| | | | | | | | | | | | | | | |
Transfers | — | | | — | | | (4) | | | — | | | (4) | | | (10) | | | — | | | — | |
Obligation at measurement date | $ | 8,207 | | | $ | 1,903 | | | $ | 2,560 | | | $ | 1,153 | | | $ | 1,392 | | | $ | 450 | | | $ | 680 | | | $ | 273 | |
Accumulated Benefit Obligation at measurement date | $ | 8,144 | | | $ | 1,904 | | | $ | 2,529 | | | $ | 1,154 | | | $ | 1,361 | | | $ | 439 | | | $ | 672 | | | $ | 274 | |
Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | |
Plan assets at prior measurement date | $ | 9,337 | | | $ | 2,381 | | | $ | 3,049 | | | $ | 1,422 | | | $ | 1,605 | | | $ | 472 | | | $ | 684 | | | $ | 343 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Actual return on plan assets | 513 | | | 132 | | | 169 | | | 79 | | | 90 | | | 26 | | | 37 | | | 19 | |
Benefits paid | (615) | | | (148) | | | (161) | | | (80) | | | (81) | | | (50) | | | (52) | | | (28) | |
| | | | | | | | | | | | | | | |
Transfers | — | | | — | | | (4) | | | — | | | (4) | | | (10) | | | — | | | — | |
| | | | | | | | | | | | | | | |
Plan assets at measurement date | $ | 9,235 | | | $ | 2,365 | | | $ | 3,053 | | | $ | 1,421 | | | $ | 1,610 | | | $ | 438 | | | $ | 669 | | | $ | 334 | |
Funded status of plan | $ | 1,028 | | | $ | 462 | | | $ | 493 | | | $ | 268 | | | $ | 218 | | | $ | (12) | | | $ | (11) | | | $ | 61 | |
Amounts Recognized in the Consolidated Balance Sheets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Prefunded pension(a) | $ | 885 | | | $ | 261 | | | $ | 396 | | | $ | 174 | | | $ | 216 | | | $ | 62 | | | $ | 90 | | | $ | 33 | |
Noncurrent pension liability(b) | $ | 250 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 72 | | | $ | 88 | | | $ | — | |
Net asset (liability) recognized | $ | 635 | | | $ | 261 | | | $ | 396 | | | $ | 174 | | | $ | 216 | | | $ | (10) | | | $ | 2 | | | $ | 33 | |
Regulatory assets | $ | 2,016 | | | $ | 545 | | | $ | 670 | | | $ | 353 | | | $ | 316 | | | $ | 92 | | | $ | 178 | | | $ | 84 | |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
Deferred income tax benefit | $ | (27) | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Prior service credit | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net actuarial loss | 129 | | | — | | | 3 | | | — | | | — | | | — | | | — | | | — | |
Net amounts recognized in accumulated other comprehensive loss | $ | 101 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Prefunded pension(a) | $ | 1,071 | | | $ | 462 | | | $ | 494 | | | $ | 268 | | | $ | 219 | | | $ | 74 | | | $ | 100 | | | $ | 61 | |
Noncurrent pension liability(b) | $ | 43 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | 86 | | | $ | 111 | | | $ | — | |
Net asset (liability) recognized | $ | 1,028 | | | $ | 462 | | | $ | 493 | | | $ | 268 | | | $ | 218 | | | $ | (12) | | | $ | (11) | | | $ | 61 | |
Regulatory assets | $ | 1,649 | | | $ | 324 | | | $ | 563 | | | $ | 252 | | | $ | 311 | | | $ | 93 | | | $ | 190 | | | $ | 75 | |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
Deferred income tax benefit | $ | (20) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Prior service credit | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net actuarial loss | 92 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | |
Net amounts recognized in accumulated other comprehensive loss | $ | 71 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
(a) Included in Other within Other Noncurrent Assets on the Consolidated Balance Sheets.
(b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Information for Plans with Accumulated Benefit Obligation in Excess of Plan Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | | |
| | | | | | | Duke | | Duke | | | | | | |
| Duke | | | | | | Energy | | Energy | | | | | | |
(in millions) | Energy | | | | | | Ohio | | Indiana | | | | | | |
Projected benefit obligation | $ | 3,323 | | | | | | | $ | 103 | | | $ | 198 | | | | | | | |
Accumulated benefit obligation | 3,288 | | | | | | | 99 | | | 193 | | | | | | | |
Fair value of plan assets | 3,073 | | | | | | | 31 | | | 110 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | December 31, 2021 |
| | | | | | | Duke | | Duke |
| | | | | | | Energy | | Energy |
(in millions) | | | | | | | Ohio | | Indiana |
Projected benefit obligation | | | | | | | $ | 153 | | | $ | 284 | |
Accumulated benefit obligation | | | | | | | 143 | | | 275 | |
Fair value of plan assets | | | | | | | 67 | | | 173 | |
Assumptions Used for Pension Benefits Accounting
The discount rate used to determine the current year pension obligation and following year’s pension expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high-quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
The average remaining service period for participants in active plans and life expectancy of participants in inactive plans is 13 years for Duke Energy and Duke Energy Progress, 15 years for Duke Energy Florida and Duke Energy Ohio, 14 years for Progress Energy and Duke Energy Indiana, 12 years for Duke Energy Carolinas and nine years for Piedmont.
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FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
The following tables present the assumptions or range of assumptions used for pension benefit accounting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
Benefit Obligations | | | | | | | | | | | | |
Discount rate | | | | 5.60% | | | | 2.90% | | | | 2.60% |
Interest crediting rate | | | | 4.35% | | | | 4.00% | | | | 4.00% |
Salary increase | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% |
Net Periodic Benefit Cost | | | | | | | | | | | | |
Discount rate | | 2.90 | % | – | 5.70% | | | | 2.60% | | | | 3.30% |
Interest crediting rate | | | | 4.00% | | | | 4.00% | | | | 4.00% |
Salary increase | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% | | 3.50 | % | – | 4.00% |
Expected long-term rate of return on plan assets | | | | 6.50% | | | | 6.50% | | | | 6.85% |
Expected Benefit Payments
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Years ending December 31, | | | | | | | | |
2023 | $ | 661 | | $ | 186 | | $ | 183 | | $ | 99 | | $ | 83 | | $ | 32 | | $ | 45 | | $ | 19 | |
2024 | 635 | | 176 | | 180 | | 95 | | 84 | | 31 | | 45 | | 18 | |
2025 | 629 | | 174 | | 183 | | 97 | | 85 | | 31 | | 44 | | 16 | |
2026 | 607 | | 164 | | 180 | | 91 | | 87 | | 30 | | 44 | | 16 | |
2027 | 592 | | 156 | | 177 | | 89 | | 87 | | 29 | | 43 | | 15 | |
2028-2032 | 2,581 | | 628 | | 804 | | 372 | | 427 | | 135 | | 205 | | 71 | |
NON-QUALIFIED PENSION PLANS
The accumulated benefit obligation, which equals the projected benefit obligation for non-qualified pension plans, was $232 million for Duke Energy, $10 million for Duke Energy Carolinas, $78 million for Progress Energy, $24 million for Duke Energy Progress, $32 million for Duke Energy Florida, $3 million for Duke Energy Ohio, $2 million for Duke Energy Indiana and $3 million for Piedmont as of December 31, 2022.
Employer contributions, which equal benefits paid for non-qualified pension plans, were $24 million for Duke Energy, $1 million for Duke Energy Carolinas, $10 million for Progress Energy, $3 million for Duke Energy Progress and $4 million for Duke Energy Florida for the year ended December 31, 2022. Employer contributions were not material for Duke Energy Ohio, Duke Energy Indiana or Piedmont for the year ended December 31, 2022.
Net periodic pension costs for non-qualified pension plans were not material for the years ended December 31, 2022, 2021 or 2020.
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, vision and prescription drug coverage and are subject to certain limitations, such as deductibles and copayments.
Duke Energy did not make any pre-funding contributions to its other post-retirement benefit plans during the years ended December 31, 2022, 2021 or 2020.
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FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Components of Net Periodic Other Post-Retirement Benefit Costs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Service cost | $ | 3 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Interest cost on accumulated post-retirement benefit obligation | 17 | | | 4 | | | 7 | | | 4 | | | 3 | | | 1 | | | 1 | | | 1 | |
Expected return on plan assets | (10) | | | (6) | | | — | | | — | | | — | | | — | | | — | | | (2) | |
Amortization of actuarial loss | 2 | | | — | | | 1 | | | 1 | | | 1 | | | — | | | — | | | — | |
Amortization of prior service credit | (8) | | | (3) | | | (2) | | | (1) | | | (1) | | | — | | | — | | | (2) | |
| | | | | | | | | | | | | | | |
Net periodic post-retirement benefit costs (a)(b) | $ | 4 | | | $ | (4) | | | $ | 6 | | | $ | 4 | | | $ | 3 | | | $ | 1 | | | $ | 1 | | | $ | (3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Service cost | $ | 4 | | | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | |
Interest cost on accumulated post-retirement benefit obligation | 18 | | | 4 | | | 7 | | | 4 | | | 3 | | | 1 | | | 1 | | | 1 | |
Expected return on plan assets | (11) | | | (7) | | | — | | | — | | | — | | | — | | | — | | | (2) | |
Amortization of actuarial loss | 2 | | | — | | | 1 | | | — | | | 1 | | | — | | | 4 | | | — | |
Amortization of prior service credit | (13) | | | (4) | | | (2) | | | (1) | | | (1) | | | (1) | | | (1) | | | (2) | |
| | | | | | | | | | | | | | | |
Net periodic post-retirement benefit costs(a)(b) | $ | — | | | $ | (6) | | | $ | 7 | | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | 5 | | | $ | (3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Service cost | $ | 4 | | | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | |
Interest cost on accumulated post-retirement benefit obligation | 23 | | | 5 | | | 10 | | | 5 | | | 4 | | | 1 | | | 2 | | | 1 | |
Expected return on plan assets | (13) | | | (8) | | | — | | | — | | | — | | | — | | | — | | | (2) | |
Amortization of actuarial loss | 2 | | | — | | | 1 | | | — | | | 1 | | | — | | | 4 | | | — | |
Amortization of prior service credit | (14) | | | (4) | | | (3) | | | (1) | | | (2) | | | (1) | | | (1) | | | (2) | |
| | | | | | | | | | | | | | | |
Net periodic post-retirement benefit costs(a)(b) | $ | 2 | | | $ | (6) | | | $ | 9 | | | $ | 4 | | | $ | 3 | | | $ | — | | | $ | 6 | | | $ | (3) | |
(a) Duke Energy amounts exclude $4 million, $5 million and $6 million for the years ended December 2022, 2021 and 2020, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006.
(b) Duke Energy Ohio amounts exclude $1 million, $1 million and $1 million for the years ended December 2022, 2021 and 2020, respectively, of regulatory asset amortization resulting from purchase accounting adjustments associated with Duke Energy's merger with Cinergy in April 2006.
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FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Amounts Recognized in Accumulated Other Comprehensive Income and Regulatory Assets and Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Regulatory assets, net (decrease) increase | $ | (79) | | | $ | — | | | $ | (80) | | | $ | (45) | | | $ | (36) | | | $ | — | | | $ | (3) | | | $ | — | |
Regulatory liabilities, net increase (decrease) | $ | 27 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 19 | | | $ | (5) | |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Amortization of prior year actuarial gain | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Net amount recognized in accumulated other comprehensive income | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Regulatory assets, net (decrease) increase | $ | (15) | | | $ | — | | | $ | (18) | | | $ | (9) | | | $ | (9) | | | $ | 4 | | | $ | (4) | | | $ | — | |
Regulatory liabilities, net increase | $ | 23 | | | $ | 12 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 1 | | | $ | 2 | |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Amortization of prior year actuarial gain | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Net amount recognized in accumulated other comprehensive income | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Reconciliation of Funded Status to Accrued Other Post-Retirement Benefit Costs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Change in Projected Benefit Obligation | | | | | | | | | | | | | | | |
Accumulated post-retirement benefit obligation at prior measurement date | $ | 625 | | | $ | 149 | | | $ | 263 | | | $ | 147 | | | $ | 112 | | | $ | 25 | | | $ | 54 | | | $ | 27 | |
| | | | | | | | | | | | | | | |
Service cost | 3 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | |
Interest cost | 17 | | | 4 | | | 7 | | | 4 | | | 3 | | | 1 | | | 1 | | | 1 | |
Plan participants' contributions | 11 | | | 2 | | | 4 | | | 2 | | | 2 | | | 1 | | | 1 | | | — | |
Actuarial gains | (80) | | | (17) | | | (43) | | | (27) | | | (16) | | | (3) | | | (1) | | | (5) | |
Plan amendments | (71) | | | (11) | | | (37) | | | (18) | | | (19) | | | — | | | (17) | | | — | |
| | | | | | | | | | | | | | | |
Benefits paid | (68) | | | (16) | | | (26) | | | (13) | | | (13) | | | (4) | | | (8) | | | (2) | |
Accumulated post-retirement benefit obligation at measurement date | $ | 437 | | | $ | 112 | | | $ | 168 | | | $ | 95 | | | $ | 69 | | | $ | 20 | | | $ | 30 | | | $ | 21 | |
Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | |
Plan assets at prior measurement date | $ | 211 | | | $ | 135 | | | $ | (1) | | | $ | (2) | | | $ | (2) | | | $ | 9 | | | $ | 6 | | | $ | 39 | |
| | | | | | | | | | | | | | | |
Actual return on plan assets | (31) | | | (19) | | | — | | | — | | | — | | | (2) | | | — | | | (7) | |
Benefits paid | (68) | | | (16) | | | (26) | | | (13) | | | (13) | | | (4) | | | (8) | | | (2) | |
| | | | | | | | | | | | | | | |
Employer contributions | 39 | | | 3 | | | 23 | | | 11 | | | 11 | | | 3 | | | 4 | | | 1 | |
Plan participants' contributions | 11 | | | 2 | | | 4 | | | 2 | | | 2 | | | 1 | | | 1 | | | — | |
Plan assets at measurement date | $ | 162 | | | $ | 105 | | | $ | — | | | $ | (2) | | | $ | (2) | | | $ | 7 | | | $ | 3 | | | $ | 31 | |
Funded status of plan | $ | (275) | | | $ | (7) | | | $ | (168) | | | $ | (97) | | | $ | (71) | | | $ | (13) | | | $ | (27) | | | $ | 10 | |
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FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Change in Projected Benefit Obligation | | | | | | | | | | | | | | | |
Accumulated post-retirement benefit obligation at prior measurement date | $ | 709 | | | $ | 174 | | | $ | 299 | | | $ | 166 | | | $ | 130 | | | $ | 27 | | | $ | 61 | | | $ | 30 | |
| | | | | | | | | | | | | | | |
Service cost | 4 | | | 1 | | | 1 | | | — | | | — | | | — | | | 1 | | | — | |
Interest cost | 18 | | | 4 | | | 7 | | | 4 | | | 3 | | | 1 | | | 1 | | | 1 | |
Plan participants' contributions | 14 | | | 3 | | | 5 | | | 3 | | | 2 | | | 1 | | | 2 | | | — | |
Actuarial gains | (47) | | | (14) | | | (20) | | | (10) | | | (10) | | | (1) | | | (2) | | | (2) | |
| | | | | | | | | | | | | | | |
Benefits paid | (73) | | | (19) | | | (29) | | | (16) | | | (13) | | | (3) | | | (9) | | | (2) | |
Accumulated post-retirement benefit obligation at measurement date | $ | 625 | | | $ | 149 | | | $ | 263 | | | $ | 147 | | | $ | 112 | | | $ | 25 | | | $ | 54 | | | $ | 27 | |
Change in Fair Value of Plan Assets | | | | | | | | | | | | | | | |
Plan assets at prior measurement date | $ | 237 | | | $ | 139 | | | $ | (1) | | | $ | (2) | | | $ | (1) | | | $ | 9 | | | $ | 7 | | | $ | 37 | |
| | | | | | | | | | | | | | | |
Actual return on plan assets | 15 | | | 9 | | | — | | | — | | | — | | | 1 | | | — | | | 3 | |
Benefits paid | (73) | | | (19) | | | (29) | | | (16) | | | (13) | | | (3) | | | (9) | | | (2) | |
| | | | | | | | | | | | | | | |
Employer contributions | 18 | | | 3 | | | 24 | | | 13 | | | 10 | | | 1 | | | 6 | | | 1 | |
Plan participants' contributions | 14 | | | 3 | | | 5 | | | 3 | | | 2 | | | 1 | | | 2 | | | — | |
Plan assets at measurement date | $ | 211 | | | $ | 135 | | | $ | (1) | | | $ | (2) | | | $ | (2) | | | $ | 9 | | | $ | 6 | | | $ | 39 | |
Funded status of plan | $ | (414) | | | $ | (14) | | | $ | (264) | | | $ | (149) | | | $ | (114) | | | $ | (16) | | | $ | (48) | | | $ | 12 | |
Amounts Recognized in the Consolidated Balance Sheets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Prefunded post-retirement benefit | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 10 | |
Current post-retirement liability(a) | 9 | | | — | | | 5 | | | 3 | | | 2 | | | 2 | | | — | | | — | |
Noncurrent post-retirement liability(b) | 266 | | | 7 | | | 163 | | | 94 | | | 69 | | | 12 | | | 27 | | | — | |
Net liability (asset) recognized | $ | 275 | | | $ | 7 | | | $ | 168 | | | $ | 97 | | | $ | 71 | | | $ | 13 | | | $ | 27 | | | $ | (10) | |
Regulatory assets | $ | 50 | | | $ | — | | | $ | 46 | | | $ | 34 | | | $ | 11 | | | $ | 4 | | | $ | 25 | | | $ | — | |
Regulatory liabilities | $ | 189 | | | $ | 44 | | | $ | — | | | $ | — | | | $ | — | | | $ | 21 | | | $ | 82 | | | $ | — | |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
Deferred income tax expense | $ | 3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Prior service credit | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net actuarial gain | (13) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts recognized in accumulated other comprehensive income | $ | (11) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Prefunded post-retirement benefit | $ | 12 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 12 | |
Current post-retirement liability(a) | 9 | | | — | | | 5 | | | 3 | | | 2 | | | 1 | | | — | | | — | |
Noncurrent post-retirement liability(b) | 417 | | | 14 | | | 259 | | | 146 | | | 112 | | | 16 | | | 48 | | | — | |
Net liability (asset) recognized | $ | 414 | | | $ | 14 | | | $ | 264 | | | $ | 149 | | | $ | 114 | | | $ | 16 | | | $ | 48 | | | $ | (12) | |
Regulatory assets | $ | 129 | | | $ | — | | | $ | 126 | | | $ | 79 | | | $ | 47 | | | $ | 4 | | | $ | 28 | | | $ | — | |
Regulatory liabilities | $ | 162 | | | $ | 44 | | | $ | — | | | $ | — | | | $ | — | | | $ | 21 | | | $ | 63 | | | $ | 5 | |
Accumulated other comprehensive (income) loss | | | | | | | | | | | | | | | |
Deferred income tax expense | $ | 3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Prior service credit | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net actuarial gain | (14) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts recognized in accumulated other comprehensive income | $ | (12) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
(a) Included in Other within Current Liabilities on the Consolidated Balance Sheets.
(b) Included in Accrued pension and other post-retirement benefit costs on the Consolidated Balance Sheets.
Assumptions Used for Other Post-Retirement Benefits Accounting
The discount rate used to determine the current year other post-retirement benefits obligation and following year’s other post-retirement benefits expense is based on a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high-quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.
The average remaining service period of active covered employees is seven years for Duke Energy and Duke Energy Florida, six years for Duke Energy Carolinas, Duke Energy Ohio, Duke Energy Indiana and Piedmont and five years for Progress Energy and Duke Energy Progress.
The following tables present the assumptions used for other post-retirement benefits accounting.
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
Benefit Obligations | | | | | | |
Discount rate | | 5.60 | % | | 2.90 | % | | 2.60 | % |
Net Periodic Benefit Cost | | | | | | |
Discount rate | | 2.90 | % | | 2.60 | % | | 3.30 | % |
Expected long-term rate of return on plan assets | | 6.50 | % | | 6.50 | % | | 6.85 | % |
| | | | | | |
Assumed Health Care Cost Trend Rate
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Health care cost trend rate assumed for next year | 6.50 | % | | 6.25 | % |
Rate to which the cost trend is assumed to decline (the ultimate trend rate) | 4.75 | % | | 4.75 | % |
Year that rate reaches ultimate trend | 2030-2032 | | 2028 |
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Expected Benefit Payments
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Years ending December 31, | | | | | | | | |
2023 | $ | 68 | | $ | 16 | | $ | 25 | | $ | 14 | | $ | 11 | | $ | 3 | | $ | 7 | | $ | 2 | |
2024 | 49 | | 13 | | 18 | | 10 | | 7 | | 3 | | 4 | | 2 | |
2025 | 45 | | 12 | | 16 | | 9 | | 7 | | 2 | | 3 | | 2 | |
2026 | 41 | | 11 | | 15 | | 9 | | 6 | | 2 | | 3 | | 2 | |
2027 | 38 | | 10 | | 14 | | 8 | | 6 | | 2 | | 3 | | 2 | |
2028-2032 | 158 | | 41 | | 61 | | 36 | | 25 | | 8 | | 9 | | 9 | |
PLAN ASSETS
Description and Allocations
Duke Energy Corporation Master Retirement Trust
Assets for both the qualified pension and other post-retirement benefits are maintained in the Duke Energy Corporation Master Retirement Trust. Approximately 98% of the Duke Energy Corporation Master Retirement Trust assets were allocated to qualified pension plans and approximately 2% were allocated to other post-retirement plans (comprised of 401(h) accounts), as of December 31, 2022, and 2021. The investment objective of the Duke Energy Corporation Master Retirement Trust is to invest in a diverse portfolio of assets that is expected to generate positive surplus return over time (i.e., asset growth greater than liability growth) subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for plan participants.
As of December 31, 2022, Duke Energy assumes qualified pension and other post-retirement plan assets will generate a long-term rate of return of 8.25% for the RCBP pension and RCBP 401(h) account assets and 6.5% for the DELPP pension and DELPP 401(h) account assets. The expected long-term rate of return was developed using a weighted average calculation of expected returns based primarily on future expected returns across asset classes considering the use of active asset managers, where applicable. The asset allocation targets were set after considering the investment objective and the risk profile. Equity securities are held for their higher expected returns. Debt securities are primarily held to hedge the qualified pension plan. Return seeking debt securities, hedge funds and other global securities are held for diversification. Investments within asset classes are diversified to achieve broad market participation and reduce the impact of individual managers or investments.
Effective January 1, 2023, the target asset allocation for the RCBP assets is 35% liability hedging and 65% return-seeking assets and the target asset allocation for the DELPP assets is 80% liability hedging assets and 20% return-seeking assets. Duke Energy periodically reviews its asset allocation targets, and over time, as the funded status of the benefit plans increase, the level of asset risk relative to plan liabilities may be reduced to better manage Duke Energy's benefit plan liabilities and reduce funded status volatility.
The Duke Energy Corporation Master Retirement Trust is authorized to engage in the lending of certain plan assets. Securities lending is an investment management enhancement that utilizes certain existing securities of the Duke Energy Corporation Master Retirement Trust to earn additional income. Securities lending involves the loaning of securities to approved parties. In return for the loaned securities, the Duke Energy Corporation Master Retirement Trust receives collateral in the form of cash and securities as a safeguard against possible default of any borrower on the return of the loan under terms that permit the Duke Energy Corporation Master Retirement Trust to sell the securities. The Duke Energy Corporation Master Retirement Trust mitigates credit risk associated with securities lending arrangements by monitoring the fair value of the securities loaned, with additional collateral obtained or refunded as necessary. The fair value of securities on loan was approximately $390 million and $542 million at December 31, 2022, and 2021, respectively. Cash and securities obtained as collateral exceeded the fair value of the securities loaned at December 31, 2022, and 2021, respectively. Securities lending income earned by the Duke Energy Corporation Master Retirement Trust was immaterial for the years ended December 31, 2022, 2021 and 2020, respectively.
Qualified pension and other post-retirement benefits for the Subsidiary Registrants are derived from the Duke Energy Corporation Master Retirement Trust, as such, each are allocated their proportionate share of the assets discussed below.
The following table includes the target asset allocations by asset class at December 31, 2022, and the actual asset allocations for the RCBP assets.
| | | | | | | | | | | | | | | | | |
| | | Actual Allocation at |
| Target | | December 31, |
| | | | | |
| Allocation | | 2022 | | 2021 |
| | | | | |
| | | | | |
Global equity securities | 45 | % | | 49 | % | | 24 | % |
Global private equity securities | 2 | % | | 2 | % | | 1 | % |
Debt securities | 35 | % | | 30 | % | | 62 | % |
Return seeking debt securities | 7 | % | | 7 | % | | 4 | % |
Hedge funds | 4 | % | | 6 | % | | 3 | % |
Real estate and cash | 7 | % | | 6 | % | | 6 | % |
| | | | | |
Total | 100 | % | | 100 | % | | 100 | % |
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
The following table includes the target asset allocations by asset class at December 31, 2022, and the actual asset allocations for the DELPP assets.
| | | | | | | | | | | | | | | | | |
| | | Actual Allocation at |
| Target | | December 31, |
| | | | | |
| Allocation | | 2022 | | 2021 |
| | | | | |
| | | | | |
Global equity securities | 14 | % | | 14 | % | | 24 | % |
Global private equity securities | 1 | % | | — | % | | 1 | % |
Debt securities | 80 | % | | 80 | % | | 62 | % |
Return seeking debt securities | 2 | % | | 2 | % | | 4 | % |
Hedge funds | 1 | % | | 2 | % | | 3 | % |
Real estate and cash | 2 | % | | 2 | % | | 6 | % |
| | | | | |
Total | 100 | % | | 100 | % | | 100 | % |
Other post-retirement assets
Duke Energy's other post-retirement assets are comprised of Voluntary Employees' Beneficiary Association (VEBA) trusts and 401(h) accounts held within the Duke Energy Corporation Master Retirement Trust. Duke Energy's investment objective is to achieve sufficient returns, subject to a prudent level of portfolio risk, for the purpose of promoting the security of plan benefits for participants.
The following table presents target and actual asset allocations for the VEBA trusts at December 31, 2022.
| | | | | | | | | | | | | | | | | |
| | | Actual Allocation at |
| Target | | December 31, |
| Allocation | | 2022 | | 2021 |
U.S. equity securities | 30 | % | | 12 | % | | 19 | % |
Non-U.S. equity securities | 5 | % | | 5 | % | | 5 | % |
Real estate | 1 | % | | 3 | % | | 3 | % |
Debt securities | 45 | % | | 11 | % | | 18 | % |
Cash | 19 | % | | 69 | % | | 55 | % |
Total | 100 | % | | 100 | % | | 100 | % |
Fair Value Measurements
Duke Energy classifies recurring and non-recurring fair value measurements based on the fair value hierarchy as discussed in Note 17.
Valuation methods of the primary fair value measurements disclosed below are as follows:
Investments in equity securities
Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the reporting period. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements. When the price of an institutional commingled fund is unpublished, it is not categorized in the fair value hierarchy, even though the funds are readily available at the fair value.
Investments in corporate debt securities and U.S. government securities
Most debt investments are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3. U.S. Treasury debt is typically Level 2.
Investments in short-term investment funds
Investments in short-term investment funds are valued at the net asset value of units held at year end and are readily redeemable at the measurement date. Investments in short-term investment funds with published prices are valued as Level 1. Investments in short-term investment funds with unpublished prices are valued as Level 2.
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Duke Energy Corporation Master Retirement Trust
The following tables provide the fair value measurement amounts for the Duke Energy Corporation Master Retirement Trust qualified pension and other post-retirement assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Total Fair | | | | | | | | Not |
(in millions) | Value | | Level 1 | | Level 2 | | Level 3 | | Categorized(b) |
Equity securities | $ | 2,234 | | | $ | 2,014 | | | $ | 194 | | | $ | — | | | $ | 26 | |
Corporate debt securities | 2,944 | | | — | | | 2,944 | | | — | | | — | |
Short-term investment funds | 193 | | | 1 | | | 192 | | | — | | | — | |
Partnership interests | 62 | | | — | | | — | | | 62 | | | — | |
Hedge funds | 209 | | | — | | | — | | | — | | | 209 | |
| | | | | | | | | |
U.S. government securities | 1,254 | | | — | | | 1,254 | | | — | | | — | |
| | | | | | | | | |
Governments bonds – foreign | 112 | | | — | | | 112 | | | — | | | — | |
Cash | 45 | | | 45 | | | — | | | — | | | — | |
Government and commercial mortgage backed securities | 6 | | | — | | | 6 | | | — | | | — | |
Net pending transactions and other investments | 14 | | | 5 | | | 9 | | | — | | | — | |
Total assets(a) | $ | 7,073 | | | $ | 2,065 | | | $ | 4,711 | | | $ | 62 | | | $ | 235 | |
(a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont were allocated approximately 27%, 33%, 15%, 18%, 5%, 7% and 3%, respectively, of the Duke Energy Corporation Master Retirement Trust at December 31, 2022. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these percentages.
(b) Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Total Fair | | | | | | | | Not |
(in millions) | Value | | Level 1 | | Level 2 | | Level 3 | | Categorized(b) |
Equity securities | $ | 2,575 | | | $ | 2,547 | | | $ | — | | | $ | — | | | $ | 28 | |
Corporate debt securities | 4,189 | | | — | | | 4,189 | | | — | | | — | |
Short-term investment funds | 382 | | | 272 | | | 110 | | | — | | | — | |
Partnership interests | 95 | | | — | | | — | | | 95 | | | — | |
Hedge funds | 216 | | | — | | | — | | | — | | | 216 | |
| | | | | | | | | |
U.S. government securities | 1,618 | | | — | | | 1,618 | | | — | | | — | |
| | | | | | | | | |
Governments bonds – foreign | 78 | | | — | | | 78 | | | — | | | — | |
Cash | 144 | | | 144 | | | — | | | — | | | — | |
Government and commercial mortgage backed securities | 2 | | | — | | | 2 | | | — | | | — | |
Net pending transactions and other investments | 53 | | | 12 | | | 41 | | | — | | | — | |
Total assets(a) | $ | 9,352 | | | $ | 2,975 | | | $ | 6,038 | | | $ | 95 | | | $ | 244 | |
(a) Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont were allocated approximately 26%, 32%, 15%, 17%, 5%, 7% and 4%, respectively, of the Duke Energy Corporation Master Retirement Trust at December 31, 2021. Accordingly, all amounts included in the table above are allocable to the Subsidiary Registrants using these percentages.
(b) Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy.
The following table provides a reconciliation of beginning and ending balances of Duke Energy Corporation Master Retirement Trust qualified pension and other post-retirement assets at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3).
| | | | | | | | | | | |
(in millions) | 2022 | | 2021 |
Balance at January 1 | $ | 95 | | | $ | — | |
| | | |
| | | |
| | | |
Sales | (18) | | | — | |
Total gains and other, net | (8) | | | — | |
Transfer of Level 3 assets from other classifications | (7) | | | 95 | |
Balance at December 31 | $ | 62 | | | $ | 95 | |
| | | | | |
FINANCIAL STATEMENTS | EMPLOYEE BENEFIT PLANS |
Other post-retirement assets
The following tables provide the fair value measurement amounts for VEBA trust assets.
| | | | | | | | | | | | | | | |
| December 31, 2022 |
| Total Fair | | | | | | |
(in millions) | Value | | | | Level 2 | | |
Cash and cash equivalents | $ | 11 | | | | | $ | 11 | | | |
Real estate | 2 | | | | | 2 | | | |
Equity securities | 12 | | | | | 12 | | | |
Debt securities | 8 | | | | | 8 | | | |
Total assets | $ | 33 | | | | | $ | 33 | | | |
| | | | | | | | | | | | | | | |
| December 31, 2021 |
| Total Fair | | | | | | |
(in millions) | Value | | | | Level 2 | | |
Cash and cash equivalents | $ | 14 | | | | | $ | 14 | | | |
Real estate | 2 | | | | | 2 | | | |
Equity securities | 18 | | | | | 18 | | | |
Debt securities | 11 | | | | | 11 | | | |
Total assets | $ | 45 | | | | | $ | 45 | | | |
EMPLOYEE SAVINGS PLANS
Retirement Savings Plan
Duke Energy Corporation sponsors, and the Subsidiary Registrants participate in, employee savings plans that cover substantially all U.S. employees. Most employees participate in a matching contribution formula where Duke Energy provides a matching contribution generally equal to 100% of employee before-tax and Roth 401(k) contributions of up to 6% of eligible pay per pay period. Dividends on Duke Energy shares held by the savings plans are charged to retained earnings when declared and shares held in the plans are considered outstanding in the calculation of basic and diluted EPS.
For new and rehired employees who are not eligible to participate in Duke Energy’s defined benefit plans, an additional employer contribution of 4% of eligible pay per pay period, which is subject to a three-year vesting schedule, is provided to the employee’s savings plan account. Certain Piedmont employees whose participation in a prior Piedmont defined benefit plan (that was frozen as of December 31, 2017) are eligible for employer transition credit contributions of 3% to 5% of eligible pay per period, for each pay period during the three-year period ending December 31, 2020.
The following table includes pretax employer matching contributions made by Duke Energy and expensed by the Subsidiary Registrants.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Years ended December 31, | | | | | | | | | | | | | | | |
2022 | $ | 246 | | | $ | 76 | | | $ | 65 | | | $ | 43 | | | $ | 22 | | | $ | 6 | | | $ | 12 | | | $ | 13 | |
2021 | 229 | | | 70 | | | 60 | | | 39 | | | 21 | | | 5 | | | 12 | | | 11 | |
2020 | 213 | | | 67 | | | 57 | | | 38 | | | 19 | | | 5 | | | 11 | | | 13 | |
24. INCOME TAXES
Inflation Reduction Act
On August 16, 2022, the IRA was signed into law. Among other provisions, the IRA implemented a new 15% corporate alternative minimum tax based on GAAP net income, with certain adjustments as defined by the IRA, and clean energy-related provisions. The IRA's clean energy provisions include, among other provisions, the extension and modification of existing investment and PTCs for projects placed in service through 2024 and introduces new technology-neutral clean energy related credits beginning in 2025. In addition, the IRA created a new, zero-emission nuclear power PTC and a clean hydrogen PTC.
Duke Energy has preliminarily reviewed the provisions of the IRA and has determined there were no material impacts on the results of operations, financial position, or cash flows in the periods presented for the Duke Energy Registrants as a result of the IRA being signed into law. Based on the preliminary review of the IRA provisions, future annual cash flow impacts related to the energy credits could be material to the Duke Energy Registrants. However, the majority of Duke Energy's operations are regulated and the FERC and state utility commissions will determine the regulatory treatment. We anticipate the Subsidiary Registrants will defer and expect to pass along the net financial impact associated with the IRA to customers over time. See Note 4 for further details on the IRA as it relates to Duke Energy Florida. Duke Energy will continue to assess the IRA as new information and anticipated guidance from the U.S. Department of the Treasury becomes available.
| | | | | |
FINANCIAL STATEMENTS | INCOME TAXES |
North Carolina's 2021 Appropriations Act
On November 18, 2021, North Carolina Senate Bill 105 (SB 105) was signed into law. Starting with tax year 2025, SB 105 begins phasing out the North Carolina corporate income tax rate over five years, from a statutory rate of 2.5% to zero. Duke Energy recorded a net reduction of approximately $490 million to its North Carolina deferred tax liability in the fourth quarter of 2021. The majority of this deferred tax liability reduction was offset by recording a regulatory liability pending NCUC determination of the disposition of the amounts related to Duke Energy Carolinas, Duke Energy Progress and Piedmont. In addition, Duke Energy recorded a net reduction of North Carolina consolidating deferred tax assets of approximately $25 million to deferred state income tax expense in the fourth quarter of 2021. North Carolina SB 105 did not have a significant impact on the financial position, results of operation, or cash flows of Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress or Piedmont.
Consolidated Appropriations Act
On December 27, 2020, the Consolidated Appropriations Act (CAA) was signed into law. In addition to the CAA providing funding for government operations, it also provided tax provisions to assist with COVID-19 relief, including extending certain expiring tax provisions. The company has reviewed the provisions of the CAA and has determined that there are no material impacts on the financial statements as a result of the CAA being signed into law.
CARES Act
On March 27, 2020, the CARES Act was enacted. The CARES Act was an emergency economic stimulus package in response to the COVID-19 pandemic. Among other provisions, the CARES Act accelerated the remaining AMT credit refund allowances resulting in taxpayers being able to immediately claim a refund in full for any AMT credit carryforwards and provided for the deferral of certain 2020 payroll taxes. In the third quarter of 2020, Duke Energy received $572 million related to these AMT credit carryforwards and $19 million of interest income. In addition, the company deferred approximately $117 million of payroll taxes, of which, 50% were paid by December 31, 2021, with the remaining 50% payable by December 31, 2022. The other provisions within the CARES Act did not materially impact Duke Energy's income tax accounting.
Income Tax Expense
Components of Income Tax Expense
Tax benefit from discontinued operations, in the following tables, includes income tax benefits related to the Commercial Renewables Disposal Groups. See Note 2 for further details.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Current income taxes | | | | | | | | |
Federal | $ | 1 | | $ | (71) | | $ | (13) | | $ | 37 | | $ | (37) | | $ | (2) | | $ | 38 | | $ | 32 | |
State | (8) | | (13) | | (3) | | — | | (23) | | 1 | | 2 | | 2 | |
Foreign | 4 | | — | | — | | — | | — | | — | | — | | — | |
Total current income taxes | (3) | | (84) | | (16) | | 37 | | (60) | | (1) | | 40 | | 34 | |
Deferred income taxes | | | | | | | | |
Federal | 328 | | 230 | | 310 | | 118 | | 201 | | (22) | | (63) | | 12 | |
State | (14) | | (16) | | 59 | | 7 | | 84 | | 3 | | — | | (7) | |
| | | | | | | | |
Total deferred income taxes(a) | 314 | | 214 | | 369 | | 125 | | 285 | | (19) | | (63) | | 5 | |
ITC amortization | (11) | | (4) | | (5) | | (4) | | — | | (1) | | (1) | | — | |
Income tax expense from continuing operations | 300 | | 126 | | 348 | | 158 | | 225 | | (21) | | (24) | | 39 | |
Tax benefit from discontinued operations | (503) | | — | | — | | — | | — | | — | | — | | — | |
Total income tax (benefit) expense included in Consolidated Statements of Operations | $ | (203) | | $ | 126 | | $ | 348 | | $ | 158 | | $ | 225 | | $ | (21) | | $ | (24) | | $ | 39 | |
(a) Total deferred income taxes includes the generation of NOL carryforwards and tax credit carryforwards of $550 million at Duke Energy, $97 million at Duke Energy Carolinas, $128 million at Progress Energy, $9 million at Duke Energy Progress, $111 million at Duke Energy Florida, $7 million at Duke Energy Ohio, $13 million at Duke Energy Indiana, and $12 million at Piedmont.
| | | | | |
FINANCIAL STATEMENTS | INCOME TAXES |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Current income taxes | | | | | | | | |
Federal | $ | (2) | | $ | 241 | | $ | (15) | | $ | 113 | | $ | (75) | | $ | (8) | | $ | 65 | | $ | 23 | |
State | 1 | | 23 | | (4) | | 8 | | (17) | | (2) | | 7 | | 3 | |
Foreign | 2 | | — | | — | | — | | — | | — | | — | | — | |
Total current income taxes | 1 | | 264 | | (19) | | 121 | | (92) | | (10) | | 72 | | 26 | |
Deferred income taxes | | | | | | | | |
Federal | 275 | | (130) | | 203 | | (16) | | 202 | | 35 | | 19 | | 17 | |
State | — | | (79) | | 47 | | (26) | | 77 | | 5 | | 16 | | (13) | |
| | | | | | | | |
Total deferred income taxes(a) | 275 | | (209) | | 250 | | (42) | | 279 | | 40 | | 35 | | 4 | |
ITC amortization | (8) | | (4) | | (4) | | (4) | | — | | — | | — | | — | |
Income tax expense from continuing operations | 268 | | 51 | | 227 | | 75 | | 187 | | 30 | | 107 | | 30 | |
Tax benefit from discontinued operations | (76) | | — | | — | | — | | — | | — | | — | | — | |
Total income tax expense included in Consolidated Statements of Operations | $ | 192 | | $ | 51 | | $ | 227 | | $ | 75 | | $ | 187 | | $ | 30 | | $ | 107 | | $ | 30 | |
(a) Total deferred income taxes includes the generation of NOL carryforwards and tax credit carryforwards of $32 million at Duke Energy Carolinas, $8 million at Duke Energy Indiana, and $3 million at Piedmont. In addition, total deferred income taxes includes utilization of NOL carryforwards and tax credit carryforwards of $250 million at Duke Energy, $95 million at Progress Energy, $14 million at Duke Energy Progress, $64 million at Duke Energy Florida, and $2 million at Duke Energy Ohio.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Current income taxes | | | | | | | | |
Federal | $ | (281) | | $ | 314 | | $ | 280 | | $ | 181 | | $ | 148 | | $ | 10 | | $ | 48 | | $ | (27) | |
State | (3) | | 35 | | 29 | | 17 | | 24 | | 1 | | 7 | | (8) | |
Foreign | 1 | | — | | — | | — | | — | | — | | — | | — | |
Total current income taxes | (283) | | 349 | | 309 | | 198 | | 172 | | 11 | | 55 | | (35) | |
Deferred income taxes | | | | | | | | |
Federal | 222 | | (171) | | (167) | | (180) | | 1 | | 30 | | 12 | | 60 | |
State | (98) | | (86) | | (24) | | (49) | | 25 | | 2 | | 17 | | (7) | |
| | | | | | | | |
Total deferred income taxes(a) | 124 | | (257) | | (191) | | (229) | | 26 | | 32 | | 29 | | 53 | |
ITC amortization | (10) | | (4) | | (5) | | (5) | | — | | — | | — | | — | |
Income tax (benefit) expense from continuing operations | (169) | | 88 | | 113 | | (36) | | 198 | | 43 | | 84 | | 18 | |
Tax benefit from discontinued operations | (65) | | — | | — | | — | | — | | — | | — | | — | |
Total income tax (benefit) expense included in Consolidated Statements of Operations | $ | (234) | | $ | 88 | | $ | 113 | | $ | (36) | | $ | 198 | | $ | 43 | | $ | 84 | | $ | 18 | |
(a) Total deferred income taxes includes the generation of NOL carryforwards and tax credit carryforwards of $20 million at Duke Energy Carolinas, $3 million at Duke Energy Progress, $8 million at Duke Energy Indiana, and $11 million at Piedmont. In addition, total deferred income taxes includes utilization of NOL carryforwards and tax credit carryforwards of $39 million at Progress Energy, $30 million at Duke Energy Florida and $189 million at Duke Energy.
Duke Energy Income from Continuing Operations before Income Taxes
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Domestic | $ | 3,991 | | | $ | 3,947 | | | $ | 907 | |
Foreign | 87 | | | 44 | | | 13 | |
Income from continuing operations before income taxes | $ | 4,078 | | | $ | 3,991 | | | $ | 920 | |
| | | | | |
FINANCIAL STATEMENTS | INCOME TAXES |
Statutory Rate Reconciliation
The following tables present a reconciliation of income tax expense at the U.S. federal statutory tax rate to the actual tax expense from continuing operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Income tax expense, computed at the statutory rate of 21% | $ | 856 | | $ | 362 | | $ | 457 | | $ | 245 | | $ | 238 | | $ | 59 | | $ | 24 | | $ | 76 | |
State income tax, net of federal income tax effect | (17) | | (23) | | 44 | | 6 | | 48 | | 3 | | 2 | | (4) | |
Amortization of excess deferred income tax | (481) | | (195) | | (133) | | (74) | | (59) | | (79) | | (48) | | (23) | |
AFUDC equity income | (41) | | (20) | | (14) | | (11) | | (3) | | (1) | | (2) | | (2) | |
AFUDC equity depreciation | 36 | | 18 | | 12 | | 6 | | 6 | | 1 | | 4 | | — | |
| | | | | | | | |
| | | | | | | | |
Other tax credits | (43) | | (12) | | (16) | | (9) | | (7) | | (2) | | (3) | | (8) | |
| | | | | | | | |
Other items, net | (10) | | (4) | | (2) | | (5) | | 2 | | (2) | | (1) | | — | |
Income tax expense from continuing operations | $ | 300 | | $ | 126 | | $ | 348 | | $ | 158 | | $ | 225 | | $ | (21) | | $ | (24) | | $ | 39 | |
Effective tax rate | 7.4 | % | 7.3 | % | 16.0 | % | 13.6 | % | 19.8 | % | (7.5) | % | (21.2) | % | 10.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Income tax expense, computed at the statutory rate of 21% | $ | 838 | | $ | 291 | | $ | 384 | | $ | 224 | | $ | 194 | | $ | 49 | | $ | 123 | | $ | 71 | |
State income tax, net of federal income tax effect | 1 | | (44) | | 34 | | (14) | | 47 | | 2 | | 18 | | (8) | |
Amortization of excess deferred income tax | (438) | | (184) | | (174) | | (120) | | (54) | | (22) | | (34) | | (25) | |
AFUDC equity income | (34) | | (14) | | (11) | | (7) | | (3) | | (2) | | (4) | | (4) | |
AFUDC equity depreciation | 35 | | 18 | | 10 | | 5 | | 5 | | 2 | | 5 | | — | |
| | | | | | | | |
| | | | | | | | |
Other tax credits | (30) | | (12) | | (11) | | (8) | | (3) | | (1) | | (2) | | (4) | |
Valuation allowance(a) | (85) | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | |
| | | | | | | | |
Other items, net | (19) | | (4) | | (5) | | (5) | | 1 | | 2 | | 1 | | — | |
Income tax expense from continuing operations | $ | 268 | | $ | 51 | | $ | 227 | | $ | 75 | | $ | 187 | | $ | 30 | | $ | 107 | | $ | 30 | |
Effective tax rate | 6.7 | % | 3.7 | % | 12.4 | % | 7.0 | % | 20.2 | % | 12.8 | % | 18.2 | % | 8.8 | % |
(a) In the fourth quarter of 2021, the company recognized a federal capital gain in the amount of $426 million. As a result, a valuation allowance of $85 million related to a federal capital loss carryforward was released. This valuation allowance was originally recorded as a result of the 2019 sale of minority interest of certain renewable assets within the Commercial Renewables Disposal Groups.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Income tax expense, computed at the statutory rate of 21% | $ | 193 | | $ | 219 | | $ | 243 | | $ | 80 | | $ | 204 | | $ | 62 | | $ | 103 | | $ | 61 | |
State income tax, net of federal income tax effect | (80) | | (40) | | 4 | | (25) | | 39 | | 2 | | 19 | | (12) | |
Amortization of excess deferred income tax | (276) | | (82) | | (118) | | (68) | | (49) | | (20) | | (36) | | (21) | |
AFUDC equity income | (48) | | (13) | | (9) | | (6) | | (3) | | (2) | | (4) | | (10) | |
AFUDC equity depreciation | 103 | | 19 | | 10 | | 5 | | 5 | | 1 | | 4 | | — | |
| | | | | | | | |
| | | | | | | | |
Other tax credits | (37) | | (13) | | (16) | | (14) | | (2) | | (1) | | (3) | | (2) | |
Tax true up | (12) | | (3) | | 1 | | (5) | | 5 | | — | | (1) | | 1 | |
Other items, net | (12) | | 1 | | (2) | | (3) | | (1) | | 1 | | 2 | | 1 | |
Income tax (benefit) expense from continuing operations | $ | (169) | | $ | 88 | | $ | 113 | | $ | (36) | | $ | 198 | | $ | 43 | | $ | 84 | | $ | 18 | |
Effective tax rate | (18.4) | % | 8.4 | % | 9.7 | % | (9.5) | % | 20.4 | % | 14.6 | % | 17.1 | % | 6.2 | % |
| | | | | |
FINANCIAL STATEMENTS | INCOME TAXES |
Valuation allowances have been established for certain state NOL carryforwards and state income tax credits that reduce deferred tax assets to an amount that will be realized on a more-likely-than-not basis. The net change in the total valuation allowance is included in state income tax, net of federal income tax effect, in the above tables.
DEFERRED TAXES
Net Deferred Income Tax Liability Components
The following tables include deferred income tax assets and liabilities related to the Commercial Renewables Disposal Groups. See Note 2 for further details.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Deferred credits and other liabilities | $ | 348 | | $ | 170 | | $ | 117 | | $ | 33 | | $ | 83 | | $ | 12 | | $ | 23 | | $ | 24 | |
Lease obligations | 405 | | 89 | | 263 | | 197 | | 65 | | 4 | | 15 | | 3 | |
Pension, post-retirement and other employee benefits | 192 | | (1) | | 12 | | 18 | | (10) | | 9 | | 10 | | (2) | |
Progress Energy merger purchase accounting adjustments(a) | 301 | | — | | — | | — | | — | | — | | — | | — | |
Tax credits and NOL carryforwards | 4,426 | | 444 | | 618 | | 167 | | 412 | | 20 | | 208 | | 37 | |
Regulatory liabilities and deferred credits | — | | — | | — | | — | | — | | 3 | | 61 | | — | |
Investments and other assets | — | | — | | — | | — | | — | | 3 | | — | | — | |
Other | 106 | | 18 | | 22 | | 12 | | 10 | | 5 | | 2 | | 9 | |
Valuation allowance | (519) | | — | | — | | — | | — | | — | | — | | — | |
Total deferred income tax assets | 5,259 | | 720 | | 1,032 | | 427 | | 560 | | 56 | | 319 | | 71 | |
Investments and other assets | (1,671) | | (983) | | (521) | | (432) | | (102) | | — | | (12) | | (28) | |
Accelerated depreciation rates | (11,478) | | (3,410) | | (4,358) | | (1,844) | | (2,576) | | (1,192) | | (1,606) | | (892) | |
Regulatory assets and deferred debits, net | (2,074) | | (480) | | (1,300) | | (628) | | (671) | | — | | — | | (21) | |
| | | | | | | | |
Total deferred income tax liabilities | (15,223) | | (4,873) | | (6,179) | | (2,904) | | (3,349) | | (1,192) | | (1,618) | | (941) | |
Net deferred income tax liabilities | $ | (9,964) | | $ | (4,153) | | $ | (5,147) | | $ | (2,477) | | $ | (2,789) | | $ | (1,136) | | $ | (1,299) | | $ | (870) | |
(a) Primarily related to lease obligations and debt fair value adjustments.
The following table presents the expiration of tax credits and NOL carryforwards.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(in millions) | Amount | | Expiration Year |
General Business Credits | $ | 2,473 | | | 2027 | | — | | 2042 |
Federal NOL carryforwards(a) (e) | 306 | | | 2024 | | — | | Indefinite |
Charitable contribution carryforwards | 18 | | | 2024 | | — | | 2027 |
State carryforwards and credits(b) (e) | 394 | | | 2023 | | — | | Indefinite |
Foreign NOL carryforwards(c) | 12 | | | 2027 | | — | | 2037 |
Foreign Tax Credits(d) | 1,223 | | | 2024 | | — | | 2028 |
Total tax credits and NOL carryforwards | $ | 4,426 | | | | | | | |
(a) A valuation allowance of $4 million has been recorded on the Federal NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(b) A valuation allowance of $109 million has been recorded on the state NOL and attribute carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(c) A valuation allowance of $12 million has been recorded on the foreign NOL carryforwards, as presented in the Net Deferred Income Tax Liability Components table.
(d) A valuation allowance of $391 million has been recorded on the foreign tax credits, as presented in the Net Deferred Income Tax Liability Components table.
(e) Indefinite carryforward for Federal NOLs, and NOLs for states that have adopted the Tax Act's NOL provisions, generated in tax years beginning after December 31, 2017.
| | | | | |
FINANCIAL STATEMENTS | INCOME TAXES |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Deferred credits and other liabilities | $ | 347 | | $ | 121 | | $ | 101 | | $ | 60 | | $ | 40 | | $ | 19 | | $ | 7 | | $ | 18 | |
Lease obligations | 346 | | 91 | | 197 | | 121 | | 76 | | 4 | | 16 | | 4 | |
Pension, post-retirement and other employee benefits | 207 | | (36) | | 30 | | 17 | | 7 | | 11 | | 20 | | (8) | |
Progress Energy merger purchase accounting adjustments(a) | 340 | | — | | — | | — | | — | | — | | — | | — | |
Tax credits and NOL carryforwards | 3,784 | | 349 | | 497 | | 160 | | 306 | | 13 | | 195 | | 29 | |
Regulatory liabilities and deferred credits | — | | 11 | | — | | — | | — | | 16 | | — | | 6 | |
Investments and other assets | — | | — | | — | | — | | — | | 5 | | 6 | | — | |
Other | 85 | | 12 | | 12 | | 7 | | 4 | | 7 | | 2 | | 8 | |
Valuation allowance | (518) | | — | | — | | — | | — | | — | | — | | — | |
Total deferred income tax assets | 4,591 | | 548 | | 837 | | 365 | | 433 | | 75 | | 246 | | 57 | |
Investments and other assets | (2,428) | | (1,205) | | (742) | | (610) | | (135) | | — | | — | | (39) | |
Accelerated depreciation rates | (10,391) | | (2,977) | | (3,891) | | (1,546) | | (2,382) | | (1,125) | | (1,496) | | (833) | |
Regulatory assets and deferred debits, net | (1,151) | | — | | (768) | | (417) | | (350) | | — | | (53) | | — | |
| | | | | | | | |
Total deferred income tax liabilities | (13,970) | | (4,182) | | (5,401) | | (2,573) | | (2,867) | | (1,125) | | (1,549) | | (872) | |
Net deferred income tax liabilities | $ | (9,379) | | $ | (3,634) | | $ | (4,564) | | $ | (2,208) | | $ | (2,434) | | $ | (1,050) | | $ | (1,303) | | $ | (815) | |
(a) Primarily related to lease obligations and debt fair value adjustments.
UNRECOGNIZED TAX BENEFITS
The following tables present changes to unrecognized tax benefits.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unrecognized tax benefits – January 1 | $ | 51 | | $ | 13 | | $ | 15 | | $ | 10 | | $ | 4 | | $ | 1 | | $ | 2 | | $ | 4 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Gross decreases – tax positions in prior periods | — | | — | | — | | — | | — | | — | | — | | — | |
Gross increases – current period tax positions | 14 | | 4 | | 4 | | 3 | | 1 | | — | | — | | 5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total changes | 14 | | 4 | | 4 | | 3 | | 1 | | — | | — | | 5 | |
Unrecognized tax benefits – December 31 | $ | 65 | | $ | 17 | | $ | 19 | | $ | 13 | | $ | 5 | | $ | 1 | | $ | 2 | | $ | 9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unrecognized tax benefits – January 1 | $ | 125 | | $ | 10 | | $ | 10 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 1 | |
| | | | | | | | |
| | | | | | | | |
Gross decreases – tax positions in prior periods(a) | (86) | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | |
Gross increases – current period tax positions | 12 | | 3 | | 5 | | 4 | | 1 | | — | | 1 | | 3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total changes | (74) | | 3 | | 5 | | 4 | | 1 | | — | | 1 | | 3 | |
Unrecognized tax benefits – December 31 | $ | 51 | | $ | 13 | | $ | 15 | | $ | 10 | | $ | 4 | | $ | 1 | | $ | 2 | | $ | 4 | |
(a) In the fourth quarter of 2021, the company recognized a federal capital gain in the amount of $426 million. As a result of the capital gain, a previously recorded unrecognized tax benefit related to the character of a taxable loss has been reversed. See note (a) under the Statutory Rate Reconciliation table for more details.
| | | | | |
FINANCIAL STATEMENTS | INCOME TAXES |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Unrecognized tax benefits – January 1 | $ | 126 | | $ | 8 | | $ | 9 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 4 | |
| | | | | | | | |
| | | | | | | | |
Gross decreases – tax positions in prior periods | (2) | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | |
Gross increases – current period tax positions | 4 | | 2 | | 1 | | — | | — | | — | | — | | — | |
| | | | | | | | |
| | | | | | | | |
Reduction due to lapse of statute of limitations | (3) | | — | | — | | — | | — | | — | | — | | (3) | |
Total changes | (1) | | 2 | | 1 | | — | | — | | — | | — | | (3) | |
Unrecognized tax benefits – December 31 | $ | 125 | | $ | 10 | | $ | 10 | | $ | 6 | | $ | 3 | | $ | 1 | | $ | 1 | | $ | 1 | |
The following table includes additional information regarding the Duke Energy Registrants' unrecognized tax benefits at December 31, 2022. None of Duke Energy Registrants anticipates a material increase or decrease in unrecognized tax benefits within the next 12 months.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Duke | | Duke | Duke | Duke | Duke | |
| Duke | Energy | Progress | Energy | Energy | Energy | Energy | |
(in millions) | Energy | Carolinas | Energy | Progress | Florida | Ohio | Indiana | Piedmont |
Amount that if recognized, would affect the effective tax rate or regulatory liability(a) | $ | 59 | | $ | 17 | | $ | 18 | | $ | 13 | | $ | 5 | | $ | 1 | | $ | 2 | | $ | 8 | |
| | | | | | | | |
(a) The Duke Energy Registrants are unable to estimate the specific amounts that would affect the ETR versus the regulatory liability.
Duke Energy and its subsidiaries are no longer subject to federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2016, aside from certain state tax attributes carried forward for utilization in future years.
25. OTHER INCOME AND EXPENSES, NET
The components of Other income and expenses, net on the Consolidated Statements of Operations are as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Interest income | $ | 27 | | | $ | 2 | | | $ | 24 | | | $ | 4 | | | $ | 20 | | | $ | 11 | | | $ | 15 | | | $ | 19 | |
AFUDC equity | 197 | | | 98 | | | 68 | | | 52 | | | 16 | | | 7 | | | 13 | | | 11 | |
Post in-service equity returns | 34 | | | 14 | | | 18 | | | 18 | | | — | | | 1 | | | 1 | | | — | |
Nonoperating income, other | 134 | | | 107 | | | 71 | | | 40 | | | 38 | | | — | | | 7 | | | 16 | |
Other income and expense, net | $ | 392 | | | $ | 221 | | | $ | 181 | | | $ | 114 | | | $ | 74 | | | $ | 19 | | | $ | 36 | | | $ | 46 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Interest income | $ | 13 | | | $ | 4 | | | $ | 8 | | | $ | 6 | | | $ | 2 | | | $ | 4 | | | $ | 6 | | | $ | 19 | |
AFUDC equity | 171 | | | 65 | | | 51 | | | 34 | | | 16 | | | 7 | | | 27 | | | 20 | |
Post in-service equity returns | 39 | | | 21 | | | 16 | | | 16 | | | — | | | 1 | | | 1 | | | — | |
Nonoperating income, other | 413 | | | 180 | | | 140 | | | 87 | | | 53 | | | 6 | | | 8 | | | 16 | |
Other income and expense, net | $ | 636 | | | $ | 270 | | | $ | 215 | | | $ | 143 | | | $ | 71 | | | $ | 18 | | | $ | 42 | | | $ | 55 | |
| | | | | |
FINANCIAL STATEMENTS | OTHER INCOME AND EXPENSES, NET |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Interest income | $ | 30 | | | $ | 4 | | | $ | 8 | | | $ | 2 | | | $ | 6 | | | $ | 4 | | | $ | 6 | | | $ | 17 | |
AFUDC equity | 154 | | | 62 | | | 42 | | | 29 | | | 12 | | | 7 | | | 23 | | | 19 | |
Post in-service equity returns | 27 | | | 17 | | | 8 | | | 8 | | | — | | | 1 | | | 1 | | | — | |
Nonoperating income, other | 240 | | | 94 | | | 71 | | | 36 | | | 35 | | | 4 | | | 7 | | | 15 | |
Other income and expense, net | $ | 451 | | | $ | 177 | | | $ | 129 | | | $ | 75 | | | $ | 53 | | | $ | 16 | | | $ | 37 | | | $ | 51 | |
26. SUBSEQUENT EVENTS
For information on subsequent events related to dispositions, regulatory matters, commitments and contingencies, and debt and credit facilities see Notes 2, 4, 5 and 7, respectively.
27. QUARTERLY FINANCIAL DATA (UNAUDITED)
DUKE ENERGY
Quarterly EPS amounts may not sum to the full-year total due to changes in the weighted average number of common shares outstanding and rounding.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First | | Second | | Third | | Fourth | | |
(in millions, except per share data) | Quarter | | Quarter | | Quarter | | Quarter | | Total |
2022 | | | | | | | | | |
Operating revenues | $ | 7,011 | | | $ | 6,564 | | | $ | 7,842 | | | $ | 7,351 | | | $ | 28,768 | |
Operating income | 1,314 | | | 1,448 | | | 2,056 | | | 1,194 | | | 6,012 | |
Income from continuing operations | 835 | | | 898 | | | 1,410 | | | 635 | | | 3,778 | |
(Loss) Income from discontinued operations, net of tax | (15) | | | (18) | | | 3 | | | (1,293) | | | (1,323) | |
Net income (loss) | 820 | | | 880 | | | 1,413 | | | (658) | | | 2,455 | |
Net income (loss) available to Duke Energy Corporation common stockholders | 818 | | | 893 | | | 1,383 | | | (650) | | | 2,444 | |
Earnings per share: | | | | | | | | | |
Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic and diluted | $ | 1.06 | | | $ | 1.11 | | | $ | 1.78 | | | $ | 0.80 | | | $ | 4.74 | |
| | | | | | | | | |
Income (Loss) from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic and diluted | $ | 0.02 | | | $ | 0.03 | | | $ | 0.03 | | | $ | (1.66) | | | $ | (1.57) | |
| | | | | | | | | |
Net income (loss) available to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic and diluted | $ | 1.08 | | | $ | 1.14 | | | $ | 1.81 | | | $ | (0.86) | | | $ | 3.17 | |
| | | | | | | | | |
2021 | | | | | | | | | |
Operating revenues | $ | 6,032 | | | $ | 5,638 | | | $ | 6,834 | | | $ | 6,117 | | | $ | 24,621 | |
Operating income | 1,466 | | | 1,198 | | | 1,726 | | | 1,110 | | | 5,500 | |
Income from continuing operations | 967 | | | 723 | | | 1,333 | | | 700 | | | 3,723 | |
Loss from discontinued operations, net of tax | (26) | | | (25) | | | (57) | | | (36) | | | (144) | |
Net income | 941 | | | 698 | | | 1,276 | | | 664 | | | 3,579 | |
Net income available to Duke Energy Corporation common stockholders | 953 | | | 751 | | | 1,366 | | | 732 | | | 3,802 | |
Earnings per share: | | | | | | | | | |
Income from continuing operations available to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic and diluted | $ | 1.22 | | | $ | 0.90 | | | $ | 1.69 | | | $ | 0.86 | | | $ | 4.68 | |
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Income from discontinued operations attributable to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic and diluted | $ | 0.03 | | | $ | 0.06 | | | $ | 0.10 | | | $ | 0.07 | | | $ | 0.26 | |
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Net income available to Duke Energy Corporation common stockholders | | | | | | | | | |
Basic and diluted | $ | 1.25 | | | $ | 0.96 | | | $ | 1.79 | | | $ | 0.93 | | | $ | 4.94 | |
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