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Duke Energy CORP - Quarter Report: 2020 March (Form 10-Q)



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission file number
Registrant, State of Incorporation or Organization,
Address of Principal Executive Offices and Telephone Number
IRS Employer Identification Number
 
dukeenergylogo4ca62.jpg
 
1-32853
DUKE ENERGY CORPORATION
20-2777218
(a Delaware corporation)
550 South Tryon Street
Charlotte, North Carolina 28202-1803
704-382-3853
1-4928
DUKE ENERGY CAROLINAS, LLC
56-0205520
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
1-15929
PROGRESS ENERGY, INC.
56-2155481
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
1-3382
DUKE ENERGY PROGRESS, LLC
56-0165465
(a North Carolina limited liability company)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
1-3274
DUKE ENERGY FLORIDA, LLC
59-0247770
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
1-1232
DUKE ENERGY OHIO, INC.
31-0240030
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
1-3543
DUKE ENERGY INDIANA, LLC
35-0594457
(an Indiana limited liability company)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
1-6196
PIEDMONT NATURAL GAS COMPANY, INC.
56-0556998
(a North Carolina corporation)
4720 Piedmont Row Drive
Charlotte, North Carolina 28210
704-364-3120
 
 
 






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

Duke Energy
5.125% Junior Subordinated Debentures due    DUKH    New York Stock Exchange LLC
January 15, 2073
Duke Energy
5.625% Junior Subordinated Debentures due    DUKB    New York Stock Exchange LLC
September 15, 2078
Duke Energy
Depositary Shares, each representing a 1/1,000th    DUK PR A    New York Stock Exchange LLC
interest in a share of 5.75% Series A Cumulative
Redeemable Perpetual Preferred Stock, par value
$0.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Duke Energy Corporation (Duke Energy)
Yes
No
 
Duke Energy Florida, LLC (Duke Energy Florida)
Yes
No
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Yes
No
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
Yes
No
Progress Energy, Inc. (Progress Energy)
Yes
No
 
Duke Energy Indiana, LLC (Duke Energy Indiana)
Yes
No
Duke Energy Progress, LLC (Duke Energy Progress)
Yes
No
 
Piedmont Natural Gas Company, Inc. (Piedmont)
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Duke Energy
Yes
No
 
Duke Energy Florida
Yes
No
Duke Energy Carolinas
Yes
No
 
Duke Energy Ohio
Yes
No
Progress Energy
Yes
No
 
Duke Energy Indiana
Yes
No
Duke Energy Progress
Yes
No
 
Piedmont
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Duke Energy
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Duke Energy Carolinas
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Progress Energy
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Duke Energy Progress
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Duke Energy Florida
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Duke Energy Ohio
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Duke Energy Indiana
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Piedmont
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Duke Energy
Yes
No
 
Duke Energy Florida
Yes
No
Duke Energy Carolinas
Yes
No
 
Duke Energy Ohio
Yes
No
Progress Energy
Yes
No
 
Duke Energy Indiana
Yes
No
Duke Energy Progress
Yes
No
 
Piedmont
Yes
No




Number of shares of common stock outstanding at April 30, 2020:
Registrant
Description
Shares
Duke Energy
Common stock, $0.001 par value
734,852,539
This combined Form 10-Q is filed separately by eight registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.




TABLE OF CONTENTS
 
 
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Piedmont Natural Gas Company, Inc. Financial Statements
 
 
 
 
 
 
Note 1 – Organization and Basis of Presentation
 
Note 2 – Business Segments
 
Note 3 – Regulatory Matters
 
Note 4 – Commitments and Contingencies
 
Note 5 – Debt and Credit Facilities
 
Note 6 – Goodwill
 
Note 7 – Related Party Transactions
 
Note 8 – Derivatives and Hedging
 
Note 9 – Investments in Debt and Equity Securities
 
Note 10 – Fair Value Measurements
 
Note 11 – Variable Interest Entities
 
Note 12 – Revenue
 
Note 13 – Stockholders' Equity
 
Note 14 – Employee Benefit Plans
 
Note 15 – Income Taxes
 
Note 16 – Subsequent Events
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 




FORWARD-LOOKING STATEMENTS
 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions and can often be identified by terms and phrases that include “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook” or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors include, but are not limited to:
The impact of the COVID-19 pandemic;
State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, including those related to climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices;
The extent and timing of costs and liabilities to comply with federal and state laws, regulations and legal requirements related to coal ash remediation, including amounts for required closure of certain ash impoundments, are uncertain and difficult to estimate;
The ability to recover eligible costs, including amounts associated with coal ash impoundment retirement obligations and costs related to significant weather events, and to earn an adequate return on investment through rate case proceedings and the regulatory process;
The costs of decommissioning nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process;
Costs and effects of legal and administrative proceedings, settlements, investigations and claims;
Industrial, commercial and residential growth or decline in service territories or customer bases resulting from sustained downturns of the economy and the economic health of our service territories or variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, such as self-generation and distributed generation technologies;
Federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs;
Advancements in technology;
Additional competition in electric and natural gas markets and continued industry consolidation;
The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes, including extreme weather associated with climate change;
The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the United States electric grid or generating resources;
The ability to obtain the necessary permits and approvals and to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business;
Operational interruptions to our natural gas distribution and transmission activities;
The availability of adequate interstate pipeline transportation capacity and natural gas supply;
The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, operational accidents, information technology failures or other catastrophic events, such as fires, explosions, pandemic health events or other similar occurrences;
The inherent risks associated with the operation of nuclear facilities, including environmental, health, safety, regulatory and financial risks, including the financial stability of third-party service providers;
The timing and extent of changes in commodity prices and interest rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets;
The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations, compliance with debt covenants and conditions and general market and economic conditions;
Credit ratings of the Duke Energy Registrants may be different from what is expected;
Declines in the market prices of equity and fixed-income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds;
Construction and development risks associated with the completion of the Duke Energy Registrants’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner, or at all;
Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants;
The ability to control operation and maintenance costs;
The level of creditworthiness of counterparties to transactions;
The ability to obtain adequate insurance at acceptable costs;
Employee workforce factors, including the potential inability to attract and retain key personnel;



FORWARD-LOOKING STATEMENTS
 


The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);
The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities;
The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;
The impact of United States tax legislation to our financial condition, results of operations or cash flows and our credit ratings;
The impacts from potential impairments of goodwill or equity method investment carrying values; and
The ability to implement our business strategy, including enhancing existing technology systems.
Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



GLOSSARY OF TERMS
 


Glossary of Terms 
The following terms or acronyms used in this Form 10-Q are defined below:
Term or Acronym
Definition
 
 
2013 Settlement
Revised and Restated Stipulation and Settlement Agreement approved in November 2013 among Duke Energy Florida, the Florida OPC and other customer representatives
 
 
2017 Settlement
Second Revised and Restated Settlement Agreement in 2017 among Duke Energy Florida, the Florida OPC and other customer representatives, which replaces and supplants the 2013 Settlement
 
 
ACP
Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion Energy, Inc. and Duke Energy
 
 
ACP pipeline
The approximately 600-mile proposed interstate natural gas pipeline
 
 
AFS
Available for Sale
 
 
AFUDC
Allowance for funds used during construction
 
 
AMI
Advanced Metering Infrastructure
 
 
AMT
Alternative Minimum Tax
 
 
ARO
Asset retirement obligations
 
 
Bison
Bison Insurance Company Limited
 
 
CC
Combined Cycle
 
 
CCR
Coal Combustion Residuals
 
 
CARES Act
Coronavirus Aid, Relief and Economic Security Act
 
 
Citrus County CC
Citrus County Combined Cycle Facility
 
 
Coal Ash Act
North Carolina Coal Ash Management Act of 2014
 
 
the Company
Duke Energy Corporation and its subsidiaries
 
 
Constitution
Constitution Pipeline Company, LLC
 
 
COVID-19
Coronavirus Disease 2019
 
 
CRC
Cinergy Receivables Company, LLC
 
 
Crystal River Unit 3
Crystal River Unit 3 Nuclear Plant
 
 
DEFPF
Duke Energy Florida Project Finance, LLC
 
 
DEFR
Duke Energy Florida Receivables, LLC
 
 
DEPR
Duke Energy Progress Receivables, LLC
 
 
DERF
Duke Energy Receivables Finance Company, LLC
 
 
Duke Energy
Duke Energy Corporation (collectively with its subsidiaries)
 
 
Duke Energy Ohio
Duke Energy Ohio, Inc.
 
 
Duke Energy Progress
Duke Energy Progress, LLC
 
 
Duke Energy Carolinas
Duke Energy Carolinas, LLC
 
 
Duke Energy Florida
Duke Energy Florida, LLC
 
 
Duke Energy Indiana
Duke Energy Indiana, LLC
 
 
Duke Energy Kentucky
Duke Energy Kentucky, Inc.
 
 
Duke Energy Registrants
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
 
 
EDIT
Excess deferred income tax
 
 
EPA
U.S. Environmental Protection Agency
 
 
EPS
Earnings Per Share
 
 
ESP
Electric Security Plan
 
 
ETR
Effective tax rate



GLOSSARY OF TERMS
 


 
 
Exchange Act
Securities Exchange Act of 1934
 
 
FASB
Financial Accounting Standards Board
 
 
FERC
Federal Energy Regulatory Commission
 
 
FPSC
Florida Public Service Commission
 
 
FTR
Financial transmission rights
 
 
GAAP
Generally accepted accounting principles in the U.S.
 
 
GAAP Reported Earnings
Net Income Available to Duke Energy Corporation Common Stockholders
 
 
GAAP Reported EPS
Basic EPS Available to Duke Energy Corporation common stockholders
 
 
GWh
Gigawatt-hours
 
 
IGCC
Integrated Gasification Combined Cycle
 
 
IMR
Integrity Management Rider
 
 
IRP
Integrated Resource Plan
 
 
IRS
Internal Revenue Service
 
 
Investment Trusts
NDTF investments and grantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana
 
 
IURC
Indiana Utility Regulatory Commission
 
 
KPSC
Kentucky Public Service Commission
 
 
LLC
Limited Liability Company
 
MGP
Manufactured gas plant
 
 
MMBtu
Million British Thermal Unit
 
 
MW
Megawatt
 
 
MWh
Megawatt-hour
 
 
NCDEQ
North Carolina Department of Environmental Quality
 
 
NCUC
North Carolina Utilities Commission
 
 
NDTF
Nuclear decommissioning trust funds
 
 
NPNS
Normal purchase/normal sale
 
 
OPEB
Other Post-Retirement Benefit Obligations
 
 
ORS
South Carolina Office of Regulatory Staff
 
 
OTTI
Other-than-temporary impairment
 
 
OVEC
Ohio Valley Electric Corporation
 
 
Piedmont
Piedmont Natural Gas Company, Inc.
 
 
PPA
Purchase Power Agreement
 
 
Progress Energy
Progress Energy, Inc.
 
 
PSCSC
Public Service Commission of South Carolina
 
 
PUCO
Public Utilities Commission of Ohio
 
 
ROU assets
Right-of-use assets
 
 
Subsidiary Registrants
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
 
 
the Tax Act
Tax Cuts and Jobs Act
 
 
TPUC
Tennessee Public Utility Commission
 
 
U.S.
United States
 
 
VIE
Variable Interest Entity
 
 
WACC
Weighted Average Cost of Capital




FINANCIAL STATEMENTS
 


ITEM 1. FINANCIAL STATEMENTS

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
(in millions, except per share amounts)
 
2020

 
2019

Operating Revenues
 
 
 
 
Regulated electric
 
$
5,124

 
$
5,285

Regulated natural gas
 
638

 
728

Nonregulated electric and other
 
187

 
150

Total operating revenues
 
5,949

 
6,163

Operating Expenses
 

 

Fuel used in electric generation and purchased power
 
1,447

 
1,609

Cost of natural gas
 
199

 
327

Operation, maintenance and other
 
1,339

 
1,419

Depreciation and amortization
 
1,130

 
1,089

Property and other taxes
 
345

 
343

Impairment charges
 
2

 

Total operating expenses
 
4,462

 
4,787

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

 
(3
)
Operating Income
 
1,488

 
1,373

Other Income and Expenses
 


 


Equity in earnings of unconsolidated affiliates
 
44

 
43

Other income and expenses, net
 
46

 
115

Total other income and expenses
 
90

 
158

Interest Expense
 
551

 
543

Income Before Income Taxes
 
1,027

 
988

Income Tax Expense
 
137

 
95

Net Income
 
890

 
893

Less: Net Loss Attributable to Noncontrolling Interests
 
(48
)
 
(7
)
Net Income Attributable to Duke Energy Corporation
 
938

 
900

Less: Preferred Dividends
 
39

 

Net Income Available to Duke Energy Corporation Common Stockholders
 
$
899

 
$
900

 
 
 
 
 
Earnings Per Share – Basic and Diluted
 
 
 
 
Net income available to Duke Energy Corporation common stockholders
 
 
 
 
Basic and Diluted
 
$
1.24

 
$
1.24

Weighted average shares outstanding
 
 
 
 
Basic
 
734

 
727

Diluted
 
736

 
727


See Notes to Condensed Consolidated Financial Statements
9



FINANCIAL STATEMENTS
 

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
(in millions)
 
2020

 
2019

Net Income
 
$
890

 
$
893

Other Comprehensive Loss, net of tax(a)
 
 
 
 
Pension and OPEB adjustments
 
1

 

Net unrealized losses on cash flow hedges
 
(81
)
 
(17
)
Reclassification into earnings from cash flow hedges
 
2

 
1

Unrealized gains on available-for-sale securities
 
1

 
4

Other Comprehensive Loss, net of tax
 
(77
)
 
(12
)
Comprehensive Income
 
813

 
881

Less: Comprehensive Loss Attributable to Noncontrolling Interests
 
(62
)
 
(7
)
Comprehensive Income Attributable to Duke Energy
 
875

 
888

Less: Preferred Dividends
 
39

 

Comprehensive Income Available to Duke Energy Corporation Common Stockholders
 
$
836

 
$
888


(a)
Net of income tax impact of approximately $23 million in the first quarter of 2020 and immaterial income tax impact in the first quarter of 2019.



See Notes to Condensed Consolidated Financial Statements
10



FINANCIAL STATEMENTS
 

DUKE ENERGY CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,450

 
$
311

Receivables (net of allowance for doubtful accounts of $28 at 2020 and $22 at 2019)
809

 
1,066

Receivables of VIEs (net of allowance for doubtful accounts of $61 at 2020 and $54 at 2019)
1,828

 
1,994

Inventory
3,324

 
3,232

Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs)
1,770

 
1,796

Other (includes $300 at 2020 and $242 at 2019 related to VIEs)
1,000

 
764

Total current assets
10,181

 
9,163

Property, Plant and Equipment
 
 
 
Cost
149,676

 
147,654

Accumulated depreciation and amortization
(46,599
)
 
(45,773
)
Generation facilities to be retired, net
31

 
246

Net property, plant and equipment
103,108

 
102,127

Other Noncurrent Assets
 
 
 
Goodwill
19,303

 
19,303

Regulatory assets (includes $980 at 2020 and $989 at 2019 related to VIEs)
13,413

 
13,222

Nuclear decommissioning trust funds
7,052

 
8,140

Operating lease right-of-use assets, net
1,633

 
1,658

Investments in equity method unconsolidated affiliates
2,067

 
1,936

Other (includes $87 at 2020 and $110 at 2019 related to VIEs)
3,315

 
3,289

Total other noncurrent assets
46,783

 
47,548

Total Assets
$
160,072

 
$
158,838

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
2,364

 
$
3,487

Notes payable and commercial paper
3,033

 
3,135

Taxes accrued
493

 
392

Interest accrued
571

 
565

Current maturities of long-term debt (includes $216 at 2020 and 2019 related to VIEs)
5,077

 
3,141

Asset retirement obligations
802

 
881

Regulatory liabilities
826

 
784

Other
2,004

 
2,367

Total current liabilities
15,170

 
14,752

Long-Term Debt (includes $3,966 at 2020 and $3,997 at 2019 related to VIEs)
56,311

 
54,985

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
9,321

 
8,878

Asset retirement obligations
12,497

 
12,437

Regulatory liabilities
14,029

 
15,264

Operating lease liabilities
1,414

 
1,432

Accrued pension and other post-retirement benefit costs
919

 
934

Investment tax credits
659

 
624

Other (includes $258 at 2020 and $228 at 2019 related to VIEs)
1,669

 
1,581

Total other noncurrent liabilities
40,508

 
41,150

Commitments and Contingencies


 


Equity
 
 
 
Preferred stock, Series A, $0.001 par value, 40 million depositary shares authorized and outstanding at 2020 and 2019
973

 
973

Preferred stock, Series B, $0.001 par value, 1 million shares authorized and outstanding at 2020 and 2019
989

 
989

Common stock, $0.001 par value, 2 billion shares authorized; 735 million shares outstanding at 2020 and 733 million shares outstanding at 2019
1

 
1

Additional paid-in capital
40,930

 
40,881

Retained earnings
4,221

 
4,108

Accumulated other comprehensive loss
(193
)
 
(130
)
Total Duke Energy Corporation stockholders' equity
46,921

 
46,822

Noncontrolling interests
1,162

 
1,129

Total equity
48,083

 
47,951

Total Liabilities and Equity
$
160,072

 
$
158,838


See Notes to Condensed Consolidated Financial Statements
11



FINANCIAL STATEMENTS
 

DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
890

 
$
893

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
1,301

 
1,238

Equity component of AFUDC
(40
)
 
(31
)
(Gains) Losses on sales of other assets
(1
)
 
3

Impairment charges
2

 

Deferred income taxes
422

 
97

Equity in earnings of unconsolidated affiliates
(44
)
 
(43
)
Payments for asset retirement obligations
(132
)
 
(152
)
Provision for rate refunds
(13
)
 
35

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

 
10

Receivables
466

 
388

Inventory
(92
)
 
(31
)
Other current assets
(131
)
 
98

Increase (decrease) in
 
 
 
Accounts payable
(657
)
 
(636
)
Taxes accrued
113

 
(107
)
Other current liabilities
(455
)
 
(407
)
Other assets
(25
)
 
(162
)
Other liabilities
(50
)
 
46

Net cash provided by operating activities
1,554

 
1,239

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(2,832
)
 
(2,536
)
Contributions to equity method investments
(77
)
 
(94
)
Purchases of debt and equity securities
(1,392
)
 
(860
)
Proceeds from sales and maturities of debt and equity securities
1,347

 
851

Other
(68
)
 
(74
)
Net cash used in investing activities
(3,022
)
 
(2,713
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the:
 
 
 
Issuance of long-term debt
1,954

 
2,737

Issuance of preferred stock

 
974

Issuance of common stock
40

 
13

Payments for the redemption of long-term debt
(292
)
 
(1,201
)
Proceeds from the issuance of short-term debt with original maturities greater than 90 days
1,784

 
135

Payments for the redemption of short-term debt with original maturities greater than 90 days
(17
)
 
(239
)
Notes payable and commercial paper
(198
)
 
(304
)
Contributions from noncontrolling interests
103

 
6

Dividends paid
(707
)
 
(649
)
Other
(74
)
 
(39
)
Net cash provided by financing activities
2,593

 
1,433

Net increase (decrease) in cash, cash equivalents and restricted cash
1,125

 
(41
)
Cash, cash equivalents and restricted cash at beginning of period
573

 
591

Cash, cash equivalents and restricted cash at end of period
$
1,698

 
$
550

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
934

 
$
811

Non-cash dividends
27

 
27


See Notes to Condensed Consolidated Financial Statements
12


FINANCIAL STATEMENTS
 




DUKE ENERGY CORPORATION
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive
 
 
 
 
 
 
 
 
 
 (Loss) Income
 
 
 
 
 
 
 
 
 
 
Net Unrealized

 
Total

 
 
 
 
 
 
 
 
Net

(Losses) Gains

 
Duke Energy

 
 
 
 
Common

 
Additional

 
Losses on

on Available-

Pension and

Corporation

 
 
 
Preferred

Stock

Common

Paid-in

Retained

Cash Flow

for-Sale-

OPEB

Stockholders'

Noncontrolling

Total

(in millions)
Stock

Shares

Stock

Capital

Earnings

Hedges

Securities

Adjustments

Equity

Interests

Equity

Balance at December 31, 2018
$

727

$
1

$
40,795

$
3,113

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

$
17

$
43,834

Net income (loss)




900




900

(7
)
893

Other comprehensive (loss) income





(16
)
4


(12
)

(12
)
Preferred stock, Series A, issuances, net of issuance costs(a)
974








974


974

Common stock issuances, including dividend reinvestment and employee benefits

1


28





28


28

Common stock dividends




(676
)



(676
)

(676
)
Other(b)




23

(6
)
(1
)
(17
)
(1
)
5

4

Balance at March 31, 2019
$
974

728

$
1

$
40,823

$
3,360

$
(36
)
$

$
(92
)
$
45,030

$
15

$
45,045

 
 
 
 
 
 
 
 
 
 
 
 
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)




899




899

(48
)
851

Other comprehensive (loss) income





(65
)
1

1

(63
)
(14
)
(77
)
Common stock issuances, including dividend reinvestment and employee benefits

2


50





50


50

Common stock dividends




(695
)



(695
)

(695
)
Contributions from noncontrolling interest in subsidiaries









103

103

Distributions to noncontrolling interest in subsidiaries









(7
)
(7
)
Other(c)



(1
)
(91
)



(92
)
(1
)
(93
)
Balance at March 31, 2020
$
1,962

735

$
1

$
40,930

$
4,221

$
(116
)
$
4

$
(81
)
$
46,921

$
1,162

$
48,083


(a)
Duke Energy issued 40 million depositary shares of preferred stock, Series A.
(b)
Amounts in Retained Earnings and Accumulated Other Comprehensive (Loss) Income primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
(c)
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.

See Notes to Condensed Consolidated Financial Statements
13



FINANCIAL STATEMENTS
 


DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

Operating Revenues
$
1,748

 
$
1,744

Operating Expenses
 
 
 
Fuel used in electric generation and purchased power
453

 
472

Operation, maintenance and other
386

 
440

Depreciation and amortization
343

 
317

Property and other taxes
81

 
80

Impairment charges
2

 

Total operating expenses
1,265

 
1,309

Gains on Sales of Other Assets and Other, net
1

 

Operating Income
484

 
435

Other Income and Expenses, net
43

 
31

Interest Expense
123

 
110

Income Before Income Taxes
404

 
356

Income Tax Expense
65

 
63

Net Income and Comprehensive Income
$
339

 
$
293


See Notes to Condensed Consolidated Financial Statements
14



FINANCIAL STATEMENTS
 

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
16

 
$
18

Receivables (net of allowance for doubtful accounts of $3 at 2020 and 2019)
212

 
324

Receivables of VIEs (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019)
616

 
642

Receivables from affiliated companies
87

 
114

Notes receivable from affiliated companies
436

 

Inventory
1,067

 
996

Regulatory assets
524

 
550

Other
31

 
21

Total current assets
2,989

 
2,665

Property, Plant and Equipment
 
 
 
Cost
49,534

 
48,922

Accumulated depreciation and amortization
(16,884
)
 
(16,525
)
Net property, plant and equipment
32,650

 
32,397

Other Noncurrent Assets
 
 
 
Regulatory assets
3,427

 
3,360

Nuclear decommissioning trust funds
3,717

 
4,359

Operating lease right-of-use assets, net
132

 
123

Other
1,136

 
1,149

Total other noncurrent assets
8,412

 
8,991

Total Assets
$
44,051

 
$
44,053

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
605

 
$
954

Accounts payable to affiliated companies
225

 
210

Notes payable to affiliated companies

 
29

Taxes accrued
132

 
46

Interest accrued
144

 
115

Current maturities of long-term debt
457

 
458

Asset retirement obligations
197

 
206

Regulatory liabilities
275

 
255

Other
479

 
611

Total current liabilities
2,514


2,884

Long-Term Debt
12,050

 
11,142

Long-Term Debt Payable to Affiliated Companies
300

 
300

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
3,968

 
3,921

Asset retirement obligations
5,552

 
5,528

Regulatory liabilities
5,766

 
6,423

Operating lease liabilities
112

 
102

Accrued pension and other post-retirement benefit costs
82

 
84

Investment tax credits
230

 
231

Other
640

 
627

Total other noncurrent liabilities
16,350

 
16,916

Commitments and Contingencies


 


Equity
 
 
 
Member's equity
12,844

 
12,818

Accumulated other comprehensive loss
(7
)
 
(7
)
Total equity
12,837

 
12,811

Total Liabilities and Equity
$
44,051

 
$
44,053


See Notes to Condensed Consolidated Financial Statements
15



FINANCIAL STATEMENTS
 

DUKE ENERGY CAROLINAS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
339

 
$
293

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including amortization of nuclear fuel)
414

 
388

Equity component of AFUDC
(14
)
 
(9
)
Gains on sales of other assets
(1
)
 

Impairment charges
2

 

Deferred income taxes
22

 
64

Payments for asset retirement obligations
(41
)
 
(65
)
Provision for rate refunds

 
19

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

 
1

Receivables
156

 
124

Receivables from affiliated companies
27

 
94

Inventory
(72
)
 
(59
)
Other current assets
96

 
(35
)
Increase (decrease) in
 
 
 
Accounts payable
(253
)
 
(266
)
Accounts payable to affiliated companies
15

 
18

Taxes accrued
87

 
(91
)
Other current liabilities
(108
)
 
(70
)
Other assets
(60
)
 
(31
)
Other liabilities
(11
)
 
(7
)
Net cash provided by operating activities
598

 
368

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(724
)
 
(721
)
Purchases of debt and equity securities
(607
)
 
(405
)
Proceeds from sales and maturities of debt and equity securities
607

 
405

Notes receivable from affiliated companies
(436
)
 

Other
(18
)
 
(9
)
Net cash used in investing activities
(1,178
)
 
(730
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
910

 
25

Payments for the redemption of long-term debt
(2
)
 
(1
)
Notes payable to affiliated companies
(29
)
 
306

Distributions to parent
(300
)
 

Other
(1
)
 
(1
)
Net cash provided by financing activities
578

 
329

Net decrease in cash and cash equivalents
(2
)
 
(33
)
Cash and cash equivalents at beginning of period
18

 
33

Cash and cash equivalents at end of period
$
16

 
$

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
254

 
$
221


See Notes to Condensed Consolidated Financial Statements
16



FINANCIAL STATEMENTS
 

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

 
Net Losses on

 
Total

(in millions)
Equity

 
Cash Flow Hedges

 
Equity

Balance at December 31, 2018
$
11,689

 
$
(6
)
 
$
11,683

Net income
293

 

 
293

Other

 
(1
)
 
(1
)
Balance at March 31, 2019
$
11,982

 
$
(7
)
 
$
11,975

 
 
 
 
 
 
Balance at December 31, 2019
$
12,818

 
$
(7
)
 
$
12,811

Net income
339

 

 
339

Distributions to parent
(300
)
 

 
(300
)
Other(a)
(13
)
 

 
(13
)
Balance at March 31, 2020
$
12,844

 
$
(7
)
 
$
12,837


(a)
Amounts primarily represent impacts due to implementation of a new accounting standard related to Current Estimated Credit Losses. See Note 1 for additional discussion.

See Notes to Condensed Consolidated Financial Statements
17



FINANCIAL STATEMENTS
 


PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

Operating Revenues
$
2,422

 
$
2,572

Operating Expenses
 
 
 
Fuel used in electric generation and purchased power
763

 
925

Operation, maintenance and other
554

 
567

Depreciation and amortization
452

 
455

Property and other taxes
135

 
137

Total operating expenses
1,904

 
2,084

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

Operating Income
517

 
488

Other Income and Expenses, net
32

 
31

Interest Expense
206

 
219

Income Before Income Taxes
343

 
300

Income Tax Expense
60

 
52

Net Income
283

 
248

Less: Net Loss Attributable to Noncontrolling Interests

 
(1
)
Net Income Attributable to Parent
$
283

 
$
249

 
 
 
 
Net Income
$
283

 
$
248

Other Comprehensive Income, net of tax
 
 
 
Pension and OPEB adjustments

 
1

Net unrealized gains on cash flow hedges
1

 
2

Unrealized gains on available-for-sale securities
1

 

Other Comprehensive Income, net of tax
2


3

Comprehensive Income
285

 
251

Less: Comprehensive Loss Attributable to Noncontrolling Interests

 
(1
)
Comprehensive Income Attributable to Parent
$
285


$
252



See Notes to Condensed Consolidated Financial Statements
18



FINANCIAL STATEMENTS
 

PROGRESS ENERGY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
52

 
$
48

Receivables (net of allowance for doubtful accounts of $8 at 2020 and $7 at 2019)
159

 
220

Receivables of VIEs (net of allowance for doubtful accounts of $12 at 2020 and $9 at 2019)
745

 
830

Receivables from affiliated companies
49

 
76

Notes receivable from affiliated companies

 
164

Inventory
1,463

 
1,423

Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs)
954

 
946

Other (includes $13 at 2020 and $39 at 2019 related to VIEs)
196

 
210

Total current assets
3,618

 
3,917

Property, Plant and Equipment
 
 
 
Cost
55,788

 
55,070

Accumulated depreciation and amortization
(17,461
)
 
(17,159
)
Generation facilities to be retired, net
31

 
246

Net property, plant and equipment
38,358

 
38,157

Other Noncurrent Assets
 
 
 
Goodwill
3,655

 
3,655

Regulatory assets (includes $980 at 2020 and $989 at 2019 related to VIEs)
6,489

 
6,346

Nuclear decommissioning trust funds
3,335

 
3,782

Operating lease right-of-use assets, net
762

 
788

Other
1,121

 
1,049

Total other noncurrent assets
15,362

 
15,620

Total Assets
$
57,338

 
$
57,694

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
730

 
$
1,104

Accounts payable to affiliated companies
329

 
310

Notes payable to affiliated companies
2,300

 
1,821

Taxes accrued
117

 
46

Interest accrued
214

 
228

Current maturities of long-term debt (includes $54 at 2020 and 2019 related to VIEs)
1,828

 
1,577

Asset retirement obligations
421

 
485

Regulatory liabilities
347

 
330

Other
821

 
902

Total current liabilities
7,107

 
6,803

Long-Term Debt (includes $1,603 at 2020 and $1,632 at 2019 related to VIEs)
17,377

 
17,907

Long-Term Debt Payable to Affiliated Companies
150

 
150

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
4,537

 
4,462

Asset retirement obligations
6,020

 
5,986

Regulatory liabilities
4,708

 
5,225

Operating lease liabilities
678

 
697

Accrued pension and other post-retirement benefit costs
480

 
488

Other
404

 
383

Total other noncurrent liabilities
16,827

 
17,241

Commitments and Contingencies

 

Equity
 
 
 
Common Stock, $0.01 par value, 100 shares authorized and outstanding at 2020 and 2019

 

Additional paid-in capital
9,143

 
9,143

Retained earnings
6,747

 
6,465

Accumulated other comprehensive loss
(16
)
 
(18
)
Total Progress Energy, Inc. stockholders' equity
15,874

 
15,590

Noncontrolling interests
3

 
3

Total equity
15,877

 
15,593

Total Liabilities and Equity
$
57,338

 
$
57,694


See Notes to Condensed Consolidated Financial Statements
19



FINANCIAL STATEMENTS
 

PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
283

 
$
248

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion (including amortization of nuclear fuel)
552

 
546

Equity component of AFUDC
(14
)
 
(15
)
Losses on sales of other assets
1

 

Deferred income taxes
80

 
82

Payments for asset retirement obligations
(79
)
 
(75
)
Provision for rate refunds
2

 
6

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

 
1

Receivables
149

 
187

Receivables from affiliated companies
27

 
122

Inventory
(40
)
 
(18
)
Other current assets
43

 
35

Increase (decrease) in
 
 
 
Accounts payable
(211
)
 
(196
)
Accounts payable to affiliated companies
19

 
(94
)
Taxes accrued
71

 
26

Other current liabilities
(128
)
 
(196
)
Other assets
(41
)
 
(111
)
Other liabilities
(56
)
 
(7
)
Net cash provided by operating activities
659

 
541

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(972
)
 
(1,012
)
Purchases of debt and equity securities
(651
)
 
(409
)
Proceeds from sales and maturities of debt and equity securities
643

 
405

Notes receivable from affiliated companies
164

 
(31
)
Other
(39
)
 
(45
)
Net cash used in investing activities
(855
)
 
(1,092
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
1,295

Payments for the redemption of long-term debt
(283
)
 
(1,132
)
Notes payable to affiliated companies
479

 
370

Other
(1
)
 
1

Net cash provided by financing activities
195

 
534

Net decrease in cash, cash equivalents and restricted cash
(1
)
 
(17
)
Cash, cash equivalents and restricted cash at beginning of period
126

 
112

Cash, cash equivalents and restricted cash at end of period
$
125

 
$
95

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
310

 
$
310


See Notes to Condensed Consolidated Financial Statements
20


FINANCIAL STATEMENTS
 




PROGRESS ENERGY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
 
 
Net

 
Net Unrealized

 
 
 
Total Progress

 
 
 
 
 
Additional

 
 
 
Losses on

 
Losses on

 
Pension and

 
Energy, Inc.

 
 
 
 
 
Paid-in

 
Retained

 
Cash Flow

 
Available-for-

 
OPEB

 
Stockholders'

 
Noncontrolling

 
Total

 
Capital

 
Earnings

 
Hedges

 
Sale Securities

 
Adjustments

 
Equity

 
Interests

 
Equity

Balance at December 31, 2018
$
9,143

 
$
5,131

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

 
$
3

 
$
14,257

Net income (loss)

 
249

 

 

 

 
249

 
(1
)
 
248

Other comprehensive income

 

 
2

 

 
1

 
3

 

 
3

Other(a)

 
6

 
(4
)
 

 
(2
)
 

 

 

Balance at March 31, 2019
$
9,143


$
5,386


$
(14
)

$
(1
)

$
(8
)
 
$
14,506


$
2


$
14,508

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
9,143

 
$
6,465

 
$
(10
)
 
$
(1
)
 
$
(7
)
 
$
15,590

 
$
3

 
$
15,593

Net income

 
283

 

 

 

 
283

 

 
283

Other comprehensive income

 

 
1

 
1

 

 
2

 

 
2

Other

 
(1
)
 

 

 

 
(1
)
 

 
(1
)
Balance at March 31, 2020
$
9,143


$
6,747


$
(9
)

$


$
(7
)
 
$
15,874


$
3


$
15,877

(a)
Amounts in Retained Earnings and Accumulated Other Comprehensive Loss primarily represent impacts to accumulated other comprehensive income due to implementation of a new accounting standard related to Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

See Notes to Condensed Consolidated Financial Statements
21



FINANCIAL STATEMENTS
 


DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

Operating Revenues
$
1,338

 
$
1,484

Operating Expenses
 
 
 
Fuel used in electric generation and purchased power
405

 
515

Operation, maintenance and other
305

 
335

Depreciation and amortization
287

 
290

Property and other taxes
47

 
44

Total operating expenses
1,044

 
1,184

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

Operating Income
293

 
300

Other Income and Expenses, net
22

 
24

Interest Expense
69

 
77

Income Before Income Taxes
246

 
247

Income Tax Expense
42

 
44

Net Income and Comprehensive Income
$
204

 
$
203



See Notes to Condensed Consolidated Financial Statements
22



FINANCIAL STATEMENTS
 

DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
32

 
$
22

Receivables (net of allowance for doubtful accounts of $2 at 2020 and $3 at 2019)
77

 
123

Receivables of VIEs (net of allowance for doubtful accounts of $7 at 2020 and $5 at 2019)
410

 
489

Receivables from affiliated companies
50

 
52

Inventory
956

 
934

Regulatory assets
503

 
526

Other
48

 
60

Total current assets
2,076

 
2,206

Property, Plant and Equipment
 
 
 
Cost
34,898

 
34,603

Accumulated depreciation and amortization
(12,114
)
 
(11,915
)
Generation facilities to be retired, net
31

 
246

Net property, plant and equipment
22,815

 
22,934

Other Noncurrent Assets
 
 
 
Regulatory assets
4,392

 
4,152

Nuclear decommissioning trust funds
2,644

 
3,047

Operating lease right-of-use assets, net
377

 
387

Other
682

 
651

Total other noncurrent assets
8,095

 
8,237

Total Assets
$
32,986

 
$
33,377

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
319

 
$
629

Accounts payable to affiliated companies
208

 
203

Notes payable to affiliated companies
229

 
66

Taxes accrued
43

 
17

Interest accrued
90

 
110

Current maturities of long-term debt
1,006

 
1,006

Asset retirement obligations
421

 
485

Regulatory liabilities
263

 
236

Other
429

 
478

Total current liabilities
3,008

 
3,230

Long-Term Debt
7,903

 
7,902

Long-Term Debt Payable to Affiliated Companies
150

 
150

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
2,446

 
2,388

Asset retirement obligations
5,442

 
5,408

Regulatory liabilities
3,790

 
4,232

Operating lease liabilities
344

 
354

Accrued pension and other post-retirement benefit costs
235

 
238

Investment tax credits
135

 
137

Other
83

 
92

Total other noncurrent liabilities
12,475

 
12,849

Commitments and Contingencies

 

Equity
 
 
 
Member's Equity
9,450

 
9,246

Total Liabilities and Equity
$
32,986

 
$
33,377


See Notes to Condensed Consolidated Financial Statements
23



FINANCIAL STATEMENTS
 

DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
204

 
$
203

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including amortization of nuclear fuel)
331

 
336

Equity component of AFUDC
(10
)
 
(14
)
Losses on sales of other assets
1

 

Deferred income taxes
43

 
33

Payments for asset retirement obligations
(75
)
 
(68
)
Provision for rate refunds
2

 
6

(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
(2
)
 
(3
)
Receivables
133

 
87

Receivables from affiliated companies
2

 
(5
)
Inventory
(22
)
 
(5
)
Other current assets
54

 
96

Increase (decrease) in
 
 
 
Accounts payable
(220
)
 
(196
)
Accounts payable to affiliated companies
5

 
(57
)
Taxes accrued
26

 
(4
)
Other current liabilities
(73
)
 
(109
)
Other assets
(51
)
 
(47
)
Other liabilities
(8
)
 
(7
)
Net cash provided by operating activities
340

 
246

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(466
)
 
(548
)
Purchases of debt and equity securities
(550
)
 
(315
)
Proceeds from sales and maturities of debt and equity securities
540

 
308

Notes receivable from affiliated companies

 
(38
)
Other
(16
)
 
(20
)
Net cash used in investing activities
(492
)
 
(613
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
1,270

Payments for the redemption of long-term debt
(1
)
 
(601
)
Notes payable to affiliated companies
163

 
(294
)
Other

 
(1
)
Net cash provided by financing activities
162

 
374

Net increase in cash and cash equivalents
10

 
7

Cash and cash equivalents at beginning of period
22

 
23

Cash and cash equivalents at end of period
$
32

 
$
30

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
87

 
$
117


See Notes to Condensed Consolidated Financial Statements
24



FINANCIAL STATEMENTS
 

DUKE ENERGY PROGRESS, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Member's
(in millions)
Equity
Balance at December 31, 2018
$
8,441

Net income
203

Balance at March 31, 2019
$
8,644

 
 
Balance at December 31, 2019
$
9,246

Net income
204

Balance at March 31, 2020
$
9,450



See Notes to Condensed Consolidated Financial Statements
25



FINANCIAL STATEMENTS
 


DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

Operating Revenues
$
1,080

 
$
1,086

Operating Expenses
 
 
 
Fuel used in electric generation and purchased power
358

 
410

Operation, maintenance and other
245

 
230

Depreciation and amortization
165

 
165

Property and other taxes
88

 
93

Total operating expenses
856

 
898

Operating Income
224

 
188

Other Income and Expenses, net
10

 
13

Interest Expense
84

 
82

Income Before Income Taxes
150

 
119

Income Tax Expense
30

 
23

Net Income
$
120

 
$
96

Other Comprehensive Income, net of tax


 


Unrealized gains on available-for-sale securities
1

 
1

Comprehensive Income
$
121


$
97



See Notes to Condensed Consolidated Financial Statements
26



FINANCIAL STATEMENTS
 

DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
12

 
$
17

Receivables (net of allowance for doubtful accounts of $6 at 2020 and $3 at 2019)
80

 
96

Receivables of VIEs (net of allowance for doubtful accounts of $5 at 2020 and $4 at 2019)
335

 
341

Notes receivable from affiliated companies

 
173

Inventory
508

 
489

Regulatory assets (includes $53 at 2020 and $52 at 2019 related to VIEs)
451

 
419

Other (includes $13 at 2020 and $39 at 2019 related to VIEs)
37

 
58

Total current assets
1,423

 
1,593

Property, Plant and Equipment
 
 
 
Cost
20,880

 
20,457

Accumulated depreciation and amortization
(5,339
)
 
(5,236
)
Net property, plant and equipment
15,541

 
15,221

Other Noncurrent Assets
 
 
 
Regulatory assets (includes $980 at 2020 and $989 at 2019 related to VIEs)
2,097

 
2,194

Nuclear decommissioning trust funds
691

 
734

Operating lease right-of-use assets, net
386

 
401

Other
329

 
311

Total other noncurrent assets
3,503

 
3,640

Total Assets
$
20,467

 
$
20,454

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
411

 
$
474

Accounts payable to affiliated companies
111

 
131

Notes payable to affiliated companies
305

 

Taxes accrued
74

 
43

Interest accrued
79

 
75

Current maturities of long-term debt (includes $54 at 2020 and 2019 related to VIEs)
322

 
571

Regulatory liabilities
84

 
94

Other
383

 
415

Total current liabilities
1,769

 
1,803

Long-Term Debt (includes $1,278 at 2020 and $1,307 at 2019 related to VIEs)
7,384

 
7,416

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
2,192

 
2,179

Asset retirement obligations
578

 
578

Regulatory liabilities
918

 
993

Operating lease liabilities
334

 
343

Accrued pension and other post-retirement benefit costs
214

 
218

Other
169

 
136

Total other noncurrent liabilities
4,405

 
4,447

Commitments and Contingencies

 

Equity
 
 
 
Member's equity
6,909

 
6,789

Accumulated other comprehensive loss

 
(1
)
Total equity
6,909

 
6,788

Total Liabilities and Equity
$
20,467

 
$
20,454


See Notes to Condensed Consolidated Financial Statements
27



FINANCIAL STATEMENTS
 

DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
120

 
$
96

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
219

 
207

Equity component of AFUDC
(4
)
 
(1
)
Deferred income taxes
34

 
45

Payments for asset retirement obligations
(5
)
 
(7
)
(Increase) decrease in
 
 
 
Net realized and unrealized mark-to-market and hedging transactions
3

 
2

Receivables
15

 
55

Receivables from affiliated companies

 
(6
)
Inventory
(19
)
 
(13
)
Other current assets
7

 
(35
)
Increase (decrease) in
 
 
 
Accounts payable
11

 

Accounts payable to affiliated companies
(20
)
 
(62
)
Taxes accrued
31

 
20

Other current liabilities
(58
)
 
(84
)
Other assets
13

 
(63
)
Other liabilities
(46
)
 
(1
)
Net cash provided by operating activities
301

 
153

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(506
)
 
(422
)
Purchases of debt and equity securities
(101
)
 
(95
)
Proceeds from sales and maturities of debt and equity securities
103

 
97

Notes receivable from affiliated companies
173

 

Other
(23
)
 
(25
)
Net cash used in investing activities
(354
)
 
(445
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
25

Payments for the redemption of long-term debt
(282
)
 
(81
)
Notes payable to affiliated companies
305

 
291

Other
(1
)
 
2

Net cash provided by financing activities
22

 
237

Net decrease in cash, cash equivalents and restricted cash
(31
)
 
(55
)
Cash, cash equivalents and restricted cash at beginning of period
56

 
75

Cash, cash equivalents and restricted cash at end of period
$
25

 
$
20

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
223

 
$
193


See Notes to Condensed Consolidated Financial Statements
28



FINANCIAL STATEMENTS
 

DUKE ENERGY FLORIDA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
 
Accumulated
 
 
 
 
 
Other
 
 
 
 
 
Comprehensive
 
 
 
 
 
Income (Loss)
 
 
 
 
 
Net Unrealized

 
 
 
 
 
Gains on

 
 
 
Member's

 
Available-for-Sale

 
Total

(in millions)
Equity

 
Securities

 
Equity

Balance at December 31, 2018
$
6,097

 
$
(2
)
 
$
6,095

Net income
96

 

 
96

Other comprehensive income

 
1

 
1

Balance at March 31, 2019
$
6,193

 
$
(1
)
 
$
6,192

 
 
 
 
 
 
Balance at December 31, 2019
$
6,789

 
$
(1
)
 
$
6,788

Net income
120

 

 
120

Other comprehensive income

 
1

 
1

Balance at March 31, 2020
$
6,909

 
$

 
$
6,909




See Notes to Condensed Consolidated Financial Statements
29



FINANCIAL STATEMENTS
 


DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020


2019

Operating Revenues
 
 
 
Regulated electric
$
346

 
$
355

Regulated natural gas
152

 
176

Total operating revenues
498

 
531

Operating Expenses
 
 
 
Fuel used in electric generation and purchased power
87

 
93

Cost of natural gas
37

 
54

Operation, maintenance and other
123

 
132

Depreciation and amortization
68

 
64

Property and other taxes
83

 
84

Total operating expenses
398

 
427

Operating Income
100

 
104

Other Income and Expenses, net
3

 
9

Interest Expense
24

 
30

Income Before Income Taxes
79

 
83

Income Tax Expense
14

 
14

Net Income and Comprehensive Income
$
65

 
$
69



See Notes to Condensed Consolidated Financial Statements
30



FINANCIAL STATEMENTS
 

DUKE ENERGY OHIO, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
14

 
$
17

Receivables (net of allowance for doubtful accounts of $5 at 2020 and $4 at 2019)
84

 
84

Receivables from affiliated companies
52

 
92

Inventory
121

 
135

Regulatory assets
33

 
49

Other
11

 
21

Total current assets
315

 
398

Property, Plant and Equipment
 
 
 
Cost
10,401

 
10,241

Accumulated depreciation and amortization
(2,883
)
 
(2,843
)
Net property, plant and equipment
7,518

 
7,398

Other Noncurrent Assets
 
 
 
Goodwill
920

 
920

Regulatory assets
567

 
549

Operating lease right-of-use assets, net
21

 
21

Other
56

 
52

Total other noncurrent assets
1,564

 
1,542

Total Assets
$
9,397

 
$
9,338

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
227

 
$
288

Accounts payable to affiliated companies
68

 
68

Notes payable to affiliated companies
399

 
312

Taxes accrued
170

 
219

Interest accrued
30

 
30

Asset retirement obligations
3

 
1

Regulatory liabilities
66

 
64

Other
68

 
75

Total current liabilities
1,031

 
1,057

Long-Term Debt
2,595

 
2,594

Long-Term Debt Payable to Affiliated Companies
25

 
25

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
942

 
922

Asset retirement obligations
78

 
79

Regulatory liabilities
760

 
763

Operating lease liabilities
20

 
21

Accrued pension and other post-retirement benefit costs
101

 
100

Other
97

 
94

Total other noncurrent liabilities
1,998

 
1,979

Commitments and Contingencies
 
 
 
Equity
 
 
 
Common Stock, $8.50 par value, 120 million shares authorized; 90 million shares outstanding at 2020 and 2019
762

 
762

Additional paid-in capital
2,776

 
2,776

Retained earnings
210

 
145

Total equity
3,748

 
3,683

Total Liabilities and Equity
$
9,397

 
$
9,338


See Notes to Condensed Consolidated Financial Statements
31



FINANCIAL STATEMENTS
 

DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
65

 
$
69

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
69

 
65

Equity component of AFUDC
(1
)
 
(3
)
Deferred income taxes
14

 
20

Payments for asset retirement obligations

 
(1
)
Provision for rate refunds
3

 
4

(Increase) decrease in
 
 
 
Receivables
1

 
5

Receivables from affiliated companies
40

 
35

Inventory
14

 
15

Other current assets
8

 
(6
)
Increase (decrease) in
 
 
 
Accounts payable
(19
)
 
(5
)
Accounts payable to affiliated companies

 
(8
)
Taxes accrued
(49
)
 
(45
)
Other current liabilities
2

 
14

Other assets
(2
)
 
(10
)
Other liabilities
(8
)
 
(4
)
Net cash provided by operating activities
137

 
145

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(217
)
 
(233
)
Notes receivable from affiliated companies

 
(463
)
Other
(10
)
 
(11
)
Net cash used in investing activities
(227
)
 
(707
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt

 
794

Notes payable to affiliated companies
87

 
(236
)
Net cash provided by financing activities
87

 
558

Net decrease in cash and cash equivalents
(3
)
 
(4
)
Cash and cash equivalents at beginning of period
17

 
21

Cash and cash equivalents at end of period
$
14

 
$
17

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
66

 
$
68


See Notes to Condensed Consolidated Financial Statements
32



FINANCIAL STATEMENTS
 

DUKE ENERGY OHIO, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
 
Additional

 
Retained

 
 
 
Common

 
Paid-in

 
Earnings

 
Total

(in millions)
Stock

 
Capital

 
(Deficit)

 
Equity

Balance at December 31, 2018
$
762

 
$
2,776

 
$
(93
)
 
$
3,445

Net income

 

 
69

 
69

Balance at March 31, 2019
$
762

 
$
2,776

 
$
(24
)
 
$
3,514

 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
762

 
$
2,776

 
$
145

 
$
3,683

Net income

 

 
65

 
65

Balance at March 31, 2020
$
762


$
2,776


$
210


$
3,748




See Notes to Condensed Consolidated Financial Statements
33



FINANCIAL STATEMENTS
 


DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

Operating Revenues
$
692

 
$
768

Operating Expenses
 
 
 
Fuel used in electric generation and purchased power
194

 
257

Operation, maintenance and other
186

 
189

Depreciation and amortization
132

 
131

Property and other taxes
22

 
19

Total operating expenses
534

 
596

Losses on Sales of Other Assets and Other, net

 
(3
)
Operating Income
158


169

Other Income and Expenses, net
10

 
19

Interest Expense
43

 
43

Income Before Income Taxes
125


145

Income Tax Expense
26

 
35

Net Income and Comprehensive Income
$
99


$
110



See Notes to Condensed Consolidated Financial Statements
34



FINANCIAL STATEMENTS
 

DUKE ENERGY INDIANA, LLC
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
15

 
$
25

Receivables (net of allowance for doubtful accounts of $3 at 2020 and 2019)
50

 
60

Receivables from affiliated companies
76

 
79

Notes receivable from affiliated companies
543

 

Inventory
538

 
517

Regulatory assets
78

 
90

Other
36

 
60

Total current assets
1,336

 
831

Property, Plant and Equipment
 
 
 
Cost
16,481

 
16,305

Accumulated depreciation and amortization
(5,349
)
 
(5,233
)
Net property, plant and equipment
11,132

 
11,072

Other Noncurrent Assets
 
 
 
Regulatory assets
1,098

 
1,082

Operating lease right-of-use assets, net
57

 
57

Other
214

 
234

Total other noncurrent assets
1,369

 
1,373

Total Assets
$
13,837

 
$
13,276

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
157

 
$
201

Accounts payable to affiliated companies
66

 
87

Notes payable to affiliated companies

 
30

Taxes accrued
81

 
49

Interest accrued
60

 
58

Current maturities of long-term debt
503

 
503

Asset retirement obligations
181

 
189

Regulatory liabilities
46

 
55

Other
92

 
112

Total current liabilities
1,186

 
1,284

Long-Term Debt
3,950

 
3,404

Long-Term Debt Payable to Affiliated Companies
150

 
150

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
1,158

 
1,150

Asset retirement obligations
645

 
643

Regulatory liabilities
1,672

 
1,685

Operating lease liabilities
54

 
55

Accrued pension and other post-retirement benefit costs
148

 
148

Investment tax credits
170

 
164

Other
30

 
18

Total other noncurrent liabilities
3,877

 
3,863

Commitments and Contingencies
 
 
 
Equity
 
 
 
Member's Equity
4,674

 
4,575

Total Liabilities and Equity
$
13,837

 
$
13,276


See Notes to Condensed Consolidated Financial Statements
35



FINANCIAL STATEMENTS
 

DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
99

 
$
110

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
133

 
132

Equity component of AFUDC
(6
)
 
(4
)
Losses on sale of other assets

 
3

Deferred income taxes
16

 
28

Payments for asset retirement obligations
(12
)
 
(11
)
(Increase) decrease in
 
 
 
Receivables
15

 
4

Receivables from affiliated companies
3

 
20

Inventory
(21
)
 
(13
)
Other current assets
25

 
19

Increase (decrease) in
 
 
 
Accounts payable
(13
)
 
8

Accounts payable to affiliated companies
(21
)
 
(11
)
Taxes accrued
43

 
20

Other current liabilities
(27
)
 
(15
)
Other assets
(4
)
 
12

Other liabilities
8

 
6

Net cash provided by operating activities
238

 
308

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(210
)
 
(208
)
Purchases of debt and equity securities
(5
)
 
(6
)
Proceeds from sales and maturities of debt and equity securities
2

 
4

Notes receivable from affiliated companies
(543
)
 

Other
(6
)
 
(11
)
Net cash used in investing activities
(762
)
 
(221
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from the issuance of long-term debt
544

 

Payments for the redemption of long-term debt

 
(60
)
Notes payable to affiliated companies
(30
)
 
(31
)
Net cash provided by (used in) financing activities
514

 
(91
)
Net decrease in cash and cash equivalents
(10
)

(4
)
Cash and cash equivalents at beginning of period
25

 
24

Cash and cash equivalents at end of period
$
15

 
$
20

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
70

 
$
76


See Notes to Condensed Consolidated Financial Statements
36



FINANCIAL STATEMENTS
 

DUKE ENERGY INDIANA, LLC
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Member's
(in millions)
 
Equity
Balance at December 31, 2018
 
$
4,339

Net income
 
110

Balance at March 31, 2019

$
4,449

 
 
 
Balance at December 31, 2019
 
$
4,575

Net income
 
99

Balance at March 31, 2020

$
4,674



See Notes to Condensed Consolidated Financial Statements
37



FINANCIAL STATEMENTS
 


PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

Operating Revenues
$
512

 
$
579

Operating Expenses
 
 
 
Cost of natural gas
162

 
273

Operation, maintenance and other
80

 
80

Depreciation and amortization
45

 
42

Property and other taxes
12

 
12

Total operating expenses
299

 
407

Operating Income
213

 
172

Other Income and Expenses, net
12

 
6

Interest Expense
27

 
22

Income Before Income Taxes
198

 
156

Income Tax Expense
20

 
34

Net Income and Comprehensive Income
$
178

 
$
122


See Notes to Condensed Consolidated Financial Statements
38



FINANCIAL STATEMENTS
 

PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2020

 
December 31, 2019

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
4

 
$

Receivables (net of allowance for doubtful accounts of $9 at 2020 and $6 at 2019)
191

 
241

Receivables from affiliated companies
13

 
10

Inventory
39

 
72

Regulatory assets
96

 
73

Other
13

 
28

Total current assets
356

 
424

Property, Plant and Equipment
 
 
 
Cost
8,653

 
8,446

Accumulated depreciation and amortization
(1,703
)
 
(1,681
)
Net property, plant and equipment
6,950

 
6,765

Other Noncurrent Assets
 
 
 
Goodwill
49

 
49

Regulatory assets
263

 
290

Operating lease right-of-use assets, net
23

 
24

Investments in equity method unconsolidated affiliates
84

 
83

Other
132

 
121

Total other noncurrent assets
551

 
567

Total Assets
$
7,857

 
$
7,756

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
145

 
$
215

Accounts payable to affiliated companies
12

 
3

Notes payable to affiliated companies
486

 
476

Taxes accrued
36

 
24

Interest accrued
32

 
33

Regulatory liabilities
91

 
81

Other
54

 
67

Total current liabilities
856

 
899

Long-Term Debt
2,385

 
2,384

Other Noncurrent Liabilities
 
 
 
Deferred income taxes
742

 
708

Asset retirement obligations
17

 
17

Regulatory liabilities
1,087

 
1,131

Operating lease liabilities
22

 
23

Accrued pension and other post-retirement benefit costs
7

 
3

Other
121

 
148

Total other noncurrent liabilities
1,996

 
2,030

Commitments and Contingencies

 

Equity
 
 
 
Common stock, no par value: 100 shares authorized and outstanding at 2020 and 2019
1,310

 
1,310

Retained earnings
1,310

 
1,133

Total equity
2,620

 
2,443

Total Liabilities and Equity
$
7,857

 
$
7,756


See Notes to Condensed Consolidated Financial Statements
39



FINANCIAL STATEMENTS
 

PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
 
March 31,
(in millions)
2020

 
2019

CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
178

 
$
122

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
46

 
42

Equity component of AFUDC
(5
)
 

Deferred income taxes
12

 
23

Equity in earnings from unconsolidated affiliates
(2
)
 
(2
)
Provision for rate refunds
(18
)
 
7

(Increase) decrease in
 
 
 
Receivables
65

 
27

Receivables from affiliated companies
(3
)
 
12

Inventory
33

 
45

Other current assets
(9
)
 
22

Increase (decrease) in
 
 
 
Accounts payable
(76
)
 
(44
)
Accounts payable to affiliated companies
9

 
(4
)
Taxes accrued
12

 
(49
)
Other current liabilities
(12
)
 
15

Other assets
1

 
(3
)
Other liabilities
(1
)
 
(5
)
Net cash provided by operating activities
230

 
208

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(231
)
 
(209
)
Other
(5
)
 
(2
)
Net cash used in investing activities
(236
)
 
(211
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Notes payable to affiliated companies
10

 
3

Net cash provided by financing activities
10

 
3

Net increase in cash and cash equivalents
4

 

Cash and cash equivalents at beginning of period

 

Cash and cash equivalents at end of period
$
4

 
$

Supplemental Disclosures:
 
 
 
Significant non-cash transactions:
 
 
 
Accrued capital expenditures
$
114

 
$
92


See Notes to Condensed Consolidated Financial Statements
40



FINANCIAL STATEMENTS
 

PIEDMONT NATURAL GAS COMPANY, INC.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Common

 
Retained

 
Total

(in millions)
Stock

 
Earnings

 
Equity

Balance at December 31, 2018
$
1,160

 
$
931

 
$
2,091

Net income

 
122

 
122

Balance at March 31, 2019
$
1,160

 
$
1,053

 
$
2,213

 
 
 
 
 
 
Balance at December 31, 2019
$
1,310

 
$
1,133

 
$
2,443

Net income

 
178

 
178

Other

 
(1
)
 
(1
)
Balance at March 31, 2020
$
1,310

 
$
1,310

 
$
2,620



See Notes to Condensed Consolidated Financial Statements
41




FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION


Index to Combined Notes to Condensed Consolidated Financial Statements
The unaudited notes to the Condensed Consolidated Financial Statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply.
 
Applicable Notes
Registrant
1
 
2
 
3
 
4
 
5
 
6
 
7
 
8
 
9
 
10
 
11
 
12
 
13
 
14
 
15
 
16
Duke Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Energy Carolinas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Progress Energy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Energy Progress
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Energy Florida
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Energy Ohio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duke Energy Indiana
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Piedmont
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tables within the notes may not sum across due to (i) Progress Energy's consolidation of Duke Energy Progress, Duke Energy Florida and other subsidiaries that are not registrants and (ii) subsidiaries that are not registrants but included in the consolidated Duke Energy balances.
1. ORGANIZATION AND BASIS OF PRESENTATION
BASIS OF PRESENTATION
These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for annual financial statements and should be read in conjunction with the Consolidated Financial Statements in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2019.
The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants make any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself.
These Condensed Consolidated Financial Statements, in the opinion of the respective companies’ management, reflect all normal recurring adjustments necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.
In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries or VIEs where the respective Duke Energy Registrants have control. See Note 11 for additional information on VIEs. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities.
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In March 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic, and President Trump proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The COVID-19 pandemic has not had a material financial impact on the Duke Energy Registrants as of March 31, 2020; however, the extent to which the COVID-19 pandemic will impact the Duke Energy Registrants during 2020 and beyond is uncertain at this time. The Duke Energy Registrants are monitoring developments closely. See Notes 3, 5, 11, 12 and 15 for information on COVID-19 and steps taken to mitigate the impacts to our business and customers.
NONCONTROLLING INTEREST
Duke Energy maintains a controlling financial interest in certain less than wholly owned 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 Condensed Consolidated Balance Sheet.

42




FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION


Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the Hypothetical Liquidation at Book Value (HLBV) method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period. Duke Energy has received $103 million for the sale of noncontrolling interests to tax equity members for the three months ended March 31, 2020. Duke Energy allocated approximately $49 million and $7 million of losses to noncontrolling tax equity members utilizing the HLBV method for the three months ended March 31, 2020, and March 31, 2019, respectively.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Duke Energy, Progress Energy and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Note 11 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
December 31, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

Progress

Energy

 
Duke

Progress

Energy

 
Energy

Energy

Florida

 
Energy

Energy

Florida

Current Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,450

$
52

$
12

 
$
311

$
48

$
17

Other
185

13

13

 
222

39

39

Other Noncurrent Assets
 
 
 
 
 
 
 
Other
63

60


 
40

39


Total cash, cash equivalents and restricted cash
$
1,698

$
125

$
25

 
$
573

$
126

$
56


INVENTORY
Provisions for inventory write-offs were not material at March 31, 2020, and December 31, 2019. The components of inventory are presented in the tables below.
 
March 31, 2020
 
 
 
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
$
2,280

 
$
759

 
$
1,018

 
$
678

 
$
340

 
$
83

 
$
319

 
$
5

Coal
742

 
268

 
246

 
167

 
79

 
10

 
218

 

Natural gas, oil and other fuel
302

 
40

 
199

 
111

 
89

 
28

 
1

 
34

Total inventory
$
3,324

 
$
1,067

 
$
1,463

 
$
956

 
$
508

 
$
121

 
$
538

 
$
39

 
December 31, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Materials and supplies
$
2,297

 
$
768

 
$
1,038

 
$
686

 
$
351

 
$
79

 
$
318

 
$
5

Coal
586

 
187

 
186

 
138

 
48

 
15

 
198

 

Natural gas, oil and other fuel
349

 
41

 
199

 
110

 
90

 
41

 
1

 
67

Total inventory
$
3,232

 
$
996

 
$
1,423

 
$
934

 
$
489

 
$
135

 
$
517

 
$
72


NEW ACCOUNTING STANDARDS
The following new accounting standard was adopted by the Duke Energy Registrants in 2020.

43




FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION


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 new credit loss standard, for allowances for credit losses of trade and other receivables, insurance receivables and financial guarantees. These amounts are included in the Condensed Consolidated Balance Sheets in Receivables, Receivables of VIEs, Other Noncurrent Assets and Other Noncurrent Liabilities. See Notes 4 and 12 for more information.
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:
 
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


The following new accounting standard has been issued but not yet adopted by the Duke Energy Registrants as of March 31, 2020.
Reference Rate Reform. In March 2020, the FASB issued new accounting guidance for reference rate reform. This guidance is elective and provides expedients to facilitate financial reporting for the anticipated transition away from the London Inter-bank Offered Rate (LIBOR) and other interbank reference rates by the end of 2021. The optional expedients are effective for modification of existing contracts or new arrangements executed between March 12, 2020, through December 31, 2022.
Duke Energy has variable-rate debt and manages interest rate risk by entering into financial contracts including interest rate swaps that are generally indexed to LIBOR. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination to fully adapt to a post-LIBOR environment. Duke Energy is assessing these financial arrangements and is evaluating the use of optional expedients outlined in the new accounting guidance. Alternative index provisions are also being assessed and incorporated into new financial arrangements that extend beyond 2021.
2. BUSINESS SEGMENTS
Duke Energy
Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The Electric Utilities and Infrastructure segment primarily includes Duke Energy's regulated electric utilities in the Carolinas, Florida and the Midwest. The Gas Utilities and Infrastructure segment includes Piedmont, Duke Energy's natural gas local distribution companies in Ohio and Kentucky, and Duke Energy's natural gas storage and midstream pipeline investments. The Commercial Renewables segment is primarily comprised of nonregulated utility-scale wind and solar generation assets located throughout the U.S. The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of interest expense on holding company debt, unallocated corporate costs, Duke Energy’s wholly owned captive insurance company, Bison, and Duke Energy's interest in National Methanol Company.

44




FINANCIAL STATEMENTS
BUSINESS SEGMENTS


Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
 
Three Months Ended March 31, 2020
 
Electric

 
Gas

 
 
 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Commercial

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Renewables

 
Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
5,174

 
$
640

 
$
129

 
$
5,943

 
$
6

 
$

 
$
5,949

Intersegment revenues
9

 
24

 

 
33

 
17

 
(50
)
 

Total revenues
$
5,183

 
$
664

 
$
129

 
$
5,976

 
$
23

 
$
(50
)
 
$
5,949

Segment income (loss)(a)
$
705

 
$
249

 
$
57

 
$
1,011

 
$
(112
)
 
$

 
$
899

Add: Noncontrolling interests(b)
 
 
 
 
 
 
 
 
 
 
 
 
(48
)
Add: Preferred stock dividend
 
 
 
 
 
 
 
 
 
 
 
 
39

Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
890

Segment assets
$
134,838

 
$
14,098

 
$
6,184

 
$
155,120

 
$
4,964

 
$
(12
)
 
$
160,072


 
Three Months Ended March 31, 2019
 
Electric

 
Gas

 
 
 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Commercial

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Renewables

 
Segments

 
Other

 
Eliminations

 
Total

Unaffiliated revenues
$
5,321

 
$
732

 
$
106

 
$
6,159

 
$
4

 
$

 
$
6,163

Intersegment revenues
8

 
24

 

 
32

 
17

 
(49
)
 

Total revenues
$
5,329

 
$
756

 
$
106

 
$
6,191

 
$
21

 
$
(49
)
 
$
6,163

Segment income (loss)
$
750

 
$
226

 
$
13

 
$
989

 
$
(89
)
 
$

 
$
900

Add: Noncontrolling interests(b)
 
 
 
 
 
 
 
 
 
 
 
 
(7
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
$
893


(a)
Other includes a $98 million reversal, included in Operations, maintenance and other on the Condensed Consolidated Statements of Operations, of 2018 severance costs due to the partial settlement of the Duke Energy Carolina's 2019 North Carolina rate case. See Note 3 for additional information.
(b)
Includes the allocation of losses to noncontrolling tax equity members. See Note 1 for additional information.
Duke Energy Ohio
Duke Energy Ohio has two reportable segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. The remainder of Duke Energy Ohio's operations is presented as Other.
 
Three Months Ended March 31, 2020
 
Electric

 
Gas

 
Total

 
 
 
 
 
 
 
Utilities and

 
Utilities and

 
Reportable

 
 
 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Segments

 
Other

 
Eliminations

 
Total

Total revenues
$
346

 
$
152

 
$
498

 
$

 
$

 
$
498

Segment income/Net (loss) income
$
30

 
$
36

 
$
66

 
$
(1
)
 
$

 
$
65

Segment assets
$
6,238

 
$
3,135

 
$
9,373

 
$
26

 
$
(2
)
 
$
9,397

 
Three Months Ended March 31, 2019
 
Electric

 
Gas

 
Total

 
 
 
 
 
Utilities and

 
Utilities and

 
Reportable

 
 
 
 
(in millions)
Infrastructure

 
Infrastructure

 
Segments

 
Other

 
Total

Total revenues
$
355

 
$
176

 
$
531

 
$

 
$
531

Segment income/Net (loss) income
$
36

 
$
35

 
$
71

 
$
(2
)
 
$
69


3. REGULATORY MATTERS
RATE-RELATED INFORMATION
The NCUC, PSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.

45




FINANCIAL STATEMENTS
REGULATORY MATTERS


Duke Energy Carolinas and Duke Energy Progress
COVID-19 Filings
North Carolina
On March 10, 2020, Governor Roy Cooper issued Executive Order No. 116 declaring a state of emergency due to the COVID-19 pandemic. In an effort to help mitigate the financial impacts of the COVID-19 pandemic on their customers, on March 19, 2020, Duke Energy Carolinas and Duke Energy Progress filed a request with the NCUC seeking authorization to waive: (1) any late payment charges incurred by a residential or nonresidential customer, effective March 21, 2020; (2) the application of fees for checks returned for insufficient funds for residential and nonresidential customers; (3) the reconnection charge when a residential or nonresidential customer seeks to have service restored for those customers whose service was recently disconnected for nonpayment and to work with customers regarding the other requirements to restore service, including re-establishment of credit; and (4) the fees and charges associated with the use of credit cards or debit cards to pay residential electric utility bills, effective March 21, 2020. The NCUC granted the companies’ request on March 20, 2020.
On March 31, 2020, the governor issued Executive Order No. 124, which, in addition to requiring the steps in the NCUC order noted above, stated that nothing in Executive Order No. 124 shall relieve a customer of its obligation to pay bills for receipt of utility services provided. Executive Order No. 124 remains in effect for 60 days unless otherwise rescinded or replaced with a superseding Executive Order.
On March 31, 2020, the Carolina Utility Customers Association (CUCA) filed a petition with the NCUC to temporarily suspend minimum demand charges for commercial and industrial customers. On April 2, 2020, the NCUC issued an order requiring the North Carolina Public Staff (Public Staff) and Duke Energy Carolinas, Duke Energy Progress and other utilities to file responses. On April 9, 2020, Duke Energy Carolinas and Duke Energy Progress filed responses to CUCA’s petition opposing CUCA’s request. The companies assert that voiding commission-approved tariffs and allowing all commercial and industrial customers on the requested rate schedules to avoid paying a portion of their bills is not legally permissible and would result in these costs unfairly being shifted to other customers that are already paying their respective fair share of similar fixed components. Pursuant to the NCUC’s April 2 order, reply comments were filed by CUCA, the Public Staff and Duke Energy Carolinas and Duke Energy Progress on April 15, 2020. A final order from the NCUC deciding CUCA's request is pending. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
South Carolina
On March 13, 2020, Governor Henry McMaster issued Executive Order No. 2020-08 declaring a state of emergency due to the COVID-19 pandemic. The governor also issued a letter on March 14, 2020, to the ORS Executive Director regarding the suspension of disconnection of essential utility services for nonpayment. On March 16, 2020, citing the governor’s letter, the ORS filed a request asking the PSCSC to grant waivers so that utilities could suspend disconnections of utility services for nonpayment. Duke Energy Carolinas and Duke Energy Progress supported such motion. On March 18, 2020, the PSCSC issued an order approving such waivers, and also approved waivers for regulations related to late fees and reconnect fees. The PSCSC's order also required utilities to track the financial impacts of actions taken pursuant to such waivers for possible reporting to the PSCSC.
On April 30, 2020, the ORS requested the PSCSC grant a waiver of the applicable regulations to allow customers the flexibility to obtain deferred payment plans longer than 6 months for past-due amounts. On May 5, 2020, Duke Energy Carolinas and Duke Energy Progress filed responsive comments stating that while utility bills will remain due, Duke Energy Carolinas and Duke Energy Progress do not plan to immediately reinstitute disconnection upon the expiration of the state of emergency and intend to work through a potential grace period as economic recovery begins. Duke Energy Carolinas and Duke Energy Progress also concurred with the observation of the ORS that reduced usage is impacting the fixed cost recovery and revenue assumptions included in rates. Those costs include not only ongoing operational and financing costs necessary to serve customers, but also the borrowings necessary to support extended payment arrangements that will be an important part of emerging from the COVID-19 pandemic. Duke Energy Carolinas and Duke Energy Progress will continue to track such costs, lost revenues and potential cost savings for future evaluation by the PSCSC.
Additionally, on May 8, 2020, the ORS filed a motion for the PSCSC to solicit comments from utilities and interested stakeholders regarding measures to be taken to mitigate impacts of COVID-19 on utility customers and require recordkeeping. In a detailed motion, the ORS specifically asked the PSCSC to: (1) solicit input from utilities regarding the temporary mitigation measures to address COVID-19; (2) request utilities to inform the PSCSC of the plans utilities have to return to normalized operations; (3) require utilities to track revenue impacts, incremental costs and savings related to COVID-19 and file the findings with the PSCSC on a quarterly basis; and (4) include any other matters that the PSCSC believes should be addressed. The ORS requests that such comments be filed within 30 days of a PSCSC order approving the motion. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Carolinas
2017 North Carolina Rate Case
On August 25, 2017, Duke Energy Carolinas filed an application with the NCUC for a rate increase for retail customers of approximately $647 million, which represented an approximate 13.6% increase in annual base revenues. The request for rate increase was driven by capital investments subsequent to the previous base rate case, including the William States Lee Combined Cycle Facility, grid improvement projects, AMI, investments in customer service technologies, costs of complying with CCR regulations and the Coal Ash Act and recovery of costs related to licensing and development of the William States Lee III Nuclear Station.
On February 28, 2018, Duke Energy Carolinas and the Public Staff filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding. Terms of the settlement included a return on equity of 9.9% and a capital structure of 52% equity and 48% debt.
On June 22, 2018, the NCUC issued an order approving the Stipulation of Partial Settlement and requiring a revenue reduction.

46




FINANCIAL STATEMENTS
REGULATORY MATTERS


On July 20, 2018, the North Carolina Attorney General filed a Notice of Appeal to the North Carolina Supreme Court from the June 22, 2018, Order Accepting Stipulation, Deciding Contested Issues and Requiring Revenue Reduction issued by the NCUC. The Attorney General contends the commission’s order should be reversed and remanded, as it is in excess of the commission’s statutory authority; affected by errors of law; unsupported by competent, material and substantial evidence in view of the entire record as submitted; and arbitrary or capricious. The Sierra Club, North Carolina Sustainable Energy Association, North Carolina Justice Center, North Carolina Housing Coalition, Natural Resource Defense Council and Southern Alliance for Clean Energy also filed Notices of Appeal to the North Carolina Supreme Court. On August 8, 2018, the Public Staff filed a Notice of Cross Appeal to the North Carolina Supreme Court, which contends the commission’s June 22, 2018, order should be reversed and remanded, as it is affected by errors of law, and is unsupported by substantial evidence with regard to the commission’s failure to consider substantial evidence of coal ash related environmental violations. On November 29, 2018, the North Carolina Attorney General's Office filed a motion with the North Carolina Supreme Court requesting the court consolidate the Duke Energy Carolinas and Duke Energy Progress appeals and enter an order adopting the parties’ proposed briefing schedule as set out in the filing. On November 29, 2018, the North Carolina Supreme Court adopted a schedule for briefing set forth in the motion to consolidate the Duke Energy Carolinas and Duke Energy Progress appeals. Appellant briefs were filed on April 26, 2019. The Appellee response briefs were filed on September 25, 2019. Oral arguments before the North Carolina Supreme Court were held on March 11, 2020. Duke Energy Carolinas cannot predict the outcome of this matter.
2019 North Carolina Rate Case
On September 30, 2019, Duke Energy Carolinas filed an application with the NCUC for a net rate increase for retail customers of approximately $291 million, which represented an approximate 6% increase in annual base revenues. The gross rate case revenue increase request was $445 million, which was offset by an EDIT rider of $154 million to return to customers North Carolina and federal EDIT resulting from recent reductions in corporate tax rates. The request for rate increase was driven by major capital investments subsequent to the previous base rate case, coal ash pond closure costs, accelerated coal plant depreciation and deferred 2018 storm costs. Duke Energy Carolinas requested rates be effective no later than August 1, 2020. The NCUC established a procedural schedule with an evidentiary hearing to begin on March 23, 2020. On March 16, 2020, in consideration of public health and safety as a result of the COVID-19 pandemic, Duke Energy Carolinas filed a motion with the NCUC seeking a suspension of the procedural schedule in the rate case, including issuing discovery requests, and postponement of the evidentiary hearing for 60 days. Also on March 16, 2020, the NCUC issued an Order Postponing Hearing and Addressing Procedural Matters, which postponed the evidentiary hearing until further order by the commission.
On March 25, 2020, Duke Energy Carolinas and the Public Staff filed an Agreement and Stipulation of Partial Settlement, which is subject to review and approval of the NCUC, resolving certain issues in the base rate proceeding. Major components of the settlement included:
Removal of deferred storm costs from the rate case;
Filing a petition seeking to securitize the deferred storm costs within 120 days of a commission order in this rate case regarding the reasonableness and prudency of the storm costs;
Agreement of certain assumptions to demonstrate the quantifiable benefits to customers of a securitization financing; and
Agreement on certain accounting matters, including recovery of employee incentives, severance, aviation costs and executive compensation.
On May 6, 2020, Duke Energy Carolinas, Duke Energy Progress and the Public Staff filed a joint motion requesting that the NCUC issue an order scheduling one consolidated evidentiary hearing to consider the companies’ applications for net rate increases. The joint motion suggests, health and safety permitting, that the commission consider the possibility of holding the consolidated hearing in July. If the NCUC grants the joint motion, Duke Energy Carolinas expects the NCUC to issue an order on its net rate increase by the end of the year. Duke Energy Carolinas cannot predict the outcome of this matter.
2018 South Carolina Rate Case
On November 8, 2018, Duke Energy Carolinas filed an application with the PSCSC for a rate increase for retail customers of approximately $168 million, which represented an approximate 10% increase in retail revenues. The request for rate increase was driven by capital investments and environmental compliance progress made by Duke Energy Carolinas since its previous rate case, including the further implementation of Duke Energy Carolinas’ generation modernization program, which consists of retiring, replacing and upgrading generation plants, investments in customer service technologies and continued investments in base work to maintain its transmission and distribution systems. The request included net tax benefits resulting from the Tax Act of $66 million to reflect the change in ongoing tax expense, primarily from the reduction in the federal income tax rate from 35% to 21%. The request also included $46 million to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change and benefits of $17 million from a reduction in North Carolina state income taxes allocable to South Carolina (EDIT Rider).

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Duke Energy Carolinas also requested approval of its proposed Grid Improvement Plan (GIP), adjustments to its Prepaid Advantage Program and a variety of accounting orders related to ongoing costs for environmental compliance, including recovery over a five-year period of $242 million of deferred coal ash related compliance costs, grid investments between rate changes, incremental depreciation expense, a result of new depreciation rates from the depreciation study approved in the 2017 North Carolina Rate Case above, and the balance of development costs associated with the cancellation of the Lee Nuclear Project. Finally, Duke Energy Carolinas sought approval to establish a reserve and accrual for end-of-life nuclear costs for nuclear fuel and materials and supplies. On March 8, 2019, the ORS moved to establish a new and separate hearing docket to review and consider the GIP proposed by Duke Energy Carolinas. Subsequently, on March 12, 2019, the ORS and Duke Energy Carolinas executed a Stipulation resolving the ORS’s motion. The Stipulation provided that costs incurred for the GIP after January 1, 2019, would be deferred with a return, subject to evaluation in a future rate proceeding. The Stipulation was approved by the PSCSC on June 19, 2019. On December 16, 2019, Duke Energy Carolinas and Duke Energy Progress filed a Joint Petition to Establish an Informational Docket for Review and Consideration of Grid Improvement Plans through which Duke Energy Carolinas and Duke Energy Progress would provide interested stakeholders information on the companies' grid activities. The PSCSC requested parties comment on procedural matters by January 31, 2020; accordingly, various groups filed comments, none of which opposed an informational docket. Duke Energy Carolinas cannot predict the outcome of this matter.
After hearings in March 2019, the PSCSC issued an order on May 21, 2019, which included a return on equity of 9.5% and a capital structure of 53% equity and 47% debt. The order also included the following material components:
Approval of cancellation of the Lee Nuclear Project, with Duke Energy Carolinas maintaining the Combined Operating License;
Approval of recovery of $125 million (South Carolina retail portion) of Lee Nuclear Project development costs (including AFUDC through December 2017) over a 12-year period, but denial of a return on the deferred balance of costs;
Approval of recovery of $96 million of coal ash costs over a five-year period with a return at Duke Energy Carolinas' WACC;
Denial of recovery of $115 million of certain coal ash costs deemed to be related to the Coal Ash Act and incremental to the federal CCR rule;
Approval of a $66 million decrease to base rates to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35% to 21%;
Approval of a $45 million decrease through the EDIT Rider to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change, to be returned in accordance with the Average Rate Assumption Method (ARAM) for protected EDIT, over a 20-year period for unprotected EDIT associated with Property, Plant and Equipment, over a five-year period for unprotected EDIT not associated with Property, Plant and Equipment and over a five-year period for the deferred revenues; and
Approval of a $17 million decrease through the EDIT Rider related to reductions in the North Carolina state income tax rate from 6.9% to 2.5% to be returned over a five-year period.
As a result of the order, revised customer rates were effective June 1, 2019. On May 31, 2019, Duke Energy Carolinas filed a Petition for Rehearing or Reconsideration of that order contending substantial rights of Duke Energy Carolinas were prejudiced by unlawful, arbitrary and capricious rulings by the commission on certain issues presented in the proceeding. On June 19, 2019, the PSCSC issued a Directive denying Duke Energy Carolinas' request to rehear or reconsider the commission's rulings on certain issues presented in the proceeding including coal ash remediation and disposal costs, return on equity and the recovery of a return on deferred operation and maintenance expenses. An order detailing the commission's decision in the Directive was issued on October 18, 2019. Duke Energy Carolinas filed a notice of appeal on November 15, 2019, with the Supreme Court of South Carolina. On November 20, 2019, the South Carolina Energy Users Committee filed a Notice of Appeal and the ORS filed a Notice of Cross Appeal with the Supreme Court of South Carolina. On February 12, 2020, Duke Energy Carolinas and the ORS filed a joint motion to extend briefing schedule deadlines, which was approved by the Supreme Court of South Carolina on February 20, 2020. On March 10, 2020, the ORS filed a consent motion requesting withdrawal of their appeal. Initial briefs were filed on April 21, 2020. Response briefs and reply briefs are due July 6, 2020, and August 11, 2020, respectively. Also on April 21, 2020, the South Carolina Energy User's Committee filed a brief arguing that the PSCSC erred in allowing Duke Energy Carolinas' recovery of costs related to the Lee Nuclear Station. Based on legal analysis and the filing of the appeal, Duke Energy Carolinas has not recorded an adjustment for its deferred coal ash costs. Duke Energy Carolinas cannot predict the outcome of this matter.
Duke Energy Progress
2017 North Carolina Rate Case
On June 1, 2017, Duke Energy Progress filed an application with the NCUC for a rate increase for retail customers of approximately $477 million, which represented an approximate 14.9% increase in annual base revenues. Subsequent to the filing, Duke Energy Progress adjusted the requested amount to $420 million, representing an approximate 13% increase. The request for rate increase was driven by capital investments subsequent to the previous base rate case, costs of complying with CCR regulations and the Coal Ash Act, costs relating to storm recovery, investments in customer service technologies and recovery of costs associated with renewable purchased power.
On November 22, 2017, Duke Energy Progress and the Public Staff filed an Agreement and Stipulation of Partial Settlement resolving certain portions of the proceeding. Terms of the settlement included a return on equity of 9.9% and a capital structure of 52% equity and 48% debt. On February 23, 2018, the NCUC issued an order approving the stipulation.

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On May 15, 2018, the Public Staff filed a Notice of Cross Appeal to the North Carolina Supreme Court from the NCUC's February 23, 2018, order. The Public Staff contends the NCUC’s order should be reversed and remanded, as it is affected by errors of law, and is unsupported by competent, material and substantial evidence in view of the entire record as submitted. The North Carolina Attorney General and Sierra Club also filed Notices of Appeal to the North Carolina Supreme Court from the February 23, 2018, order. On November 29, 2018, the North Carolina Attorney General's Office filed a motion with the North Carolina Supreme Court requesting the court consolidate the Duke Energy Progress and Duke Energy Carolinas appeals and enter an order adopting the parties’ proposed briefing schedule as set out in the filing. Appellant briefs were filed on April 26, 2019. The Appellee response briefs were filed on September 25, 2019. Oral arguments before the North Carolina Supreme Court were held on March 11, 2020. Duke Energy Progress cannot predict the outcome of this matter.
2019 North Carolina Rate Case
On October 30, 2019, Duke Energy Progress filed an application with the NCUC for a net rate increase for retail customers of approximately $464 million, which represented an approximate 12.3% increase in annual base revenues. The gross rate case revenue increase request was $586 million, which was offset by riders of $122 million, primarily an EDIT rider of $120 million to return to customers North Carolina and federal EDIT resulting from recent reductions in corporate tax rates. The request for rate increase was driven by major capital investments subsequent to the previous base rate case, coal ash pond closure costs, accelerated coal plant depreciation and deferred 2018 storm costs. Duke Energy Progress seeks to defer and recover incremental Hurricane Dorian storm costs in this proceeding and requests rates be effective no later than September 1, 2020. As a result of the COVID-19 pandemic, on March 24, 2020, the NCUC suspended the procedural schedule and postponed the previously scheduled evidentiary hearing on this matter indefinitely. On April 7, 2020, the NCUC issued an order partially resuming the procedural schedule requiring intervenors to file direct testimony on April 13, 2020. Public Staff filed supplemental direct testimony on April 23, 2020. Duke Energy Progress filed rebuttal testimony on May 4, 2020. On May 6, 2020, Duke Energy Progress, Duke Energy Carolinas and the Public Staff filed a joint motion requesting that the NCUC issue an order scheduling one consolidated evidentiary hearing to consider the companies’ applications for net rate increases. The joint motion suggests, health and safety permitting, that the commission consider the possibility of holding the consolidated hearing in July. If the NCUC grants the joint motion, Duke Energy Progress expects the NCUC to issue an order on its net rate increase by the end of the year. Duke Energy Progress cannot predict the outcome of this matter.
Hurricane Dorian
Hurricane Dorian reached the Carolinas in September 2019 as a Category 2 hurricane making landfall within Duke Energy Progress’ service territory. Approximately 270,000 North Carolina customers and 30,000 South Carolina customers were impacted by the slow-moving storm that brought high winds, tornadoes and heavy rain. With storm-response mobilization occurring in preparation for the storm and the assistance of mutual aid partners, full restoration was accomplished within four days for all customers able to receive service. Total estimated incremental operation and maintenance expenses incurred to repair and restore the system are approximately $177 million with an additional $4 million in capital investments made for restoration efforts. Approximately $151 million and $179 million of the operation and maintenance expenses are deferred in Regulatory assets within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019, respectively. A request for an accounting order to defer incremental storm costs associated with Hurricane Dorian was included in Duke Energy Progress' October 30, 2019, general rate case filing with the NCUC. Duke Energy Progress cannot predict the outcome of this matter.
On February 7, 2020, a petition was filed with the PSCSC in the 2019 storm deferrals docket requesting deferral of approximately $22 million in operation and maintenance expenses to an existing storm deferral balance previously approved by the PSCSC. The PSCSC voted to approve the request on March 4, 2020, and issued a final order on April 7, 2020.
2018 South Carolina Rate Case
On November 8, 2018, Duke Energy Progress filed an application with the PSCSC for a rate increase for retail customers of approximately $59 million, which represented an approximate 10.3% increase in annual base revenues. The request for rate increase was driven by capital investments and environmental compliance progress made by Duke Energy Progress since its previous rate case, including the further implementation of Duke Energy Progress’ generation modernization program, which consists of retiring, replacing and upgrading generation plants, investments in customer service technologies and continued investments in base work to maintain its transmission and distribution systems. The request included a decrease resulting from the Tax Act of $17 million to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35% to 21%. The request also included $10 million to return EDIT resulting from the federal tax rate change and deferred revenues since January 2018 related to the change (EDIT Rider) and a $12 million increase due to the expiration of EDITs related to reductions in North Carolina state income taxes allocable to South Carolina.
Duke Energy Progress also requested approval of its proposed GIP, approval of a Prepaid Advantage Program and a variety of accounting orders related to ongoing costs for environmental compliance, including recovery over a five-year period of $51 million of deferred coal ash related compliance costs, AMI deployment, grid investments between rate changes and regulatory asset treatment related to the retirement of a generating plant located in Asheville, North Carolina. Finally, Duke Energy Progress sought approval to establish a reserve and accrual for end-of-life nuclear costs for materials and supplies and nuclear fuel. On March 8, 2019, the ORS moved to establish a new and separate hearing docket to review and consider the GIP proposed by Duke Energy Progress. Subsequently, on March 12, 2019, the ORS and Duke Energy Carolinas executed a Stipulation resolving the ORS’s motion, and Duke Energy Progress agreed to the Stipulation, as did other parties in the rate case. The Stipulation provided that costs incurred for the GIP after January 1, 2019, would be deferred with a return, with all costs subject to evaluation in a future rate proceeding, and that Duke Energy Progress would refile for consideration of the GIP in a new docket for resolution by January 1, 2020. The Stipulation was approved by the PSCSC on June 19, 2019. On December 16, 2019, Duke Energy Progress and Duke Energy Carolinas filed a Joint Petition to Establish an Informational Docket for Review and Consideration of Grid Improvement Plans through which Duke Energy Progress and Duke Energy Carolinas would provide interested stakeholders information on the companies' grid activities. The PSCSC requested parties comment on procedural matters by January 31, 2020; accordingly, various groups filed comments, none of which opposed an informational docket. Duke Energy Progress cannot predict the outcome of this matter.

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After hearings in April 2019, the PSCSC issued an order on May 21, 2019, which included a return on equity of 9.5% and a capital structure of 53% equity and 47% debt. The order also included the following material components:
Approval of recovery of $4 million of coal ash costs over a five-year period with a return at Duke Energy Progress' WACC;
Denial of recovery of $65 million of certain coal ash costs deemed to be related to the Coal Ash Act and incremental to the federal CCR rule;
Approval of a $17 million decrease to base rates to reflect the change in ongoing tax expense, primarily the reduction in the federal income tax rate from 35% to 21%;
Approval of a $12 million decrease through the EDIT Tax Savings Rider resulting from the federal tax rate change and deferred revenues since January 2018 related to the change, to be returned in accordance with ARAM for protected EDIT, over a 20-year period for unprotected EDIT associated with Property, Plant and Equipment, over a five-year period for unprotected EDIT not associated with Property, Plant and Equipment and over a three-year period for the deferred revenues; and
Approval of a $12 million increase due to the expiration of EDIT related to reductions in the North Carolina state income tax rate from 6.9% to 2.5%.
As a result of the order, revised customer rates were effective June 1, 2019. On May 31, 2019, Duke Energy Progress filed a Petition for Rehearing or Reconsideration of that order contending substantial rights of Duke Energy Progress were prejudiced by unlawful, arbitrary and capricious rulings by the commission on certain issues presented in the proceeding. On June 19, 2019, the PSCSC issued a Directive denying Duke Energy Progress' request to rehear or reconsider the commission's rulings on certain issues presented in the proceeding including coal ash remediation and disposal costs, return on equity and the recovery of a return on deferred operation and maintenance expenses, but allowing additional litigation-related costs. As a result of the Directive allowing litigation-related costs, customer rates were revised effective July 1, 2019. An order detailing the commission's decision in the Directive was issued on October 18, 2019. Duke Energy Progress filed a notice of appeal on November 15, 2019, with the Supreme Court of South Carolina. The ORS filed a Notice of Cross Appeal on November 20, 2019. On February 12, 2020, Duke Energy Progress and the ORS filed a joint motion to extend briefing schedule deadlines, which was approved by the Supreme Court of South Carolina on February 20, 2020. On March 10, 2020, the ORS filed a consent motion requesting withdrawal of their appeal. Initial briefs were filed on April 21, 2020. Response briefs and reply briefs are due July 6, 2020, and August 11, 2020, respectively. Based on legal analysis and the filing of the appeal, Duke Energy Progress has not recorded an adjustment for its deferred coal ash costs. Duke Energy Progress cannot predict the outcome of this matter.
Western Carolinas Modernization Plan
On November 4, 2015, Duke Energy Progress announced a Western Carolinas Modernization Plan, which included retirement of the existing Asheville coal-fired plant, the construction of two 280‑MW combined-cycle natural gas plants having dual-fuel capability, with the option to build a third natural gas simple cycle unit in 2023 based upon the outcome of initiatives to reduce the region's power demand. The plan also included upgrades to existing transmission lines and substations, installation of solar generation and a pilot battery storage project.
Duke Energy Progress retired the 376-MW Asheville coal-fired plant on January 29, 2020, at which time the net book value, including associated ash basin closure costs, of $214 million was transferred from Generation facilities to be retired, net to Regulatory assets within Current Assets and Other Noncurrent Assets on the Condensed Consolidated Balance Sheets.
On March 28, 2016, the NCUC issued an order approving a Certificate of Public Convenience and Necessity (CPCN) for the new combined-cycle natural gas plants with an estimated cost of $893 million, but required Duke Energy Progress to refile for CPCN approval for the contingent simple cycle unit.
On December 27, 2019, Asheville Combined Cycle Power Block 1 and the common systems that serve both combined cycle units went into commercial operation. Power Block 1 consists of the Unit 5 Combustion Turbine and Unit 6 Steam Turbine Generator (which together form the first combined cycle unit approved in the CPCN Order). Power Block 2 consists of the Unit 7 Combustion Turbine and Unit 8 Steam Turbine Generator (which together form the second combined cycle unit approved in the CPCN Order). Duke Energy Progress placed the Unit 7 Combustion Turbine portion of Power Block 2 into commercial operation in simple-cycle mode on January 15, 2020. The Unit 8 Steam Turbine Generator went into commercial operation on April 5, 2020.
On October 8, 2018, Duke Energy Progress filed an application with the NCUC for a CPCN to construct the Hot Springs Microgrid Solar and Battery Storage Facility. On March 22, 2019, Duke Energy Progress and the Public Staff filed a Joint Proposed Order. On May 10, 2019, the NCUC issued an Order Granting Certificate of Public Convenience and Necessity with Conditions. On November 19, 2019, Duke Energy Progress filed a semiannual progress report for its Hot Springs Microgrid Solar and Battery Storage Facility. As required by an NCUC order issued December 6, 2019, an updated progress report was filed on January 15, 2020. An evidentiary hearing was held on March 5, 2020. Construction is expected to begin in the second quarter of 2020 with commercial operation expected to begin in December 2020.

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Duke Energy Florida
COVID-19 Filings
On March 1, 2020, Governor Ron DeSantis issued Executive Order No. 20-51 directing the State Health Officer of Florida to declare a public health emergency in Florida related to the COVID-19 pandemic. The governor then issued a second Executive Order No. 20-52 on March 9, 2020, in which he declared a state of emergency in Florida and directed the Director of the Division of Emergency Management to implement the state’s Comprehensive Emergency Management Plan. The governor issued additional Executive Orders – Nos. 2020-68, 2020-69, 2020-71, 2020-72 and 2020-83 – in response to the ongoing health care emergency that, among other things, suspended the in-person public meeting requirements for state agencies and local governments and directed the state surgeon general to issue public health advisories to limit potential exposure to COVID-19, advising against gatherings of 10 or more persons. On March 19, 2020, Duke Energy Florida filed a request to modify its tariff to allow it to waive late fees for customers, and on April 6, 2020, the FPSC issued an order approving the request. Duke Energy Florida had already voluntarily waived reconnect fees and credit card fees, and is not disconnecting customers for nonpayment. On April 2, 2020, Duke Energy Florida filed a petition with the FPSC to accelerate a $78 million fuel cost refund to customers in the month of May 2020. Typically, the refund would be made over the course of 2021. The FPSC approved the petition on April 28, 2020.
Storm Restoration Cost Recovery
In October 2018, Duke Energy Florida’s service territory suffered damage when Hurricane Michael made landfall as a Category 5 hurricane with maximum sustained winds of 160 mph. The storm caused catastrophic damage from wind and storm surge, particularly from Panama City Beach to Mexico Beach, resulting in widespread outages and significant damage to transmission and distribution facilities across the central Florida Panhandle. In response to Hurricane Michael, Duke Energy Florida restored service to approximately 72,000 customers. Total estimated incremental operation and maintenance and capital costs are $311 million. Approximately $106 million and $107 million of the costs are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019, respectively. Approximately $205 million and $204 million of costs are included in Regulatory assets within Current Assets and Other Noncurrent Assets on the Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019, respectively, representing recoverable costs under the FPSC’s storm rule and Duke Energy Florida's OATT formula rates.
Duke Energy Florida filed a petition with the FPSC on April 30, 2019, to recover the retail portion of estimated incremental storm restoration costs for Hurricane Michael. On June 11, 2019, the FPSC approved the petition for recovery of estimated incremental storm restoration costs related to Hurricane Michael. The FPSC also approved the stipulation Duke Energy Florida filed, which will allow Duke Energy Florida to use the tax savings resulting from the Tax Act to recover these storm costs in lieu of implementing a storm surcharge. Approved storm costs are currently expected to be fully recovered by approximately year-end 2021. On November 22, 2019, Duke Energy Florida filed a petition for approval of actual retail recoverable storm restoration costs related to Hurricane Michael in the amount of $191 million plus interest. An Order Establishing Procedure was issued on January 30, 2020, and hearings are scheduled to begin September 15, 2020. Duke Energy Florida cannot predict the outcome of this matter.
Hurricane Dorian
In September 2019, Duke Energy Florida’s service territory was threatened by Hurricane Dorian with landfall as a possible Category 5 hurricane. For several days, various forecasts and models predicted significant impact to Duke Energy Florida’s service territory; accordingly, Duke Energy Florida incurred costs to secure necessary resources to be prepared for that potential impact. Although Hurricane Dorian never made landfall in Florida, its effects were still felt, and outages did occur. Preparations were required so that, if Hurricane Dorian had made landfall and impacts had been more severe, Duke Energy Florida would have been prepared to restore its customers’ power in a timely fashion.
On December 19, 2019, Duke Energy Florida filed a petition with the FPSC to recover $169 million, the estimated retail portion of these costs, consistent with the provisions in the 2017 Settlement. On February 24, 2020, the commission approved the request for recovery over a 12-month period with rates effective in March 2020 and subject to true up. The final actual amount will be filed later in 2020 and the FPSC will hold a hearing to determine the final amount of incremental costs. Duke Energy Florida cannot predict the outcome of this matter. Approximately $147 million and $167 million of these costs are included in Regulatory assets within Current Assets and Other Noncurrent Assets on the Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019, respectively, representing recoverable costs under the FPSC’s storm rule and Duke Energy Florida's OATT formula rates.
Solar Base Rate Adjustment
On July 31, 2018, Duke Energy Florida petitioned the FPSC to include in base rates the revenue requirements for its first two solar generation projects, the Hamilton Project and the Columbia Project, as authorized by the 2017 Settlement. The Hamilton Project, which was placed into service on December 22, 2018, had an annual retail revenue requirement of $15 million. At its October 30, 2018, Agenda Conference, the FPSC approved the rate increase related to the Hamilton Project to go into effect beginning with the first billing cycle in January 2019 under its file and suspend authority, and revised customer rates became effective in January 2019. On April 2, 2019, the commission approved both solar projects as filed. The Columbia Project, which has a projected annual revenue requirement of $14 million, was placed in service in March 2020 and revised customer rates became effective in April 2020.
On March 25, 2019, Duke Energy Florida petitioned the FPSC to include in base rates the revenue requirements for its next wave of solar generation projects, the Trenton, Lake Placid and DeBary Solar Projects, as authorized by the 2017 Settlement. The annual retail revenue requirement for the Trenton and Lake Placid Projects was $13 million and $8 million, respectively, and they were placed into service in December 2019 with rates taking effect in January 2020. The DeBary Project has a projected annual revenue requirement of $11 million and a projected in-service date in the second quarter of 2020. The associated rate increase would take place with the first month’s billing cycle after each solar generation project goes into service. On July 22, 2019, the FPSC issued an order approving Duke Energy Florida's request.

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Crystal River Unit 3 Accelerated Decommissioning Filing
On May 29, 2019, Duke Energy Florida entered into a Decommissioning Services Agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station located in Citrus County, Florida, with ADP CR3, LLC and ADP SF1, LLC, each of which is a wholly owned subsidiary of Accelerated Decommissioning Partners, LLC, a joint venture between NorthStar Group Services, Inc. and Orano USA LLC. Closing of this agreement is contingent upon the approval of the U.S. Nuclear Regulatory Commission (NRC) and FPSC. If approved, the decommissioning will be accelerated starting in 2020 and continuing through 2027, rather than the expected time frame under SAFSTOR of starting in 2067 and ending in 2074. Duke Energy Florida expects that the assets of the Nuclear Decommissioning Trust Fund will be sufficient to cover the contract price. On July 10, 2019, Duke Energy Florida petitioned the FPSC for approval of the agreement. On April 1, 2020, the NRC issued an order approving the license transfer application. Following the NRC order, on April 15, 2020, the FPSC issued its Second Order Modifying Order Establishing Procedure in which hearings are scheduled to begin July 7, 2020. Duke Energy Florida cannot predict the outcome of this matter.
Duke Energy Ohio
Duke Energy Ohio COVID-19 Filing
In response to the COVID-19 pandemic, on March 9, 2020, Governor Mike DeWine issued Executive Order No. 2020-01D declaring a state of emergency in the State of Ohio. The PUCO issued an order directing utilities to cease disconnections for nonpayment and waive late payment and reconnection fees and to minimize direct customer contact. The PUCO also directed utilities to maintain flexible payment plans and tariff interpretations to assist customers during this crisis and to seek any regulatory waivers, if necessary. In response, Duke Energy Ohio has ceased all disconnections except for safety-related concerns and is waiving late payment and reconnection fees. On March 19, 2020, Duke Energy Ohio filed its compliance plan with the PUCO and sought waiver of several regulations to minimize direct customer contact.
On April 16, 2020, Duke Energy Ohio filed an application for a Reasonable Arrangement to temporarily lower the minimum bill for demand-metered commercial and industrial customers. The proposal is conditioned on full recovery via Duke Energy Ohio's existing Economic Competitiveness Fund Rider (Rider ECF), which has been used by Duke Energy Ohio in the past for other reasonable arrangements with customers. On April 24, 2020, the Staff of the PUCO filed its recommendation finding Duke Energy Ohio’s application is reasonable and that the PUCO should approve it. Duke Energy Ohio cannot predict the outcome of this matter.
On May 11, 2020, Duke Energy Ohio filed with the PUCO a request seeking deferral of incremental costs incurred, as well as specific miscellaneous lost revenues. The request seeks to use existing bad debts and uncollectible riders already in place for both electric and natural gas operations. Duke Energy Ohio would subsequently file for rider recovery at a later date. Duke Energy Ohio cannot predict the outcome of this matter.
Duke Energy Kentucky COVID-19
In response to the COVID-19 pandemic, on March 6, 2020, Governor Andy Beshear issued Executive Order No. 2020-215 declaring a state of emergency in the Commonwealth of Kentucky. The KPSC issued an order directing utilities to cease disconnections for nonpayment and waive late payment and reconnection fees. The KPSC also directed utilities to maintain flexible payment plans and tariff interpretations to assist customers during this crisis and to seek any regulatory waivers if necessary. Duke Energy Kentucky had already voluntarily ceased all disconnections except for safety-related concerns and was waiving late payment and reconnection fees.
2017 Electric Security Plan Filing
On June 1, 2017, Duke Energy Ohio filed with the PUCO a request for a standard service offer in the form of an ESP. On February 15, 2018, the procedural schedule was suspended to facilitate ongoing settlement discussions. On April 13, 2018, Duke Energy Ohio filed a Motion to consolidate this proceeding with several other cases pending before the PUCO, including, but not limited to, its Electric Base Rate Case. Additionally, on April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed a Stipulation and Recommendation (Stipulation) with the PUCO resolving certain issues in this proceeding. The term of the ESP would be from June 1, 2018, to May 31, 2025, and included continuation of market-based customer rates through competitive procurement processes for generation, continuation and expansion of existing rider mechanisms and proposed new rider mechanisms relating to regulatory mandates, costs incurred to enhance the customer experience and transform the grid and a service reliability rider for vegetation management. The Stipulation established a regulatory model for the next seven years via the approval of the ESP and continued the current model for procuring supply for non-shopping customers, including recovery mechanisms. On December 19, 2018, the PUCO approved the Stipulation without material modification. Several parties, including the Office of the Ohio Consumers' Counsel (OCC), filed applications for rehearing. On February 6, 2019, the PUCO granted the parties rehearing. The PUCO issued its Second Entry on Rehearing on July 17, 2019, upholding its December 19, 2018 order and denying all assignments of error raised by the non-stipulating parties. On October 11, 2019, the OCC filed its Third Application for Rehearing arguing the PUCO erred in finding OCC’s Second Application for Rehearing as improper. Duke Energy Ohio filed its Memorandum Contra on October 21, 2019. The PUCO denied OCC's Third Application for Rehearing as a matter of law. On September 13, 2019, Interstate Gas Supply/Retail Supply Association filed appeals to the Supreme Court of Ohio claiming the PUCO’s order was in error because it approved unsupported charges to competitive suppliers and cost subsidies shopping customers pay for non-shopping customers. On September 16, 2019, the OCC filed an appeal challenging the PUCO’s approval of OVEC recovery through Duke Energy Ohio's Price Stability Rider (Rider PSR) alleging the FPA pre-empts the commission’s jurisdiction and that the record does not support finding that Rider PSR results in a limitation on shopping. Appellant briefs were filed on January 6, 2020. Appellee briefs were scheduled to be filed on March 16, 2020. On March 13, 2020, the Supreme Court of Ohio granted OCC's motion to withdraw its appeal related to OVEC recovery. On April 22, 2020, the Supreme Court of Ohio dismissed all remaining appeals of PUCO's December 19, 2018 order approving the stipulation. The case has been resolved.

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REGULATORY MATTERS


Electric Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application and supporting testimony in March 2017. Duke Energy Ohio requested an estimated annual increase of approximately $15 million and a return on equity of 10.4%. The application also included requests to continue certain current riders and establish new riders. On September 26, 2017, the PUCO staff filed a report recommending a revenue decrease between approximately $18 million and $29 million and a return on equity between 9.22% and 10.24%. On April 13, 2018, Duke Energy Ohio filed a Motion to consolidate this proceeding with several other cases pending before the PUCO. On April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed the Stipulation with the PUCO resolving numerous issues including those in this base rate proceeding. Major components of the Stipulation related to the base distribution rate case included a $19 million decrease in annual base distribution revenue with a return on equity unchanged from the current rate of 9.84% based upon a capital structure of 50.75% equity and 49.25% debt. Upon approval of new rates, Duke Energy Ohio's rider for recovering its initial SmartGrid implementation ended as these costs would be recovered through base rates. The Stipulation also renewed 14 existing riders, some of which were included in the company's ESP, and added two new riders including the Enhanced Service Reliability Rider to recover vegetation management costs not included in base rates, up to $10 million per year (operation and maintenance only) and the PowerForward Rider to recover costs incurred to enhance the customer experience and further transform the grid (operation and maintenance and capital). In addition to the changes in revenue attributable to the Stipulation, Duke Energy Ohio’s capital-related riders, including the Distribution Capital Investments Rider, began to reflect the lower federal income tax rate associated with the Tax Act with updates to customers’ bills beginning April 1, 2018. This change reduced electric revenue by approximately $20 million on an annualized basis. On December 19, 2018, the PUCO approved the Stipulation without material modification. New base rates were implemented effective January 2, 2019. Several parties, including the OCC, filed applications for rehearing. On February 6, 2019, the PUCO granted the parties rehearing. The PUCO issued its Second Entry on Rehearing on July 17, 2019, upholding its December 19, 2018 order and denying all assignments of error raised by the non-stipulating parties. On October 11, 2019, the OCC filed its Third Application for Rehearing arguing the PUCO erred in finding OCC’s Second Application for Rehearing as improper. Duke Energy Ohio filed its Memorandum Contra on October 21, 2019. The PUCO denied OCC's Third Application for Rehearing as a matter of law. On September 13, 2019, Interstate Gas Supply/Retail Supply Association filed appeals to the Supreme Court of Ohio claiming the PUCO’s order was in error because it approved unsupported charges to competitive suppliers and cost subsidies shopping customers pay for non-shopping customers. On September 16, 2019, the OCC filed an appeal challenging the PUCO’s approval of OVEC recovery through Rider PSR alleging the FPA pre-empts the commission’s jurisdiction and that the record does not support finding that Rider PSR results in a limitation on shopping. Appellant briefs were filed on January 6, 2020. Appellee briefs were scheduled to be filed on March 16, 2020. On March 13, 2020, the Supreme Court of Ohio granted OCC's motion to withdraw its appeal related to OVEC recovery. On April 22, 2020, the Supreme Court of Ohio dismissed all remaining appeals of PUCO's December 19, 2018 order approving the stipulation. The case has been resolved.
Ohio Valley Electric Corporation
On March 31, 2017, Duke Energy Ohio filed for approval to adjust its existing Rider PSR to pass through net costs related to its contractual entitlement to capacity and energy from the generating assets owned by OVEC. Duke Energy Ohio sought deferral authority for net costs incurred from April 1, 2017, until the new rates under Rider PSR were put into effect. On April 13, 2018, Duke Energy Ohio filed a Motion to consolidate this proceeding with several other cases currently pending before the PUCO. Also, on April 13, 2018, Duke Energy Ohio, along with certain intervenors, filed a Stipulation with the PUCO resolving numerous issues including those related to Rider PSR. The Stipulation activated Rider PSR for recovery of net costs incurred from January 1, 2018, through May 2025. On December 19, 2018, the PUCO approved the Stipulation without material modification. The PSR rider became effective April 1, 2019. Several parties, including the OCC, filed applications for rehearing. On February 6, 2019, the PUCO granted the parties rehearing. The PUCO issued its Second Entry on Rehearing on July 17, 2019, upholding its December 19, 2018 order and denying all assignments of error raised by the non-stipulating parties. On October 11, 2019, the OCC filed its Third Application for Rehearing arguing the PUCO erred in finding OCC’s Second Application for Rehearing as improper. Duke Energy Ohio filed its Memorandum Contra on October 21, 2019. The PUCO denied OCC's Third Application for Rehearing as a matter of law. On September 13, 2019, Interstate Gas Supply/Retail Supply Association filed appeals to the Supreme Court of Ohio claiming the PUCO’s order was in error because it approved unsupported charges to competitive suppliers and cost subsidies shopping customers pay for non-shopping customers. On September 16, 2019, the OCC filed an appeal challenging the PUCO’s approval of OVEC recovery through Rider PSR alleging the FPA pre-empts the commission’s jurisdiction and that the record does not support finding that Rider PSR results in a limitation on shopping. Appellant briefs were filed on January 6, 2020. Appellee briefs were scheduled to be filed on March 16, 2020. On March 13, 2020, the Supreme Court of Ohio granted OCC's motion to withdraw its appeal related to OVEC recovery. On April 22, 2020, the Supreme Court of Ohio dismissed all remaining appeals of PUCO's December 19, 2018 order approving the stipulation. The case has been resolved.
On July 23, 2019, an Ohio bill was signed into law that became effective January 1, 2020. Among other things, the bill allows for recovery of prudently incurred costs, net of any revenues, for Ohio investor-owned utilities that are participants under the OVEC power agreement. The recovery shall be through a non-bypassable rider that is to replace any existing recovery mechanism approved by the PUCO and will remain in place through 2030. The amounts recoverable from customers will be subject to an annual cap, with incremental costs that exceed such cap eligible for deferral and recovery subject to review. See Note 13 for additional discussion of Duke Energy Ohio's ownership interest in OVEC.

53




FINANCIAL STATEMENTS
REGULATORY MATTERS


Energy Efficiency Cost Recovery
On March 28, 2014, Duke Energy Ohio filed an application for recovery of program costs, lost distribution revenue and performance incentives related to its energy efficiency and peak demand reduction programs. These programs are undertaken to comply with environmental mandates set forth in Ohio law. The PUCO approved Duke Energy Ohio’s application but found that Duke Energy Ohio was not permitted to use banked energy savings from previous years in order to calculate the amount of allowed incentive. This conclusion represented a change to the cost recovery mechanism that had been agreed upon by intervenors and approved by the PUCO in previous cases. The PUCO granted the applications for rehearing filed by Duke Energy Ohio and an intervenor. On January 6, 2016, Duke Energy Ohio and the PUCO Staff entered into a stipulation, pending the PUCO's approval, to resolve issues related to performance incentives and the PUCO Staff audit of 2013 costs, among other issues. In December 2015, based upon the stipulation, Duke Energy Ohio re-established approximately $20 million of the revenues that had been previously reversed. On October 26, 2016, the PUCO issued an order approving the stipulation without modification. In December 2016, the PUCO granted the intervenors request for rehearing for the purpose of further review. On April 10, 2019, the PUCO issued an Entry on Rehearing denying the rehearing applications. On February 26, 2020, the PUCO issued an order directing utilities to wind down their demand-side management programs by September 30, 2020, and to terminate the programs by December 31, 2020, in response to changes in Ohio law that eliminated Ohio's energy efficiency mandates. 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 April 22, 2020, the PUCO granted rehearing for further consideration.
On June 15, 2016, Duke Energy Ohio filed an application for approval of a three-year energy efficiency and peak demand reduction portfolio of programs. A stipulation and modified stipulation were filed on December 22, 2016, and January 27, 2017, respectively. Under the terms of the stipulations, which included support for deferral authority of all costs and a cap on shared savings incentives, Duke Energy Ohio has offered its energy efficiency and peak demand reduction programs throughout 2017. On February 3, 2017, Duke Energy Ohio filed for deferral authority of its costs incurred in 2017 in respect of its proposed energy efficiency and peak demand reduction portfolio. On September 27, 2017, the PUCO issued an order approving a modified stipulation. The modifications impose an annual cap of approximately $38 million on program costs and shared savings incentives combined, but allowed for Duke Energy Ohio to file for a waiver of costs in excess of the cap in 2017. The PUCO approved the waiver request for 2017 up to a total cost of $56 million. On November 21, 2017, the PUCO granted Duke Energy Ohio's and intervenor's applications for rehearing of the September 27, 2017, order. On January 10, 2018, the PUCO denied the OCC's application for rehearing of the PUCO order granting Duke Energy Ohio's waiver request; however, a decision on Duke Energy Ohio's application for rehearing remains pending. Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio is proposing to install a new natural gas pipeline (the Central Corridor Project) in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. Duke Energy Ohio currently estimates the pipeline development costs and construction activities will range from $163 million to $245 million in direct costs (excluding overheads and AFUDC). On January 20, 2017, Duke Energy Ohio filed an amended application with the Ohio Power Siting Board (OPSB) for approval of one of two proposed routes. A public hearing was held on June 15, 2017. In April 2018, Duke Energy Ohio filed a motion with OPSB to establish a procedural schedule and filed supplemental information supporting its application. On December 18, 2018, the OPSB established a procedural schedule that included a local public hearing on March 21, 2019. An evidentiary hearing began on April 9, 2019, and concluded on April 11, 2019. Briefs were filed on May 13, 2019, and reply briefs were filed on June 10, 2019. On November 21, 2019, the OPSB approved Duke Energy Ohio's application subject to 41 conditions on construction. Applications for rehearing were filed by several stakeholders on December 23, 2019, arguing that the OPSB approval was incorrect. Duke Energy Ohio filed a memorandum contra on January 2, 2020. On February 20, 2020, the OPSB denied the rehearing requests. Construction of the pipeline extension is expected to be completed before the 2021/2022 winter season. On April 15, 2020, Joint Appellants filed a notice of appeal at the Supreme Court of Ohio of the OPSB’s decision approving Duke Energy Ohio’s Central Corridor application. On April 16, 2020, several of the Joint Appellants filed a motion for a Stay asking the court to suspend the OPSB’s order. On April 27, 2020, Duke Energy Ohio and the OPSB each filed a motion in opposition to the Stay. If the Stay is granted, Duke Energy Ohio cannot continue working during the appeal process. Duke Energy Ohio cannot predict the outcome of this matter.
2012 Natural Gas Rate Case/MGP Cost Recovery
As part of its 2012 natural gas base rate case, Duke Energy Ohio has approval to defer and recover costs related to environmental remediation at two sites (East End and West End) that housed former MGP operations. Duke Energy Ohio has made annual applications for recovery of these deferred costs. Duke Energy Ohio has collected approximately $55 million in environmental remediation costs between 2009 through 2012 through a separate rider, Rider MGP, which is currently suspended. Duke Energy Ohio has made annual applications with the PUCO to recover its incremental remediation costs consistent with the PUCO’s directive in Duke Energy Ohio’s 2012 natural gas rate case. To date, the PUCO has not ruled on Duke Energy Ohio’s annual applications for the calendar years 2013 through 2017. On September 28, 2018, the staff of the PUCO issued a report recommending a disallowance of approximately $12 million of the $26 million in MGP remediation costs incurred between 2013 through 2017 that staff believes are not eligible for recovery. Staff interprets the PUCO’s 2012 Order granting Duke Energy Ohio recovery of MGP remediation as limiting the recovery to work directly on the East End and West End sites. On October 30, 2018, Duke Energy Ohio filed reply comments objecting to the staff’s recommendations and explaining, among other things, the obligation Duke Energy Ohio has under Ohio law to remediate all areas impacted by the former MGPs and not just physical property that housed the former plants and equipment. To date, the PUCO has not ruled on Duke Energy Ohio’s applications. On March 29, 2019, Duke Energy Ohio filed its annual application to recover incremental remediation expense for the calendar year 2018 seeking recovery of approximately $20 million in remediation costs. On July 12, 2019, the staff recommended a disallowance of approximately $11 million for work that staff believes occurred in areas not authorized for recovery. Additionally, staff recommended that any discussion pertaining to Duke Energy Ohio's recovery of ongoing MGP costs should be directly tied to or netted against insurance proceeds collected by Duke Energy Ohio. An evidentiary hearing began on November 18, 2019, and concluded on November 21, 2019. Initial briefs were filed on January 17, 2020, and reply briefs were filed on February 14, 2020. Duke Energy Ohio cannot predict the outcome of this matter.

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REGULATORY MATTERS


On March 31, 2020, Duke Energy Ohio filed its annual application to recover incremental remediation expense for the calendar year 2019 seeking recovery of approximately $39 million in remediation costs incurred during 2019. Duke Energy Ohio cannot predict the outcome of this matter.
The 2012 PUCO order also contained conditional deadlines for completing the MGP environmental investigation and remediation costs at the MGP sites. Subsequent to the order, the deadline was extended to December 31, 2019. On May 10, 2019, Duke Energy Ohio filed an application requesting a continuation of its existing deferral authority for MGP remediation and investigation that must occur after December 31, 2019. On September 13, 2019, intervenor comments were filed opposing Duke Energy Ohio's request for continuation of existing deferral authority and on October 2, 2019, Duke Energy Ohio filed reply comments. Duke Energy Ohio cannot predict the outcome of this matter.
Duke Energy Kentucky Electric Base Rate Case
On September 3, 2019, Duke Energy Kentucky filed a rate case with the KPSC requesting an increase in electric base rates of approximately $46 million, which represents an approximate 12.5% increase across all customer classes. The request for rate increase is driven by increased investment in utility plant since the last electric base rate case in 2017. Duke Energy Kentucky seeks to implement a Storm Deferral Mechanism that will enable Duke Energy Kentucky to defer actual costs incurred for major storms that are over or under amounts in base rates. In response to large customers’ desire to have access to renewable resources, Duke Energy Kentucky is proposing a Green Source Advantage tariff designed for those large customers that wish to invest in renewable energy resources to meet sustainability goals. Duke Energy Kentucky is proposing an electric vehicle (EV) infrastructure pilot and modest incentives to assist customers in investing in EV technologies. Additionally, Duke Energy Kentucky is proposing to build an approximate 3.4-MW distribution battery energy storage system to be attached to Duke Energy Kentucky’s distribution system providing frequency regulation and enhanced reliability to Kentucky customers. The commission issued a procedural schedule with two rounds of discovery and opportunities for intervenor and rebuttal testimony. The Kentucky Attorney General filed its testimony recommending an increase of approximately $26 million. On January 31, 2020, Duke Energy Kentucky filed rebuttal testimony updating its rate increase calculations to approximately $44 million. Hearings were held on February 19-20, 2020, with briefing completed March 20, 2020. On April 27, 2020, the KPSC issued its decision approving a $24 million increase for Duke Energy Kentucky with a 9.25% return on equity. The KPSC denied Duke Energy Kentucky’s major storm deferral mechanism and EV and battery storage pilots. The KPSC approved Duke Energy Kentucky’s Green Source Advantage tariff. New customer rates were effective on May 1, 2020. Duke Energy Kentucky is evaluating the order and whether to seek rehearing. Duke Energy Kentucky cannot predict the outcome of this matter.
Duke Energy Indiana
COVID-19
In response to the COVID-19 pandemic, on March 6, 2020, Governor Eric Holcomb issued Executive Order No. 20-02, which by law expired in 30 days unless extended, declaring a public health disaster emergency in the state of Indiana. On April 3, 2020, the governor then issued Executive Order No. 20-17 which renewed the public health disaster emergency declaration for an additional 30 days to May 5, 2020. On May 1, 2020, Executive Order No, 20-25 further renewed the public health disaster emergency an additional 30 days to June 4, 2020. All other Executive Orders issued since March 6, 2020, (Nos. 20-04 – 20-16) were renewed for the same 30-day period, provided they were supplements to Executive Order No. 20-02. Executive Order No. 20-05 was issued on March 19, 2020, requiring utilities in the state to suspend disconnections of utility service. Duke Energy Indiana had already voluntarily suspended all disconnections and is waiving late payment fees and check return fees. The utility is also waiving credit card fees for residential customers.
On May 8, 2020, Duke Energy Indiana, along with other Indiana utilities, filed a request with the IURC for approval of deferral treatment for costs and revenue reductions associated with the COVID-19 pandemic. The utilities requested initial deferral approval in July 2020, with individual subdockets for each utility to be established for consideration of utility-specific cost and revenue impacts, cost recovery timing and customer payment plans. The same day, the Indiana Office of Utility Consumer Counselor filed a petition asking the IURC to continue to suspend disconnections, allow the utilities accounting deferrals and require tacking of cost savings. Duke Energy Indiana cannot predict the outcome of thIs matter.
2019 Indiana Rate Case
On July 2, 2019, Duke Energy Indiana filed a general rate case with the IURC, its first general rate case in 16 years, for a rate increase for retail customers of approximately $395 million. The request for rate increase is driven by strategic investments to generate cleaner electricity, improve reliability and serve a growing customer base. The request is premised upon a Duke Energy Indiana rate base of $10.2 billion as of December 31, 2018, and adjusted for projected changes through December 31, 2020. On September 9, 2019, Duke Energy Indiana revised its revenue request from $395 million to $393 million and filed updated testimony for the Retail Rate Case. The updated filing reflects a clarification in the presentation of Utility Receipts Tax, a $2 million reduction in the revenue requirement for revenues that will remain in riders and changes to allocation of revenue requirements within rate classes. The Utility Receipts Tax is currently embedded in base rates and rider rates. The proposed treatment is to include the Utility Receipts Tax as a line item on the customer bill rather than included in rates. The request is an approximate 15% increase in retail revenues and approximately 17% when including estimated Utility Receipts Tax. 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. Hearings concluded on February 7, 2020, and rates are expected to be effective mid-2020. Duke Energy Indiana cannot predict the outcome of these matters.
The IURC determined to take two issues out of the rate case and place them in separate subdocket proceedings due to the complexity of the rate case. The commission moved the request for approval of an electric transportation pilot and future coal ash recovery issues to separate subdockets. Coal ash expenditures prior to 2019 are still included in the rate case. 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 as well as continuing deferral, with carrying costs, on the balance. An evidentiary hearing is scheduled to begin on September 14, 2020, and an order is expected in the first quarter of 2021. Duke Energy Indiana cannot predict the outcome of this matter.

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FINANCIAL STATEMENTS
REGULATORY MATTERS


Piedmont
COVID-19 Filings
North Carolina
On March 10, 2020, Governor Roy Cooper issued Executive Order No. 116 declaring a state of emergency due to the COVID-19 pandemic. In an effort to help mitigate the financial impacts of the COVID-19 pandemic on their customers, on March 19, 2020, Piedmont filed a request with the NCUC seeking authorization to waive: (1) any late payment charges incurred by a residential or nonresidential customer, effective March 21, 2020; (2) the application of fees for checks returned for insufficient funds for residential and nonresidential customers; (3) the reconnection charge when a residential or nonresidential customer seeks to have service restored for those customers whose service was recently disconnected for nonpayment and to work with customers regarding the other requirements to restore service, including re-establishment of credit; and (4) the fees and charges associated with the use of credit cards or debit cards to pay residential electric utility bills, effective March 21, 2020. The NCUC granted Piedmont’s request on March 20, 2020.
On March 31, 2020, the governor issued Executive Order No. 124, which, in addition to requiring the steps in the NCUC order noted above, stated that nothing in Executive Order No. 124 shall relieve a customer of its obligation to pay bills for receipt of utility services provided. Executive Order No. 124 remains in effect for 60 days unless otherwise rescinded or replaced with a superseding Executive Order.
South Carolina
On March 13, 2020, Governor Henry McMaster issued Executive Order No. 2020-08 declaring a state of emergency due to the COVID-19 pandemic. The governor also issued a letter on March 14, 2020, to the ORS Executive Director regarding the suspension of disconnection of essential utility services for nonpayment. On March 16, 2020, citing the governor’s letter, the ORS filed a request asking the PSCSC to grant waivers so that utilities could suspend disconnections of utility services for nonpayment. Piedmont supported such motion. On March 18, 2020, the PSCSC issued an order approving such waivers, and also approved waivers for regulations related to late fees and reconnect fees. The PSCSC's order also required utilities to track the financial impacts of actions taken pursuant to such waivers for possible reporting to the PSCSC.
On April 30, 2020, the ORS requested the PSCSC grant a waiver of the applicable regulations to allow customers the flexibility to obtain deferred payment plans longer than 6 months for past-due amounts. On May 5, 2020, Piedmont filed responsive comments stating that while utility bills will remain due, Piedmont does not plan to immediately reinstitute disconnection upon the expiration of the state of emergency and intends to work through a potential grace period as economic recovery begins. Piedmont also concurred with the observation of the ORS that reduced usage is impacting the fixed cost recovery and revenue assumptions included in rates. Those costs include not only ongoing operational and financing costs necessary to serve customers, but also the borrowings necessary to support extended payment arrangements that will be an important part of emerging from the COVID-19 pandemic. Piedmont will continue to track such costs, lost revenues and potential cost savings for future evaluation by the PSCSC.
Additionally, on May 8, 2020, the ORS filed a motion for the PSCSC to solicit comments from utilities and interested stakeholders regarding measures to be taken to mitigate impacts of COVID-19 on utility customers and require recordkeeping. In a detailed motion, the ORS specifically asked the PSCSC to: (1) solicit input from utilities regarding the temporary mitigation measures to address COVID-19; (2) request utilities to inform the PSCSC of the plans utilities have to return to normalized operations; (3) require utilities to track revenue impacts, incremental costs and savings related to COVID-19 and file the findings with the PSCSC on a quarterly basis; and (4) include any other matters that the PSCSC believes should be addressed. The ORS requests that such comments be filed within 30 days of a PSCSC order approving the motion. Piedmont cannot predict the outcome of this matter.
Tennessee
On March 12, 2020, Governor Bill Lee issued Executive Order No. 14 declaring a state of emergency due to the COVID-19 pandemic. In an effort to help mitigate the financial impacts of the COVID-19 pandemic on their customers, on March 20, 2020, Piedmont filed a request with the TPUC seeking authorization to waive, effective March 21, 2020: (1) any late payment charges incurred by a residential or nonresidential customer; (2) the application of fees for checks returned for insufficient funds for residential and nonresidential customers; and (3) the reconnection charge when a residential or nonresidential customer seeks to have service restored for those customers whose service was recently disconnected for nonpayment and to work with customers regarding the other requirements to restore service, including re-establishment of credit. The TPUC granted Piedmont’s request by Order issued March 31,2020. The Order also stated that customers were not relieved of their obligation to pay for utility services received.
North Carolina Integrity Management Rider Filing
In April 2020, Piedmont filed a petition with the NCUC under the IMR mechanism to collect an additional $15 million in annual revenues, effective June 2020, based on the eligible capital investments closed to integrity and safety projects over the six-month period ending March 31, 2020. Piedmont cannot predict the outcome of this matter.
Tennessee Integrity Management Rider Filing
In November 2019, Piedmont filed a petition with the TPUC under the IMR mechanism to collect an additional $2 million in annual revenues, effective January 2020, based on the eligible capital investments closed to integrity and safety projects over the 12-month period ending October 31, 2019. An evidentiary hearing occurred on May 11, 2020. Upon approval from the TPUC, the revenue adjustment will be implemented, retroactive to January 2020. Piedmont cannot predict the outcome of this matter.

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FINANCIAL STATEMENTS
REGULATORY MATTERS


OTHER REGULATORY MATTERS
Atlantic Coast Pipeline, LLC
On September 2, 2014, Duke Energy, Dominion Energy, Inc. (Dominion), Piedmont and Southern Company Gas announced the formation of Atlantic Coast Pipeline, LLC (ACP) to build and own the proposed Atlantic Coast Pipeline (ACP pipeline), an approximately 600-mile interstate natural gas pipeline running from West Virginia to North Carolina. The ACP pipeline is designed to meet, in part, the needs identified by Duke Energy Carolinas, Duke Energy Progress and Piedmont. Dominion will be responsible for building and operating the ACP pipeline and holds a leading ownership percentage in ACP of 53%, following the purchase in March 2020 of Southern Company Gas' 5% ownership interest. Duke Energy owns a 47% interest, which is accounted for as an equity method investment through its Gas Utilities and Infrastructure segment. See Note 11 for additional information related to Duke Energy's ownership interest. Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. Purchases will be made under several 20-year supply contracts, subject to state regulatory approval.
In 2018, the FERC issued a series of Notices to Proceed, which authorized the project to begin certain construction-related activities along the pipeline route, including supply header and compressors. On May 11, 2018, and October 19, 2018, FERC issued Notices to Proceed allowing full construction activities in all areas of West Virginia except in the Monongahela National Forest. On July 24, 2018, FERC issued a Notice to Proceed allowing full construction activities along the project route in North Carolina. On October 19, 2018, the conditions to effectiveness of the Virginia 401 water quality certification were satisfied and, following receipt of the Virginia 401 certification, ACP filed a request for FERC to issue a Notice to Proceed with full construction activities in Virginia. Due to legal challenges not directly related to the request for a Notice to Proceed in Virginia, this request is still pending.
ACP is the subject of challenges in state and federal courts and agencies, including, among others, challenges of the project’s biological opinion (BiOp) and incidental take statement (ITS), crossings of the Blue Ridge Parkway, the Appalachian Trail, and the Monongahela and George Washington National Forests, the project’s U.S. Army Corps of Engineers (USACE) 404 permit, the project's air permit for a compressor station at Buckingham, Virginia, the FERC Environmental Impact Statement order and the FERC order approving the Certificate of Public Convenience and Necessity. Each of these challenges alleges non-compliance on the part of federal and state permitting authorities and adverse ecological consequences if the project is permitted to proceed. Since December 2018, notable developments in these challenges include a stay in December 2018 issued by the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) and the same court's July 26, 2019, vacatur of the project's BiOp and ITS (which stay and subsequent vacatur halted most project construction activity), a Fourth Circuit decision vacating the project's permits to cross the Monongahela and George Washington National Forests and the Appalachian Trail, the Fourth Circuit's remand to USACE of ACP's Huntington District 404 verification, the Fourth Circuit’s remand to the National Park Service of ACP’s Blue Ridge Parkway right-of-way and the most recent vacatur of the air permit for a compressor station at Buckingham, Virginia. ACP is vigorously defending these challenges and coordinating with the federal and state authorities which are the direct parties to the challenges. The Solicitor General of the United States and ACP filed petitions for certiorari to the Supreme Court of the United States on June 25, 2019, regarding the Appalachian Trail crossing and certiorari was granted on October 4, 2019. The Supreme Court hearing took place on February 24, 2020, and a ruling is expected in the second quarter of 2020.
In anticipation of the Fourth Circuit's vacatur of the BiOp and ITS, ACP and the FWS commenced work in mid-May of 2019 to set the basis for a reissued BiOp and ITS. On February 10, 2020, the FERC issued a letter to FWS requesting the re-initiation of formal consultation in support of reissuing the BiOp and ITS, and on April 14, 2020, ACP submitted the Biological Assessment, which may form the foundation for FWS' BiOp. ACP continues coordinating and working with FWS and other parties in preparation for a reissuance of the BiOp and ITS.
ACP triggered the Adverse Government Actions (AGA) clause of its agreements with its customers in December 2019. Formal negotiations have resulted in agreement on material terms, such as updated pricing and construction milestones. The modified customer agreements are expected to be executed by the third quarter of 2020.
On April 15, 2020, the United States District Court for the District of Montana granted partial summary judgment in favor of the plaintiffs in Northern Plains Resource Council v. U.S. Army Corps of Engineers (Northern Plains), vacating USACE’s Nationwide Permit 12 (NWP 12) and remanding it to USACE for consultation under the Endangered Species Act (ESA) of 1973. In Northern Plains, the court ruled that NWP 12 was unlawful because USACE did not consult under the ESA with the FWS and/or National Marine Fisheries Service prior to NWP 12’s reissuance in 2017. Because NWP 12 has been vacated and its application enjoined, USACE currently has suspended verification of any new or pending applications under NWP 12 until further court action clarifies the situation. ACP is reviewing the potential impact of this ruling to its own reliance on NWP 12 for small water body crossings along the pipeline route, as well as potential mitigation measures.
Given the legal challenges and ongoing discussions with customers, ACP expects the project to enter full in-service in the first half of 2022.
The delays resulting from the legal challenges described above have also impacted the cost for the project. Project cost is approximately $8 billion, excluding financing costs. This estimate is based on the current facts available around construction costs and timelines, and is subject to future changes as those facts develop. Abnormal weather, work delays (including delays due to judicial or regulatory action or COVID-19 social distancing) and other conditions may result in cost or schedule modifications, a suspension of AFUDC for ACP and/or impairment charges potentially material to Duke Energy's cash flows, financial position and results of operations.
Duke Energy’s investment in ACP was $1.2 billion at March 31, 2020. Duke Energy evaluated this investment for impairment at March 31, 2020, and December 31, 2019, and determined that fair value approximated carrying value and therefore no impairment was necessary. Duke Energy also has a guarantee agreement supporting its share of the ACP revolving credit facility. Duke Energy’s maximum exposure to loss under the terms of the guarantee is $845 million, which represents 47% of the outstanding borrowings under the credit facility as of March 31, 2020. See Note 13 for additional information.

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FINANCIAL STATEMENTS
REGULATORY MATTERS


Constitution Pipeline Company, LLC
Duke Energy owned a 24% ownership interest in Constitution, which was accounted for as an equity method investment. Constitution was a natural gas pipeline project slated to transport natural gas supplies from the Marcellus supply region in northern Pennsylvania to major northeastern markets. The pipeline was to be constructed and operated by Williams Partners L.P., which had a 41% ownership share. The remaining interest was held by Cabot Oil and Gas Corporation and WGL Holdings, Inc. In December 2014, Constitution received approval from the FERC to construct and operate the proposed pipeline. However, since April 2016, Constitution had stopped construction and discontinued capitalization of future development costs due to permitting delays and adverse rulings by regulatory agencies and courts.
In late 2019, Constitution determined that its principal shipper would not agree to an amended precedent agreement. Without such an amendment, the project would no longer be viable and, as of February 5, 2020, the Constitution partners formally resolved to initiate the dissolution of Constitution, and to terminate the Constitution Pipeline project. See Note 11 for additional information related to ownership interest and carrying value of the investment. Williams Partners L.P., as project Operator, is currently working to liquidate the project's assets.
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file IRPs with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina and Indiana earlier than their current estimated useful lives. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2020, and exclude capitalized asset retirement costs.
 
 
 
Remaining Net

 
Capacity

 
Book Value

 
(in MW)

 
(in millions)

Duke Energy Carolinas
 
 
 
Allen Steam Station Units 1-3(a)
585

 
$
149

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

 
118

Gibson Units 1-5(c)
3,132

 
1,708

Cayuga Units 1-2(c)
1,005

 
964

Total Duke Energy
5,002

 
$
2,939

(a)
Duke Energy Carolinas will retire Allen Steam Station Units 1 through 3 by December 31, 2024, as part of the resolution of a lawsuit involving alleged New Source Review violations.
(b)
Duke Energy Indiana committed to either retire or stop burning coal at Gallagher Units 2 and 4 by December 31, 2022, as part of the 2016 settlement of Edwardsport IGCC matters.
(c)
On July 1, 2019, Duke Energy Indiana filed its 2018 IRP with the IURC. The 2018 IRP included scenarios evaluating the potential retirement of coal-fired generating units at Gibson and Cayuga. The rate case filed July 2, 2019, includes proposed depreciation rates reflecting retirement dates from 2026 to 2038.
Duke Energy continues to evaluate the potential need to retire generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery, as necessary, for amounts that would not be otherwise recovered when any of these assets are retired. However, such recovery, including recovery of carrying costs on remaining book values, could be subject to future approvals and therefore cannot be assured.
Duke Energy Carolinas and Duke Energy Progress are evaluating the potential for coal-fired generating unit retirements with a net carrying value of approximately $707 million and $1.2 billion, respectively, included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2020.
4. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all Duke Energy Registrants.

58




FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES


Remediation Activities
In addition to AROs recorded as a result of various environmental regulations, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined at all sites. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other on the Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
The following table contains information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Accounts Payable within Current Liabilities and Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.
 
Three Months Ended March 31, 2020
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Balance at beginning of period
$
58

 
$
11

 
$
16

 
$
4

 
$
9

 
$
19

 
$
4

 
$
8

Provisions/adjustments
3

 

 

 
1

 

 
1

 
1

 

Cash reductions
(3
)
 
(1
)
 
(1
)
 

 

 
(1
)
 

 

Balance at end of period
$
58

 
$
10

 
$
15

 
$
5

 
$
9

 
$
19

 
$
5

 
$
8


Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material except as presented in the table below.
(in millions)
 
Duke Energy
$
58

Duke Energy Carolinas
11

Duke Energy Ohio
41

Piedmont
2

LITIGATION
Duke Energy Carolinas and Duke Energy Progress
Coal Ash Insurance Coverage Litigation
In March 2017, Duke Energy Carolinas and Duke Energy Progress filed a civil action in North Carolina Superior Court against various insurance providers. The lawsuit seeks payment for coal ash-related liabilities covered by third-party liability insurance policies. The insurance policies were issued between 1971 and 1986 and provide third-party liability insurance for property damage. The civil action seeks damages for breach of contract and indemnification for costs arising from the Coal Ash Act and the EPA CCR rule at 15 coal-fired plants in North Carolina and South Carolina. Despite a stay of the litigation from May 2019 through September 2019 to allow the parties to discuss potential resolution, no resolution was reached, and litigation resumed. In February and March 2020, the court heard arguments on numerous cross motions filed by the parties to seek legal determinations concerning several insurance related defenses raised by the insurance providers. Trial is scheduled for February 2021. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Carolinas
Asbestos-related Injuries and Damages Claims
Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of March 31, 2020, there were 118 asserted claims for non-malignant cases with cumulative relief sought of up to $30 million, and 51 asserted claims for malignant cases with cumulative relief sought of up to $17 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.

59




FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES


Duke Energy Carolinas has recognized asbestos-related reserves of $596 million at March 31, 2020, and $604 million at December 31, 2019. These reserves are classified in Other within Other Noncurrent Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon Duke Energy Carolinas' best estimate for current and future asbestos claims through 2039 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 2039 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. Duke Energy Carolinas’ cumulative payments began to exceed the self-insured retention in 2008. Future payments up to the policy limit will be reimbursed by the third-party insurance carrier. The insurance policy limit for potential future insurance recoveries indemnification and medical cost claim payments is $747 million in excess of the self-insured retention. Receivables for insurance recoveries were $742 million at March 31, 2020, and $742 million at December 31, 2019. These amounts are classified in Other within Other Noncurrent Assets and Receivables within Current Assets on the Condensed Consolidated Balance Sheets. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On June 18, 2018, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims for damages incurred for the period 2014 through 2018. The lawsuit claimed the Department of Energy breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage in the amount of $100 million and $203 million for Duke Energy Progress and Duke Energy Florida, respectively. Discovery is ongoing and a trial is expected to occur in early 2021.
Duke Energy Indiana
Coal Ash Basin Closure Plan Appeal
On January 27, 2020, Hoosier Environmental Council filed a Petition for Administrative Review with the Indiana Office of Environmental Adjudication (the court) challenging the Indiana Department of Environmental Management’s December 10, 2019, partial approval of Duke Energy Indiana’s ash pond closure plan. On March 11, 2020, Duke Energy Indiana filed a Motion to Dismiss. On May 5, 2020, the court entered an order denying that motion. The court will schedule a trial on the merits for a future date. Duke Energy Indiana cannot predict the outcome of this matter.
Other Litigation and Legal Proceedings
The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve significant amounts. The Duke Energy Registrants believe the final disposition of these proceedings will not have a material effect on their results of operations, cash flows or financial position.
The table below presents recorded reserves based on management’s best estimate of probable loss for legal matters, excluding asbestos-related reserves discussed above. Reserves are classified on the Condensed Consolidated Balance Sheets in Other within Other Noncurrent Liabilities and Other within Current Liabilities. The reasonably possible range of loss in excess of recorded reserves is not material, other than as described above.
(in millions)
March 31, 2020

 
December 31, 2019

Reserves for Legal Matters
 
 
 
Duke Energy
$
61

 
$
62

Duke Energy Carolinas
3

 
2

Progress Energy
52

 
55

Duke Energy Progress
9

 
12

Duke Energy Florida
23

 
22

Piedmont
1

 
1


OTHER COMMITMENTS AND CONTINGENCIES
General
As part of their normal business, the Duke Energy Registrants are party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. These guarantees involve elements of performance and credit risk, which are not fully recognized on the Condensed Consolidated Balance Sheets and have 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.

60




FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES


In addition, the Duke Energy Registrants enter into various fixed-price, noncancelable commitments to purchase or sell power or natural gas, take-or-pay arrangements, transportation, or throughput agreements and other contracts that may or may not be recognized on their respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on their respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the NPNS exception does not apply. In most cases, the Duke Energy Registrants’ purchase obligation contracts contain provisions for price adjustments, minimum purchase levels and other financial commitments.
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 reserve for credit losses for insurance receivables based on adoption of the new standard is $15 million for Duke Energy and Duke Energy Carolinas. Insurance receivables are 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.
The reserve for credit losses for financial guarantees based on adoption of the new standard is $99 million for Duke Energy. Management considers financial guarantees for evaluation under this standard based on the anticipated amount outstanding at the time of default. The reserve for credit losses is based on the evaluation of the contingent components of financial guarantees. Management evaluates the risk of default, exposure and length of time remaining in the period for each contract.
5. DEBT AND CREDIT FACILITIES
SUMMARY OF SIGNIFICANT DEBT ISSUANCES
The following table summarizes significant debt issuances (in millions).
 
 
 
 
Three Months Ended March 31, 2020
 
 
 
 
 
 
Duke

 
Duke

 
Duke

 
Maturity
Interest

 
Duke

 
Energy

 
Energy

 
Energy

Issuance Date
Date
Rate

 
Energy

 
(Parent)

 
Carolinas

 
Indiana

Unsecured Debt
 
 
 
 
 
 
 
 
 
 
March 2020(a)
March 2021
1.400
%
(b) 
$
1,688

 
$
1,688

 
$

 
$

First Mortgage Bonds
 
 
 
 
 
 
 
 
 
 
January 2020(c)
February 2030
2.450
%
 
500

 

 
500

 

January 2020(c)
August 2049
3.200
%
 
400

 

 
400

 

March 2020(d)
April 2050
2.750
%
 
550

 

 

 
550

Total issuances
 
 
 
$
3,138

 
$
1,688


$
900


$
550

(a)
Debt issued in response to market volatility concerns related to the COVID-19 pandemic. Refer to Note 1 for additional information on the COVID-19 pandemic. Proceeds will be used to reduce outstanding commercial paper and for general corporate purposes.
(b)
Debt issuance has a floating interest rate.
(c)
Debt issued to repay at maturity $450 million first mortgage bonds due June 2020 and for general corporate purposes.
(d)
Debt issued to repay at maturity $500 million first mortgage bonds due July 2020 and to pay down short-term debt.
CURRENT MATURITIES OF LONG-TERM DEBT
The following table shows the significant components of Current Maturities of Long-Term Debt on the Condensed Consolidated Balance Sheets. The Duke Energy Registrants currently anticipate satisfying these obligations with cash on hand and proceeds from additional borrowings.
(in millions)
Maturity Date
 
Interest Rate

 
March 31, 2020

Unsecured Debt
 
 
 
 
 
Duke Energy (Parent)
June 2020
 
2.100
%
 
$
330

Duke Energy Progress
December 2020
 
2.292
%
(a) 
700

Progress Energy, Inc
January 2021
 
4.400
%
 
500

Duke Energy (Parent)
March 2021
 
1.400
%
(a) 
1,688

First Mortgage Bonds
 
 
 
 
 
Duke Energy Florida
April 2020
 
4.550
%
 
250

Duke Energy Carolinas
June 2020
 
4.300
%
 
450

Duke Energy Indiana
July 2020
 
3.750
%
 
500

Duke Energy Progress
September 2020
 
1.076
%
(a) 
300

Other(b)
 
 
 
 
359

Current maturities of long-term debt
 
 
 
 
$
5,077


(a)    Debt issuance has a floating interest rate.
(b)    Includes finance lease obligations, amortizing debt and small bullet maturities.

61




FINANCIAL STATEMENTS
DEBT AND CREDIT FACILITIES


AVAILABLE CREDIT FACILITIES
Master Credit Facility
In March 2020, Duke Energy amended its existing $8 billion Master Credit Facility to extend the termination date to March 2025. 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. Duke Energy Carolinas and Duke Energy Progress are also required to each maintain $250 million of available capacity under the Master Credit Facility as security to meet obligations under plea agreements reached with the U.S. Department of Justice in 2015 related to violations at North Carolina facilities with ash basins. This requirement expires on May 15, 2020.
The table below includes the current borrowing sublimits and available capacity under these credit facilities.
 
March 31, 2020
 


 
Duke

 
Duke

 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Energy

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
(Parent)

 
Carolinas

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Facility size(a)
$
8,000

 
$
2,650

 
$
1,500

 
$
1,250

 
$
800

 
$
600

 
$
600

 
$
600

Reduction to backstop issuances
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper(b)
(2,540
)
 
(1,140
)
 
(300
)
 
(275
)
 
(167
)
 
(243
)
 
(150
)
 
(265
)
Outstanding letters of credit
(49
)
 
(42
)
 
(4
)
 
(2
)
 

 

 

 
(1
)
Tax-exempt bonds
(81
)
 

 

 

 

 

 
(81
)
 

Coal ash set-aside
(500
)
 

 
(250
)
 
(250
)
 

 

 

 

Available capacity under the Master Credit Facility
$
4,830


$
1,468


$
946


$
723


$
633


$
357


$
369

 
$
334

(a)
Represents the sublimit of each borrower.
(b)
Duke Energy issued $625 million of commercial paper and loaned the proceeds through the money pool to Duke Energy Carolinas, Duke Energy Progress, Duke Energy Ohio and Duke Energy Indiana. The balances are classified as Long-Term Debt Payable to Affiliated Companies on the Condensed Consolidated Balance Sheets.
Other Credit Facilities
 
March 31, 2020
(in millions)
Facility size

 
Amount drawn

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

 
$
1,000

Duke Energy Progress Term Loan Facility
700

 
700

(a)
In March 2020, Duke Energy (Parent) drew down the remaining $500 million.
6. GOODWILL
Duke Energy
The following table presents the goodwill by reportable segment included on Duke Energy's Condensed Consolidated Balance Sheets at March 31, 2020, and December 31, 2019.
 
Electric Utilities

 
Gas Utilities

 
Commercial

 
 
(in millions)
and Infrastructure

 
and Infrastructure

 
Renewables

 
Total

Goodwill balance
$
17,379

 
$
1,924

 
$
122

 
$
19,425

Accumulated impairment charges

 

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

 
$
1,924

 
$

 
$
19,303


Duke Energy Ohio
Duke Energy Ohio's Goodwill balance of $920 million, allocated $596 million to Electric Utilities and Infrastructure and $324 million to Gas Utilities and Infrastructure, is presented net of accumulated impairment charges of $216 million on the Condensed Consolidated Balance Sheets at March 31, 2020, and December 31, 2019.

62




FINANCIAL STATEMENTS
GOODWILL


Progress Energy
Progress Energy's Goodwill is included in the Electric Utilities and Infrastructure segment and there are no accumulated impairment charges.
Piedmont
Piedmont's Goodwill is included in the Gas Utilities and Infrastructure segment and there are no accumulated impairment charges.
7. RELATED PARTY TRANSACTIONS
The Subsidiary Registrants engage in related party transactions in accordance with applicable state and federal commission regulations. Refer to the Condensed Consolidated Balance Sheets of the Subsidiary Registrants for balances due to or due from related parties. Material amounts related to transactions with related parties included on the Condensed Consolidated Statements of Operations and Comprehensive Income are presented in the following table.
 
Three Months Ended March 31,
(in millions)
2020

 
2019

Duke Energy Carolinas
 
 
 
Corporate governance and shared service expenses(a)
$
134

 
$
212

Indemnification coverages(b)
5

 
5

Joint Dispatch Agreement (JDA) revenue(c)
7

 
23

JDA expense(c)
24

 
93

Intercompany natural gas purchases(d)
6

 
4

Progress Energy
 
 
 
Corporate governance and shared service expenses(a)
$
146

 
$
176

Indemnification coverages(b)
9

 
9

JDA revenue(c)
24

 
93

JDA expense(c)
7

 
23

Intercompany natural gas purchases(d)
19

 
19

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

 
$
106

Indemnification coverages(b)
4

 
4

JDA revenue(c)
24

 
93

JDA expense(c)
7

 
23

Intercompany natural gas purchases(d)
19

 
19

Duke Energy Florida
 
 
 
Corporate governance and shared service expenses(a)
$
71

 
$
70

Indemnification coverages(b)
5

 
5

Duke Energy Ohio
 
 
 
Corporate governance and shared service expenses(a)
$
84

 
$
85

Indemnification coverages(b)
1

 
1

Duke Energy Indiana
 
 
 
Corporate governance and shared service expenses(a)
$
106

 
$
97

Indemnification coverages(b)
2

 
2

Piedmont
 
 
 
Corporate governance and shared service expenses(a)
$
34

 
$
32

Indemnification coverages(b)
1

 
1

Intercompany natural gas sales(d)
25

 
23

Natural gas storage and transportation costs(e)
6

 
5


63




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 Condensed Consolidated Statements of Operations and Comprehensive Income.
(b)
The Subsidiary Registrants incur expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly owned captive insurance subsidiary. These expenses are recorded in Operation, maintenance and other on the Condensed Consolidated Statements of Operations and Comprehensive Income.
(c)
Duke Energy Carolinas and Duke Energy Progress participate in a JDA, which allows the collective dispatch of power plants between the service territories to reduce customer rates. Revenues from the sale of power and expenses from the purchase of power pursuant to the JDA are recorded in Operating Revenues and Fuel used in electric generation and purchased power, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income.
(d)
Piedmont provides long-term natural gas delivery service to certain Duke Energy Carolinas and Duke Energy Progress natural gas-fired generation facilities. Piedmont records the sales in Operating revenues, and Duke Energy Carolinas and Duke Energy Progress record the related purchases as a component of Fuel used in electric generation and purchased power on their respective Condensed Consolidated Statements of Operations and Comprehensive Income.
(e)
Piedmont has related party transactions as a customer of its equity method investments in Pine Needle LNG Company, LLC, Hardy Storage Company, LLC and Cardinal Pipeline Company, LLC natural gas storage and transportation facilities. These expenses are included in Cost of natural gas on Piedmont's Condensed Consolidated Statements of Operations and Comprehensive Income.
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, such as pipeline lease arrangements, and their proportionate share of certain charged expenses. These transactions of the Subsidiary Registrants are incurred in the ordinary course of business and are eliminated in consolidation.
As discussed in Note 11, 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

March 31, 2020
 
 
 
 
 
 
 
Intercompany income tax receivable
$

$
114

$
1

$
4

$

$

$

Intercompany income tax payable
44





6

10

 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
Intercompany income tax receivable
$

$
125

$
28

$

$
9

$
28

$
13

Intercompany income tax payable
5



2





8. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into natural gas supply contracts to provide diversification, reliability and natural gas cost benefits to its customers. Interest rate derivatives are used to manage interest rate risk associated with borrowings.
All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Condensed Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Condensed Consolidated Statements of Cash Flows.
INTEREST RATE RISK
The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps or Treasury locks may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt.

64




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. Gains and losses reclassified out of accumulated other comprehensive income (loss) for the three months ended March 31, 2020, and 2019, were not material. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business and forward-starting interest rate swaps not accounted for under regulatory accounting.
Undesignated Contracts
Undesignated contracts primarily include contracts not designated as a hedge because they are accounted for under regulatory accounting or contracts that do not qualify for hedge accounting.
Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense on the Duke Energy Registrant's Condensed Consolidated Statements of Operations and Comprehensive Income.
The following table shows notional amounts of outstanding derivatives related to interest rate risk.
 
March 31, 2020
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

Cash flow hedges
$
991

 
$

 
$

 
$

 
$

 
$

Undesignated contracts
2,027

 
400

 
1,600

 
1,050

 
550

 
27

Total notional amount(a)
$
3,018


$
400


$
1,600


$
1,050


$
550


$
27

 
December 31, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

Cash flow hedges
$
993

 
$

 
$

 
$

 
$

 
$

Undesignated contracts
1,277

 
450

 
800

 
250

 
550

 
27

Total notional amount(a)
$
2,270

 
$
450

 
$
800

 
$
250

 
$
550

 
$
27


(a)
Duke Energy includes amounts related to consolidated VIEs of $691 million in cash flow hedges as of March 31, 2020, and $693 million in cash flow hedges as of December 31, 2019.
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases, including Piedmont's natural gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula-based contracts or other cost-sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce natural gas costs volatility for customers.

65




FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


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.
 
March 31, 2020
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Electricity (GWh)
6,737

 

 

 

 

 
977

 
5,760

 

Natural gas (millions of dekatherms)
709

 
145

 
158

 
158

 

 

 
4

 
402

 
December 31, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Electricity (GWh)
15,858

 

 

 

 

 
1,887

 
13,971

 

Natural gas (millions of dekatherms)
704

 
130

 
160

 
160

 

 

 
3

 
411


U.S. EQUITY SECURITIES RISK
In May 2019, Duke Energy Florida entered into a Decommissioning Services Agreement for the accelerated decommissioning of Crystal River Unit 3 with ADP CR3, LLC and ADP SF1, LLC. See Note 3 for additional information on the accelerated decommissioning. Duke Energy Florida executed U.S. equity option collars within the NDTF in May 2019 to preserve the U.S. equity portfolio value in the Duke Energy Florida NDTF in the event the accelerated decommissioning is approved. These option collars were executed as a purchase of a put option and the sale of a call option on certain U.S. equity index funds. The put and call options create a collar to guarantee a minimum and maximum investment value for the Duke Energy Florida NDTF U.S. equity portfolio. The put and call options were entered into at zero-cost, with the price to purchase the puts offset entirely by the funds received to sell the calls. As of March 31, 2020, the aggregate notional amount of both the put and call options was 305,000 units in U.S. equity security index funds. The options are not designated as hedging instruments. Substantially all of Duke Energy Florida’s NDTF qualifies for regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the options are deferred as regulatory liabilities or regulatory assets, respectively. The Duke Energy Florida NDTF liquidated the options in April 2020, and received proceeds of approximately $7 million.

66




FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED ON THE CONDENSED CONSOLIDATED BALANCE SHEETS
The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
Derivative Assets
 
March 31, 2020
 
 
 
 
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
 
$
6

 
$

 
$

 
$

 
$

 
$

 
$
2

 
$
3

Noncurrent
 
4

 
2

 
1

 
1

 

 
1

 

 

Total Derivative Assets – Commodity Contracts
 
$
10

 
$
2

 
$
1

 
$
1

 
$

 
$
1

 
$
2

 
$
3

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
3

 
$

 
$
3

 
$
3

 
$

 
$

 
$

 
$

Noncurrent
 
1

 

 
1

 
1

 

 

 

 

Total Derivative Assets – Interest Rate Contracts
 
$
4

 
$

 
$
4

 
$
4

 
$

 
$

 
$

 
$

Equity Securities Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncurrent(a)
 
20

 

 
20

 

 
20

 

 

 

Total Derivative Assets – Equity Securities Contracts
 
$
20

 
$

 
$
20

 
$

 
$
20

 
$

 
$

 
$

Total Derivative Assets
 
$
34


$
2


$
25


$
5


$
20


$
1


$
2

 
$
3

(a)
Equity security contracts are current since they were set to expire in May 2020 but are classified as noncurrent assets on the Condensed Consolidated Balance Sheet because the amount is presented within the NDTF.
Derivative Liabilities
 
March 31, 2020
 
 
 
 
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
 
$
79

 
$
40

 
$
31

 
$
31

 
$

 
$

 
$

 
$
8

Noncurrent
 
130

 
11

 
35

 
20

 

 

 

 
83

Total Derivative Liabilities – Commodity Contracts
 
$
209

 
$
51

 
$
66

 
$
51

 
$

 
$

 
$

 
$
91

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
69

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Noncurrent
 
54

 

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
30

 

 
29

 

 
29

 
1

 

 

Noncurrent
 
28

 
23

 

 

 

 
6

 

 

Total Derivative Liabilities – Interest Rate Contracts
 
$
181

 
$
23

 
$
29

 
$

 
$
29

 
$
7

 
$

 
$

Total Derivative Liabilities
 
$
390


$
74


$
95


$
51


$
29


$
7


$

 
$
91



67




FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


Derivative Assets
 
December 31, 2019
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
17

 
$

 
$

 
$

 
$

 
$
3

 
$
13

 
$
1

Noncurrent
 
1

 

 

 

 

 
1

 

 

Total Derivative Assets – Commodity Contracts
 
$
18

 
$

 
$

 
$

 
$

 
$
4

 
$
13

 
$
1

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
6

 

 
6

 

 
6

 

 

 

Total Derivative Assets – Interest Rate Contracts
 
$
6

 
$

 
$
6

 
$

 
$
6

 
$

 
$

 
$

Equity Securities Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
1

 

 
1

 

 
1

 

 

 

Total Derivative Assets – Equity Securities Contracts
 
$
1

 
$

 
$
1

 
$

 
$
1

 
$

 
$

 
$

Total Derivative Assets
 
$
25

 
$

 
$
7

 
$

 
$
7

 
$
4

 
$
13

 
$
1

Derivative Liabilities
 
December 31, 2019
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
67

 
$
33

 
$
26

 
$
26

 
$

 
$

 
$
1

 
$
7

Noncurrent
 
156

 
10

 
37

 
22

 

 

 

 
110

Total Derivative Liabilities – Commodity Contracts
 
$
223

 
$
43

 
$
63

 
$
48

 
$

 
$

 
$
1

 
$
117

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
19

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Noncurrent
 
21

 

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
8

 
6

 
1

 
1

 

 
1

 

 

Noncurrent
 
5

 

 

 

 

 
5

 

 

Total Derivative Liabilities – Interest Rate Contracts
 
$
53

 
$
6

 
$
1

 
$
1

 
$

 
$
6

 
$

 
$

Equity Securities Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
24

 

 
24

 

 
24

 

 

 

Total Derivative Liabilities – Equity Securities Contracts
 
$
24

 
$

 
$
24

 
$

 
$
24

 
$

 
$

 
$

Total Derivative Liabilities
 
$
300

 
$
49

 
$
88

 
$
49

 
$
24

 
$
6

 
$
1

 
$
117


OFFSETTING ASSETS AND LIABILITIES
The following tables present the line items on the Condensed Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The gross amounts offset in the tables below show the effect of these netting arrangements on financial position, and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.

68




FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


Derivative Assets
 
March 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
9

 
$

 
$
3

 
$
3

 
$

 
$

 
$
2

 
$
3

Gross amounts offset
 

 

 

 

 

 

 

 

Net amounts presented in Current Assets: Other
 
$
9

 
$

 
$
3

 
$
3

 
$

 
$

 
$
2

 
$
3

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
25

 
$
2

 
$
22

 
$
2

 
$
20

 
$
1

 
$

 
$

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

 

 

 

Net amounts presented in Other Noncurrent Assets: Other
 
$
2

 
$

 
$
1

 
$
1

 
$

 
$
1

 
$

 
$

Net amounts presented in NDTF
 
$
20

 
$

 
$
20

 
$

 
$
20

 
$

 
$

 
$

Derivative Liabilities
 
March 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
178

 
$
40

 
$
60

 
$
31

 
$
29

 
$
1

 
$

 
$
8

Gross amounts offset
 

 

 

 

 

 

 

 

Net amounts presented in Current Liabilities: Other
 
$
178

 
$
40

 
$
60

 
$
31

 
$
29

 
$
1

 
$

 
$
8

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
212

 
$
34

 
$
35

 
$
20

 
$

 
$
6

 
$

 
$
83

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

 

 

 

Net amounts presented in Other Noncurrent Liabilities: Other
 
$
209

 
$
32

 
$
34

 
$
19

 
$

 
$
6

 
$

 
$
83

Derivative Assets
 
December 31, 2019
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
24

 
$

 
$
7

 
$

 
$
7

 
$
3

 
$
13

 
$
1

Gross amounts offset
 
(1
)
 

 
(1
)
 

 
(1
)
 

 

 

Net amounts presented in Current Assets: Other
 
$
23

 
$

 
$
6

 
$

 
$
6

 
$
3

 
$
13

 
$
1

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
1

 
$

 
$

 
$

 
$

 
$
1

 
$

 
$

Gross amounts offset
 

 

 

 

 

 

 

 

Net amounts presented in Other Noncurrent Assets: Other
 
$
1

 
$

 
$

 
$

 
$

 
$
1

 
$

 
$



69




FINANCIAL STATEMENTS
DERIVATIVES AND HEDGING


Derivative Liabilities
 
December 31, 2019
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
118

 
$
39

 
$
51

 
$
27

 
$
24

 
$
1

 
$
1

 
$
7

Gross amounts offset
 
(24
)
 

 
(24
)
 

 
(24
)
 

 

 

Net amounts presented in Current Liabilities: Other
 
$
94

 
$
39

 
$
27

 
$
27

 
$

 
$
1

 
$
1

 
$
7

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
182

 
$
10

 
$
37

 
$
22

 
$

 
$
5

 
$

 
$
110

Gross amounts offset
 

 

 

 

 

 

 

 

Net amounts presented in Other Noncurrent Liabilities: Other
 
$
182

 
$
10

 
$
37

 
$
22

 
$

 
$
5

 
$

 
$
110


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.
 
March 31, 2020
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

Aggregate fair value of derivatives in a net liability position
$
96

 
$
45

 
$
51

 
$
51

Fair value of collateral already posted

 

 

 

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
96

 
45

 
51

 
51

 
December 31, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

Aggregate fair value of derivatives in a net liability position
$
79

 
$
35

 
$
44

 
$
44

Fair value of collateral already posted

 

 

 

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
79

 
35

 
44

 
44


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.
9. 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 fair value through net income (FV-NI). 
For investments in debt securities classified as AFS, the unrealized gains and losses are included in other comprehensive income until realized, at which time, they are reported through net income. For investments in equity securities classified as FV-NI, both realized and unrealized gains and losses are reported through net income. Substantially all of Duke Energy’s investments in debt and equity securities qualify for regulatory accounting, and accordingly, all associated realized and unrealized gains and losses on these investments are deferred as a regulatory asset or liability.
Duke Energy classifies the majority of investments in debt and equity securities as long term, unless otherwise noted.
Investment Trusts
The investments within the Investment Trusts are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. The Duke Energy Registrants have limited oversight of the day-to-day management of these investments. As a result, the ability to hold investments in unrealized loss positions is outside the control of the Duke Energy Registrants. Accordingly, all unrealized losses associated with debt securities within the Investment Trusts are recognized immediately and deferred to regulatory accounts where appropriate.

70




FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


Other AFS Securities
Unrealized gains and losses on all other AFS securities are included in other comprehensive income until realized, unless it is determined the carrying value of an investment 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 an credit loss exists, the unrealized credit loss is included in earnings. There were no material credit losses as of March 31, 2020, and December 31, 2019.
Other Investments amounts are recorded in Other within Other Noncurrent Assets on the Condensed Consolidated Balance Sheets.
DUKE ENERGY
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
March 31, 2020
 
December 31, 2019
 
Gross

 
Gross

 
 
 
Gross

 
Gross

 
 
 
Unrealized

 
Unrealized

 
Estimated

 
Unrealized

 
Unrealized

 
Estimated

 
Holding

 
Holding

 
Fair

 
Holding

 
Holding

 
Fair

(in millions)
Gains

 
Losses

 
Value

 
Gains

 
Losses

 
Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
119

 
$

 
$

 
$
101

Equity securities
2,499

 
170

 
4,488

 
3,523

 
55

 
5,661

Corporate debt securities
26

 
16

 
642

 
37

 
1

 
603

Municipal bonds
10

 
2

 
404

 
13

 

 
368

U.S. government bonds
70

 

 
1,212

 
33

 
1

 
1,256

NDTF equity security contracts
20

 

 
20

 

 

 

Other debt securities
4

 
3

 
163

 
3

 

 
141

Total NDTF Investments
$
2,629

 
$
191

 
$
7,048

 
$
3,609

 
$
57

 
$
8,130

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
78

 
$

 
$

 
$
52

Equity securities
31

 
1

 
95

 
57

 

 
122

Corporate debt securities

 

 
89

 
3

 

 
67

Municipal bonds
6

 
1

 
98

 
4

 

 
94

U.S. government bonds
5

 

 
51

 
2

 

 
41

Other debt securities

 

 
52

 

 

 
56

Total Other Investments
$
42

 
$
2

 
$
463

 
$
66

 
$

 
$
432

Total Investments
$
2,671

 
$
193

 
$
7,511

 
$
3,675

 
$
57

 
$
8,562


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three months ended March 31, 2020, and 2019, were as follows.
 
Three Months Ended
(in millions)
March 31, 2020
 
March 31, 2019
FV-NI:
 
 
 
 Realized gains
$
23

 
$
35

 Realized losses
65

 
30

AFS:
 
 
 
 Realized gains
20

 
10

 Realized losses
6

 
11



71




FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


DUKE ENERGY CAROLINAS
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
March 31, 2020
 
December 31, 2019
 
Gross

 
Gross

 
 
 
Gross

 
Gross

 
 
 
Unrealized

 
Unrealized

 
Estimated

 
Unrealized

 
Unrealized

 
Estimated

 
Holding

 
Holding

 
Fair

 
Holding

 
Holding

 
Fair

(in millions)
Gains

 
Losses

 
Value

 
Gains

 
Losses

 
Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
33

 
$

 
$

 
$
21

Equity securities
1,355

 
81

 
2,498

 
1,914

 
8

 
3,154

Corporate debt securities
15

 
12

 
392

 
21

 
1

 
361

Municipal bonds
3

 
1

 
128

 
3

 

 
96

U.S. government bonds
35

 

 
502

 
16

 
1

 
578

Other debt securities
3

 
3

 
159

 
3

 

 
137

Total NDTF Investments
$
1,411

 
$
97


$
3,712

 
$
1,957

 
$
10

 
$
4,347


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three months ended March 31, 2020, and 2019, were as follows.
 
Three Months Ended
(in millions)
March 31, 2020
 
March 31, 2019
FV-NI:
 
 
 
 Realized gains
$
9

 
$
23

 Realized losses
45

 
21

AFS:
 
 
 
 Realized gains
12

 
9

 Realized losses
5

 
10


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.
 
March 31, 2020
 
December 31, 2019
 
Gross

 
Gross

 
 
 
Gross

 
Gross

 
 
 
Unrealized

 
Unrealized

 
Estimated

 
Unrealized

 
Unrealized

 
Estimated

 
Holding

 
Holding

 
Fair

 
Holding

 
Holding

 
Fair

(in millions)
Gains

 
Losses

 
Value

 
Gains

 
Losses

 
Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
86

 
$

 
$

 
$
80

Equity securities
1,144

 
89

 
1,990

 
1,609

 
47

 
2,507

Corporate debt securities
11

 
4

 
250

 
16

 

 
242

Municipal bonds
7

 
1

 
276

 
10

 

 
272

U.S. government bonds
35

 

 
710

 
17

 

 
678

NDTF equity security contracts
20

 

 
20

 

 

 

Other debt securities
1

 

 
4

 

 

 
4

Total NDTF Investments
$
1,218

 
$
94

 
$
3,336

 
$
1,652

 
$
47

 
$
3,783

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
69

 
$

 
$

 
$
49

Municipal bonds
5

 

 
53

 
3

 

 
51

Total Other Investments
$
5

 
$

 
$
122

 
$
3

 
$

 
$
100

Total Investments
$
1,223

 
$
94

 
$
3,458

 
$
1,655

 
$
47

 
$
3,883



72




FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three months ended March 31, 2020, and 2019, were as follows.
 
Three Months Ended
(in millions)
March 31, 2020
 
March 31, 2019
FV-NI:
 
 
 
 Realized gains
$
14

 
$
12

 Realized losses
20

 
9

AFS:
 
 
 
 Realized gains
5

 
1

 Realized losses
1

 
1

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.
 
March 31, 2020
 
December 31, 2019
 
Gross

 
Gross

 
 
 
Gross

 
Gross

 
 
 
Unrealized

 
Unrealized

 
Estimated

 
Unrealized

 
Unrealized

 
Estimated

 
Holding

 
Holding

 
Fair

 
Holding

 
Holding

 
Fair

(in millions)
Gains

 
Losses

 
Value

 
Gains

 
Losses

 
Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
51

 
$

 
$

 
$
53

Equity securities
881

 
79

 
1,631

 
1,258

 
21

 
2,077

Corporate debt securities
11

 
4

 
250

 
16

 

 
242

Municipal bonds
7

 
1

 
276

 
10

 

 
272

U.S. government bonds
34

 

 
436

 
16

 

 
403

Other debt securities
1

 

 
4

 

 

 
4

Total NDTF Investments
$
934

 
$
84

 
$
2,648

 
$
1,300

 
$
21

 
$
3,051

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
2

 
$

 
$

 
$
2

Total Other Investments
$

 
$

 
$
2

 
$

 
$

 
$
2

Total Investments
$
934

 
$
84

 
$
2,650

 
$
1,300

 
$
21

 
$
3,053


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three months ended March 31, 2020, and 2019, were as follows.
 
Three Months Ended
(in millions)
March 31, 2020
 
March 31, 2019
FV-NI:
 
 
 
Realized gains
$
14

 
$
10

Realized losses
20

 
8

AFS:
 
 
 
 Realized gains
5

 
1

 Realized losses
1

 
1



73




FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


DUKE ENERGY FLORIDA
The following table presents the estimated fair value of investments in debt and equity securities; equity investments are classified as FV-NI and debt investments are classified as AFS.
 
March 31, 2020
 
December 31, 2019
 
Gross

 
Gross

 
 
 
Gross

 
Gross

 
 
 
Unrealized

 
Unrealized

 
Estimated

 
Unrealized

 
Unrealized

 
Estimated

 
Holding

 
Holding

 
Fair

 
Holding

 
Holding

 
Fair

(in millions)
Gains

 
Losses

 
Value

 
Gains

 
Losses

 
Value

NDTF
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
35

 
$

 
$

 
$
27

Equity securities
263

 
10

 
359

 
351

 
26

 
430

U.S. government bonds
1

 

 
274

 
1

 

 
275

NDTF equity security contracts
20

 

 
20

 

 

 

Total NDTF Investments(a)
$
284

 
$
10

 
$
688

 
$
352

 
$
26

 
$
732

Other Investments
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
3

 
$

 
$

 
$
4

Municipal bonds
5

 

 
53

 
3

 

 
51

Total Other Investments
$
5

 
$

 
$
56

 
$
3

 
$

 
$
55

Total Investments
$
289

 
$
10

 
$
744

 
$
355

 
$
26

 
$
787

(a)
During the three months ended March 31, 2020, Duke Energy Florida continued to receive reimbursements from the NDTF for costs related to ongoing decommissioning activity of Crystal River Unit 3.
Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three months ended March 31, 2020, and 2019, were immaterial.
 
 
 
 

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.
 
March 31, 2020
 
December 31, 2019
 
Gross

 
Gross

 
 
 
Gross

 
Gross

 
 
 
Unrealized

 
Unrealized

 
Estimated

 
Unrealized

 
Unrealized

 
Estimated

 
Holding

 
Holding

 
Fair

 
Holding

 
Holding

 
Fair

(in millions)
Gains

 
Losses

 
Value

 
Gains

 
Losses

 
Value

Investments
 
 
 
 
 
 
 
 
 
 
 
Equity securities
$
26

 
$
1

 
$
63

 
$
43

 
$

 
$
81

Corporate debt securities

 

 
4

 

 

 
6

Municipal bonds
1

 
1

 
36

 
1

 

 
36

U.S. government bonds

 

 
3

 

 

 
2

Total Investments
$
27

 
$
2

 
$
106

 
$
44

 
$

 
$
125


Realized gains and losses, which were determined on a specific identification basis, from sales of FV-NI and AFS securities for the three months ended March 31, 2020, and 2019, were immaterial.

74




FINANCIAL STATEMENTS
INVESTMENTS IN DEBT AND EQUITY SECURITIES


DEBT SECURITY MATURITIES
The table below summarizes the maturity date for debt securities.
 
March 31, 2020
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Indiana

Due in one year or less
$
333

 
$
25

 
$
302

 
$
26

 
$
276

 
$
3

Due after one through five years
538

 
234

 
236

 
227

 
9

 
17

Due after five through 10 years
465

 
188

 
214

 
207

 
7

 
7

Due after 10 years
1,375

 
734

 
541

 
506

 
35

 
16

Total
$
2,711


$
1,181


$
1,293


$
966


$
327


$
43


10. FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.
Fair value measurements are classified in three levels based on the fair value hierarchy as defined by GAAP. Certain investments are not categorized within the fair value hierarchy. These investments are measured at fair value using the net asset value (NAV) per share practical expedient. The NAV is derived based on the investment cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.
Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.
Valuation methods of the primary fair value measurements disclosed below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as the New York Stock Exchange and Nasdaq Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.
Investments in debt securities
Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3.
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. 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.
Other fair value considerations
See Note 12 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2019, for a discussion of the valuation of goodwill and intangible assets.

75




FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the tables below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 8. See Note 9 for additional information related to investments by major security type for the Duke Energy Registrants.
 
March 31, 2020
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not Categorized

NDTF equity securities
$
4,488

$
4,440

$

$

$
48

NDTF debt securities
2,540

767

1,773



Other equity securities
95

95




Other debt securities
368

126

242



NDTF equity security contracts
20


20



Derivative assets
34

3

28

3


Total assets
7,545

5,431

2,063

3

48

Derivative liabilities
(390
)
(49
)
(250
)
(91
)

Net assets (liabilities)
$
7,155

$
5,382

$
1,813

$
(88
)
$
48

 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not Categorized

NDTF equity securities
$
5,684

$
5,633

$

$

$
51

NDTF debt securities
2,469

826

1,643



Other equity securities
122

122




Other debt securities
310

91

219



Derivative assets
25

3

7

15


Total assets
8,610

6,675

1,869

15

51

NDTF equity security contracts
(23
)

(23
)


Derivative liabilities
(277
)
(15
)
(145
)
(117
)

Net assets (liabilities)
$
8,310

$
6,660

$
1,701

$
(102
)
$
51


The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

Balance at beginning of period
 
$
(102
)
 
$
(113
)
Purchases, sales, issuances and settlements:
 
 
 
 
Settlements
 
(9
)
 
(12
)
Total gains included on the Condensed Consolidated Balance Sheet
 
23

 
10

Balance at end of period
 
$
(88
)
 
$
(115
)


76




FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
(in millions)
Total Fair Value

Level 1

Level 2

Not Categorized

NDTF equity securities
$
2,498

$
2,450

$

$
48

NDTF debt securities
1,214

182

1,032


Derivative assets
2


2


Total assets
3,714

2,632

1,034

48

Derivative liabilities
(74
)

(74
)

Net assets
$
3,640

$
2,632

$
960

$
48

 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Not Categorized

NDTF equity securities
$
3,154

$
3,103

$

$
51

NDTF debt securities
1,193

227

966


Total assets
4,347

3,330

966

51

Derivative liabilities
(49
)

(49
)

Net assets
$
4,298

$
3,330

$
917

$
51


PROGRESS ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
1,990

$
1,990

$

 
$
2,530

$
2,530

$

NDTF debt securities
1,326

585

741

 
1,276

599

677

Other debt securities
122

69

53

 
100

49

51

NDTF equity security contracts
20


20

 



Derivative assets
25


25

 
7


7

Total assets
3,483

2,644

839

 
3,913

3,178

735

NDTF equity security contracts



 
(23
)

(23
)
Derivative liabilities
(95
)

(95
)
 
(65
)

(65
)
Net assets
$
3,388

$
2,644

$
744

 
$
3,825

$
3,178

$
647


DUKE ENERGY PROGRESS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
1,631

$
1,631

$

 
$
2,077

$
2,077

$

NDTF debt securities
1,017

276

741

 
974

297

677

Other debt securities
2

2


 
2

2


Derivative assets
5


5

 



Total assets
2,655

1,909

746

 
3,053

2,376

677

Derivative liabilities
(51
)

(51
)
 
(49
)

(49
)
Net assets
$
2,604

$
1,909

$
695

 
$
3,004

$
2,376

$
628



77




FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

DUKE ENERGY FLORIDA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
359

$
359

$

 
$
453

$
453

$

NDTF debt securities
309

309


 
302

302


Other debt securities
56

3

53

 
55

4

51

NDTF equity security contracts
20


20

 



Derivative assets



 
7


7

Total assets
744

671

73

 
817

759

58

NDTF equity security contracts



 
(23
)

(23
)
Derivative liabilities
(29
)

(29
)
 
(1
)

(1
)
Net assets
$
715

$
671

$
44

 
$
793

$
759

$
34


DUKE ENERGY OHIO
The recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets were not material at March 31, 2020, and December 31, 2019.
DUKE ENERGY INDIANA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

 
Total Fair Value

Level 1

Level 2

Level 3

Other equity securities
$
63

$
63

$

$

 
$
81

$
81

$

$

Other debt securities
43


43


 
44


44


Derivative assets
2



2

 
13

2


11

Total assets
$
108

$
63

$
43

$
2

 
$
138

$
83

$
44

$
11

Derivative liabilities




 
(1
)
(1
)


Net assets
$
108

$
63

$
43

$
2

 
$
137

$
82

$
44

$
11


The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

Balance at beginning of period
 
$
11

 
$
22

Purchases, sales, issuances and settlements:
 
 
 
 
Settlements
 
(6
)
 
(10
)
Total losses included on the Condensed Consolidated Balance Sheet
 
(3
)
 
(7
)
Balance at end of period
 
$
2

 
$
5


78




FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

PIEDMONT
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
December 31, 2019
(in millions)
Total Fair Value

Level 1

Level 3

 
Total Fair Value

Level 1

Level 3

Derivative assets
$
3

$
3

$

 
$
1

$
1

$

Derivative liabilities
(91
)

(91
)
 
(117
)

(117
)
Net (liabilities) assets
$
(88
)
$
3

$
(91
)
 
$
(116
)
$
1

$
(117
)

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

Balance at beginning of period
 
$
(117
)
 
$
(141
)
Total gains and settlements
 
26

 
20

Balance at end of period
 
$
(91
)
 
$
(121
)
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
 
March 31, 2020
 
 
 
 
 
 
 
 
Weighted
 
Fair Value
 
 
 
 
 
Average
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Range
Duke Energy Ohio
 

 
 
 
 
 
 
FTRs
$
1

RTO auction pricing
FTR price – per MWh
$
0.04

-
$
3.29

$
1.03

Duke Energy Indiana
 

 
 
 
 
 
 
FTRs
2

RTO auction pricing
FTR price – per MWh
(0.37
)
-
6.06

0.54

Piedmont
 
 
 
 
 
 
 
Natural gas contracts
(91
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
1.64

-
2.41

1.94

Duke Energy
 
 
 
 
 
 
 
Total Level 3 derivatives
$
(88
)
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
Weighted
 
Fair Value
 
 
 
 
 
Average
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Range
Duke Energy Ohio
 

 
 
 
 
 
 
FTRs
$
4

RTO auction pricing
FTR price – per MWh
$
0.59

-
$
3.47

$
2.07

Duke Energy Indiana
 

 
 
 
 
 
 
FTRs
11

RTO auction pricing
FTR price – per MWh
(0.66
)
-
9.24

1.15

Piedmont
 
 
 
 
 
 
 
Natural gas contracts
(117
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
1.59

-
2.46

1.91

Duke Energy
 
 
 
 
 
 
 
Total Level 3 derivatives
$
(102
)
 
 
 
 
 
 


79




FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS

OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.
 
March 31, 2020
 
December 31, 2019
(in millions)
Book Value

 
Fair Value

 
Book Value

 
Fair Value

Duke Energy(a)
$
61,388

 
$
65,644

 
$
58,126

 
$
63,062

Duke Energy Carolinas
12,807

 
14,312

 
11,900

 
13,516

Progress Energy
19,355

 
21,802

 
19,634

 
22,291

Duke Energy Progress
9,059

 
9,798

 
9,058

 
9,934

Duke Energy Florida
7,706

 
8,831

 
7,987

 
9,131

Duke Energy Ohio
2,620

 
2,904

 
2,619

 
2,964

Duke Energy Indiana
4,603

 
5,433

 
4,057

 
4,800

Piedmont
2,385

 
2,551

 
2,384

 
2,642


(a)
Book value of long-term debt includes $1.4 billion at March 31, 2020, and $1.5 billion at December 31, 2019, of unamortized debt discount and premium, net of purchase accounting adjustments related to the mergers with Progress Energy and Piedmont that are excluded from fair value of long-term debt.
At both March 31, 2020, and December 31, 2019, 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.
11. VARIABLE INTEREST ENTITIES
CONSOLIDATED VIEs
The obligations of the consolidated VIEs discussed in the following paragraphs are nonrecourse to the Duke Energy Registrants. The registrants have no requirement to provide liquidity to, purchase assets of or guarantee performance of these VIEs unless noted in the following paragraphs.
No financial support was provided to any of the consolidated VIEs during the three months ended March 31, 2020, and the year ended December 31, 2019, 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. The sole source of funds to satisfy the related debt obligations is cash collections from the receivables. Amounts borrowed under the credit facilities are reflected on the Condensed Consolidated Balance Sheets as Long-Term Debt.
The most significant activity that impacts the economic performance of DERF, DEPR and DEFR are the decisions made to manage delinquent receivables. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are considered the primary beneficiaries and consolidate DERF, DEPR and DEFR, respectively, as they make those decisions. Due to the COVID-19 pandemic, as described in Note 1, the Duke Energy Registrants suspended customer disconnections for nonpayment. The impact of COVID-19 and the Duke Energy Registrant’s related response on customers’ ability to pay for service is uncertain, and it is reasonably possible eventual write-offs of customer receivables may increase over current estimates. See Note 3 for information about COVID-19 filings with state utility commissions.
Receivables Financing – CRC
CRC is a bankruptcy remote, special purpose entity indirectly owned by Duke Energy. On a revolving basis, CRC buys certain accounts receivable arising from the sale of electricity, natural gas and related services from Duke Energy Ohio and Duke Energy Indiana. CRC borrows amounts under a credit facility to buy the receivables from Duke Energy Ohio and Duke Energy Indiana. Borrowing availability from the credit facility is limited to the amount of qualified receivables sold to CRC. The sole source of funds to satisfy the related debt obligation is cash collections from the receivables. Amounts borrowed under the credit facility are reflected on Duke Energy's Condensed Consolidated Balance Sheets as Long-Term Debt.
The proceeds Duke Energy Ohio and Duke Energy Indiana receive from the sale of receivables to CRC are approximately 75% 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.

80




FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


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. Due to the COVID-19 pandemic, as described in Note 1, the Duke Energy Registrants suspended customer disconnections for nonpayment. The impact of COVID-19 and the Duke Energy Registrant’s related response on customers’ ability to pay for service is uncertain, and it is reasonably possible eventual write-offs of customer receivables may increase over current estimates. See Note 3 for information about COVID-19 filings with state utility commissions.
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 2023

 
December 2022

 
April 2023

 
April 2021

Credit facility amount
$
350

 
$
475

 
$
375

 
$
250

Amounts borrowed at March 31, 2020
350

 
475

 
325

 
250

Amounts borrowed at December 31, 2019
350

 
474

 
325

 
250

Restricted Receivables at March 31, 2020
467

 
616

 
410

 
331

Restricted Receivables at December 31, 2019
522

 
642

 
489

 
336


Nuclear Asset-Recovery Bonds – DEFPF
DEFPF is a bankruptcy remote, wholly owned special purpose subsidiary of Duke Energy Florida. DEFPF was formed in 2016 for the sole purpose of issuing nuclear asset-recovery bonds to finance Duke Energy Florida's unrecovered regulatory asset related to Crystal River Unit 3.
In 2016, DEFPF issued senior secured bonds and used the proceeds to acquire nuclear asset-recovery property from Duke Energy Florida. The nuclear asset-recovery property acquired includes the right to impose, bill, collect and adjust a non-bypassable nuclear asset-recovery charge from all Duke Energy Florida retail customers until the bonds are paid in full and all financing costs have been recovered. The nuclear asset-recovery bonds are secured by the nuclear asset-recovery property and cash collections from the nuclear asset-recovery charges are the sole source of funds to satisfy the debt obligation. The bondholders have no recourse to Duke Energy Florida.
DEFPF is considered a VIE primarily because the equity capitalization is insufficient to support its operations. Duke Energy Florida has the power to direct the significant activities of the VIE as described above and therefore Duke Energy Florida is considered the primary beneficiary and consolidates DEFPF.
The following table summarizes the impact of DEFPF on Duke Energy Florida's Condensed Consolidated Balance Sheets.
(in millions)
March 31, 2020

December 31, 2019

Receivables of VIEs
$
4

$
5

Regulatory Assets: Current
53

52

Current Assets: Other
13

39

Other Noncurrent Assets: Regulatory assets
980

989

Current Liabilities: Other
2

10

Current maturities of long-term debt
54

54

Long-Term Debt
1,028

1,057


Commercial Renewables
Certain of Duke Energy’s renewable energy facilities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Assets are restricted and cannot be pledged as collateral or sold to third parties without prior approval of debt holders. Additionally, Duke Energy has VIEs associated with tax equity arrangements entered into with third-party investors in order to finance the cost of renewable assets eligible for tax credits. The activities that most significantly impacted the economic performance of these renewable energy facilities were decisions associated with siting, negotiating PPAs and Engineering, Procurement and Construction agreements, and decisions associated with ongoing operations and maintenance-related activities. Duke Energy is considered the primary beneficiary and consolidates the entities as it is responsible for all of these decisions.

81




FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


The table below presents material balances reported on Duke Energy's Condensed Consolidated Balance Sheets related to Commercial Renewables VIEs.
(in millions)
March 31, 2020

December 31, 2019

Current Assets: Other
$
287

$
203

Property, Plant and Equipment: Cost
6,106

5,747

Accumulated depreciation and amortization
(1,094
)
(1,041
)
Other Noncurrent Assets: Other
82

106

Current maturities of long-term debt
162

162

Long-Term Debt
1,538

1,541

Other Noncurrent Liabilities: AROs
129

127

Other Noncurrent Liabilities: Other
258

228


NON-CONSOLIDATED VIEs
The following tables summarize the impact of non-consolidated VIEs on the Condensed Consolidated Balance Sheets.
 
March 31, 2020
 
Duke Energy
 
Duke

 
Duke

 
Pipeline

 
Commercial

 
Other

 
 
 
Energy

 
Energy

(in millions)
Investments

 
Renewables

 
VIEs 

 
Total

 
Ohio

 
Indiana

Receivables from affiliated companies
$

 
$
(1
)
 
$

 
$
(1
)
 
$
39

 
$
48

Investments in equity method unconsolidated affiliates
1,243

 
371

 

 
1,614

 

 

Total assets
$
1,243

 
$
370

 
$

 
$
1,613

 
$
39

 
$
48

Taxes accrued
(1
)
 

 

 
(1
)
 

 

Other current liabilities

 

 
3

 
3

 

 

Deferred income taxes
69

 

 

 
69

 

 

Other noncurrent liabilities
105

 

 
11

 
116

 

 

Total liabilities
$
173

 
$

 
$
14

 
$
187

 
$

 
$

Net assets (liabilities)
$
1,070

 
$
370

 
$
(14
)
 
$
1,426

 
$
39

 
$
48


 
December 31, 2019
 
Duke Energy
 
Duke

 
Duke

 
Pipeline

 
Commercial

 
Other

 
 
 
Energy

 
Energy

(in millions)
Investments

 
Renewables

 
VIEs

 
Total

 
Ohio

 
Indiana

Receivables from affiliated companies
$

 
$
(1
)
 
$

 
$
(1
)
 
$
64

 
$
77

Investments in equity method unconsolidated affiliates
1,179

 
300

 

 
1,479

 

 

Total assets
$
1,179

 
$
299

 
$

 
$
1,478

 
$
64

 
$
77

Taxes accrued
(1
)
 

 

 
(1
)
 

 

Other current liabilities

 

 
4

 
4

 

 

Deferred income taxes
59

 

 

 
59

 

 

Other noncurrent liabilities

 

 
11

 
11

 

 

Total liabilities
$
58


$


$
15


$
73


$


$

Net assets (liabilities)
$
1,121

 
$
299

 
$
(15
)
 
$
1,405

 
$
64

 
$
77


The Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above except for the PPA with OVEC, which is discussed below, and various guarantees, including Duke Energy's guarantee agreement to support its share of the ACP revolving credit facility. Duke Energy's maximum exposure to loss under the terms of the guarantee is $845 million, which represents 47% of the outstanding borrowings under the credit facility as of March 31, 2020. For more information on various guarantees, refer to Note 4.
Pipeline Investments
Duke Energy has investments in various joint ventures with pipeline projects currently under construction. These entities are considered VIEs due to having insufficient equity to finance their own activities without subordinated financial support. Duke Energy does not have the power to direct the activities that most significantly impact the economic performance, the obligation to absorb losses or the right to receive benefits of these VIEs and therefore does not consolidate these entities.

82




FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


The table below presents Duke Energy's ownership interest and investment balances in these joint ventures.
 
 
 
VIE Investment Amount (in millions)
 
Ownership
 
March 31,
 
December 31,
Entity Name
Interest
 
2020
 
2019
ACP(a)
47
%
 
$
1,243

 
$
1,179

Constitution(b)
24
%
 

 

Total
 
 
$
1,243

 
$
1,179


(a)
Duke Energy evaluated this investment for impairment as of March 31, 2020, and December 31, 2019, and determined that fair value approximated carrying value and therefore no impairment was necessary.
(b)
During the year ended December 31, 2019, Duke Energy recorded an OTTI related to Constitution. This charge resulted in the full write-down of Duke Energy's investment in Constitution.
Commercial Renewables
Duke Energy has investments in various renewable energy project entities. Some of these entities are VIEs due to Duke Energy issuing guarantees for debt service and operations and maintenance reserves in support of debt financings. Duke Energy does not consolidate these VIEs because power to direct and control key activities is shared jointly by Duke Energy and other owners. In 2019, Duke Energy acquired a majority ownership in a portfolio of distributed fuel cell projects from Bloom Energy Corporation. Duke Energy is not the primary beneficiary of the assets within the portfolio and does not consolidate the assets in the portfolio.
OVEC
Duke Energy Ohio’s 9% ownership interest in OVEC is considered a non-consolidated VIE due to OVEC having insufficient equity to finance its activities without subordinated financial support. The activities that most significantly impact OVEC's economic performance include fuel strategy and supply activities and decisions associated with ongoing operations and maintenance-related activities. Duke Energy Ohio does not have the unilateral power to direct these activities, and therefore, does not consolidate OVEC.
As a counterparty to an Inter-Company Power Agreement (ICPA), Duke Energy Ohio has a contractual arrangement to receive entitlements to capacity and energy from OVEC’s power plants through June 2040 commensurate with its power participation ratio, which is equivalent to Duke Energy Ohio's ownership interest. Costs, including fuel, operating expenses, fixed costs, debt amortization and interest expense, are allocated to counterparties to the ICPA based on their power participation ratio. The value of the ICPA is subject to variability due to fluctuation in power prices and changes in OVEC's cost of business. On March 31, 2018, FirstEnergy Solutions Corp (FES), a subsidiary of FirstEnergy Corp. and an ICPA counterparty with a power participation ratio of 4.85%, filed for Chapter 11 bankruptcy, which could increase costs allocated to the counterparties. On July 31, 2018, the bankruptcy court rejected the FES ICPA, which means OVEC is an unsecured creditor in the FES bankruptcy proceeding. In addition, certain proposed environmental rulemaking could result in future increased OVEC cost allocations. See Note 3 for additional information.
CRC
See discussion under Consolidated VIEs for additional information related to CRC.
Amounts included in Receivables from affiliated companies in the above table for Duke Energy Ohio and Duke Energy Indiana reflect their retained interest in receivables sold to CRC. These subordinated notes held by Duke Energy Ohio and Duke Energy Indiana are stated at fair value.
The following table shows the gross and net receivables sold.
 
Duke Energy Ohio
 
Duke Energy Indiana
(in millions)
March 31, 2020

 
December 31, 2019

 
March 31, 2020

 
December 31, 2019

Receivables sold
$
234

 
$
253

 
$
274

 
$
307

Less: Retained interests
39

 
64

 
48

 
77

Net receivables sold
$
195

 
$
189

 
$
226

 
$
230



83




FINANCIAL STATEMENTS
VARIABLE INTEREST ENTITIES


The following table shows sales and cash flows related to receivables sold.
 
Duke Energy Ohio
 
Duke Energy Indiana
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
(in millions)
2020

 
2019

 
2020

 
2019

Sales
 
 
 
 
 
 
 
Receivables sold
$
537

 
$
575

 
$
647

 
$
734

Loss recognized on sale
4

 
4

 
4

 
5

Cash flows
 
 
 
 
 
 
 
Cash proceeds from receivables sold
$
559

 
$
597

 
$
672

 
$
758

Return received on retained interests
2

 
2

 
2

 
3


Cash flows from sales of receivables are reflected within Cash Flows From Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows.
12. REVENUE
Duke Energy earns substantially all of its revenues through its reportable segments, Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables.
Electric Utilities and Infrastructure
Electric Utilities and Infrastructure earns the majority of its revenues through retail and wholesale electric service through the generation, transmission, distribution and sale of electricity. Duke Energy generally provides retail and wholesale electric service customers with their full electric load requirements or with supplemental load requirements when the customer has other sources of electricity.
The majority of wholesale revenues are full requirements contracts where the customers purchase the substantial majority of their energy needs and do not have a fixed quantity of contractually required energy or capacity. As such, related forecasted revenues are considered optional purchases. Supplemental requirements contracts that include contracted blocks of energy and capacity at contractually fixed prices have the following estimated remaining performance obligations:
 
Remaining Performance Obligations
(in millions)
2020

2021

2022

2023

2024

Thereafter

Total

Progress Energy
$
84

$
92

$
87

$
44

$
45

$
58

$
410

Duke Energy Progress
6

8

8

8

8


38

Duke Energy Florida
78

84

79

36

37

58

372

Duke Energy Indiana
8

5





13


Revenues for block sales are recognized monthly as energy is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates.
Gas Utilities and Infrastructure
Gas Utilities and Infrastructure earns its revenues through retail and wholesale natural gas service through the transportation, distribution and sale of natural gas. Duke Energy generally provides retail and wholesale natural gas service customers with all natural gas load requirements. Additionally, while natural gas can be stored, substantially all natural gas provided by Duke Energy is consumed by customers simultaneously with receipt of delivery.
Fixed-capacity payments under long-term contracts for the Gas Utilities and Infrastructure segment include minimum margin contracts and supply arrangements with municipalities and power generation facilities. Revenues for related sales are recognized monthly as natural gas is delivered and stand-ready service is provided, consistent with invoiced amounts and unbilled estimates. Estimated remaining performance obligations are as follows:
 
Remaining Performance Obligations
(in millions)
2020

2021

2022

2023

2024

Thereafter

Total

Piedmont
$
51

$
65

$
64

$
61

$
58

$
376

$
675


Commercial Renewables
Commercial Renewables earns the majority of its revenues through long-term PPAs and generally sells all of its wind and solar facility output, electricity and Renewable Energy Certificates (RECs) to customers. The majority of these PPAs have historically been accounted for as leases. For PPAs that are not accounted for as leases, the delivery of electricity and the delivery of RECs are considered separate performance obligations.

84




FINANCIAL STATEMENTS
REVENUE


Other
The remainder of Duke Energy’s operations is presented as Other, which does not include material revenues from contracts with customers.
Disaggregated Revenues
Disaggregated revenues are presented as follows:
 
Three Months Ended March 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
$
2,261

$
756

$
1,064

$
502

$
562

$
176

$
265

$

   General
1,492

549

648

319

329

114

181


   Industrial
693

269

216

154

62

35

175


   Wholesale
497

114

321

279

42

7

55


   Other revenues
191

60

118

63

55

20

16


Total Electric Utilities and Infrastructure revenue from contracts with customers
$
5,134

$
1,748

$
2,367

$
1,317

$
1,050

$
352

$
692

$

 
 
 
 
 
 
 
 
 
Gas Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
362

$

$

$

$

$
97

$

$
264

   Commercial
169





43


126

   Industrial
41





6


36

   Power Generation







11

   Other revenues
30





6


24

Total Gas Utilities and Infrastructure revenue from contracts with customers
$
602

$

$

$

$

$
152

$

$
461

 
 
 
 
 
 
 
 
 
Commercial Renewables
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
58

$

$

$

$

$

$

$

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
6

$

$

$

$

$

$

$

Total revenue from contracts with customers
$
5,800

$
1,748

$
2,367

$
1,317

$
1,050

$
504

$
692

$
461

 
 
 
 
 
 
 
 
 
Other revenue sources(a)
$
149

$

$
55

$
21

$
30

$
(6
)
$

$
51

Total revenues
$
5,949

$
1,748

$
2,422

$
1,338

$
1,080

$
498

$
692

$
512

(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.

85




FINANCIAL STATEMENTS
REVENUE


 
Three Months Ended March 31, 2019
 
 
Duke

 
Duke

Duke

Duke

Duke

 
(in millions)
Duke

Energy

Progress

Energy

Energy

Energy

Energy

 
By market or type of customer
Energy

Carolinas

Energy

Progress

Florida

Ohio

Indiana

Piedmont

Electric Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
2,370

$
760

$
1,114

$
536

$
578

$
189

$
306

$

   General
1,427

496

632

306

326

103

197


   Industrial
711

266

222

161

61

33

190


   Wholesale
541

119

353

315

38

14

54


   Other revenues
172

78

172

125

47

16

17


Total Electric Utilities and Infrastructure revenue from contracts with customers
$
5,221

$
1,719

$
2,493

$
1,443

$
1,050

$
355

$
764

$

 
 
 
 
 
 
 
 
 
Gas Utilities and Infrastructure
 
 
 
 
 
 
 
 
   Residential
$
414

$

$

$

$

$
112

$

$
302

   Commercial
206





49


157

   Industrial
48





7


42

   Power Generation







13

   Other revenues
63





8


56

Total Gas Utilities and Infrastructure revenue from contracts with customers
$
731

$

$

$

$

$
176

$

$
570

 
 
 
 
 
 
 
 
 
Commercial Renewables
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
42

$

$

$

$

$

$

$

 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
Revenue from contracts with customers
$
4

$

$

$

$

$

$

$

Total revenue from contracts with customers
$
5,998

$
1,719

$
2,493

$
1,443

$
1,050

$
531

$
764

$
570

 
 
 
 
 
 
 
 
 
Other revenue sources(a)
$
165

$
25

$
79

$
41

$
36

$

$
4

$
9

Total revenues
$
6,163

$
1,744

$
2,572

$
1,484

$
1,086

$
531

$
768

$
579

(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.
 
March 31, 2020
 
 
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
(10
)
(3
)
(4
)
(2
)
(2
)


(1
)
Credit Loss Expense
18

3

6

2

5

1


3

Balance at March 31, 2020
$
89

$
11

$
20

$
9

$
11

$
5

$
3

$
9


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 annually for trade and other receivables. Due to the COVID-19 pandemic, as described in Note 1, the Duke Energy Registrants suspended customer disconnections for nonpayment. The specific actions taken by each Duke Energy Registrant are described in Note 3. The impact of COVID-19 and Duke Energy’s related response on customers’ ability to pay for service is uncertain, and it is reasonably possible eventual write-offs of customer receivables may increase over current estimates.

86




FINANCIAL STATEMENTS
REVENUE



The aging of trade receivables is presented in the table below. Duke Energy considers receivables greater than 30 days outstanding past due.
 
March 31, 2020
 
 
Duke

 
Duke

Duke

Duke

Duke

 
 
Duke

Energy

Progress

Energy

Energy

Energy

Energy

 
(in millions)
Energy

Carolinas

Energy

Progress

Florida

Ohio

Indiana

Piedmont

Unbilled Receivables
$
716

$
285

$
195

$
85

$
110

$
1

$
16

$
32

0-30 days
1,584

448

585

321

262

45

24

134

30-60 days
216

69

67

44

23

9

1

18

60-90 days
65

18

20

14

6

2

1

5

90+ days
145

19

57

32

25

32

11

11

Trade and Other Receivables
$
2,726

$
839

$
924

$
496

$
426

$
89

$
53

$
200



UNBILLED REVENUE
Unbilled revenues are recognized by applying customer billing rates to the estimated volumes of energy or natural gas delivered but not yet billed. Unbilled revenues can vary significantly from period to period as a result of seasonality, weather, customer usage patterns, customer mix, average price in effect for customer classes, timing of rendering customer bills and meter reading schedules and the impact of weather normalization or margin decoupling mechanisms.
Unbilled revenues are included within Receivables and Receivables of VIEs on the Condensed Consolidated Balance Sheets as shown in the following table.
(in millions)
March 31, 2020

 
December 31, 2019

Duke Energy
$
716

 
$
843

Duke Energy Carolinas
285

 
298

Progress Energy
195

 
217

Duke Energy Progress
85

 
122

Duke Energy Florida
110

 
95

Duke Energy Ohio
1

 
1

Duke Energy Indiana
16

 
16

Piedmont
32

 
78


Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail accounts receivable, including receivables for unbilled revenues, to an affiliate, CRC, and account for the transfers of receivables as sales. Accordingly, the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. See Note 11 for further information. These receivables for unbilled revenues are shown in the table below.
(in millions)
March 31, 2020

 
December 31, 2019

Duke Energy Ohio
$
61

 
$
82

Duke Energy Indiana
94

 
115


13. 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, 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, by the diluted weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options and equity forward sale agreements, were exercised or settled. Duke Energy’s participating securities are restricted stock units that are entitled to dividends declared on Duke Energy common stock during the restricted stock unit’s vesting periods. Dividends declared on preferred stock are recorded on the Condensed 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.

87




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.
 
Three Months Ended March 31,
(in millions, except per share amounts)
2020

 
2019

Income from continuing operations available to Duke Energy common stockholders excluding impact of participating securities and including accumulated preferred stock dividends adjustment
$
911

 
$
898

 
 
 
 
Weighted average common shares outstanding – basic
734

 
727

Equity forwards
2

 

Weighted average common shares outstanding – diluted
736

 
727

EPS from continuing operations available to Duke Energy common stockholders
 
 
 
Basic and diluted
$
1.24

 
$
1.24

Potentially dilutive items excluded from the calculation(a)
2

 
2

Dividends declared per common share
$
0.945

 
$
0.9275

Dividends declared on Series A preferred stock per depositary share(b)
$
0.359

 
$

Dividends declared on Series B preferred stock per share(c)
$
24.917

 
$

(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.
Common Stock
In November 2019, Duke Energy filed a prospectus supplement and executed an Equity Distribution Agreement (EDA) under which it may sell up to $1.5 billion of its common stock through an at-the-market (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 2022. In March 2020, Duke Energy marketed approximately 940,000 shares of common stock through an equity forward transaction under the ATM with an initial forward price of $89.76 per share.
Separately, in November 2019, Duke Energy marketed an equity offering of 28.75 million shares of common stock through an Underwriting Agreement. In connection with the offering, Duke Energy entered into an equity forward sales agreement with an initial forward price of $85.99 per share.
The equity forward sales agreements require Duke Energy to either physically settle the transaction by issuing shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement, or net settle in whole or in part through the delivery or receipt of cash or shares. The settlement alternatives are at Duke Energy's election. Settlement of the forward sales agreements are expected to occur on or prior to December 31, 2020. Until settlement of the equity forwards, EPS dilution resulting from the agreements, if any, will be determined under the treasury stock method.
14. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT RETIREMENT PLANS
Duke Energy and certain subsidiaries maintain, and the Subsidiary Registrants participate in, qualified and non-qualified, non-contributory defined benefit retirement plans. Duke Energy's policy is to fund amounts on an actuarial basis to provide assets sufficient to meet benefit payments to be paid to plan participants.

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EMPLOYEE BENEFIT PLANS


QUALIFIED PENSION PLANS
The following tables include the components of net periodic pension costs for qualified pension plans.
 
Three Months Ended March 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
$
41

 
$
12

 
$
12

 
$
6

 
$
5

 
$
1

 
$
2

 
$
1

Interest cost on projected benefit obligation
67

 
16

 
21

 
10

 
12

 
4

 
6

 
2

Expected return on plan assets
(143
)
 
(36
)
 
(48
)
 
(22
)
 
(25
)
 
(7
)
 
(11
)
 
(5
)
Amortization of actuarial loss
34

 
7

 
11

 
5

 
6

 
2

 
3

 
2

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

 

 

 

 
(2
)
Amortization of settlement charges
2

 
1

 
1

 

 

 

 

 

Net periodic pension costs
$
(7
)
 
$
(2
)
 
$
(4
)
 
$
(1
)
 
$
(2
)
 
$

 
$

 
$
(2
)
 
Three Months Ended March 31, 2019
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Service cost
$
37

 
$
12

 
$
11

 
$
6

 
$
4

 
$
1

 
$
2

 
$
1

Interest cost on projected benefit obligation
83

 
20

 
26

 
12

 
14

 
5

 
6

 
3

Expected return on plan assets
(143
)
 
(38
)
 
(44
)
 
(23
)
 
(22
)
 
(8
)
 
(11
)
 
(5
)
Amortization of actuarial loss
24

 
6

 
9

 
3

 
6

 
1

 
2

 
2

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

 

 

 

 
(3
)
Net periodic pension costs
$
(7
)
 
$
(2
)
 
$
1

 
$
(2
)
 
$
2

 
$
(1
)
 
$
(1
)
 
$
(2
)

NON-QUALIFIED PENSION PLANS
Net periodic pension costs for non-qualified pension plans were not material for the three months ended March 31, 2020, and 2019.
OTHER POST-RETIREMENT BENEFIT PLANS
Net periodic costs for other post-retirement benefit plans were not material for the three months ended March 31, 2020, and 2019.
15. INCOME TAXES
EFFECTIVE TAX RATES
The ETRs from continuing operations for each of the Duke Energy Registrants are included in the following table.
 
Three Months Ended
 
March 31,
 
2020

 
2019

Duke Energy
13.3
%
 
9.6
%
Duke Energy Carolinas
16.1
%
 
17.7
%
Progress Energy
17.5
%
 
17.3
%
Duke Energy Progress
17.1
%
 
17.8
%
Duke Energy Florida
20.0
%
 
19.3
%
Duke Energy Ohio
17.7
%
 
16.9
%
Duke Energy Indiana
20.8
%
 
24.1
%
Piedmont
10.1
%
 
21.8
%

The increase in the ETR for Duke Energy for the three months ended March 31, 2020, was primarily due to an adjustment related to the income tax recognition for equity method investments recorded in the first quarter of 2019, partially offset by an increase in the amortization of excess deferred taxes. The equity method investment adjustment was immaterial and relates to prior years.
The decrease in the ETR for Duke Energy Carolinas for the three months ended March 31, 2020, was primarily due to an increase in the amortization of excess deferred taxes.
The decrease in the ETR for Duke Energy Indiana for the three months ended March 31, 2020, was primarily due to an increase in the amortization of excess deferred taxes.

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FINANCIAL STATEMENTS
INCOME TAXES


The decrease in the ETR for Piedmont for the three months ended March 31, 2020, was primarily due to an increase in the amortization of excess deferred taxes.
OTHER TAX MATTERS
On March 27, 2020, the CARES Act was enacted. The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic. Among other provisions, the CARES Act accelerates the remaining AMT credit refund allowances resulting in taxpayers being able to immediately claim a refund in full for any AMT credit carryforwards. As a result, the remaining AMT credit carryforwards have been reclassified to a current receivable included in Other within Current Assets on the Condensed Consolidated Balance Sheets as of March 31, 2020. The total income tax receivable related to AMT credit carryforwards is approximately $572 million. The other provisions within the CARES Act do not materially impact Duke Energy's income tax accounting. See Note 1 for information on COVID-19.
16. SUBSEQUENT EVENTS
For information on subsequent events related to regulatory matters, commitments and contingencies and derivatives and hedging, see Notes 3, 4 and 8.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy and Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. However, none of the registrants make any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.
DUKE ENERGY
Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the three months ended March 31, 2020, and with Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2019.
Executive Overview
COVID-19
The COVID-19 pandemic is having a significant impact on global health and economic environments. In the first quarter of 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic, and President Trump proclaimed that the COVID-19 outbreak in the United States constitutes a national emergency. The Duke Energy Registrants are monitoring developments closely, have taken steps to mitigate the impacts to our business, and have a pandemic response plan in place to protect our employees, customers and communities. Financial impacts to Duke Energy’s first quarter 2020 results were not material. Volumes are expected to decline in the second quarter and then begin a gradual rebound thereafter. The Duke Energy Registrants are developing cost containment plans to offset revenue declines. 
Employees. The health of our employees is of paramount importance. Power plants and electricity and natural gas delivery facilities are staffed. Employees who are not involved with power generation, power delivery, customer service or certain other functions have been performing their work duties remotely from home. Employees who need to interact with customers in-person are following the Centers for Disease Control and Prevention’s safety guidelines, including social distancing and use of face masks. Operating procedure changes include additional cleaning and disinfection procedures at our facilities.
Customers. The Duke Energy Subsidiary Registrants voluntarily announced, in the first quarter of 2020, a suspension of disconnections for nonpayment in order to give customers experiencing financial hardship extra time to make payments. This is expected to result in an increase in future charge-offs over historical levels. In addition, several Subsidiary Registrants are waiving late payment charges and other fees for credit cards and returned checks. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters" for additional information. The COVID-19 pandemic and stay-at-home orders have impacted commercial and industrial customers, and many of them have suspended operations which is impacting the Duke Energy Registrants’ volumes. Several large industrial customers have announced plans to restart their businesses in May.
Communities. The Duke Energy Foundation announced approximately $6 million in donations and grants as of April 30, 2020, to support hunger relief, local health and human services nonprofits, and education initiatives across the Duke Energy Registrants’ service territories.
Balance Sheet Strength and Liquidity Assurance. See Notes 5 and 13 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders Equity," respectively, for additional information.
Duke Energy issued approximately $1.5 billion of debt during the first quarter of 2020.
Duke Energy entered into and borrowed approximately $1.7 billion under a 364-day Term Loan Credit Agreement.
Duke Energy drew down the remaining $500 million of availability under its existing $1 billion Three-Year Revolving Credit Facility.
Duke Energy issued $85 million of common stock through a forward sales agreement which is expected to settle on or prior to December 31, 2020.

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Rate Case activity and delays. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters" for additional information.
Duke Energy Carolinas and Duke Energy Progress filed general rate cases with the NCUC on September 30, 2019, and October 30, 2019, respectively, requesting rate increases go into effect in the third quarter of 2020. On March 16, 2020, the NCUC issued an Order Postponing Hearing and Addressing Procedural Matters, which postponed the Duke Energy Carolinas evidentiary hearing until further order by the commission. On March 24, 2020, the NCUC suspended the procedural schedule and postponed the previously scheduled evidentiary hearing on the Duke Energy Progress case indefinitely. On April 7, 2020, the NCUC issued an order partially resuming the procedural schedule. On May 6, 2020, Duke Energy Carolinas, Duke Energy Progress and the Public Staff filed a joint motion requesting that the NCUC issue an order scheduling one consolidated evidentiary hearing to consider the companies’ applications for net rate increases. The joint motion suggests, health and safety permitting, that the commission consider the possibility of holding the consolidated hearing in July.
Duke Energy Florida filed a petition with the FPSC on April 2, 2020, to accelerate a fuel cost refund to customers in the month of May 2020. Typically, the refund would be made over the course of 2021. The FPSC approved the petition on April 28, 2020.
Duke Energy Ohio filed an application on April 16, 2020, for a Reasonable Arrangement to temporarily lower the minimum bill for demand-metered commercial and industrial customers. The proposal is conditioned on full recovery via Duke Energy Ohio's existing Economic Competitiveness Fund Rider, which has been used by Duke Energy Ohio in the past for other reasonable arrangements with customers. On April 24, 2020, the Staff of the PUCO filed its recommendation finding Duke Energy Ohio’s application is reasonable and that the PUCO should approve it.
Duke Energy Kentucky filed an electric rate case with the KPSC on September 3, 2019. On April 27, 2020, the KPSC issued its decision and new customer rates were effective on May 1, 2020.
Duke Energy Indiana filed a general rate case with the IURC on July 2, 2019. Hearings concluded on February 7, 2020, with rates expected to be effective mid-2020. Duke Energy Indiana is awaiting an order from the IURC.
Policymaker actions. The CARES Act was signed by President Trump on March 27, 2020. Duke Energy Registrants will benefit from certain provisions such as the AMT acceleration and deferral of certain payroll taxes. See Note 15 to the Condensed Consolidated Financial Statements, “Income Taxes” for additional information.
ACP and other assets. At present, we have not experienced any delays in ACP construction activity related to COVID-19, but we are constantly monitoring that important project. We experienced no impairments of long-lived or intangible assets resulting from this pandemic in the first quarter 2020.
Results of Operations
Non-GAAP Measures
Management’s Discussion and Analysis includes financial information prepared in accordance with GAAP in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted EPS discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures presented may not be comparable to similarly titled measures used by other companies because other companies may not calculate the measures in the same manner.
Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted EPS. Adjusted earnings and adjusted EPS represent income from continuing operations available to Duke Energy common stockholders in dollar and per share amounts, adjusted for the dollar and per share impact of special items. As discussed below, special items represent certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance. The most directly comparable GAAP measures for adjusted earnings and adjusted EPS are GAAP Reported Earnings and GAAP Reported EPS, respectively.
The special item in the periods presented below includes a reversal of 2018 severance costs which were deferred as a result of the partial settlement in the Duke Energy Carolinas 2019 North Carolina rate case.
Three Months Ended March 31, 2020, as compared to March 31, 2019
GAAP Reported EPS was $1.24 for the first quarter of 2020 and the first quarter of 2019. GAAP reported earnings increased due to positive rate case impacts and growth in Commercial Renewables. This was offset by lower returns on corporate held investments and unfavorable weather.
As discussed above, management also evaluates financial performance based on adjusted EPS. Duke Energy’s first quarter 2020 adjusted EPS was $1.14 compared to $1.24 for the first quarter of 2019.

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The following table reconciles non-GAAP measures, including adjusted EPS, to their most directly comparable GAAP measures.
 
Three Months Ended March 31,
 
2020
 
2019
(in millions, except per share amounts)
Earnings
 
EPS
 
Earnings
 
EPS
GAAP Reported Earnings/GAAP Reported EPS
$
899

 
$
1.24

 
$
900

 
$
1.24

Adjustments:
 
 
 
 
 
 
 
Severance(a)
(75
)
 
(0.10
)
 

 

Adjusted Earnings/Adjusted EPS
$
824

 
$
1.14

 
$
900

 
$
1.24

(a)    Net of tax expense of $23 million.
SEGMENT RESULTS
The remaining information presented in this discussion of results of operations is on a GAAP basis. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends. Segment income includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements.
Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. See Note 2 to the Condensed Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.
Electric Utilities and Infrastructure
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

 
Variance

Operating Revenues
 
$
5,183

 
$
5,329

 
$
(146
)
Operating Expenses
 
 
 
 
 
 
Fuel used in electric generation and purchased power
 
1,467

 
1,630

 
(163
)
Operation, maintenance and other
 
1,325

 
1,282

 
43

Depreciation and amortization
 
977

 
947

 
30

Property and other taxes
 
303

 
301

 
2

Impairment charges
 
2

 

 
2

Total operating expenses
 
4,074

 
4,160

 
(86
)
Gains (Losses) on Sales of Other Assets and Other, net
 
1

 
(3
)
 
4

Operating Income
 
1,110

 
1,166

 
(56
)
Other Income and Expenses, net
 
85

 
91

 
(6
)
Interest Expense
 
339

 
338

 
1

Income Before Income Taxes
 
856

 
919

 
(63
)
Income Tax Expense
 
151

 
169

 
(18
)
Segment Income
 
$
705

 
$
750

 
$
(45
)
 
 
 
 
 
 


Duke Energy Carolinas GWh sales
 
21,236

 
21,828

 
(592
)
Duke Energy Progress GWh sales
 
15,670

 
16,348

 
(678
)
Duke Energy Florida GWh sales
 
8,617

 
8,321

 
296

Duke Energy Ohio GWh sales
 
5,823

 
6,164

 
(341
)
Duke Energy Indiana GWh sales
 
7,606

 
8,033

 
(427
)
Total Electric Utilities and Infrastructure GWh sales
 
58,952

 
60,694

 
(1,742
)
Net proportional MW capacity in operation
 
49,561

 
49,725

 
(164
)
Three Months Ended March 31, 2020, as compared to March 31, 2019
Electric Utilities and Infrastructure’s results were driven by unfavorable weather and lower wholesale revenues, partially offset by higher revenues resulting from the South Carolina retail rate cases and Duke Energy Florida base and solar rate adjustments. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $147 million decrease in fuel revenues primarily due to lower fuel cost recovery;
a $45 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year; and

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a $17 million decrease in wholesale revenues, net of fuel, primarily due to coal ash cost recovery in the prior year at Duke Energy Progress.
Partially offset by:
a $19 million increase due to higher pricing from South Carolina retail rate case, net of a return of EDIT to customers;
a $17 million increase in retail pricing due to Duke Energy Florida's base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment; and
a $17 million increase in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
a $163 million decrease in fuel used in electric generation and purchased power primarily due to lower demand and changes in generation mix at Duke Energy Progress and lower coal and natural gas costs and lower amortization of deferred fuel costs at Duke Energy Indiana.
Partially offset by:
a $43 million increase in operation, maintenance and other expense primarily due to higher employee benefit costs and increased vegetation management costs; and
a $30 million increase in depreciation and amortization expense primarily due to additional plant in service and new depreciation rates associated with the South Carolina retail rate case.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income. The ETRs for the three months ended March 31, 2020, and 2019, were 17.6% and 18.4%, respectively.
Matters Impacting Future Electric Utilities and Infrastructure Results
The COVID-19 pandemic has not had a material impact on Electric Utilities and Infrastructure as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Electric Utilities and Infrastructure results of operations, financial position and cash flows in the future. Electric Utilities and Infrastructure will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Electric Utilities and Infrastructure customers, suppliers and partners and could cause Electric Utilities and Infrastructure to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Electric Utilities and Infrastructure also has various pending rate case proceedings that have been delayed. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the two remaining basins, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Electric Utilities and Infrastructure's results of operations, financial position and cash flows.
On May 21, 2019, Duke Energy Carolinas and Duke Energy Progress received orders from the PSCSC granting the companies’ requests for retail rate increases but denying recovery of certain coal ash costs. Duke Energy Carolinas and Duke Energy Progress have appealed these decisions to the South Carolina Supreme Court and those appeals are pending. Electric Utilities and Infrastructure's results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
In 2019, Duke Energy Indiana filed a general rate case with the IURC, and Duke Energy Carolinas and Duke Energy Progress filed general rate cases with the NCUC. The outcome of these rate cases could materially impact Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
On June 22, 2018, Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas and Duke Energy Progress have petitioned for deferral of future grid improvement costs in their 2019 rate cases. Electric Utilities and Infrastructure's results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territories of Duke Energy Carolinas and Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. In September 2019, Hurricane Dorian impacted Duke Energy Progress and Duke Energy Florida's service territories. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Electric Utilities and Infrastructure's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.

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On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal ash. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana's results of operations, financial position and cash flows.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2019, for discussion of risks associated with the Tax Act.
Gas Utilities and Infrastructure
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

 
Variance

Operating Revenues
 
$
664

 
$
756

 
$
(92
)
Operating Expenses
 
 
 
 
 
 
Cost of natural gas
 
199

 
327

 
(128
)
Operation, maintenance and other
 
110

 
110

 

Depreciation and amortization
 
66

 
65

 
1

Property and other taxes
 
30

 
33

 
(3
)
Total operating expenses
 
405

 
535

 
(130
)
Operating Income
 
259

 
221

 
38

Other Income and Expenses, net
 
49

 
40

 
9

Interest Expense
 
31

 
30

 
1

Income Before Income Taxes
 
277

 
231

 
46

Income Tax Expense
 
28

 
5

 
23

Segment Income
 
$
249

 
$
226

 
$
23

 
 


 
 
 
 
Piedmont LDC throughput (dekatherms)
 
148,503,995

 
151,662,741

 
(3,158,746
)
Duke Energy Midwest LDC throughput (Mcf)
 
33,785,834

 
38,538,272

 
(4,752,438
)
Three Months Ended March 31, 2020, as compared to March 31, 2019
Gas Utilities and Infrastructure’s results were impacted by an increase in operating income primarily due to the North Carolina base rate case and IMR, partially offset by prior year tax benefits related to AFUDC equity from ACP. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
a $134 million decrease due to lower natural gas costs passed through to customers and lower volumes due to warmer weather;
a $20 million decrease due to return of EDIT to customers; and
a $7 million decrease due to NCUC approval related to tax reform accounting from fixed-rate contracts in the prior year.
Partially offset by:
a $53 million increase due to North Carolina base rate case increases; and
a $12 million increase due to North Carolina IMR increases.
Operating Expenses. The variance was driven primarily by:
a $128 million decrease in cost of natural gas due to lower natural gas prices, lower volumes and decreased off-system sales natural gas costs.
Other Income and Expenses, net. The variance was driven primarily by higher equity earnings from ACP in the current year.
Income Tax Expense. The increase in tax expense was primarily due to an adjustment, recorded in the first quarter of 2019, related to the income tax recognition for equity method investments and an increase in pretax income, partially offset by an increase in the amortization of excess deferred taxes. The ETRs for the three months ended March 31, 2020, and 2019, were 10.1% and 2.2%, respectively. The increase in the ETR was primarily due to an adjustment related to the income tax recognition for equity method investments recorded in the first quarter of 2019, partially offset by an increase in the amortization of excess deferred taxes. The equity method investment adjustment was immaterial and relates to prior years.

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SEGMENT RESULTS — GAS UTILITIES AND INFRASTRUCTURE


Matters Impacting Future Gas Utilities and Infrastructure Results
The COVID-19 pandemic has not had a material impact on Gas Utilities and Infrastructure as of March 31, 2020; however we cannot predict the extent to which the COVID-19 pandemic will impact Gas Utilities and Infrastructure results of operations, financial position and cash flows in the future. Gas Utilities and Infrastructure will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Gas Utilities and Infrastructure customers, suppliers and partners and could cause Gas Utilities and Infrastructure to experience an increase in certain costs, such as bad debt, or cause constructions delays with ACP. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
Gas Utilities and Infrastructure has a 47% ownership interest in ACP, which is building an approximately 600-mile interstate natural gas pipeline intended to transport diverse natural gas supplies into southeastern markets. Affected states (West Virginia, Virginia and North Carolina) have issued certain necessary permits; the project remains subject to other pending federal and state approvals, which will allow full construction activities to begin. In 2018, FERC issued a series of Notices to Proceed, which authorized the project to begin certain construction-related activities along the pipeline route. Given the legal challenges and ongoing discussions with customers, ACP expects the project to enter full in-service in the first half of 2022.The delays resulting from legal challenges have impacted the cost for the project. Project cost is approximately $8 billion, excluding financing costs. This estimate is based on the current facts available around construction costs and timelines, and is subject to future changes as those facts develop. Abnormal weather, work delays (including delays due to judicial or regulatory action or COVID-19 social distancing) and other conditions may result in cost or schedule modifications, a suspension of AFUDC for ACP and/or impairment charges potentially material to Duke Energy's cash flows, financial position and results of operations. ACP and Duke Energy will continue to consider their options with respect to the foregoing given their existing contractual and legal obligations. See Notes 3 and 11 to the Condensed Consolidated Financial Statements, "Regulatory Matters" and "Variable Interest Entities," respectively, for additional information.
On November 13, 2013, the PUCO issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Duke Energy Ohio has filed for a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact on Gas Utilities and Infrastructure’s results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
Commercial Renewables
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

 
Variance

Operating Revenues
 
$
129

 
$
106

 
$
23

Operating Expenses
 
 
 
 
 
 
Operation, maintenance and other
 
69

 
66

 
3

Depreciation and amortization
 
48

 
40

 
8

Property and other taxes
 
8

 
6

 
2

Total operating expenses
 
125

 
112

 
13

Operating Income (Loss)
 
4

 
(6
)
 
10

Other Income and Expenses, net
 
(1
)
 
(2
)
 
1

Interest Expense
 
18

 
21

 
(3
)
Loss Before Income Taxes
 
(15
)
 
(29
)
 
14

Income Tax Benefit
 
(24
)
 
(35
)
 
11

Less: Loss Attributable to Noncontrolling Interests
 
(48
)
 
(7
)
 
(41
)
Segment Income
 
$
57

 
$
13

 
$
44

 
 
 
 
 
 
 
Renewable plant production, GWh
 
2,437

 
2,068

 
369

Net proportional MW capacity in operation(a)
 
3,502

 
2,996

 
506

(a)
Certain projects are included in tax equity structures where investors have differing interests in the project's economic attributes. One hundred percent of the tax equity project's capacity is included in the table above.
Three Months Ended March 31, 2020, as compared to March 31, 2019
Commercial Renewables' results were favorable primarily due to new tax equity structures and favorable wind revenue. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The increase was primarily due to favorable wind portfolio revenue as a result of favorable market pricing, favorable wind resource and new solar projects placed in service.
Operating Expenses. The increase was primarily due to higher depreciation expense as a result of new projects placed in service.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by an increase in taxes associated with Duke Energy's interest in tax equity projects and a decrease in pretax losses.

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MD&A
SEGMENT RESULTS — COMMERCIAL RENEWABLES


Loss Attributable to Noncontrolling Interests The increase was primarily due to new tax equity structures.
Matters Impacting Future Commercial Renewables Results
The COVID-19 pandemic has not had a material impact on Commercial Renewables as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Commercial Renewables results of operations, financial position and cash flows in the future. Commercial Renewables will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Commercial Renewables customers, suppliers and partners and could cause Commercial Renewables to experience delays in project construction and availability of financing. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
Commercial Renewables continues to experience growth with tax equity structures; however, the future expiration of federal tax incentives could result in adverse impacts to future results of operations, financial position and cash flows.
Duke Energy continues to monitor recoverability of its renewable merchant plants principally in the Electric Reliability Council of Texas West market, due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas prices. Although these assets were not impaired, a continued decline in energy market pricing would likely result in a future impairment. Impairment of these assets could result in adverse impacts to the future results of operations, financial position and cash flows of Commercial Renewables.
Other
 
 
Three Months Ended March 31,
(in millions)
 
2020

 
2019

 
Variance

Operating Revenues
 
$
23

 
$
21

 
$
2

Operating Expenses
 
(89
)
 
28

 
(117
)
Operating Income (Loss)
 
112

 
(7
)
 
119

Other Income and Expenses, net
 
(33
)
 
44

 
(77
)
Interest Expense
 
171

 
171

 

Loss Before Income Taxes
 
(92
)
 
(134
)
 
42

Income Tax Benefit
 
(19
)
 
(45
)
 
26

Less: Preferred Dividends
 
39

 

 
39

Net Loss
 
$
(112
)
 
$
(89
)
 
$
(23
)
Three Months Ended March 31, 2020, as compared to March 31, 2019
The variance was driven by lower returns on investments and the declaration of preferred stock dividends, partially offset by a reversal of corporate allocated severance costs. The following is a detailed discussion of the variance drivers by line item.
Operating Expenses. The decrease was primarily driven by the deferral of 2018 corporate allocated severance costs due to the partial settlement between Duke Energy Carolinas and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case.
Other Income and Expenses, net. The variance was primarily due to lower returns on investments that fund certain employee benefit obligations as well as lower Bison investment income.
Income Tax Benefit. The decrease in the tax benefit was primarily driven by a decrease in pretax losses.
Preferred Dividends. The variance was driven by the declaration of preferred stock dividends on preferred stock issued in 2019.
Matters Impacting Future Other Results
The COVID-19 pandemic has not had a material impact on Other as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Other results of operations, financial position and cash flows in the future. Other will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.

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MD&A
DUKE ENERGY CAROLINAS


DUKE ENERGY CAROLINAS
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
$
1,748

 
$
1,744

 
$
4

Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
453

 
472

 
(19
)
Operation, maintenance and other
386

 
440

 
(54
)
Depreciation and amortization
343

 
317

 
26

Property and other taxes
81

 
80

 
1

Impairment charges
2

 

 
2

Total operating expenses
1,265

 
1,309

 
(44
)
Gains on Sales of Other Assets and Other, net
1

 

 
1

Operating Income
484

 
435

 
49

Other Income and Expenses, net
43

 
31

 
12

Interest Expense
123

 
110

 
13

Income Before Income Taxes
404

 
356

 
48

Income Tax Expense
65

 
63

 
2

Net Income
$
339

 
$
293

 
$
46

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
2020

Residential sales
(5.1
)%
General service sales
(0.1
)%
Industrial sales
(1.2
)%
Wholesale power sales
(3.0
)%
Joint dispatch sales
(54.0
)%
Total sales
(2.7
)%
Average number of customers
1.8
 %
Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $23 million increase in weather-normal retail sales volumes; and
an $11 million increase due to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers.
Partially offset by:
a $26 million decrease in retail sales due to unfavorable weather in the current year.
Operating Expenses. The variance was driven primarily by:
a $54 million decrease in operation, maintenance and other expense primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Carolinas and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, partially offset by higher storm restoration costs; and
a $19 million decrease in fuel used in electric generation and purchased power primarily due to changes in the generation mix.
Partially offset by:
a $26 million increase in depreciation and amortization expense primarily due to additional plant in service and new depreciation rates associated with the South Carolina rate case.
Other Income and Expenses, net. The variance was primarily due to higher AFUDC equity in the current year.
Interest Expense. The variance was primarily due to higher debt outstanding in the current year.

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MD&A
DUKE ENERGY CAROLINAS


Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Duke Energy Carolinas as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Duke Energy Carolinas results of operations, financial position and cash flows in the future. Duke Energy Carolinas will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Duke Energy Carolinas customers, suppliers and partners and could cause Duke Energy Carolinas to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Duke Energy Carolinas also has pending rate case proceedings that have been delayed. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
On December 31, 2019, Duke Energy Carolinas entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas agreed to excavate five of the six remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the one remaining basin, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Duke Energy Carolinas’ results of operations, financial position and cash flows.
Duke Energy Carolinas filed a general rate case with the NCUC on September 30, 2019. The outcome of this rate case could materially impact Duke Energy Carolina's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
On June 22, 2018, Duke Energy Carolinas received an order from the NCUC, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas has petitioned for deferral of future grid improvement costs in its 2019 rate case. Duke Energy Carolinas' results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
Duke Energy Carolinas’ service territory was impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages in the service territory. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the future recovery of storm restoration costs could have an adverse impact on Duke Energy Carolinas' results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
On May 21, 2019, the PSCSC issued an order granting Duke Energy Carolinas request for a retail rate increase but denying recovery of certain coal ash costs. Duke Energy Carolinas has appealed this decision to the South Carolina Supreme Court and that appeal is pending. Duke Energy Carolinas' results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2019, for discussion of risks associated with the Tax Act.
PROGRESS ENERGY
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
$
2,422

 
$
2,572

 
$
(150
)
Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
763

 
925

 
(162
)
Operation, maintenance and other
554

 
567

 
(13
)
Depreciation and amortization
452

 
455

 
(3
)
Property and other taxes
135

 
137

 
(2
)
Total operating expenses
1,904

 
2,084

 
(180
)
Losses on Sales of Other Assets and Other, net
(1
)
 

 
(1
)
Operating Income
517

 
488

 
29

Other Income and Expenses, net
32

 
31

 
1

Interest Expense
206

 
219

 
(13
)
Income Before Income Taxes
343

 
300

 
43

Income Tax Expense
60

 
52

 
8

Net Income
283

 
248

 
35

Less: Net Loss Attributable to Noncontrolling Interests

 
(1
)
 
1

Net Income Attributable to Parent
$
283

 
$
249

 
$
34


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MD&A
PROGRESS ENERGY


Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $160 million decrease in fuel cost recovery driven by lower fuel prices and volumes as well as less Duke Energy Progress native load transfer sales in the current year;
a $16 million decrease in wholesale power revenues, net of fuel, primarily due to coal ash cost recovery in the prior year at Duke Energy Progress, partially offset by increased demand at Duke Energy Florida;
a $15 million decrease in rider revenues primarily due to the Crystal River 3 Uprate regulatory asset being fully recovered in 2019 at Duke Energy Florida; and
a $7 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year at Duke Energy Progress, partially offset by favorable weather in the current year at Duke Energy Florida.
Partially offset by:
a $17 million increase in retail pricing due to base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment at Duke Energy Florida;
a $12 million increase in storm revenues due to Hurricane Dorian collections at Duke Energy Florida;
a $10 million increase in other revenues primarily due to increased transmission revenues at Duke Energy Florida; and
an $8 million increase due to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers at Duke Energy Progress.
Operating Expenses. The variance was driven primarily by:
a $162 million decrease in fuel used in electric generation and purchased power primarily due to lower demand and changes in generation mix at Duke Energy Progress and lower fuel costs, net of deferrals at Duke Energy Florida; and
a $13 million decrease in operation, maintenance and other expense at Duke Energy Progress primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Carolinas and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, partially offset by storm cost amortizations and employee benefits at Duke Energy Florida.
Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt at Duke Energy Progress.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income.
Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Progress Energy as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Progress Energy results of operations, financial position and cash flows in the future. Progress Energy will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Progress Energy customers, suppliers and partners and could cause Progress Energy to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Progress Energy also has various pending rate case proceedings that have been delayed. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
On December 31, 2019, Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Progress agreed to excavate two of the three remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the one remaining basin, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Duke Energy Progress’ results of operations, financial position and cash flows.
Duke Energy Progress filed a general rate case with the NCUC on October 30, 2019. The outcome of this rate case could materially impact Progress Energy's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
Duke Energy Progress has petitioned for deferral of future grid improvement costs in its 2019 rate case. Progress Energy's results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territory of Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. In September 2019, Hurricane Dorian impacted Duke Energy Progress' and Duke Energy Florida's service territories. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Progress Energy's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.

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MD&A
PROGRESS ENERGY


On May 21, 2019, the PSCSC issued an order granting Duke Energy Progress' request for a retail rate increase but denying recovery of certain coal ash costs. Duke Energy Progress has appealed this decision to the South Carolina Supreme Court and that appeal is pending. Progress Energy's results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2019, for discussion of risks associated with the Tax Act.
DUKE ENERGY PROGRESS
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
$
1,338

 
$
1,484

 
$
(146
)
Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
405

 
515

 
(110
)
Operation, maintenance and other
305

 
335

 
(30
)
Depreciation and amortization
287

 
290

 
(3
)
Property and other taxes
47

 
44

 
3

Total operating expenses
1,044

 
1,184

 
(140
)
Losses on Sales of Other Assets and Other, net
(1
)
 

 
(1
)
Operating Income
293

 
300

 
(7
)
Other Income and Expenses, net
22

 
24

 
(2
)
Interest Expense
69

 
77

 
(8
)
Income Before Income Taxes
246

 
247

 
(1
)
Income Tax Expense
42

 
44

 
(2
)
Net Income
$
204

 
$
203

 
$
1

The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior period
2020

Residential sales
(5.7
)%
General service sales
(1.9
)%
Industrial sales
(0.2
)%
Wholesale power sales
(7.4
)%
Joint dispatch sales
(0.5
)%
Total sales
(4.1
)%
Average number of customers
1.4
 %
Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $109 million decrease in fuel cost recovery driven by lower fuel prices and volumes as well as less native load transfer sales in the current year;
a $24 million decrease in retail sales due to unfavorable weather in the current year; and
a $23 million decrease in wholesale power revenues, net of fuel, primarily due to coal ash cost recovery in the prior year.
Partially Offset by:
an $8 million increase due to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers.
Operating Expenses. The variance was driven primarily by:
a $110 million decrease in fuel used in electric generation and purchased power primarily due to lower demand and changes in generation mix; and
a $30 million decrease in operation, maintenance and other expense primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Carolinas and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case.
Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt.

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MD&A
DUKE ENERGY PROGRESS


Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Duke Energy Progress as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Duke Energy Progress results of operations, financial position and cash flows in the future. Duke Energy Progress will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Duke Energy Progress customers, suppliers and partners and could cause Duke Energy Progress to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Duke Energy Progress also has pending rate case proceedings that have been delayed. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
On December 31, 2019, Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Progress agreed to excavate two of the three remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the one remaining basin, uncapped basin ash will be excavated and moved to lined landfills. An order from regulatory authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on Duke Energy Progress’ results of operations, financial position and cash flows.
Duke Energy Progress filed a general rate case with the NCUC on October 30, 2019. The outcome of this rate case could materially impact Duke Energy Progress' results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
On May 21, 2019, the PSCSC issued an order granting Duke Energy Progress' request for a retail rate increase but denying recovery of certain coal ash costs. Duke Energy Progress has appealed this decision to the South Carolina Supreme Court and that appeal is pending. Duke Energy Progress' results of operations, financial position and cash flows could be adversely impacted if coal ash costs are not ultimately approved for recovery. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
Duke Energy Progress has petitioned for deferral of future grid improvement costs in its 2019 rate case. Duke Energy Progress' results of operations, financial position and cash flows could be adversely impacted if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.
Duke Energy Progress' service territory was impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages in the service territory. In September 2019, Hurricane Dorian reached the Carolinas bringing high winds, tornadoes and heavy rain, impacting about 300,000 customers within the service territory. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact on Duke Energy Progress' results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year ended December 31, 2019, for discussion of risks associated with the Tax Act.
DUKE ENERGY FLORIDA
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
$
1,080

 
$
1,086

 
$
(6
)
Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
358

 
410

 
(52
)
Operation, maintenance and other
245

 
230

 
15

Depreciation and amortization
165

 
165

 

Property and other taxes
88

 
93

 
(5
)
Total operating expenses
856

 
898

 
(42
)
Operating Income
224

 
188

 
36

Other Income and Expenses, net
10

 
13

 
(3
)
Interest Expense
84

 
82

 
2

Income Before Income Taxes
150

 
119

 
31

Income Tax Expense
30

 
23

 
7

Net Income
$
120

 
$
96

 
$
24


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MD&A
DUKE ENERGY FLORIDA


The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior period
2020

Residential sales
(3.7
)%
General service sales
0.4
 %
Industrial sales
13.6
 %
Wholesale and other
(18.0
)%
Total sales
3.6
 %
Average number of customers
1.5
 %
Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $51 million decrease in fuel revenues primarily due to a decrease in fuel rates billed to retail customers; and
a $15 million decrease in rider revenue requirements primarily due to the Crystal River 3 Uprate regulatory asset being fully recovered in 2019.
Partially offset by:
a $17 million increase in retail pricing due to base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment;
a $17 million increase in retail sales, net of fuel revenues, due to favorable weather in the current year;
a $12 million increase in storm revenues due to Hurricane Dorian collections;
a $10 million increase in other revenues primarily due to increased transmission revenues; and
a $7 million increase in wholesale power revenues, net of fuel, primarily due to increased demand.
Operating Expenses. The variance was driven primarily by:
a $52 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel costs, net of deferrals.
Partially offset by:
a $15 million increase in operation, maintenance and other expense primarily due to storm cost amortizations and employee benefits.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income.
Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Duke Energy Florida as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Duke Energy Florida results of operations, financial position and cash flows in the future. Duke Energy Florida will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Duke Energy Florida customers, suppliers and partners and could cause Duke Energy Florida to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
On October 10, 2018, Hurricane Michael made landfall on Florida's Panhandle as a Category 5 hurricane, the most powerful storm to hit the Florida Panhandle in recorded history. The storm caused significant damage within the service territory of Duke Energy Florida, particularly from Panama City Beach to Mexico Beach. In September 2019, Duke Energy Florida’s service territory was threatened by Hurricane Dorian with landfall as a possible Category 5 hurricane and therefore Duke Energy Florida incurred costs to secure necessary resources to be prepared for that potential impact. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the future recovery of storm restoration costs could have an adverse impact on Duke Energy Florida's financial position, results of operations and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.

103


MD&A
DUKE ENERGY OHIO


DUKE ENERGY OHIO
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
 
 
 
 
 
Regulated electric
$
346

 
$
355

 
$
(9
)
Regulated natural gas
152

 
176

 
(24
)
Total operating revenues
498

 
531

 
(33
)
Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
87

 
93

 
(6
)
Cost of natural gas
37

 
54

 
(17
)
Operation, maintenance and other
123

 
132

 
(9
)
Depreciation and amortization
68

 
64

 
4

Property and other taxes
83

 
84

 
(1
)
Total operating expenses
398

 
427

 
(29
)
Operating Income
100

 
104

 
(4
)
Other Income and Expenses, net
3

 
9

 
(6
)
Interest Expense
24

 
30

 
(6
)
Income Before Income Taxes
79

 
83

 
(4
)
Income Tax Expense
14

 
14

 

Net Income
$
65

 
$
69

 
$
(4
)
The following table shows the percent changes in GWh sales of electricity, dekatherms of natural gas delivered and average number of electric and natural gas customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
 
Electric
Natural Gas
Increase (Decrease) over prior year
2020

2020

Residential sales
(9.2
)%
(16.1
)%
General service sales
(3.4
)%
(13.9
)%
Industrial sales
(2.1
)%
(2.5
)%
Wholesale electric power sales
(33.1
)%
n/a

Other natural gas sales
n/a

(1.9
)%
Total sales
(5.5
)%
(12.3
)%
Average number of customers
0.8
 %
0.6
 %
Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $28 million decrease in fuel related revenues primarily due to lower natural gas prices as well as decreased volumes;
a $10 million decrease due to unfavorable weather in the current year; and
a $5 million decrease in other revenues due to lower OVEC sales into PJM.
Partially offset by:
a $5 million increase in retail pricing primarily due to gas rate case impacts in Kentucky; and
a $4 million increase in rider revenues primarily related to the Distribution Capital Investment rider as a result of additional investments and the new Legacy Generation Riders arising from Ohio HB6, which provide an alternative method of recovering OVEC losses, partially offset by decreased Energy Efficiency Rider Revenue.

104


MD&A
DUKE ENERGY OHIO


Operating Expenses. The variance was driven primarily by:
a $23 million decrease in fuel expense, primarily driven by lower natural gas prices; and
a $9 million decrease in operations, maintenance and other expense primarily due to the timing of training and inspection programs for Customer Delivery and Customer Solutions as well as lower storm costs.
Partially offset by:
a $4 million increase in depreciation and amortization primarily driven by an increase in distribution plant.
Other Income and Expenses, net. The variance was primarily due to lower intercompany interest income due to decreased borrowing and lower AFUDC equity.
Interest Expense. The variance was primarily driven by lower debt outstanding in the current year and lower post in-service carrying costs, partially offset by higher intercompany interest expense due to increased borrowing.
Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Duke Energy Ohio as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Duke Energy Ohio results of operations, financial position and cash flows in the future. Duke Energy Ohio will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Duke Energy Ohio customers, suppliers and partners and could cause Duke Energy Ohio to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
On November 13, 2013, the PUCO issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Duke Energy Ohio has filed a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact on Duke Energy Ohio’s results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, “Regulatory Matters,” for additional information.
DUKE ENERGY INDIANA
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
$
692

 
$
768

 
$
(76
)
Operating Expenses
 
 
 
 
 
Fuel used in electric generation and purchased power
194

 
257

 
(63
)
Operation, maintenance and other
186

 
189

 
(3
)
Depreciation and amortization
132

 
131

 
1

Property and other taxes
22

 
19

 
3

Total operating expenses
534

 
596

 
(62
)
Losses on Sales of Other Assets and Other, net

 
(3
)
 
3

Operating Income
158

 
169

 
(11
)
Other Income and Expenses, net
10

 
19

 
(9
)
Interest Expense
43

 
43

 

Income Before Income Taxes
125

 
145

 
(20
)
Income Tax Expense
26

 
35

 
(9
)
Net Income
$
99

 
$
110

 
$
(11
)
The following table shows the percent changes in GWh sales and average number of customers. The percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year
2020

Residential sales
(10.0
)%
General service sales
(4.8
)%
Industrial sales
(2.6
)%
Wholesale power sales
1.8
 %
Total sales
(5.3
)%
Average number of customers
1.1
 %

105


MD&A
DUKE ENERGY INDIANA


Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $58 million decrease in fuel revenues primarily due to lower cost of fuel and unseasonably milder weather;
a $9 million decrease in retail sales due to unfavorable weather in the current year; and
an $8 million decrease in rider revenues primarily related to lower Edwardsport IGCC sales volumes.
Operating Expenses. The variance was driven primarily by:
a $63 million decrease in fuel used in electric generation and purchased power expense primarily due to lower coal and natural gas costs and lower amortization of deferred fuel costs, partially offset by higher purchased power expense.
Other Income and Expenses, net. The decrease was primarily due to life insurance proceeds received in the prior year.
Income Tax Expense. The decrease in income tax expense was primarily due to a decrease in pretax income and an increase in the amortization of excess deferred taxes.
Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Duke Energy Indiana as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Duke Energy Indiana results of operations, financial position and cash flows in the future. Duke Energy Indiana will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Duke Energy Indiana customers, suppliers and partners and could cause Duke Energy Indiana to experience an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Duke Energy Indiana also has a pending rate case proceeding that could be delayed. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
Duke Energy Indiana filed a general rate case with the IURC on July 2, 2019, its first general rate case in 16 years. The outcome of this rate case could materially impact Duke Energy Indiana's results of operations, financial position and cash flows. See Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for additional information.
On April 17, 2015, the EPA published in the Federal Register a rule to regulate the disposal of CCR from electric utilities as solid waste. Duke Energy Indiana has interpreted the rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal ash. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact on Duke Energy Indiana's results of operations, financial position and cash flows.
PIEDMONT
Results of Operations
 
Three Months Ended March 31,
(in millions)
2020

 
2019

 
Variance

Operating Revenues
$
512

 
$
579

 
$
(67
)
Operating Expenses
 
 
 
 
 
Cost of natural gas
162

 
273

 
(111
)
Operation, maintenance and other
80

 
80

 

Depreciation and amortization
45

 
42

 
3

Property and other taxes
12

 
12

 

Total operating expenses
299

 
407

 
(108
)
Operating Income
213

 
172

 
41

Other Income and Expenses, net
12

 
6

 
6

Interest Expense
27

 
22

 
5

Income Before Income Taxes
198

 
156

 
42

Income Tax Expense
20

 
34

 
(14
)
Net Income
$
178

 
$
122

 
$
56


106


MD&A
PIEDMONT


The following table shows the percent changes in dekatherms delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized.
Increase (Decrease) over prior year
2020

Residential deliveries
(13.1
)%
Commercial deliveries
(12.4
)%
Industrial deliveries
(2.1
)%
Power generation deliveries
5.8
 %
For resale
(23.7
)%
Total throughput deliveries
(2.1
)%
Secondary market volumes
(26.3
)%
Average number of customers
1.4
 %
Due to the margin decoupling mechanism in North Carolina and the weather normalization adjustment (WNA) mechanisms in South Carolina and Tennessee and fixed-price contracts with most power generation customers, changes in throughput deliveries do not have a material impact on Piedmont's revenues or earnings. The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The WNA mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.
Three Months Ended March 31, 2020, as compared to March 31, 2019
Operating Revenues. The variance was driven primarily by:
a $111 million decrease due to lower natural gas costs passed through to customers;
a $20 million decrease due to return of EDIT to customers; and
a $7 million decrease due to NCUC approval related to tax reform accounting from fixed-rate contracts in the prior year.
Partially offset by:
a $53 million increase due to North Carolina base rate case increases; and
a $12 million increase due to North Carolina IMR increases.
Operating Expenses. The variance was driven primarily by:
a $111 million decrease in cost of natural gas due to lower natural gas prices.
Income Tax Expense. The decrease in income tax expense was primarily due to an increase in the amortization of excess deferred taxes, partially offset by an increase in pretax income.
Matters Impacting Future Results
The COVID-19 pandemic has not had a material impact on Piedmont as of March 31, 2020; however, we cannot predict the extent to which the COVID-19 pandemic will impact Piedmont results of operations, financial position and cash flows in the future. Piedmont will continue to actively monitor the impacts of COVID-19 including the potential economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown could adversely affect Piedmont customers, suppliers and partners and could cause Piedmont to experience an increase in certain costs, such as bad debt. Furthermore, the actions of federal, state or local authorities may impact our business operations in ways that we currently cannot anticipate. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt and equity issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2019, included a summary and detailed discussion of projected primary sources and uses of cash for 2020 to 2022.
In March 2020, capital markets experienced significant liquidity challenges as a result of the ongoing uncertainty around the economic impacts from COVID-19. Investor demand for liquidity and cash holdings created substantial volatility, particularly in the short-term commercial paper market. As such, issuers of commercial paper experienced difficulties issuing commercial paper for longer duration at competitive interest rates. During March 2020 and in response to market volatility and the ongoing economic uncertainty related to COVID-19, Duke Energy took several actions to enhance the Company's liquidity position including:
Duke Energy drew down the remaining $500 million of availability under the existing $1 billion Three-Year Revolving Credit Facility; and
Duke Energy entered into and borrowed the full amount under a $1.5 billion, 364-day Term Loan Credit Agreement. The Term Loan Credit Agreement contains a provision for additional borrowing capacity of $500 million. Duke Energy exercised the provision and borrowed an additional $188 million, for a total borrowing of approximately $1.7 billion.

107


MD&A
LIQUIDITY AND CAPITAL RESOURCES


As of March 31, 2020, Duke Energy had approximately $1.5 billion of cash on hand and $4.8 billion available under its $8 billion Master Credit Facility. Duke Energy has additional liquidity available totaling approximately $2.6 billion under outstanding equity forward agreements. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Duke Energy continues to monitor access to credit and equity markets.
In addition to the $500 million draw under the Three-Year Revolving Credit Facility and $1.7 billion of incremental borrowings under the new 364-day Term Loan Credit Agreement, Duke Energy also issued approximately $1.5 billion of debt and raised $67 million of common equity through its dividend reinvestment program during the three months ended March 31, 2020. Refer to Notes 5 and 13 to the Condensed Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.
In light of the COVID-19 pandemic, Duke Energy currently does not expect significant changes to the projected capital and investment expenditures provided in the Form 10-K for the year ended December 31, 2019. However, Duke Energy will continue to reassess capital projects depending on the duration and severity of economic impacts caused by the pandemic.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows.
 
 
Three Months Ended
 
 
March 31,
(in millions)
 
2020

 
2019

Cash flows provided by (used in):
 
 
 
 
Operating activities
 
$
1,554

 
$
1,239

Investing activities
 
(3,022
)
 
(2,713
)
Financing activities
 
2,593

 
1,433

Net increase (decrease) in cash, cash equivalents and restricted cash
 
1,125

 
(41
)
Cash, cash equivalents and restricted cash at beginning of period
 
573

 
591

Cash, cash equivalents and restricted cash at end of period
 
$
1,698

 
$
550

OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows.
 
 
Three Months Ended
 
 
March 31,
(in millions)
 
2020

 
2019

 
Variance

Net income
 
$
890

 
$
893

 
$
(3
)
Non-cash adjustments to net income
 
1,627

 
1,299

 
328

Payments for asset retirement obligations
 
(132
)
 
(152
)
 
20

Working capital
 
(831
)
 
(801
)
 
(30
)
Net cash provided by operating activities
 
$
1,554

 
$
1,239

 
$
315

The variance was primarily due to timing of payments of property taxes, higher Nuclear Electric Insurance Limited (NEIL) refunds in the current year and lower storm costs in the current year.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows.
 
 
Three Months Ended
 
 
March 31,
(in millions)
 
2020

 
2019

 
Variance

Capital, investment and acquisition expenditures
 
$
(2,909
)
 
$
(2,630
)
 
$
(279
)
Other investing items
 
(113
)
 
(83
)
 
(30
)
Net cash used in investing activities
 
$
(3,022
)
 
$
(2,713
)
 
$
(309
)
The variance relates to an increase in capital expenditures due to higher overall investments primarily in the Commercial Renewables segment.

108


MD&A
LIQUIDITY AND CAPITAL RESOURCES


FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows.
 
 
Three Months Ended
 
 
March 31,
(in millions)
 
2020

 
2019

 
Variance

Issuances of long-term debt, net
 
$
1,662

 
$
1,536

 
$
126

Issuances of common stock
 
40

 
13

 
27

Issuances of preferred stock
 

 
974

 
(974
)
Notes payable, commercial paper and other short-term borrowings
 
1,569

 
(408
)
 
1,977

Dividends paid
 
(707
)
 
(649
)
 
(58
)
Contributions from noncontrolling interests
 
103

 
6

 
97

Other financing items
 
(74
)
 
(39
)
 
(35
)
Net cash provided by financing activities
 
$
2,593

 
$
1,433

 
$
1,160

The variance was primarily due to:
a $1,977 million increase in net proceeds from issuances of notes payable and commercial paper primarily due to borrowings of $1.7 billion under the 364-day Term Loan Credit Agreement.
Partially offset by:
a $974 million decrease in proceeds from the issuance of preferred stock.
OTHER MATTERS
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants. Refer to Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.
Off-Balance Sheet Arrangements
During the three months ended March 31, 2020, there were no material changes to Duke Energy’s off-balance sheet arrangements. See Note 11 – Variable Interest Entities and Note 13 – Stockholders' Equity to the Condensed Consolidated Financial Statements for information regarding ACP and equity forward sales agreements. For additional information on Duke Energy’s off-balance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2019.
Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. During the three months ended March 31, 2020, there were no material changes in Duke Energy's contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2019.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For an in-depth discussion of the Duke Energy Registrants' market risks, see “Quantitative and Qualitative Disclosures about Market Risk” in Item 7 of the Annual Report on Form 10-K for the Duke Energy Registrants. During the three months ended March 31, 2020, there were no material changes to the Duke Energy Registrants' disclosures about market risk, other than as described below.
Credit Risk
In response to the COVID-19 pandemic, in March 2020, the Duke Energy Subsidiary Registrants announced a suspension of disconnections for nonpayment to be effective throughout the national emergency. This is expected to result in an increase in charge-offs over historical levels. In addition, the Registrants are monitoring the effects of the resultant economic slowdown on counterparties’ abilities to perform under their contractual obligations.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC rules and forms.

109


MD&A
OTHER MATTERS


Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated the effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2020, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.
Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15 and 15d-15 under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2020, and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

110


OTHER INFORMATION
 



ITEM 1. LEGAL PROCEEDINGS
For information regarding material legal proceedings, including regulatory and environmental matters, see Note 3, "Regulatory Matters," and Note 4, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements. For additional information, see Item 3, "Legal Proceedings," in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2019.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Duke Energy Registrants' Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect the Duke Energy Registrants’ financial condition or future results. As described in the Duke Energy Form 8-K Filing on May 8, 2020, the information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019.
The Duke Energy Registrants’ operations have been and may be affected by COVID-19 in ways listed below and in ways the registrants cannot predict at this time.
The COVID-19 pandemic has begun to impact the Duke Energy Registrants' business strategy, results of operations, financial position and cash flows, albeit not materially as of this filing date, from specific activities listed below:
Decreased demand for electricity and natural gas;
Delays in rate cases and other legal proceedings; and
The health and availability of our critical personnel and their ability to perform business functions.
Furthermore, due to the unpredictability of the COVID-19 pandemic’s ongoing impact on global health and economic stability as of this filing date, the Duke Energy Registrants expect that the activities listed below could negatively impact their business strategy, results of operations, financial position and cash flows:
An inability to procure satisfactory levels of fuels or other necessary equipment to continue production of electricity and delivery of natural gas;
An inability to obtain labor or equipment necessary for the construction of generation projects or pipeline expansion;
An inability to maintain information technology systems and protections from cyberattack;
An inability to obtain financing in volatile financial markets;
Additional federal regulation tied to stimulus and other aid packages;
Impairment charges to certain assets, including goodwill; and
Actions of state utility commissions or federal or state governments to allow customers to suspend or delay payment of bills related to the provision of electric or gas services.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.

111


EXHIBITS
 


ITEM 6. EXHIBITS
Exhibits filed herein are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated. Items constituting management contracts or compensatory plans or arrangements are designated by a double asterisk (**). The company agrees to furnish upon request to the commission a copy of any omitted schedules or exhibits upon request on all items designated by a triple asterisk (***).
 
 
 
 
 
Duke
 
 
 
Duke
 
Duke
 
Duke
 
Duke
 
 
Exhibit
 
Duke
 
Energy
 
Progress
 
Energy
 
Energy
 
Energy
 
Energy
 
 
Number
 
Energy
 
Carolinas
 
Energy
 
Progress
 
Florida
 
Ohio
 
Indiana
 
Piedmont
4.1
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
4.2
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
4.3
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
4.4
 
 
 
 
 
 
 
 
 
 
 
 
X
 
 
10.1
X
 
X
 
 
 
X
 
X
 
X
 
X
 
X
10.2
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*10.2.1
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.3
X
 
X
 
 
 
X
 
 
 
 
 
 
 
 
*10.4**
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 

112


EXHIBITS
 


*31.1.1
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*31.1.2
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
*31.1.3
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
*31.1.4
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
*31.1.5
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
*31.1.6
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
*31.1.7
 
 
 
 
 
 
 
 
 
 
 
 
X
 
 
*31.1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
*31.2.1
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*31.2.2
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
*31.2.3
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
*31.2.4
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
*31.2.5
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
*31.2.6
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
*31.2.7
 
 
 
 
 
 
 
 
 
 
 
 
X
 
 
*31.2.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
*32.1.1
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*32.1.2
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
*32.1.3
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
*32.1.4
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
*32.1.5
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
*32.1.6
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 

113


EXHIBITS
 


*32.1.7
 
 
 
 
 
 
 
 
 
 
 
 
X
 
 
*32.1.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
*32.2.1
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*32.2.2
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
*32.2.3
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
*32.2.4
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
*32.2.5
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
*32.2.6
 
 
 
 
 
 
 
 
 
 
X
 
 
 
 
*32.2.7
 
 
 
 
 
 
 
 
 
 
 
 
X
 
 
*32.2.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
X
*101.INS
XBRL Instance Document (this does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
X
 
X
 
X
 
X
 
X
 
X
 
X
 
X
*101.SCH
XBRL Taxonomy Extension Schema Document.
X
 
X
 
X
 
X
 
X
 
X
 
X
 
X
*101.CAL
XBRL Taxonomy Calculation Linkbase Document.
X
 
X
 
X
 
X
 
X
 
X
 
X
 
X
*101.LAB
XBRL Taxonomy Label Linkbase Document.
X
 
X
 
X
 
X
 
X
 
X
 
X
 
X
*101.PRE
XBRL Taxonomy Presentation Linkbase Document.
X
 
X
 
X
 
X
 
X
 
X
 
X
 
X
*101.DEF
XBRL Taxonomy Definition Linkbase Document.
X
 
X
 
X
 
X
 
X
 
X
 
X
 
X
The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the SEC, to furnish copies of any or all of such instruments to it.

114


SIGNATURES
 


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
 
 

DUKE ENERGY CORPORATION
DUKE ENERGY CAROLINAS, LLC
PROGRESS ENERGY, INC.
DUKE ENERGY PROGRESS, LLC
DUKE ENERGY FLORIDA, LLC
DUKE ENERGY OHIO, INC.
DUKE ENERGY INDIANA, LLC
PIEDMONT NATURAL GAS COMPANY, INC.

 
 
 
Date:
May 12, 2020
/s/ STEVEN K. YOUNG
 
 
Steven K. Young
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
Date:
May 12, 2020
/s/ DWIGHT L. JACOBS
 
 
Dwight L. Jacobs
Senior Vice President, Chief Accounting Officer,
Tax and Controller
(Principal Accounting Officer)

115