10-K 1 duk-20151231x10k.htm FORM 10-K 10-K



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2015 or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission
file number
 
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, and Telephone Number
 
IRS Employer
Identification No.
 
 
 
 
1-32853
 
DUKE ENERGY CORPORATION
(a Delaware corporation)
550 South Tryon Street
Charlotte, NC 28202-1803
704-382-3853
 
20-2777218
Commission file number
 
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number
 
Commission file number
 
Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number and IRS Employer Identification Number
1-4928
 
DUKE ENERGY CAROLINAS, LLC
(a North Carolina limited liability company)
526 South Church Street
Charlotte, North Carolina 28202-1803
704-382-3853
56-0205520
 
1-3274
 
DUKE ENERGY FLORIDA, LLC
(formerly DUKE ENERGY FLORIDA, INC.)
(a Florida limited liability company)
299 First Avenue North
St. Petersburg, Florida 33701
704-382-3853
59-0247770
1-15929
 
PROGRESS ENERGY, INC.
(a North Carolina corporation)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-2155481
 
1-1232
 
DUKE ENERGY OHIO, INC.
(an Ohio corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
704-382-3853
31-0240030
1-3382
 
DUKE ENERGY PROGRESS, LLC
(formerly DUKE ENERGY PROGRESS, INC.)
(a North Carolina limited liability company)
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
704-382-3853
56-0165465
 
1-3543
 
DUKE ENERGY INDIANA, LLC
(formerly DUKE ENERGY INDIANA, Inc.)
(an Indiana limited liability company)
1000 East Main Street
Plainfield, Indiana 46168
704-382-3853
35-0594457
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Registrant
 
Title of each class
 
Name of each exchange on
which registered
Duke Energy Corporation (Duke Energy)
 
Common Stock, $0.001 par value
 
New York Stock Exchange, Inc.
Duke Energy
 
5.125% Junior Subordinated Debentures due January 15, 2073
 
New York Stock Exchange, Inc.
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
 
All of the registrant's limited liability company member interests are directly owned by Duke Energy.
 
 
Progress Energy, Inc. (Progress Energy)
 
All of the registrant's common stock is directly owned by Duke Energy.
 
 
Duke Energy Progress, LLC (Duke Energy Progress)
 
All of the registrant's limited liability company member interests are directly owned by Duke Energy.
 
 
Duke Energy Florida, LLC (Duke Energy Florida)
 
All of the registrant's limited liability company member interests are directly owned by Duke Energy.
 
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
 
All of the registrant's common stock is indirectly owned by Duke Energy.
 
 
Duke Energy Indiana, LLC (Duke Energy Indiana)
 
All of the registrant's limited liability company member interests are directly owned by Duke Energy.
 
 


SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Duke Energy
Yes x
 
No ¨
 
Duke Energy Florida
Yes x
 
No ¨
Duke Energy Carolinas
Yes x
 
No ¨
 
Duke Energy Ohio
Yes ¨
 
No x
Progress Energy
Yes ¨
 
No x
 
Duke Energy Indiana
Yes ¨
 
No x
Duke Energy Progress
Yes x
 
No ¨
 
 
 
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ¨ No x (Response applicable to all registrants.)
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Duke Energy
 
Yes x 
 
No ¨
 
Duke Energy Florida
 
Yes x 
 
No ¨
Duke Energy Carolinas
 
Yes x 
 
No ¨
 
Duke Energy Ohio
 
Yes x 
 
No ¨
Progress Energy
 
Yes x 
 
No ¨
 
Duke Energy Indiana
 
Yes x 
 
No ¨
Duke Energy Progress
 
Yes x 
 
No ¨
 
 
 
 
 
 
Indicate by check mark whether Duke Energy is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer x  Accelerated filer ¨  Non-accelerated filer ¨  Smaller reporting company ¨
Indicate by check mark whether Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer ¨  Accelerated filer ¨  Non-accelerated filer x Smaller reporting company ¨
Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Estimated aggregate market value of the common equity held by nonaffiliates of Duke Energy at June 30, 2015.
48,570,203,631

Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2016.
688,377,923

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Duke Energy definitive proxy statement for the 2015 Annual Meeting of the Shareholders or an amendment to this Annual Report are incorporated by reference into PART II, Item 5 and PART III, Items 10, 11, 12 and 13 hereof.
This combined Form 10-K is filed separately by seven registrants: Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and are, therefore, filing this form with the reduced disclosure format specified in General Instructions I(2) of Form 10-K. 





TABLE OF CONTENTS
FORM 10-K FOR THE YEAR ENDED December 31, 2015
 Item 
 
Page
 
 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
 
 
 
GLOSSARY OF TERMS
 
 
 
 
PART I.
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1A.
 
 
 
1B.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
PART II.
 
 
5.
 
 
 
6.
 
 
 
7.
 
 
 
7A.
 
 
 
8.
 
 
 
9.
 
 
 
9A.
 
 
 
PART III.
 
 
10.
 
 
 
11.
 
 
 
12.
 
 
 
13.
 
 
 
14.
 
 
 
PART IV.
 
 
15.
 
 





CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions 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:
State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices;
The extent and timing of 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 mitigation such as coal ash impoundment retirement obligations and cost related to significant weather events, and earn an adequate return on investment through the regulatory process;
The costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process;
Credit ratings of the Duke Energy Registrants may be different from what is expected;
Costs and effects of legal and administrative proceedings, settlements, investigations and claims;
Industrial, commercial and residential growth or decline in service territories or customer bases resulting from variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including 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 rooftop 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 markets and continued industry consolidation;
Political, economic and regulatory uncertainty in Brazil and other countries in which Duke Energy conducts business;
The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes;
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 U.S. electric grid or generating resources;
The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences;
The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks;
The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets;
The results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, interest rate fluctuations and general economic conditions;
Declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds;
Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all;
Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants;
The ability to control operation and maintenance costs;
The level of creditworthiness of counterparties to transactions;
Employee workforce factors, including the potential inability to attract and retain key personnel;
The ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);
The performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities;





The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;
The impact of potential goodwill impairments;
The ability to reinvest prospective undistributed earnings of foreign subsidiaries or repatriate such earnings on a tax-efficient basis;
The expected timing and likelihood of completion of the proposed acquisition of Piedmont Natural Gas Company, Inc. (Piedmont), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the acquisition, and under certain specified circumstance pay a termination fee of $250 million, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; and
The ability to successfully complete future merger, acquisition or divestiture plans.
In light of the various risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made; the Duke Energy Registrants 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 
The following terms or acronyms used in this Form 10-K are defined below:
Term or Acronym
Definition
 
 
the 2010 Plan
Duke Energy’s 2010 Long-Term Incentive Plan
 
 
the 2012 Edwardsport settlement
Settlement agreement in 2012 among Duke Energy Indiana, the Office of Utility Consumer Counselor, the Duke Energy Indiana Industrial Group and Nucor Steel-Indiana
 
 
the 2012 Settlement
Settlement agreement in 2012 among Duke Energy Florida, the OPC and other customer advocates
 
 
the 2013 Settlement
Settlement agreement in 2013 among Duke Energy Florida, the OPC and other customer advocates
 
 
ACP
Atlantic Coast Pipeline
 
 
AFUDC
Allowance for Funds Used During Construction
 
 
AHFS
Assets held for sale
 
 
ALJ
Administrative Law Judge
 
 
ANEEL
Brazilian electricity regulatory agency
 
 
AOCI
Accumulated Other Comprehensive Income
 
 
ASRP
Accelerated natural gas service line replacement program
 
 
ASU
Accounting standard update
 
 
Board of Directors
Duke Energy Board of Directors
 
 
Bison
Bison Insurance Company Limited
 
 
Brunswick
Brunswick Nuclear Plant
 
 
CAA
Clean Air Act
 
 
CAIR
Clean Air Interstate Rule
 
 
Calpine
Calpine Corporation
 
 
Catawba
Catawba Nuclear Station
 
 
Catawba Riverkeeper
Catawba Riverkeeper Foundation, Inc.
 
 
CC
Combined Cycle
 
 
CCR
Coal Combustion Residuals
 
 
CCS
Carbon Capture and Storage
 
 
CECPCN
Certificate of Environmental Compatibility and Public Convenience and Necessity
 
 
CEO
Chief Executive Officer
 
 
Cinergy
Cinergy Corp. (collectively with its subsidiaries)
 
 
CO2
Carbon Dioxide
 
 
Coal Ash Act
North Carolina Coal Ash Management Act of 2014
 
 
Coal Ash Commission
Coal Ash Management Commission
 
 
COL
Combined Construction and Operating License
 
 
the Company
Duke Energy Corporation and its subsidiaries
 
 
Consolidated Complaint
Corrected Verified Consolidated Shareholder Derivative Complaint
 
 
CPCN
Certificate of Public Convenience and Necessity
 
 
CPP
Clean Power Plan
 
 
CRC
Cinergy Receivables Company, LLC
 
 
Crescent
Crescent Resources LLC
 
 
Crystal River Unit 3
Crystal River Unit 3 Nuclear Plant
 
 
CSA
Comprehensive Site Assessment
 
 
CSAPR
Cross-State Air Pollution Rule
 
 
CT
Combustion Turbine
 
 





CWA
Clean Water Act
 
 
D.C. Circuit Court
U.S. Court of Appeals for the District of Columbia
 
 
DEBS
Duke Energy Business Services, LLC
 
 
DECAM
Duke Energy Commercial Asset Management, LLC
 
 
DECS
Duke Energy Corporate Services
 
 
DEFR
Duke Energy Florida Receivables, LLC
 
 
DEGS
Duke Energy Generation Services, Inc.
 
 
DEIGP
Duke Energy International Geracao Paranapenema S.A.
 
 
Deloitte
Deloitte & Touche LLP, and the member firms of Deloitte Touche Tohmatsu and their respective affiliates
 
 
DEPR
Duke Energy Progress Receivables, LLC
 
 
DERF
Duke Energy Receivables Finance Company, LLC
 
 
Disposal Group
Duke Energy Ohio’s nonregulated Midwest generation business and Duke Energy Retail Sales, LLC
 
 
DOE
U.S. Department of Energy
 
 
Dominion
Dominion Resources
 
 
DSM
Demand Side Management
 
 
Duke Energy
Duke Energy Corporation (collectively with its subsidiaries)
 
 
Duke Energy Audit Committee
Audit Committee of the Board of Directors
 
 
Duke Energy Carolinas
Duke Energy Carolinas, LLC
 
 
Duke Energy Defendants
Several current and former Duke Energy officers and directors named as defendants in the Consolidated Complaint
 
 
Duke Energy Florida
Duke Energy Florida, LLC (formerly Duke Energy Florida, Inc.)
 
 
Duke Energy Indiana
Duke Energy Indiana, Inc. (subsequently Duke Energy Indiana, LLC)
 
 
Duke Energy Kentucky
Duke Energy Kentucky, Inc.
 
 
Duke Energy Ohio
Duke Energy Ohio, Inc.
 
 
Duke Energy Progress
Duke Energy Progress, LLC (formerly Duke Energy Progress, Inc.)
 
 
Duke Energy Registrants
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana
 
 
Duke Energy Retail
Duke Energy Retail Sales, LLC
 
 
DukeNet
DukeNet Communications Holdings, LLC
 
 
Dynegy
Dynegy Inc.
 
 
EE
Energy efficiency
 
 
EGU
Electric Generating Units
 
 
EIP
Progress Energy’s Equity Incentive Plan
 
 
ELG
Effluent Limitation Guidelines
 
 
EMC
North Carolina Environmental Management Commission
 
 
EPA
U.S. Environmental Protection Agency
 
 
EPC
Engineering, Procurement and Construction agreement
 
 
EPS
Earnings Per Share
 
 
ESP
2014 Electric Security Plan
 
 
ETR
Effective tax rate
 
 
Exchange Act
Exchange Act of 1934
 
 
FASB
Financial Accounting Standards Board
 
 
FERC
Federal Energy Regulatory Commission
 
 
Fitch
Fitch Ratings, Inc.
 
 





FMJO
Florida Municipal Joint Owners - city of Ocala, Orlando Utilities Commission, city of Gainesville, city of Leesburg, Kissimmee Utility Authority, Utilities Commission of City of New Smyrna Beach, city of Alachua and city of Bushnell
 
 
Form S-3
Registration statement
 
 
FPSC
Florida Public Service Commission
 
 
FTC
Federal Trade Commission
 
 
FTR
Financial transmission rights
 
 
GAAP
Generally Accepted Accounting Principles in the United States
 
 
Gas Settlement
Settlement agreement in 2013 among Duke Energy Ohio, PUCO Staff and intervening parties
 
 
GHG
Greenhouse Gas
 
 
GPC
Georgia Power Company
 
 
GWh
Gigawatt-hours
 
 
Harris
Shearon Harris Nuclear Plant
 
 
HB 998
North Carolina House Bill 998, or the North Carolina Tax Simplification and Rate Reduction Act
 
 
Hines
Hines Energy Complex
 
 
IAP
State Environmental Agency of Parana
 
 
IBAMA
Brazil Institute of Environment and Renewable Natural Resources
 
 
IBNR
Incurred but not yet reported
 
 
IC
Internal combustion
 
 
IGCC
Integrated Gasification Combined Cycle
 
 
Interim FERC Mitigation
Interim firm power sale agreements mitigation plans related to the Progress Energy merger
 
 
IRP
Integrated Resource Plans
 
 
IRS
Internal Revenue Service
 
 
ISFSI
Independent Spent Fuel Storage Installation
 
 
ISO
Independent System Operator
 
 
ITC
Investment Tax Credit
 
 
IURC
Indiana Utility Regulatory Commission
 
 
Investment Trusts
Grantor trusts of Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana
 
 
JDA
Joint Dispatch Agreement
 
 
Joint Intervenors
Intervenors in matters related to the Edwardsport IGCC Plan, including the Citizens Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc. and Valley Watch, Inc.
 
 
KPSC
Kentucky Public Service Commission
 
 
kV
Kilovolt
 
 
kWh
Kilowatt-hour
 
 
Lee Nuclear Station
William States Lee III Nuclear Station
 
 
Levy
Duke Energy Florida’s proposed nuclear plant in Levy County, Florida
 
 
Legacy Duke Energy Directors
Members of the pre-merger Duke Energy Board of Directors
 
 
LIBOR
London Interbank Offered Rate
 
 
Long-Term FERC Mitigation
The revised market power mitigation plan related to the Progress Energy merger
 
 
MATS
Mercury and Air Toxics Standards (previously referred to as the Utility MACT Rule)
 
 
Mcf
Thousand cubic feet
 
 
McGuire
McGuire Nuclear Station
 
 
MGP
Manufactured gas plant
 
 
MISO
Midcontinent Independent System Operator, Inc.
 
 
MMBtu
Million British Thermal Unit





 
 
Moody’s
Moody’s Investors Service, Inc.
 
 
MTBE
Methyl tertiary butyl ether
 
 
MTEP
MISO Transmission Expansion Planning
 
 
MW
Megawatt
 
 
MVP
Multi Value Projects
 
 
MWh
Megawatt-hour
 
 
NASDAQ
Nasdaq Composite
 
 
NCDEQ
North Carolina Department of Environmental Quality (formerly the North Carolina Department of Environment and Natural Resources)
 
 
NCEMC
North Carolina Electric Membership Corporation
 
 
NCEMPA
North Carolina Eastern Municipal Power Agency
 
 
NCRC
Florida’s Nuclear Cost Recovery Clause
 
 
NCSC
North Carolina Supreme Court
 
 
NCUC
North Carolina Utilities Commission
 
 
NC WARN
N.C. Waste Awareness and Reduction Network
 
 
NDTF
Nuclear decommissioning trust funds
 
 
NEIL
Nuclear Electric Insurance Limited
 
 
NMC
National Methanol Company
 
 
NOL
Net operating loss
 
 
NOV
Notice of violation
 
 
NOx
Nitrogen oxide
 
 
NPNS
Normal purchase/normal sale
 
 
NRC
U.S. Nuclear Regulatory Commission
 
 
NSR
New Source Review
 
 
NWPA
Nuclear Waste Policy Act of 1982
 
 
NYSE
New York Stock Exchange
 
 
Oconee
Oconee Nuclear Station
 
 
Ohio EPA
Ohio Environmental Protection Agency
 
 
OPC
Florida Office of Public Counsel
 
 
OPEB
Other Post-Retirement Benefit Obligations
 
 
Osprey Plant acquisition
Duke Energy Florida's proposed acquisition of Calpine Corporation's 599 MW combined-cycle natural gas plant in Auburndale, Florida
 
 
OUCC
Office of Utility Consumer Counselor
 
 
OVEC
Ohio Valley Electric Corporation
 
 
the Parent
Duke Energy Corporation Holding Company
 
 
PESC
Progress Energy Service Company
 
 
PJM
PJM Interconnection, LLC
 
 
Plea Agreements
Plea Agreements entered into by Duke Energy Carolinas and Duke Energy Progress in connection with a criminal investigation related to the Dan River ash basin release and the management of coal ash basins in North Carolina
 
 
Progress Energy
Progress Energy, Inc.
 
 
PSCSC
Public Service Commission of South Carolina
 
 
Public Staff
North Carolina Utilities Commission Public Staff
 
 
PUCO
Public Utilities Commission of Ohio
 
 
PURPA
Public Utility Regulatory Act of 1978
 
 





QF
Qualifying Facility
 
 
RCA
Revolving Credit Agreement
 
 
RCRA
Resource Conservation and Recovery Act
 
 
Relative TSR
TSR of Duke Energy stock relative to a pre-defined peer group
 
 
the Resolutions
Proposed resolutions promulgated by the Brazilian electricity regulatory agency
 
 
Robinson
Robinson Nuclear Station
 
 
RTO
Regional Transmission Organization
 
 
Sabal Trail
Sabal Trail Transmission, LLC
 
 
SAFSTOR
A method of decommissioning in which a nuclear facility is placed and maintained in a condition that allows the facility to be safely stored and subsequently decontaminated to levels that permit release for unrestricted use.
 
 
SCDHEC
South Carolina Department of Health and Environmental Control
 
 
SEC
Securities and Exchange Commission
 
 
SELC
Southern Environmental Law Center
 
 
Segment Income
Income from continuing operations net of income attributable to noncontrolling interests
 
 
SO2
Sulfur dioxide
 
 
Spectra Energy
Spectra Energy Corp.
 
 
Spectra Capital
Spectra Energy Capital, LLC (formerly Duke Capital LLC)
 
 
S&P
Standard & Poor’s Rating Services
 
 
SSO
Standard Service Offer
 
 
State Utility Commissions
NCUC, PSCSC, FPSC, PUCO, IURC and KPSC (Collectively)
 
 
Subsidiary Registrants
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana
 
 
Supreme Court
U.S. Supreme Court
 
 
Sutton
L.V. Sutton combined cycle facility
 
 
Suwannee project
Proposed 320 MW combustion turbine plant at Duke Energy Florida's Suwannee generating facility
 
 
TSR
Total shareholder return
 
 
U.S.
United States
 
 
USDOJ
United States Department of Justice Environmental Crimes Section and the United States Attorneys for the Eastern District of North Carolina, the Middle District of North Carolina and the Western District of North Carolina, collectively
 
 
VDEQ
Virginia Department of Environmental Quality
 
 
VEBA I
Duke Energy Corporation Employee Benefits Trust
 
 
Vermillion
Vermillion Generating Station
 
 
VIE
Variable Interest Entity
 
 
WACC
Weighted Average Cost of Capital
 
 
WVPA
Wabash Valley Power Association, Inc.



PART I

 
ITEM 1. BUSINESS
 
DUKE ENERGY
 
General
Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company headquartered in Charlotte, North Carolina, subject to regulation by the Federal Energy Regulatory Commission (FERC). Duke Energy operates in the United States (U.S.) and Latin America primarily through its direct and indirect subsidiaries. Duke Energy's subsidiaries include its subsidiary registrants (collectively referred to as the Subsidiary Registrants); Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (formerly Duke Energy Progress, Inc.) (Duke Energy Progress); Duke Energy Florida, LLC (formerly Duke Energy Florida, Inc.) (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio); and Duke Energy Indiana, LLC (formerly Duke Energy Indiana, Inc.) (Duke Energy Indiana). When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Duke Energy has entered into an Agreement and Plan of Merger (Merger Agreement) with Piedmont Natural Gas Company, Inc. (Piedmont), a North Carolina corporation. Piedmont is an energy services company primarily engaged in the distribution of natural gas to residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. Under terms of the Merger Agreement, Duke Energy will acquire Piedmont for $4.9 billion in cash and Piedmont will become a wholly owned subsidiary of Duke Energy. Piedmont's common stock will be delisted from the New York Stock Exchange (NYSE). Duke Energy and Piedmont target to close the transaction by the end of 2016 subject to meeting various conditions, including receipt of required regulatory approvals. For additional information see Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions."
Duke Energy completed the sale of the nonregulated Midwest generation business and Duke Energy Retail Sales, LLC (collectively, the Disposal Group) to Dynegy Inc. (Dynegy) on April 2, 2015, for approximately $2.8 billion in cash. The Disposal Group primarily included Duke Energy Ohio's coal-fired and gas-fired generation assets located in the Midwest region of the United States and dispatched into the PJM wholesale market. The Disposal Group also included a retail sales subsidiary of Duke Energy, that served retail electric and gas customers in Ohio with energy and other energy services at competitive rates. For additional information see Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions."
The Duke Energy Registrants electronically file reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxies and amendments to such reports.
The public may read and copy any materials the Duke Energy Registrants file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Additionally, information about the Duke Energy Registrants, including reports filed with the SEC, is available through Duke Energy’s website at http://www.duke-energy.com. Such reports are accessible at no charge and are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.
Business Segments
Duke Energy conducts its operations in three business segments; Regulated Utilities, International Energy and Commercial Portfolio (formerly Commercial Power). The remainder of Duke Energy’s operations are presented as Other. Duke Energy’s chief operating decision maker regularly reviews financial information about each of these business segments in deciding how to allocate resources and evaluate the performance of the business. For additional information on each of these business segments, including financial and geographic information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
The following sections describe the business and operations of each of Duke Energy’s reportable business segments, as well as Other.
REGULATED UTILITIES
Regulated Utilities conducts operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and Duke Energy Ohio. These electric and gas operations are subject to the rules and regulations of the FERC, the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the Florida Public Service Commission (FPSC), the Indiana Utility Regulatory Commission (IURC), the Public Utilities Commission of Ohio (PUCO), and the Kentucky Public Service Commission (KPSC).
Regulated Utilities serves 7.4 million retail electric customers in six states in the Southeast and Midwest regions of the U.S. Its service area covers approximately 95,000 square miles with an estimated population of 24 million people. Regulated Utilities serves 525,000 retail natural gas customers in southwestern Ohio and northern Kentucky. Electricity is also sold wholesale to incorporated municipalities, electric cooperative utilities and other load-serving entities.

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PART I

The following table represents the distribution of billed sales by customer class for the year ended December 31, 2015.
 
Duke

Duke

 
Duke

 
Duke

 
Duke

 
Energy

Energy

 
Energy

 
Energy

 
Energy

 
Carolinas(a)

Progress(a)

 
Florida(b)

 
Ohio(c)

 
Indiana(d)

Residential
32
%
28
%
 
50
%
 
34
%
 
27
%
General service
33
%
24
%
 
38
%
 
37
%
 
25
%
Industrial
25
%
16
%
 
8
%
 
24
%
 
31
%
Total retail sales
90
%
68
%
 
96
%
 
95
%
 
83
%
Wholesale and other sales
10
%
32
%
 
4
%
 
5
%
 
17
%
Total sales
100
%
100
%
 
100
%
 
100
%
 
100
%
(a)
Primary general service sectors include health care, education, financial services, information technology and military buildings. Primary industrial sectors include textiles, chemicals, rubber and plastics, paper, food and beverage, and auto manufacturing.
(b)
Primary general service sectors include tourism, health care and government facilities and schools. Primary industrial sectors include phosphate rock mining and processing and citrus and other food processing.
(c)
Primary general service sectors include health care, education, real estate and rental leasing, financial and insurance services, water/wastewater services, and wholesale trade services. Primary industrial sectors include primary metals, chemicals, food and beverage, and transportation.
(d)
Primary general service sectors include retail, financial, health care and education services. Primary industrial sectors include metals, transportation, building materials, food and beverage, and chemicals.
The number of residential, general service and industrial customers within the Regulated Utilities service territory is expected to increase over time. However, growth in the near term has been hampered by current economic conditions and continued adoption of energy efficiencies. Average usage per residential customer is expected to remain flat or decline for the foreseeable future. While total industrial and general service sales increased in 2015 when compared to 2014, the growth rate was modest when compared to historical periods.
Seasonality and the Impact of Weather
Regulated Utilities’ costs and revenues are influenced by seasonal patterns. Peak sales of electricity occur during the summer and winter months, resulting in higher revenue and cash flows in these periods. By contrast, lower sales of electricity occur during the spring and fall, allowing for scheduled plant maintenance. Peak gas sales occur during the winter months. Residential and general service customers are most impacted by weather. Estimated weather impacts are based on actual current period weather compared to normal weather conditions. Normal weather conditions are defined as the long-term average of actual historical weather conditions.
The estimated impact of weather on earnings is based on the temperature variances from a normal condition and customers’ historic usage levels and patterns. The methodology used to estimate the impact of weather does not consider all variables that may impact customer response to weather conditions such as humidity in the summer or wind chill in the winter. The precision of this estimate may also be impacted by applying long-term weather trends to shorter-term periods.
Degree-day data are used to estimate energy required to maintain comfortable indoor temperatures based on each day’s average temperature. Heating-degree days measure the variation in weather based on the extent the average daily temperature falls below a base temperature. Cooling-degree days measure the variation in weather based on the extent the average daily temperature rises above the base temperature. Each degree of temperature below the base temperature counts as one heating-degree day and each degree of temperature above the base temperature counts as one cooling-degree day.
Competition
Retail
Regulated Utilities’ businesses operate as the sole supplier of electricity within their service territories, with the exception of Ohio, which has a competitive electricity supply market for generation service. Regulated Utilities owns and operates facilities necessary to transmit and distribute electricity and, except in Ohio, to generate electricity. Services are priced by state commission approved rates designed to include the costs of providing these services and a reasonable return on invested capital. This regulatory policy is intended to provide safe and reliable electricity at fair prices. Competition in the regulated electric distribution business is primarily from the development and deployment of alternative energy sources including on-site generation from industrial customers and distributed generation, such as rooftop solar, at residential, general service and/or industrial customer sites.
Regulated Utilities is not aware of any proposed legislation in any of its jurisdictions that would give its retail customers the right to choose their electricity provider or otherwise restructure or deregulate the electric industry including broadly subsidizing distributed generation such as rooftop solar.
Although there is no pending legislation at this time, if the retail jurisdictions served by Regulated Utilities become subject to deregulation, the recovery of stranded costs could become a significant consideration. Stranded costs primarily include the generation assets of Regulated Utilities whose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from qualifying facilities (QFs). The Public Utility Regulatory Policies Act of 1978 (PURPA) established a new class of generating facilities as QFs, typically small power production facilities that generate power within a utility company’s service territory for which the utility companies are legally obligated to purchase the energy at an avoided cost rate. Thus far, all states that have passed restructuring legislation have provided for the opportunity to recover a substantial portion of stranded costs.

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PART I

Regulated Utilities’ largest stranded cost exposure is primarily related to Duke Energy Florida’s purchased power commitments with QFs, under which it has future minimum expected capacity payments through 2043 of $3.1 billion. Duke Energy Florida was obligated to enter into these contracts under provisions of PURPA. Duke Energy Florida continues to seek ways to address the impact of escalating payments under these contracts. However, the FPSC allows full recovery of the retail portion of the cost of power purchased from QFs. For additional information related to these purchased power commitments, see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”
In Ohio, Regulated Utilities conducts competitive auctions for electricity supply and purchases the gas commodity for natural gas service. The cost of energy purchased through these auctions and the cost of gas purchases are recovered from retail customers. Regulated Utilities earns retail margin in Ohio on the transmission and distribution of electricity and the distribution of gas and not on the cost of the underlying energy.
Wholesale
Regulated Utilities competes with other utilities and merchant generators for bulk power sales, sales to municipalities and cooperatives, and wholesale transactions. The principal factors in competing for these sales are price, availability of capacity and power, and reliability of service. Prices are influenced primarily by market conditions and fuel costs.
Increased competition in the wholesale electric utility industry and the availability of transmission access could affect Regulated Utilities’ load forecasts, plans for power supply and wholesale energy sales and related revenues. Wholesale energy sales will be impacted by the extent to which additional generation is available to sell to the wholesale market and the ability of Regulated Utilities to attract new customers and to retain existing customers.
Energy Capacity and Resources
Regulated Utilities owns approximately 50,000 megawatts (MW) of generation capacity. For additional information on Regulated Utilities’ generation facilities, see Item 2, “Properties.”

Energy and capacity are also supplied through contracts with other generators and purchased on the open market. Factors that could cause Regulated Utilities to purchase power for its customers include generating plant outages, extreme weather conditions, generation reliability, demand growth, and price. Regulated Utilities has interconnections and arrangements with its neighboring utilities to facilitate planning, emergency assistance, sale and purchase of capacity and energy, and reliability of power supply.
Regulated Utilities’ generation portfolio is a balanced mix of energy resources having different operating characteristics and fuel sources designed to provide energy at the lowest possible cost to meet its obligation to serve retail customers. All options, including owned generation resources and purchased power opportunities, are continually evaluated on a real-time basis to select and dispatch the lowest-cost resources available to meet system load requirements.
Potential Plant Retirements
The Subsidiary Registrants periodically file Integrated Resource Plans (IRP) with state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. Recent IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities earlier than their current estimated useful lives. These facilities do not have the requisite emission control equipment, primarily to meet United States Environmental Protection Agency (EPA) regulations recently approved or proposed. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives, and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired. For additional information related to potential plant retirements see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
On October 23, 2015, the EPA published in the Federal Register the Clean Power Plan (CPP) rule for regulating carbon dioxide (CO2) emissions from existing fossil fuel-fired electric generating units (EGUs). The CPP establishes CO2 emission rates and mass cap goals that apply to fossil fuel-fired generation. Under the CPP, states are required to develop and submit a final compliance plan, or an initial plan with an extension request, to the EPA by September 2016, or no later than September 2018 with an approved extension. These state plans are subject to EPA approval, with a federal plan applied to states that fail to submit a plan to the EPA or if a state plan is not approved. Legal challenges to the CPP have been filed by stakeholders and motions to stay the requirements of the rule pending the outcome of the litigation have been filed. The U.S. Supreme Court granted a Motion to Stay in February 2016, effectively blocking enforcement of the rule until legal challenges are resolved. Final resolution of these legal challenges could take several years. Compliance with CPP could cause the industry to replace coal generation with natural gas and renewables, especially in states that have significant CO2 reduction targets under the rule. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, and this may result in the retirement of coal-fired generation plants earlier than the current useful lives. Duke Energy continues to evaluate the need to retire generating facilities and plans to seek regulatory recovery, where appropriate, for amounts that have not been recovered upon asset retirements. However, recovery is subject to future regulatory approval, including the recovery of carrying costs on remaining book values, and therefore cannot be assured.

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PART I

Sources of Electricity
Regulated Utilities relies principally on coal, natural gas and nuclear fuel for its generation of electricity. The following table lists sources of electricity and fuel costs for the three years ended December 31, 2015.
 
 
 
Cost of Delivered Fuel per Net
 
Generation by Source(d)
 
Kilowatt-hour Generated (Cents)(d)
 
2015

 
2014(e)

 
2013(e)

 
2015

 
2014

 
2013

Coal(a)
29.0
%
 
33.5
%
 
32.8
%
 
3.24

 
3.54

 
3.67

Nuclear(a)
27.0
%
 
26.1
%
 
26.3
%
 
0.65

 
0.65

 
0.66

Gas and oil(a)
23.1
%
 
19.0
%
 
19.5
%
 
3.74

 
4.70

 
4.18

All fuels (cost-based on weighted average)(a)
79.1
%
 
78.6
%
 
78.6
%
 
2.50

 
2.86

 
2.79

Hydroelectric and solar(b)
0.8
%
 
0.8
%
 
1.3
%
 
 
 
 
 
 
Total generation
79.9
%
 
79.4
%
 
79.9
%
 
 
 
 
 
 
Purchased power and net interchange(c)
20.1
%
 
20.6
%
 
20.1
%
 
 
 
 
 
 
Total sources of energy
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
(a)
Statistics related to all fuels reflect Regulated Utilities' ownership interest in jointly owned generation facilities.
(b)
Generating figures are net of output required to replenish pumped storage facilities during off-peak periods. 
(c)
Purchased power includes renewable energy purchases. 
(d)
Includes the effect of the Joint Dispatch Agreement (JDA). 
(e)
Amounts for 2014 and 2013 have been adjusted to reflect the inclusion of Duke Energy Ohio auction purchases from PJM and Purchased power and net interchange.
Coal
Regulated Utilities meets its coal demand through a portfolio of long-term purchase contracts and short-term spot market purchase agreements. Large amounts of coal are purchased under long-term contracts with mining operators who mine both underground and at the surface. Regulated Utilities uses spot market purchases to meet coal requirements not met by long-term contracts. Expiration dates for its long-term contracts, which have various price adjustment provisions and market re-openers, range from 2016 to 2017 for Duke Energy Carolinas, 2016 to 2018 for Duke Energy Progress, 2016 to 2017 for Duke Energy Florida, and 2016 to 2025 for Duke Energy Indiana. Regulated Utilities expects to renew these contracts or enter into similar contracts with other suppliers as existing contracts expire, though prices will fluctuate over time as coal markets change. Coal purchased for the Carolinas is primarily produced from mines in Central Appalachia, Northern Appalachia and the Illinois Basin. Coal purchased for Florida is primarily produced from mines in Colorado and the Illinois Basin. Coal purchased for Indiana is primarily produced in Indiana and Illinois. Regulated Utilities has an adequate supply of coal under contract to fuel its projected 2016 operations and a significant portion of supply to fuel its projected 2017 operations. As a result of lower natural gas prices and less coal-fired dispatch within the generation fleet, coal inventories may periodically exceed production requirements and result in higher inventory levels. In these circumstances, Regulated Utilities has worked with suppliers to defer contracted deliveries, renegotiate existing contract volumes or has received regulatory support to adjust generation dispatch to reduce the inventory levels.
The current average sulfur content of coal purchased by Regulated Utilities is between 1.5 percent and 2 percent for Duke Energy Carolinas, between 1.5 percent and 2 percent for Duke Energy Progress, between 1 percent and 2.5 percent for Duke Energy Florida, and between 2 percent and 3 percent for Duke Energy Indiana. Regulated Utilities’ environmental controls, in combination with the use of sulfur dioxide (SO2) emission allowances, enable Regulated Utilities to satisfy current SO2 emission limitations for its existing facilities.
Nuclear
The industrial processes for producing nuclear generating fuel generally involve the mining and milling of uranium ore to produce uranium concentrates, and services to convert, enrich, and fabricate fuel assemblies.
Regulated Utilities has contracted for uranium materials and services to fuel its nuclear reactors. Uranium concentrates, conversion services and enrichment services are primarily met through a diversified portfolio of long-term supply contracts. The contracts are diversified by supplier, country of origin and pricing. Regulated Utilities staggers its contracting so that its portfolio of long-term contracts covers the majority of its fuel requirements in the near term and decreasing portions of its fuel requirements over time thereafter. Near-term requirements not met by long-term supply contracts have been and are expected to be fulfilled with spot market purchases. Due to the technical complexities of changing suppliers of fuel fabrication services, Regulated Utilities generally sources these services to a single domestic supplier on a plant-by-plant basis using multiyear contracts.
Regulated Utilities has entered into fuel contracts that cover 100 percent of its uranium concentrates, conversion services, and enrichment services requirements through at least 2017 and cover fabrication services requirements for these plants through at least 2019. For future requirements not already covered under long-term contracts, Regulated Utilities believes it will be able to renew contracts as they expire, or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services.

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PART I

Natural Gas and Oil
Natural gas and oil supply for Regulated Utilities’ generation fleet is purchased under term and spot contracts from various suppliers. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana use derivative instruments to limit a portion of their exposure to price fluctuations for natural gas. Regulated Utilities has certain dual-fuel generating facilities that can operate with both natural gas and oil. The cost of Regulated Utilities’ natural gas and oil is either at a fixed price or determined by market prices as reported in certain industry publications. Regulated Utilities believes it has access to an adequate supply of gas and oil for the reasonably foreseeable future. Regulated Utilities’ natural gas transportation for its gas generation is purchased under long-term firm transportation contracts with interstate and intrastate pipelines. Regulated Utilities may also purchase additional shorter-term transportation for its load requirements during peak periods. The Regulated Utilities natural gas plants are served by several supply zones and multiple pipelines.
Purchased Power
Regulated Utilities purchases a portion of its capacity and system requirements through purchase obligations, leases and purchase contracts. Regulated Utilities believes it can obtain adequate purchased power capacity to meet future system load needs. However, during periods of high demand, the price and availability of purchased power may be significantly affected.
The following table summarizes purchased power the previous three years:
 
2015

 
2014

 
2013

Purchase obligations and leases (in millions of megawatt-hours (MWh))(a)
14.9

 
14.3

 
11.7

Purchases capacity under contract (in MW)(b)
4,573

 
4,500

 
3,800

(a)    Represents approximately 5 percent of total system requirements for all years presented.
(b)    These agreements include approximately 421 MW of firm capacity under contract by Duke Energy Florida with QFs.
Natural Gas for Retail Distribution
Regulated Utilities is responsible for the purchase and the subsequent delivery of natural gas to retail customers in its Ohio and Kentucky service territories. Regulated Utilities’ natural gas procurement strategy is to buy firm natural gas supplies and firm interstate pipeline transportation capacity during the winter season and during the non-heating season through a combination of firm supply and transportation capacity along with spot supply and interruptible transportation capacity. This strategy allows Regulated Utilities to assure reliable natural gas supply for its non-curtailable customers during peak winter conditions and provides Regulated Utilities the flexibility to reduce its contract commitments if firm customers choose alternate gas. In 2015, firm supply purchase commitment agreements provided approximately 71 percent of the natural gas supply.
Inventory
Generation of electricity is capital intensive. Regulated Utilities must maintain an adequate stock of fuel and materials and supplies in order to ensure continuous operation of generating facilities and reliable delivery to customers. As of December 31, 2015, the inventory balance for Regulated Utilities was $3,702 million. For additional information on inventory see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”
Ash Basin Management
On September 20, 2014, the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) became law and was amended on June 24, 2015, by the Mountain Energy Act. The Coal Ash Act established a Coal Ash Management Commission (Coal Ash Commission) to oversee handling of coal ash within the state and requires closure of ash impoundments by no later than December 31, 2029 based on risk rankings, amongst other detailed requirements. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal combustion residual (CCR) surface impoundments (ash basins or impoundments) to the normal ratemaking processes before utility regulatory commissions. Duke Energy has and will periodically submit to applicable authorities required site-specific coal ash impoundment remediation or closure plans. These plans and all associated permits must be approved before any work can begin.
On April 17, 2015, the EPA published Resource Conservation and Recovery Act (RCRA) in the Federal Register, establishing rules to regulate the disposal of coal combustion residuals (CCR) from electric utilities as solid waste. The RCRA, and the Coal Ash Act, as amended, finalized the legal framework related to coal ash management practices and ash basin closure.
Duke Energy has advanced the strategy and implementation for the remediation or closure of coal ash basins. In 2015, Duke Energy began activities at certain sites within North Carolina specified as high risk by the Coal Ash Act with coal ash moving off-site for use in structural fill or to lined landfills.
For additional information on the ash basins, see Notes 5 and 9 to the Consolidated Financial Statements, "Commitments and Contingencies" and "Asset Retirement Obligations," respectively.
Nuclear Matters
Regulated Utilities owns, wholly or partially, 11 nuclear reactors located at six stations. Nuclear insurance includes: nuclear liability coverage; property, decontamination and premature decommissioning coverage; and replacement power expense coverage. Joint owners reimburse Regulated Utilities for certain expenses associated with nuclear insurance in accordance with joint owner agreements. The Price-Anderson Act requires plant owners to provide for public nuclear liability claims resulting from nuclear incidents to the maximum total financial protection liability, which currently is $13.5 billion. For additional information on nuclear insurance see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”

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PART I

Regulated Utilities has a significant future financial commitment to dispose of spent nuclear fuel and decommission and decontaminate each plant safely. The NCUC, PSCSC and FPSC require Regulated Utilities to update their cost estimates for decommissioning their nuclear plants every five years.
The following table summarizes the fair value of nuclear decommissioning trust fund (NDTF) balances and cost study results for Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida.
 
NDTF(a)
 
 
 
 
(in millions)
December 31, 2015

 
December 31, 2014

 
Decommissioning Costs(a)(b)

 
Year of Cost Study
Duke Energy
$
5,825

 
$
5,546

 
$
8,130

 
2013 and 2014
Duke Energy Carolinas
3,050

 
3,042

 
3,420

 
2013
Duke Energy Progress
2,035

 
1,701

 
3,550

 
2014
Duke Energy Florida(c)
740

 
803

 
1,160

 
2013
(a)    Amounts for Progress Energy equal the sum of Duke Energy Progress and Duke Energy Florida.
(b)
Amounts include the Subsidiary Registrants' ownership interest in jointly owned reactors. Other joint owners are responsible for decommissioning costs related to their interest in the reactors.
(c)
Duke Energy Florida received reimbursements from the NDTF for costs related to ongoing decommissioning activity of the Crystal River Unit 3 Nuclear Plant during 2015.
The NCUC, PSCSC. FPSC and FERC have allowed Regulated Utilities’ to recover estimated decommissioning costs through retail and wholesale rates over the expected remaining service periods of their nuclear stations. Regulated Utilities believes the decommissioning costs being recovered through rates, when coupled with the existing fund balance and expected fund earnings, will be sufficient to provide for the cost of future decommissioning. For additional information see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.”
The Nuclear Waste Policy Act of 1982 (as amended) (NWPA) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The NWPA promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. Regulated Utilities will continue to maximize the use of spent fuel storage capability within its own facilities for as long as feasible.
Under federal law, the U.S. Department of Energy (DOE) is responsible for the selection and construction of a facility for the permanent disposal of spent nuclear fuel and high-level radioactive waste. Delays have occurred in the DOE’s proposed permanent repository to be located at Yucca Mountain, Nevada. At this time, DOE's focus is on developing consolidated storage for commercial spent nuclear fuel at one or more central sites rather than at a permanent repository.
Until the DOE begins to accept the spent nuclear fuel, Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida will continue to safely manage their spent nuclear fuel. Under current regulatory guidelines, Harris Nuclear Plant has sufficient storage capacity in its spent fuel pools through the expiration of its renewed operating license. Crystal River Unit 3 was retired in 2013, and placed in SAFSTOR prior to final decommissioning. The spent fuel is currently stored in the spent fuel pool and an independent spent fuel storage installation will be installed to accommodate storage of all the spent nuclear fuel until the DOE accepts the spent nuclear fuel. With certain modifications and approvals by the U.S. Nuclear Regulatory Commission (NRC) to expand the on-site dry cask storage facilities, spent nuclear fuel dry storage facilities will be sufficient to provide storage space of spent fuel through the expiration of the operating licenses, including any license renewals, for the Brunswick Nuclear Plant, Catawba Nuclear Station, McGuire Nuclear Station, Oconee Nuclear Station and Robinson Nuclear Plant. 
The nuclear power industry faces uncertainties with respect to the cost and long-term availability of disposal sites for spent nuclear fuel and other radioactive waste, compliance with changing regulatory requirements, capital outlays for modifications and new plant construction, the technological and financial aspects of decommissioning plants at the end of their licensed lives, and requirements relating to nuclear insurance.
Regulated Utilities is subject to the jurisdiction of the NRC for the design, construction and operation of its nuclear generating facilities. The following table includes the current year of expiration of nuclear operating licenses for nuclear stations in operation. Nuclear operating licenses are potentially subject to extension.
Unit
Year of Expiration
Duke Energy Carolinas
 
Catawba Unit 1 & 2
2043
McGuire Unit 1
2041
McGuire Unit 2
2043
Oconee Unit 1 & 2
2033
Oconee Unit 3
2034
Duke Energy Progress
 
Brunswick Unit 1
2036
Brunswick Unit 2
2034
Harris
2046
Robinson
2030

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PART I

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

 
Return

 
Equity Component

 
 
 
 
 
Increase

 
on

 
of Capital

 
 
 
 
 
(in millions)

 
Equity

 
Structure

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

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

 
10.2
%
 
53
%
 
September 2013
 
(c)
Duke Energy Progress 2012 North Carolina Rate Case(a)
178

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

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

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

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

 
10.5
%
 
49
%
 
January 2013
 
(g)(h)
(a)
Rates increase over a two or three year period as approved by the NCUC and PSCSC. Annual increase amounts represent the total increase once effective.
(b)
Terms of this rate case include (i) recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) a $10 million shareholder contribution to agencies providing energy assistance to low-income customers, and (iii) an annual reduction in the regulatory liability for costs of removal of $30 million for each of the first two years.
(c)
Terms of this rate case include (i) recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) an approximate $4 million shareholder contribution to agencies providing energy assistance to low-income customers and for economic development, and (iii) a reduction in the regulatory liability for costs of removal of $45 million for the first year.
(d)
Terms of this rate case include (i) recognition of nuclear outage expenses over the refueling cycle rather than when the outage occurs, (ii) a $20 million shareholder contribution to agencies providing energy assistance to low-income customers, and (iii) a reduction in the regulatory liability for costs of removal of $20 million for the first year.
(e)
Although the PUCO approved no increase in base rates, more than half of the revenue request was approved to be recovered in various riders, including recovery of costs related to former manufactured gas plants (MGP). Recovery of $56 million of MGP costs via a rider was approved in November 2013. The rider became effective in March 2014, was suspended in June 2014 and reinstated in January 2015. For additional information on MGP recovery see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
(f)
Terms of this settlement include (i) no additional base rate increases until 2019, (ii) partial recovery of Crystal River Unit 3, which began in 2014, and (iii) full recovery of Crystal River Unit 3, not to exceed $1,466 million, plus the cost to build a dry cask storage facility, beginning no later than 2017. See Note 4, "Regulatory Matters," for information regarding Duke Energy Florida's nuclear asset securitizable balance related to Crystal River Unit 3.
(g)
Terms of this settlement include the removal of Crystal River Unit 3 assets from rate base. 
(h)
Capital structure includes deferred income tax, customer deposits and investment tax credits.
For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”

15


PART I

Federal
The FERC approves Regulated Utilities’ cost-based rates for electric sales to certain wholesale customers, as well as sales of transmission service. Regulations of FERC and the state utility commissions govern access to regulated electric and gas customers and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Regulated Utilities.
Regional Transmission Organizations (RTO). PJM Interconnection, LLC (PJM) and Midcontinent Independent Transmission System Operator, Inc. (MISO) are the Independent System Operators (ISO) and FERC-approved RTOs for the regions in which Duke Energy Ohio and Duke Energy Indiana operate. PJM and MISO operate energy, capacity and other markets, and, through central dispatch, control the day-to-day operations of bulk power systems.
Duke Energy Ohio is a member of PJM and Duke Energy Indiana is a member of MISO. Transmission owners in these RTOs have turned over control of their transmission facilities, and their transmission systems are currently under the dispatch control of the RTOs. Transmission service is provided on a region wide, open-access basis using the transmission facilities of the RTO members at rates based on the costs of transmission service.
Environmental. Regulated Utilities is subject to the jurisdiction of the EPA and state and local environmental agencies. For a discussion of environmental regulation, see “Environmental Matters” in this section.
See “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and other EPA regulations under development and the potential impacts such legislation and regulation could have on Duke Energy’s operations.
INTERNATIONAL ENERGY
International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power, natural gas, and natural gas liquids outside the U.S. Its activities principally target power generation in Latin America. Additionally, International Energy owns a 25 percent interest in National Methanol Company (NMC), a large regional producer of methanol and methyl tertiary butyl ether (MTBE) located in Saudi Arabia. International Energy’s economic ownership interest will decrease to 17.5 percent upon successful startup of NMC's polyacetal production facility, which is expected to occur in January 2017. International Energy will retain 25 percent of the board representation and voting rights of NMC. The investment in NMC is accounted for under the equity method of accounting.
On February 18, 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in NMC. The process remains in a preliminary stage and there have been no binding or non-binding offers requested or submitted. Duke Energy can provide no assurance that this process will result in a transaction and there is no specific timeline for execution of a potential transaction.
In December 2014, Duke Energy declared a taxable dividend of historical foreign earnings in the form of notes payable that resulted in the repatriation of approximately $2.7 billion in cash held and expected to be generated by International Energy over a period of up to eight years. For additional information see Note 22 to the Consolidated Financial Statements, “Income Taxes.”
Customers, Competition and Regulation
International Energy’s customers include retail distributors, electric utilities, independent power producers, marketers, and industrial and commercial companies.
International Energy’s sales and marketing of electric power and natural gas competes directly with other generators and marketers serving its market areas. Competitors are country and region-specific, but include government-owned electric generating companies, local distribution companies with self-generation capability and other privately owned electric generating and marketing companies. The principal elements of competition are price and availability, terms of service, flexibility and reliability of service.
A high percentage of International Energy’s portfolio consists of baseload hydroelectric generation facilities, which compete with other forms of electric generation available to International Energy’s customers and end-users, including natural gas and fuel oils. Economic activity, conservation, legislation, governmental regulations, weather, including rainfall, additional generation capacities and other factors affect the supply and demand for electricity in the regions served by International Energy.
International Energy’s operations are subject to both country-specific and international laws and regulations. See “Environmental Matters” in this section.
COMMERCIAL PORTFOLIO
Commercial Portfolio primarily acquires, builds, develops, and operates wind and solar renewable generation and energy transmission projects throughout the continental U.S. The portfolio includes nonregulated renewable energy, electric transmission, natural gas infrastructure and energy storage businesses. The segment was renamed in 2015 as a result of the sale of the nonregulated Midwest generation business, as discussed in Note 2 of the Consolidated Financial Statements, "Acquisitions and Dispositions."

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Commercial Portfolio's renewable energy includes utility-scale wind and solar generation assets which total more than 2,400 MW across 11 states from more than 22 wind farms and 38 commercial solar farms. Revenues are primarily generated by selling the power produced from renewable generation through long-term contracts to utilities, electric cooperatives, municipalities, and commercial and industrial customers. In most instances, these customers have obligations under state-mandated renewable energy portfolio standards or similar state or local renewable energy goals. Energy and renewable energy credits generated by wind and solar projects are generally sold at contractual prices. In addition, as wind and solar projects are placed in service, Commercial Portfolio recognizes either investment tax credits (ITC) when the renewable project achieves commercial availability or production tax credits (PTC) as power is generated by the project over 10 years. Renewable ITC are recognized over the useful life of the asset with the benefit of the tax basis adjustment due to the ITC recognized in income in the year of commercial availability.
Duke Energy, through its Commercial Portfolio segment, is a 40 percent equity member of Atlantic Coast Pipeline, LLC, (ACP) that plans to build and own the proposed Atlantic Coast Pipeline (the pipeline), a 564-mile interstate natural gas pipeline. The pipeline is intended to transport diverse gas supplies into southeastern markets. Duke Energy Carolinas and Duke Energy Progress, among others, will be customers of the pipeline. The estimated in-service date of the pipeline is late 2018. For additional information on the ACP equity investment and further details on the proposed pipeline, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters."
Commercial Portfolio also has a 7.5 percent equity ownership interest in the proposed Sabal Trail natural gas pipeline. The Sabal Trail pipeline is planned to begin service in 2017 and traverse Alabama, Georgia and Florida to meet rapidly growing demand for natural gas in those states. For additional information on the Sabal Trail equity investment and further details on the proposed pipeline, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters."
Commercial Portfolio has executed investments to expand and grow the business through the addition of distributed solar projects, energy storage systems and energy management solutions specifically tailored to commercial businesses.
For additional information on Commercial Portfolio’s generation facilities, see Item 2, “Properties.”
Other Matters
Commercial Portfolio is subject to regulation at the federal level, primarily from the FERC. Regulations of the FERC govern access to regulated market information by nonregulated entities, services provided between regulated and nonregulated utilities, pipeline certification.
For more information on rate matters, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters – Rate Related Information.”
Market Environment and Competition
The market price of commodities and services, along with the quality and reliability of services provided, drive competition in the wholesale energy business. Commercial Portfolio’s main competitors include other nonregulated generators and wholesale power providers.
Sources of Electricity
Commercial Portfolio relies on wind and solar resources for its generation of electric energy.
OTHER
The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes unallocated corporate interest expense, certain unallocated corporate costs, Bison Insurance Company Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary, contributions to the Duke Energy Foundation, and other minor and immaterial investments in businesses the Company retained from previous divestitures that are no longer part of its current operating segment or is in various stages of exiting or winding down.
Bison’s principal activities as a captive insurance entity include the indemnification of various business risks and losses, such as property, workers’ compensation and general liability of Duke Energy subsidiaries and affiliates.
Regulation
Certain entities within Other are subject to the jurisdiction of state and local agencies.
Geographic Regions
For a discussion of Duke Energy’s foreign operations see “Management’s Discussion and Analysis of Results of Operations” and Note 3 to the Consolidated Financial Statements, “Business Segments.”
Employees
On December 31, 2015, Duke Energy had a total of 29,188 employees on its payroll. The total includes 5,371 employees who are represented by labor unions under various collective bargaining agreements that generally cover wages, benefits, working practices, and other terms and conditions of employment.

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Executive Officers of the Registrants
The following table sets forth the individuals who currently serve as executive officers. Executive officers serve until their successors are duly elected or appointed.
Name
 
Age(a)
 
Current and Recent Positions Held
Lynn J. Good
 
56

 
Chairman, President and Chief Executive Officer. Ms. Good was elected as Chairman of the Board, effective January 1, 2016, and assumed her position as President and Chief Executive Officer in July 2013. Prior to that, she served as Executive Vice President and Chief Financial Officer since 2009.
Steven K. Young
 
57

 
Executive Vice President and Chief Financial Officer. Mr. Young assumed his current position in August 2013. Prior to that, he had served as Senior Vice President, Chief Accounting Officer and Controller since April 2006.
Douglas F Esamann
 
58

 
Executive Vice President and President, Midwest and Florida Regions. Mr. Esamann assumed his current position in June 2015. Prior to that he was President, Duke Energy Indiana since November 2010.
Lloyd M. Yates
 
55

 
Executive Vice President, Market Solutions and President, Carolinas Region. Mr. Yates assumed his current position in August 2014. He held the position of Executive Vice President, Regulated Utilities from December 2012 to August 2014, and prior to that, had served as Executive Vice President, Customer Operations since July 2012, upon the merger of Duke Energy and Progress Energy. Prior to the merger, Mr. Yates was President and Chief Executive Officer of Progress Energy Carolinas, Inc., which is now known as Duke Energy Progress, LLC. since July 2007.
Dhiaa M. Jamil
 
59

 
Executive Vice President and President, Regulated Generation and Transmission. Mr. Jamil assumed his current position in June 2015. Prior to that he had served as Executive Vice President and President, Regulated Generation since August 2014. He served as Executive Vice President and President of Duke Energy Nuclear from March 2013 and as Chief Nuclear Officer from February 2008 to August 2014. He also served as Chief Generation Officer for Duke Energy from July 2009 to June 2012.
Julia S. Janson
 
51

 
Executive Vice President, Chief Legal Officer and Corporate Secretary. Ms. Janson assumed her current position in December 2012 and, in February 2016, assumed the interim responsibilities for the External Affairs and Strategic Policy organization. Prior to that, she had held the position of President of Duke Energy Ohio and Duke Energy Kentucky since 2008.
A.R. Mullinax
 
61

 
Executive Vice President, Strategic Services. Mr. Mullinax assumed his current position in August 2014. Prior to that, he had held the position of Chief Information Officer since 2007.
Melissa H. Anderson
 
51

 
Senior Vice President and Chief Human Resources Officer. Ms. Anderson assumed her position in January 2015. Prior to joining Duke Energy, she served as Senior Vice President of Human Resources at Domtar Inc. since 2010.
Brian D. Savoy
 
40

 
Senior Vice President, Chief Accounting Officer and Controller. Mr. Savoy assumed his current position in September 2013. Prior to that, he had held the position of Director, Forecasting and Analysis since 2009.
(a)    The ages of the officers provided are as of December 31, 2015.
There are no family relationships between any of the executive officers, nor any arrangement or understanding between any executive officer and any other person involved in officer selection.
Environmental Matters
The Duke Energy Registrants are subject to federal, state and local laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters. Duke Energy is also subject to international laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters. Environmental laws and regulations affecting the Duke Energy Registrants include, but are not limited to:
The Clean Air Act (CAA), as well as state laws and regulations impacting air emissions, including State Implementation Plans related to existing and new national ambient air quality standards for ozone and particulate matter. Owners and/or operators of air emission sources are responsible for obtaining permits and for annual compliance and reporting.
The Clean Water Act (CWA), which requires permits for facilities that discharge wastewaters into the environment.
The Comprehensive Environmental Response, Compensation and Liability Act, which can require any individual or entity that currently owns or in the past may have owned or operated a disposal site, as well as transporters or generators of hazardous substances sent to a disposal site, to share in remediation costs.
The Solid Waste Disposal Act, as amended by the RCRA, which requires certain solid wastes, including hazardous wastes, to be managed pursuant to a comprehensive regulatory regime.
The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their decisions, including siting approvals.
The CPP, which regulates CO2 emissions from existing fossil fuel-fired electric generating units by requiring states to develop and submit final compliance plans, or initial plans with an extension request, to the EPA by September 6, 2016, or no later than September 6, 2018, with an approved extension. On February 9, 2016, the U.S. Supreme Court granted a stay against the CPP halting enforcement until legal challenges are resolved.

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Coal Ash Act, as amended, which establishes regulations regarding the use and closure of existing ash basins, the disposal of ash at active coal plants and the handling of surface water impacts from ash basins in North Carolina.
CCR, which classifies CCR as nonhazardous waste under RCRA and establishes requirements regarding landfill design and management and monitoring of CCR.
See “Other Matters” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion about potential Global Climate Change legislation and the potential impacts such legislation could have on the Duke Energy Registrants’ operations. Additionally, other recently passed and potential future environmental laws and regulations could have a significant impact on the Duke Energy Registrants’ results of operations, cash flows or financial position. However, if and when such laws and regulations become effective, the Duke Energy Registrants will seek appropriate regulatory recovery of costs to comply within its regulated operations.
For more information on environmental matters involving the Duke Energy Registrants, including possible liability and capital costs, see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies – Environmental.” Except to the extent discussed in Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies,” compliance with current international, federal, state and local provisions regulating the discharge of materials into the environment, or otherwise protecting the environment, is incorporated into the routine cost structure of our various business segments and is not expected to have a material adverse effect on the competitive position, consolidated results of operations, cash flows or financial position of the Duke Energy Registrants.
DUKE ENERGY CAROLINAS
 
Duke Energy Carolinas is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Carolinas’ service area covers approximately 24,000 square miles and supplies electric service to 2.5 million residential, commercial and industrial customers. For information about Duke Energy Carolinas’ generating facilities, see Item 2, “Properties.” Duke Energy Carolinas is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Carolinas' operations are regulated and qualify for regulatory accounting. Duke Energy Carolinas operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
PROGRESS ENERGY
 
Progress Energy is a public utility holding company primarily engaged in the regulated electric utility business and is subject to regulation by the FERC. Progress Energy conducts operations through its wholly owned subsidiaries, Duke Energy Progress and Duke Energy Florida. When discussing Progress Energy’s financial information, it necessarily includes the results of Duke Energy Progress and Duke Energy Florida.
Substantially all of Progress Energy’s operations are regulated and qualify for regulatory accounting. Progress Energy operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY PROGRESS
 
Duke Energy Progress is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina. Duke Energy Progress’ service area covers approximately 32,000 square miles, and supplies electric service to approximately 1.5 million residential, commercial and industrial customers. For information about Duke Energy Progress’ generating facilities, see Item 2, “Properties.” Duke Energy Progress is subject to the regulatory provisions of the NCUC, PSCSC, NRC and FERC.
Substantially all of Duke Energy Progress’ operations are regulated and qualify for regulatory accounting. Duke Energy Progress operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY FLORIDA
 
Duke Energy Florida is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of Florida. Duke Energy Florida’s service area covers approximately 13,000 square miles and supplies electric service to approximately 1.7 million residential, commercial and industrial customers. For information about Duke Energy Florida’s generating facilities, see Item 2, “Properties.” Duke Energy Florida is subject to the regulatory provisions of the FPSC, NRC and FERC.
Substantially all of Duke Energy Florida’s operations are regulated and qualify for regulatory accounting. Duke Energy Florida operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY OHIO
 
Duke Energy Ohio is a regulated public utility primarily engaged in the transmission and distribution of electricity in portions of Ohio and Kentucky, in the generation and sale of electricity in portions of Kentucky, and the transportation and sale of natural gas in portions of Ohio and Kentucky. Duke Energy Ohio also conducts competitive auctions for retail electricity supply in Ohio whereby recovery of the energy price is from retail customers. Operations in Kentucky are conducted through its wholly owned subsidiary, Duke Energy Kentucky, Inc. (Duke Energy Kentucky). References herein to Duke Energy Ohio include Duke Energy Ohio and its subsidiaries, unless otherwise noted. Duke Energy Ohio is subject to the regulatory provisions of the PUCO, KPSC and FERC.

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Duke Energy Ohio’s service area covers approximately 3,000 square miles and supplies electric service to approximately 840,000 residential, commercial and industrial customers and provides transmission and distribution services for natural gas to approximately 525,000 customers. For information about Duke Energy Ohio's generating facilities, see Item 2, “Properties.”
On April 2, 2015, Duke Energy completed the sale of its nonregulated Midwest generation business, which sold power into wholesale energy markets, to a subsidiary of Dynegy. For further information about the sale of the Midwest Generation business, refer to Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions."
Substantially all of Duke Energy Ohio's operations that remain after the sale qualify for regulatory accounting.
Business Segments
Duke Energy Ohio had two reportable operating segments, Regulated Utilities and Commercial Portfolio, prior to the sale of the nonregulated Midwest generation business. As a result of the sale Commercial Portfolio no longer qualifies as a Duke Energy Ohio reportable operating segment. Therefore, for periods subsequent to the sale, beginning in the second quarter of 2015, all of the remaining assets and related results of operations previously presented in Commercial Portfolio are presented in Regulated Utilities and Other. For additional information on this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
DUKE ENERGY INDIANA
 
Duke Energy Indiana is a regulated public utility primarily engaged in the generation, transmission, distribution and sale of electricity in portions of Indiana. Duke Energy Indiana’s service area covers 23,000 square miles and supplies electric service to 810,000 residential, commercial and industrial customers. See Item 2, “Properties” for further discussion of Duke Energy Indiana’s generating facilities, transmission and distribution. Duke Energy Indiana is subject to the regulatory provisions of the IURC and FERC.
Substantially all of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting. Duke Energy Indiana operates one reportable business segment, Regulated Utilities. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”
ITEM 1A. RISK FACTORS
 
In addition to other disclosures within this Form 10-K, including Management’s Discussion and Analysis – Matters Impacting Future Results for each registrant in Item 7, and other documents filed with the SEC from time to time, the following factors should be considered in evaluating Duke Energy and its subsidiaries. Such factors could affect actual results of operations and cause results to differ substantially from those currently expected or sought. Unless otherwise indicated, risk factors discussed below generally relate to risks associated with all of the Duke Energy Registrants. Risks identified at the Subsidiary Registrant level are generally applicable to Duke Energy.
Duke Energy may be unable to obtain the approvals required to complete its acquisition of Piedmont or, in order to do so, the combined company may be required to comply with material restrictions or conditions.
On October 24, 2015, Duke Energy entered into a Merger Agreement with Piedmont. For the acquisition to be completed, various approvals must be obtained from state utility and regulatory authorities. These governmental authorities may impose conditions on the completion, or require changes to the terms, of the transaction, including restrictions or conditions on the business, operations, or financial performance of the combined company following completion of the transaction. These conditions or changes could have the effect of delaying completion of the acquisition or imposing additional costs on or limiting the revenues of the combined company following the transaction, which could have a material adverse effect on the financial position, results of operations or cash flows of the combined company and/or cause either Duke Energy or Piedmont to abandon the transaction.
If completed, Duke Energy’s acquisition of Piedmont may not achieve its intended results.
Duke Energy and Piedmont entered into the merger agreement with the expectation that the transaction would result in various benefits, including, among other things, being accretive to earnings and foundational to establishing a broader gas infrastructure business within Duke Energy. Achieving the anticipated benefits of the transaction is subject to a number of uncertainties, including whether the business of Piedmont is integrated in an efficient and effective manner. Failure to achieve these anticipated benefits could result in increased costs; decreases in the amount of expected revenues generated by the combined company and diversion of management’s time and energy, all of which could have an adverse effect on the combined company’s financial position, results of operations or cash flows.
Failure to complete the transaction with Piedmont could negatively impact Duke Energy’s stock price and Duke Energy’s future business and financial results.
If Duke Energy’s acquisition of Piedmont is not completed, Duke Energy’s ongoing business and financial results may be adversely affected and Duke Energy will be subject to a number of risks, including the following:
Duke Energy may be required, under specified circumstances set forth in the Merger Agreement, to pay Piedmont a termination fee of $250 million;
Duke Energy will be required to pay costs relating to the transaction, including legal, accounting, financial advisory, filing and printing costs, whether or not the transaction is completed; and
execution of Duke Energy’s acquisition of Piedmont (including integration planning) may require substantial commitments of time and resources by our management, which could otherwise have been devoted to other opportunities that may have been beneficial to Duke Energy.

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

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The EPA has recently enacted or proposed new federal regulations governing the management of cooling water intake structures, wastewater and CO2 emissions. These regulations may require the Duke Energy Registrants to make additional capital expenditures and increase operating and maintenance costs.
Duke Energy’s investments and projects located outside of the U.S. expose it to risks related to the laws, taxes, economic and political conditions, and policies of foreign governments. These risks may delay or reduce Duke Energy’s realization of value from its international projects.
Duke Energy currently owns and may acquire and/or dispose of material energy-related investments and projects outside the U.S. The economic, regulatory, market and political conditions in some of the countries where Duke Energy has interests may impact its ability to obtain financing on suitable terms. Other risks relate to its customers’ ability to honor their obligations with respect to projects and investments, delays in construction, limitations on its ability to enforce legal rights, and interruption of business, as well as risks of war, expropriation, nationalization, renegotiation, trade sanctions or nullification of existing contracts and changes in law, regulations, market rules or tax policy.
Operational Risks
The Duke Energy Registrants’ results of operations may be negatively affected by overall market, economic and other conditions that are beyond their control.
Sustained downturns or sluggishness in the economy generally affect the markets in which the Duke Energy Registrants operate and negatively influence electricity operations. Declines in demand for electricity as a result of economic downturns in the Duke Energy Registrants’ regulated electric service territories will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity. Although the Duke Energy Registrants’ regulated electric business is subject to regulated allowable rates of return and recovery of certain costs, such as fuel, under periodic adjustment clauses, overall declines in electricity sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations. Additionally, prolonged economic downturns that negatively impact the Duke Energy Registrants’ results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values.
The Duke Energy Registrants also sell electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, the Duke Energy Registrants are not guaranteed any rate of return on their capital investments through mandated rates, and revenues and results of operations are likely to depend, in large part, upon prevailing market prices. These market prices may fluctuate substantially over relatively short periods of time and could reduce the Duke Energy Registrants’ revenues and margins, thereby diminishing results of operations.
Factors that could impact sales volumes, generation of electricity and market prices at which the Duke Energy Registrants are able to sell electricity are as follows:
weather conditions, including abnormally mild winter or summer weather that cause lower energy usage for heating or cooling purposes, respectively, and periods of low rainfall that decrease the ability to operate facilities in an economical manner;
supply of and demand for energy commodities;
transmission or transportation constraints or inefficiencies that impact nonregulated energy operations;
availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal, nuclear or gas plants, and customer usage of energy efficient equipment that reduces energy demand;
natural gas, crude oil and refined products production levels and prices;
ability to procure satisfactory levels of inventory, such as coal, gas and uranium; and
capacity and transmission service into, or out of, the Duke Energy Registrants’ markets.
Natural disasters or operational accidents may adversely affect the Duke Energy Registrants’ operating results.
Natural disasters (such as electromagnetic events or the 2011 earthquake and tsunami in Japan) or other operational accidents within the company or industry (such as the San Bruno, California natural gas transmission pipeline failure) could have direct significant impacts on the Duke Energy Registrants as well as on key contractors and suppliers. Such events could indirectly impact the Duke Energy Registrants through changes to policies, laws and regulations whose compliance costs have a significant impact on the Duke Energy Registrants’ financial position, results of operations and cash flows.
The reputation and financial condition of the Duke Energy Registrants could be negatively impacted due to their obligations to comply with federal and state regulations, laws, and other legal requirements that govern the operations, assessments, storage, closure, remediation, disposal, and monitoring relating to coal combustion residuals (CCR), the high costs and new rate impacts associated with implementing these new CCR-related requirements, and the strategies and methods necessary to implement these requirements in compliance with these legal obligations.
As a result of electricity produced for decades at coal-fired power plants, the Duke Energy Registrants manage large amounts of CCR that are primarily stored in dry storage within landfills or combined with water in other surface impoundments, all in compliance with applicable regulatory requirements. However, the potential exists for another CCR-related incident, such as the one that occurred during the 2014 Dan River Steam Station basin release, that could raise environmental or general public health concerns. Such a CCR-related incident could have a material adverse impact on the reputation and financial condition of the Duke Energy Registrants.

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PART I

During 2015, EPA regulations were enacted related to the management of CCR from power plants. These regulations classify CCR as nonhazardous waste under the RCRA, and apply to electric generating sites with new and existing landfills, new and existing surface impoundments, structural fills and CCR piles, and establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring and protection procedures, and other operational and reporting procedures for the disposal and management of CCR. In addition to the federal regulations, CCR landfills and surface impoundments will continue to be independently regulated by existing state laws, regulations, and permits, as well as additional legal requirements that may be imposed in the future. These federal and state laws, regulations, and other legal requirements may require or result in additional expenditures, increased operating and maintenance costs, and/or result in closure of certain power generating facilities, which could affect the financial position, results of operations and cash flows of the Duke Energy Registrants. The Duke Energy Registrants intend to seek full cost recovery for expenditures through the normal ratemaking process with state and federal utility commissions, who permit recovery in rates of necessary and prudently incurred costs associated with the Duke Energy Registrants’ regulated operations, and through other wholesale contracts with terms that contemplate recovery of such costs, although there is no guarantee of full cost recovery. In addition, the timing for recovery of such costs could have a material adverse impact on Duke Energy's cash flows.
The Duke Energy Registrants have recognized significant asset retirement obligations related to these CCR-related requirements. In 2015, closure activities began at the four sites specified as high priority by the North Carolina Coal Ash Management Act (Coal Ash Act) and at the W.S. Lee Steam Station site in South Carolina in connection with other legal requirements. Excavation at these sites involves movement of large amounts of CCR materials to offsite locations for use as structural fill and to offsite or onsite lined landfills. At other sites, preliminary planning and closure methods have been studied and factored into the estimated retirement and management costs. Coal Ash Act requires CCR surface impoundments in North Carolina to be closed, with the closure method based on a risk ranking classification determined by state regulators and the North Carolina Coal Ash Commission. Other than the high priority sites specifically delineated by Coal Ash Act, the North Carolina Department of Environmental Quality (NCDEQ) has issued either preliminary draft risk rankings or has yet to designate specific risk classifications. These proposed risk rankings remain subject to a public comment period, including public meetings, followed by a final risk ranking recommendation by the NCDEQ to the Coal Ash Commission, for the Coal Ash Commission’s final approval. As the closure and CCR management work progresses, final risk ranking classifications of surface impoundments in North Carolina are delineated, and final closure plans are developed and approved at each site, the scope and complexity of work and the amount of CCR material could be greater than estimates and could, therefore, materially increase compliance expenditures and rate impacts.
The Duke Energy Registrants’ financial position, results of operations and cash flows may be negatively affected by a lack of growth or slower growth in the number of customers, or decline in customer demand or number of customers.
Growth in customer accounts and growth of customer usage each directly influence demand for electricity and the need for additional power generation and delivery facilities. Customer growth and customer usage are affected by a number of factors outside the control of the Duke Energy Registrants, such as mandated energy efficiency measures, demand-side management goals, distributed generation resources and economic and demographic conditions, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.
Certain regulatory and legislative bodies have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates. Additionally, technological advances driven by federal laws mandating new levels of energy efficiency in end-use electric devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.
Advances in distributed generation technologies that produce power, including fuel cells, micro-turbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production utilized by the Duke Energy Registrants.
Some or all of these factors, could result in a lack of growth or decline in customer demand for electricity or number of customers, and may cause the failure of the Duke Energy Registrants to fully realize anticipated benefits from significant capital investments and expenditures which could have a material adverse effect on their financial position, results of operations and cash flows.
Furthermore, the Duke Energy Registrants currently have energy efficiency riders in place to recover the cost of energy efficiency programs in North Carolina, South Carolina, Florida, Ohio and Kentucky. Should the Duke Energy Registrants be required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact.
The Duke Energy Registrants’ operating results may fluctuate on a seasonal and quarterly basis and can be negatively affected by changes in weather conditions and severe weather.
Electric power generation is generally a seasonal business. In most parts of the U.S., and other markets in which Duke Energy operates, demand for power peaks during the warmer summer months, with market prices typically peaking at that time. In other areas, demand for power peaks during the winter. Further, extreme weather conditions such as heat waves or winter storms could cause these seasonal fluctuations to be more pronounced. As a result, in the future, the overall operating results of the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant.
Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, tornadoes, severe thunderstorms, snow and ice storms, can result in lost operating revenues due to outages; property damage, including downed transmission and distribution lines; and additional and unexpected expenses to mitigate storm damage. The cost of storm restoration efforts may not be fully recoverable through the regulatory process.

23


PART I

The Duke Energy Registrants’ sales may decrease if they are unable to gain adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver electricity sold to the wholesale market. FERC’s power transmission regulations, as well as those of Duke Energy’s international markets, require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. If transmission is disrupted, or if transmission capacity is inadequate, the Duke Energy Registrants’ ability to sell and deliver products may be hindered.
The different regional power markets have changing regulatory structures, which could affect growth and performance in these regions. In addition, the ISOs who oversee the transmission systems in regional power markets have imposed in the past, and may impose in the future, price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms may adversely impact the profitability of the Duke Energy Registrants’ wholesale power marketing business.
Fluctuations in commodity prices or availability may adversely affect various aspects of the Duke Energy Registrants’ operations as well as their financial condition, results of operations and cash flows.
The Duke Energy Registrants are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity and other energy-related commodities as a result of their ownership of energy-related assets. Fuel costs are recovered primarily through cost-recovery clauses, subject to the approval of state utility commissions.
Additionally, the Duke Energy Registrants are exposed to risk that counterparties will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of, among other things, transportation delays, weather, labor relations, force majeure events, or environmental regulations affecting any of these fuel suppliers, could limit the Duke Energy Registrants to operate their facilities. Should counterparties fail to perform, the Duke Energy Registrants might be forced to replace the underlying commitment at prevailing market prices possibly resulting in losses in addition to the amounts, if any, already paid to the counterparties.
Certain of the Duke Energy Registrants’ hedge agreements may result in the receipt of, or posting of, derivative collateral with counterparties, depending on the daily derivative position. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties negatively impact liquidity. Downgrades in the Duke Energy Registrants’ credit ratings could lead to additional collateral posting requirements. The Duke Energy Registrants continually monitor derivative positions in relation to market price activity.
Potential terrorist activities or military or other actions could adversely affect the Duke Energy Registrants’ businesses.
The continued threat of terrorism and the impact of retaliatory military and other action by the U.S. and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil, which may have material adverse effects in ways the Duke Energy Registrants cannot predict at this time. In addition, future acts of terrorism and possible reprisals as a consequence of action by the U.S. and its allies could be directed against companies operating in the U.S. or their international affiliates. Information technology systems, transmission and distribution and generation facilities such as nuclear plants could be potential targets of terrorist activities or harmful activities by individuals or groups. The potential for terrorism has subjected the Duke Energy Registrants’ operations to increased risks and could have a material adverse effect on their businesses. In particular, the Duke Energy Registrants may experience increased capital and operating costs to implement increased security for their information technology systems, transmission and distribution and generation facilities, including nuclear power plants under the NRC’s design basis threat requirements. These increased costs could include additional physical plant security and security personnel or additional capability following a terrorist incident.
Cyberattacks and data security breaches could adversely affect the Duke Energy Registrants' businesses.
Information security risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and frequency of cyberattacks and data security breaches. The utility industry requires the continued operation of sophisticated information technology systems and network infrastructure, which are part of an interconnected regional grid. Additionally, connectivity to the Internet continues to increase through smart grid and other initiatives. Because of the critical nature of the infrastructure, increased connectivity to the Internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, the Duke Energy Registrants face a heightened risk of cyberattack. In the event of such an attack, the Duke Energy Registrants could (i) have business operations disrupted, property damaged, customer information stolen and other private information accessed (ii) experience substantial loss of revenues, repair and restoration costs, implementation costs for additional security measures to avert future cyberattacks and other financial loss, and (iii) be subject to increased regulation, litigation and reputational damage.
Failure to attract and retain an appropriately qualified workforce could unfavorably impact the Duke Energy Registrants’ results of operations.
Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the lengthy time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If the Duke Energy Registrants are unable to successfully attract and retain an appropriately qualified workforce, their financial position or results of operations could be negatively affected.

24


PART I

Duke Energy’s investments and projects located outside of the U.S. expose it to risks related to fluctuations in currency rates. These risks, and Duke Energy’s activities to mitigate such risks, may adversely affect its cash flows and results of operations.
Duke Energy’s operations and investments outside the U.S. expose it to risks related to fluctuations in currency rates. As each local currency’s value changes relative to the U.S. dollar, the value in U.S. dollars of Duke Energy’s assets and liabilities in such locality and the cash flows generated in such locality, expressed in U.S. dollars, also change. Duke Energy’s primary foreign currency rate exposure is to the Brazilian real.
Duke Energy selectively mitigates some risks associated with foreign currency fluctuations by, among other things, indexing contracts to the U.S. dollar and/or local inflation rates, hedging through debt denominated or issued in the foreign currency and hedging through foreign currency derivatives. These efforts, however, may not be effective and, in some cases, may expose Duke Energy to other risks that could negatively affect its cash flows and results of operations.
The costs of retiring Duke Energy Florida’s Crystal River Unit 3 could prove to be more extensive than is currently identified.
Costs to retire and decommission the plant could exceed estimates and, if not recoverable through the regulatory process, could adversely affect Duke Energy’s, Progress Energy’s and Duke Energy Florida’s financial condition, results of operations and cash flows.
Duke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO presents risks that could have a material adverse effect on their results of operations, financial condition and cash flows.
The rules governing the various regional power markets may change, which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/or revenues. To the degree Duke Energy Ohio and Duke Energy Indiana incur significant additional fees and increased costs to participate in an RTO, their results of operations may be impacted. Duke Energy Ohio and Duke Energy Indiana may be allocated a portion of the cost of transmission facilities built by others due to changes in RTO transmission rate design. Duke Energy Ohio and Duke Energy Indiana may be required to expand their transmission system according to decisions made by an RTO rather than their own internal planning process. While RTO transmission rates were initially designed to be revenue neutral, various proposals and proceedings currently taking place by the FERC may cause transmission rates to change from time to time. In addition, RTOs have been developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights that may have a financial impact on Duke Energy Ohio and Duke Energy Indiana.
As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are subject to certain additional risks, including those associated with the allocation among RTO members, of losses caused by unreimbursed defaults of other participants in the RTO markets and those associated with complaint cases filed against an RTO that may seek refunds of revenues previously earned by RTO members.
Nuclear Generation Risks
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida may incur substantial costs and liabilities due to their ownership and operation of nuclear generating facilities.
Ownership interest in and operation of nuclear stations by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various risks. These risks include, among other things: the potential harmful effects on the environment and human health resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials; limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.
Ownership and operation of nuclear generation facilities requires compliance with licensing and safety-related requirements imposed by the NRC. In the event of non-compliance, the NRC may increase regulatory oversight, impose fines, and/or shut down a unit, depending upon its assessment of the severity of the situation. Revised security and safety requirements promulgated by the NRC, which could be prompted by, among other things, events within or outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, such as a serious nuclear incident at a facility owned by a third party, could necessitate substantial capital and other expenditures, as well as assessments to cover third-party losses. In addition, if a serious nuclear incident were to occur, it could have a material adverse effect on the results of operations and financial condition and reputation of the Duke Energy Registrants.
Liquidity, Capital Requirements and Common Stock Risks
The Duke Energy Registrants rely on access to short-term borrowings and longer-term capital markets to finance their capital requirements and support their liquidity needs. Access to those markets can be adversely affected by a number of conditions, many of which are beyond the Duke Energy Registrants’ control.
The Duke Energy Registrants’ businesses are to a large degree financed through issuances of debt. The maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from their assets. Accordingly, as a source of liquidity for capital requirements not satisfied by the cash flow from their operations and to fund investments originally financed through debt instruments with disparate maturities, the Duke Energy Registrants rely on access to short-term money markets as well as longer-term capital markets. The Subsidiary Registrants also rely on access to short-term intercompany borrowings. If the Duke Energy Registrants are not able to access capital at competitive rates or at all, the ability to finance their operations and implement their strategy and business plan as scheduled could be adversely affected. An inability to access capital may limit the Duke Energy Registrants’ ability to pursue improvements or acquisitions that they may otherwise rely on for future growth.

25


PART I

Market disruptions may increase the cost of borrowing or adversely affect the ability to access one or more financial markets. Such disruptions could include: economic downturns, the bankruptcy of an unrelated energy company, capital market conditions generally, market prices for electricity and gas, actual or threatened terrorist attacks, or the overall health of the energy industry. The availability of credit under Duke Energy’s Master Credit Facility depends upon the ability of the banks providing commitments under the facility to provide funds when their obligations to do so arise. Systematic risk of the banking system and the financial markets could prevent a bank from meeting its obligations under the facility agreement.
Duke Energy maintains a revolving credit facility to provide backup for its commercial paper program and letters of credit to support variable rate demand tax-exempt bonds that may be put to the Duke Energy Registrant issuer at the option of the holder. The facility includes borrowing sublimits for the Duke Energy Registrants, each of whom is a party to the credit facility, and financial covenants that limit the amount of debt that can be outstanding as a percentage of the total capital for the specific entity. Failure to maintain these covenants at a particular entity could preclude Duke Energy from issuing commercial paper or the Duke Energy Registrants from issuing letters of credit or borrowing under the Master Credit Facility.
The Duke Energy Registrants must meet credit quality standards and there is no assurance they will maintain investment grade credit ratings. If the Duke Energy Registrants are unable to maintain investment grade credit ratings, they would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect their liquidity.
Each of the Duke Energy Registrants’ senior long-term debt issuances is currently rated investment grade by various rating agencies. The Duke Energy Registrants cannot ensure their senior long-term debt will be rated investment grade in the future.
If the rating agencies were to rate the Duke Energy Registrants below investment grade, borrowing costs would increase, perhaps significantly. In addition, the potential pool of investors and funding sources would likely decrease. Further, if the short-term debt rating were to fall, access to the commercial paper market could be significantly limited.
A downgrade below investment grade could also require the posting of additional collateral in the form of letters of credit or cash under various credit, commodity and capacity agreements and trigger termination clauses in some interest rate derivative agreements, which would require cash payments. All of these events would likely reduce the Duke Energy Registrants’ liquidity and profitability and could have a material effect on their financial position, results of operations or cash flows.
Non-compliance with debt covenants or conditions could adversely affect the Duke Energy Registrants’ ability to execute future borrowings.
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements.
Market performance and other changes may decrease the value of the NDTF investments of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, which then could require significant additional funding.
Ownership and operation of nuclear generation facilities also requires the maintenance of funded trusts that are intended to pay for the decommissioning costs of the respective nuclear power plants. The performance of the capital markets affects the values of the assets held in trust to satisfy these future obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have significant obligations in this area and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below projected rates of return. Although a number of factors impact funding requirements, a decline in the market value of the assets may increase the funding requirements of the obligations for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are unable to successfully manage their NDTF assets, their financial condition, results of operations and cash flows could be negatively affected.
Poor investment performance of the Duke Energy pension plan holdings and other factors impacting pension plan costs could unfavorably impact the Duke Energy Registrants’ liquidity and results of operations.
The costs of providing non-contributory defined benefit pension plans are dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary contributions made to the plans. The Subsidiary Registrants are allocated their proportionate share of the cost and obligations related to these plans. Without sustained growth in the pension investments over time to increase the value of plan assets and, depending upon the other factors impacting costs as listed above, Duke Energy could be required to fund its plans with significant amounts of cash. Such cash funding obligations, and the Subsidiary Registrants’ proportionate share of such cash funding obligations, could have a material impact on the Duke Energy Registrants’ financial position, results of operations or cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.

26


PART I

ITEM 2. PROPERTIES
 
REGULATED UTILITIES
The following table provides information related to Regulated Utilities' electric generation stations as of December 31, 2015. The MW displayed in the table below are based on summer capacity.
 
 
 
 
Total MW

Owned MW

Ownership

Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)

Duke Energy Carolinas
 
 
 
 
 
 
Oconee
Nuclear
Uranium
SC
2,554

2,554

100

McGuire
Nuclear
Uranium
NC
2,296

2,296

100

Catawba(a)
Nuclear
Uranium
SC
2,290

441

19.25

Belews Creek
Fossil
Coal
NC
2,220

2,220

100

Marshall
Fossil
Coal
NC
2,078

2,078

100

J.E. Rogers 
Fossil
Coal
NC
1,396

1,396

100

Lincoln Combustion Turbine (CT)
Fossil
Gas/Oil
NC
1,267

1,267

100

Allen
Fossil
Coal
NC
1,127

1,127

100

Rockingham CT
Fossil
Gas/Oil
NC
825

825

100

Buck CC
Fossil
Gas
NC
668

668

100

Dan River Combined Cycle (CC)
Fossil
Gas
NC
638

638

100

Mill Creek CT
Fossil
Gas/Oil
SC
596

596

100

W.S. Lee
Fossil
Gas
SC
170

170

100

W.S. Lee CT
Fossil
Gas/Oil
SC
82

82

100

Bad Creek
Hydro
Water
SC
1,360

1,360

100

Jocassee
Hydro
Water
SC
780

780

100

Cowans Ford
Hydro
Water
NC
325

325

100

Keowee
Hydro
Water
SC
152

152

100

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

666

100

Distributed generation
Renewable
Solar
NC
4

4

100

Total Duke Energy Carolinas
 
 
 
21,494

19,645

 
 
 
 
 
Total MW

Owned MW

Ownership

Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)

Duke Energy Progress
 
 
 
 
 
 
Brunswick
Nuclear
Uranium
NC
1,870

1,870

100

Harris
Nuclear
Uranium
NC
928

928

100

Robinson
Nuclear
Uranium
SC
741

741

100

Roxboro
Fossil
Coal
NC
2,439

2,439

100

Smith CC
Fossil
Gas/Oil
NC
1,088

1,088

100

H.F. Lee CC
Fossil
Gas/Oil
NC
910

910

100

Wayne County CT
Fossil
Gas/Oil
NC
863

863

100

Smith CT
Fossil
Gas/Oil
NC
780

780

100

Darlington CT
Fossil
Gas/Oil
SC
735

735

100

Mayo
Fossil
Coal
NC
727

727

100

L.V. Sutton CC
Fossil
Gas/Oil
NC
622

622

100

Asheville
Fossil
Coal
NC
376

376

100

Asheville CT
Fossil
Gas/Oil
NC
324

324

100

Weatherspoon CT
Fossil
Gas/Oil
NC
128

128

100

L.V. Sutton CT
Fossil
Gas/Oil
NC
61

61

100

Blewett CT
Fossil
Oil
NC
52

52

100

Walters
Hydro
Water
NC
112

112

100

Other small facilities (3 plants)
Hydro
Water
NC
115

115

100

Distributed generation
Renewable
Solar
NC
44

44

100

Total Duke Energy Progress
 
 
 
12,915

12,915

 

27


PART I

 
 
 
 
Total MW

Owned MW

Ownership

Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)

Duke Energy Florida
 
 
 
 
 
 
Crystal River
Fossil
Coal
FL
2,291

2,291

100

Hines CC
Fossil
Gas/Oil
FL
1,912

1,912

100

Bartow CC
Fossil
Gas/Oil
FL
1,105

1,105

100

Anclote
Fossil
Gas
FL
1,041

1,041

100

Intercession City CT(b)
Fossil
Gas/Oil
FL
984

984

(b)

DeBary CT
Fossil
Gas/Oil
FL
637

637

100

Tiger Bay CC
Fossil
Gas/Oil
FL
205

205

100

Bartow CT
Fossil
Gas/Oil
FL
175

175

100

Bayboro CT
Fossil
Oil
FL
174

174

100

Suwannee River CT
Fossil
Gas
FL
155

155

100

Suwannee River
Fossil
Gas/Oil
FL
128

128

100

Higgins CT
Fossil
Gas/Oil
FL
109

109

100

Turner CT
Fossil
Oil
FL
79

79

100

Avon Park CT
Fossil
Gas/Oil
FL
48

48

100

University of Florida CoGen CT
Fossil
Gas
FL
46

46

100

Rio Pinar CT
Fossil
Oil
FL
12

12

100

Total Duke Energy Florida
 
 
 
9,101

9,101

 
 
 
 
 
Total MW

Owned MW

Ownership

Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)

Duke Energy Ohio
 
 
 
 
 
 
East Bend
Fossil
Coal
KY
600

600

100

Woodsdale CT
Fossil
Gas/Propane
OH
462

462

100

Total Duke Energy Ohio
 
 
 
1,062

1,062

 
 
 
 
 
Total MW

Owned MW

Ownership

Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)

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

2,822

90.10

Cayuga(d)
Fossil
Coal/Oil
IN
1,005

1,005

100

Wabash River(e)
Fossil
Coal/Oil
IN
676

676

100

Edwardsport
Fossil
Coal
IN
595

595

100

Madison CT
Fossil
Gas
OH
576

576

100

Vermillion CT(f)
Fossil
Gas
IN
568

355

62.50

Wheatland CT
Fossil
Gas
IN
460

460

100

Noblesville CC
Fossil
Gas/Oil
IN
285

285

100

Gallagher
Fossil
Coal
IN
280

280

100

Henry County CT
Fossil
Gas/Oil
IN
129

129

100

Cayuga CT
Fossil
Gas/Oil
IN
99

99

100

Connersville CT
Fossil
Oil
IN
86

86

100

Miami Wabash CT
Fossil
Oil
IN
80

80

100

Markland
Hydro
Water
IN
45

45

100

Total Duke Energy Indiana
 
 
 
8,016

7,493

 

28


PART I

 
 
 
 
Total MW

Owned MW

Ownership
Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)
Total Regulated Utilities
 
 
 
52,588

50,216

 
Totals By Plant Type
 
 
 
 
 
 
Nuclear
 
 
 
10,679

8,830

 
Fossil
 
 
 
38,306

37,783

 
Hydro
 
 
 
3,555

3,555

 
Renewable
 
 
 
48

48

 
Total Regulated Utilities
 
 
 
52,588

50,216

 
(a)
Jointly owned with North Carolina Municipal Power Agency Number 1, North Carolina Electric Membership Corporation and Piedmont Municipal Power Agency.
(b)
Duke Energy Florida owns and operates Intercession City Station Units 1-10 and 12-14. Unit 11 is jointly owned with Georgia Power Company (GPC). GPC has the exclusive right to the output of this unit during the months of June through September. Duke Energy Florida has the exclusive right to the output of this unit for the remainder of the year. Duke Energy Florida has executed an agreement to purchase Georgia Power Company's interest in these facilities.
(c)
Duke Energy Indiana owns and operates Gibson Station Units 1-4 and owns 50.05 percent of, and operates, unit 5. Unit 5 is jointly owned with Wabash Valley Power Association, Inc. and Indiana Municipal Power Agency.
(d)     Includes Cayuga Internal Combustion (IC).
(e)    Includes Wabash River IC.
(f)    Jointly owned with Wabash Valley Power Association.
The following table provides information related to Regulated Utilities' electric transmission and distribution properties as of December 31, 2015.
 
Duke

Duke

Duke

Duke

Duke

Duke

 
Energy

Energy

Energy

Energy

Energy

Energy

 
Carolinas

Progress

Florida

Ohio

Indiana

Utilities

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

300

200



1,100

Miles of 345 kV



1,000

700

1,700

Miles of 230 kV
2,600

3,400

1,700


700

8,400

Miles of 100 to 161 kV
6,800

2,600

1,000

700

1,400

12,500

Miles of 13 to 69 kV
3,100


2,300

700

2,500

8,600

Total conductor miles of electric transmission lines
13,100

6,300

5,200

2,400

5,300

32,300

Electric Distribution Lines
 
 
 
 
 
 
Miles of overhead lines
66,600

44,100

24,200

13,800

22,400

171,100

Miles of underground line
36,500

23,700

18,200

5,800

8,600

92,800

Total conductor miles of electric distribution lines
103,100

67,800

42,400

19,600

31,000

263,900

Number of electric transmission and distribution substations
1,500

500

500

300

500

3,300

Miles of gas mains



7,200


7,200

Miles of gas service lines



5,800


5,800

Substantially all of Regulated Utilities' electric plant in service is mortgaged under indentures relating to Duke Energy Carolinas’, Duke Energy Progress', Duke Energy Florida's, Duke Energy Ohio’s and Duke Energy Indiana’s various series of First Mortgage Bonds.

29


PART I

INTERNATIONAL ENERGY
The following table provides additional information related to International Energy’s electric generation stations as of December 31, 2015. The MW displayed in the table below are based on summer capacity.
 
 
 
Total MW

Owned MW

Ownership

 
Primary Fuel
Location
Capacity

Capacity

Interest (%)

DEI Brazil
Water
Brazil
2,274

2,087

92

DEI Argentina
Water/Gas
Argentina
576

523

91

DEI Peru – Egenor
Water
Peru
352

352

100

DEI Peru – Aguaytia
Gas
Peru
192

192

100

DEI Chile
Water/Diesel
Chile
362

362

100

DEI Guatemala
Oil/Diesel/Coal
Guatemala
361

361

100

DEI El Salvador
Oil/Diesel
El Salvador
324

293

90

DEI Ecuador
Diesel
Ecuador
192

163

85

Total International Energy
 
 
4,633

4,333

 
International Energy also owns a 25 percent equity interest in NMC. In 2015, NMC produced approximately 890,000 metric tons of methanol and approximately 1.0 million metric tons of MTBE. Approximately 40 percent of methanol is normally used in the MTBE production.

30


PART I

COMMERCIAL PORTFOLIO
The following table provides information related to Commercial Portfolio’s electric generation facilities as of December 31, 2015. The MW displayed in the table below are based on summer capacity.
 
 
 
 
Total MW

Owned MW

Ownership

Facility
Plant Type
Primary Fuel
Location
Capacity

Capacity

Interest (%)

Duke Energy Renewables – Wind
 
 
 
 
 
 
Los Vientos Windpower
Renewable
Wind
TX
712

712

100

Top of the World
Renewable
Wind
WY
200

200

100

Notrees
Renewable
Wind
TX
153

153

100

Campbell Hill
Renewable
Wind
WY
99

99

100

North Allegheny
Renewable
Wind
PA
70

70

100

Laurel Hill Wind Energy
Renewable
Wind
PA
69

69

100

Ocotillo
Renewable
Wind
TX
59

59

100

Kit Carson
Renewable
Wind
CO
51

51

100

Silver Sage
Renewable
Wind
WY
42

42

100

Happy Jack
Renewable
Wind
WY
29

29

100

Shirley
Renewable
Wind
WI
20

20

100

Sweetwater I
Renewable
Wind
TX
38

19

50

Sweetwater II
Renewable
Wind
TX
91

45

50

Sweetwater III
Renewable
Wind
TX
135

67

50

Sweetwater IV
Renewable
Wind
TX
241

113

47

Sweetwater V
Renewable
Wind
TX
80

38

47

Ironwood
Renewable
Wind
KS
168

84

50

Cimarron II
Renewable
Wind
KS
131

66

50

Mesquite Creek
Renewable
Wind
TX
211

106

50

Total Renewables – Wind
 
 
 
2,599

2,042

 
Duke Energy Renewables – Solar
 
 
 
 
 
 
Conetoe II
Renewable
Solar
NC
80

80

100

Seville
Renewable
Solar
CA
50

50

100

Kelford
Renewable
Solar
NC
22

22

100

Highlander
Renewable
Solar
CA
21

21

100

Dogwood
Renewable
Solar
NC
20

20

100

Halifax Airport
Renewable
Solar
NC
20

20

100

Pasquotank
Renewable
Solar
NC
20

20

100

Pumpjack
Renewable
Solar
CA
20

20

100

Wildwood
Renewable
Solar
CA
20

20

100

Shawboro
Renewable
Solar
NC
20

20

100

Bagdad
Renewable
Solar
AZ
15

15

100

TX Solar
Renewable
Solar
TX
14

14

100

Creswell Alligood
Renewable
Solar
NC
14

14

100

Washington White Post
Renewable
Solar
NC
12

12

100

Whitakers
Renewable
Solar
NC
12

12

100

Other small solar
Renewable
Solar
Various
79

79

100

Total Renewables – Solar
 
 
 
439

439

 
Total Commercial Portfolio
 
 
 
3,038

2,481

 
OTHER
Duke Energy owns approximately 5.2 million square feet and leases 2.9 million square feet of corporate, regional and district office space spread throughout its service territories and in Houston, Texas.
ITEM 3. LEGAL PROCEEDINGS
 
For information regarding legal proceedings, including regulatory and environmental matters, see Note 4, “Regulatory Matters,” and Note 5, “Commitments and Contingencies,” to the Consolidated Financial Statements.

31


PART I

Virginia Department of Environmental Quality Civil Enforcement
In June 2015, the Virginia State Water Control Board voted to approve a consent order to resolve the civil enforcement claim of the Virginia Department of Environmental Quality (VDEQ) against Duke Energy Carolinas related to the February 2014 Dan River coal ash release. Pursuant to the terms of the $2.5 million settlement, Duke Energy Carolinas is required to perform $2.25 million of environmental projects that benefit Virginia communities and fund an additional $250,000 for VDEQ to respond to environmental emergencies. Failure to perform sufficient environmental projects will require Duke Energy Carolinas to make a cash payment in the amount of the shortfall.
MTBE Litigation
On June 29, 2007, the New Jersey Department of Environmental Protection (NJDEP) filed suit against, among others, Duke Energy Merchants (DEM), alleging contamination of “waters of the state” by MTBE from leaking gasoline storage tanks. MTBE is a gasoline additive intended to increase the oxygen level in gasoline and make it burn cleaner. The case was moved to federal court and consolidated in an existing multidistrict litigation docket of pending MTBE cases. DEM and NJDEP have reached an agreement in principle to settle the case for a payment by DEM of $1.7 million. On February 19, 2016, the Court approved a Consent Decree executed by the parties which settles the case.
DEM is also a defendant in a similar case filed by the Commonwealth of Pennsylvania on June 19, 2014. That case has also been moved to the consolidated multidistrict proceeding. Discovery in this case continues.
Brazilian Transmission Fee Assessments
On July 16, 2008, Duke Energy International Geracao Paranapanema S.A. (DEIGP) filed a lawsuit in the Brazilian federal court challenging transmission fee assessments imposed under two new resolutions promulgated by the Brazilian electricity regulatory agency (ANEEL) (collectively, the Resolutions). The Resolutions purport to impose additional transmission fees on generation companies located in the State of Sao Paulo for utilization of the electric transmission system. The fees were retroactive to July 1, 2004, and effective through June 30, 2009. DEIGP's original assessment under these Resolutions amounts to approximately $43 million inclusive of interest through December 2015. Pending resolution of this dispute on the merits, DEIGP deposited the disputed portion, approximately $15 million, of the assessment into a court-monitored escrow, and paid the undisputed portion to the distribution companies. In a decision published on October 2, 2013, the trial court affirmed an additional fine imposed by ANEEL in the amount of approximately $7 million for DEIGP’s failure to pay the disputed portion of the assessment. The $7 million was also deposited into a court-monitored escrow. In December 2014, the trial court ruled in favor of DEIGP on the merits of the original assessment. The merits of the original assessment and fine, as well as the contradiction between the trial court's ruling in favor of DEIGP on the original assessment but against DEIGP on its alleged failure to timely pay that assessment are being addressed on appeal.
Brazilian Regulatory Citations
In September 2007, the State Environmental Agency of Parana (IAP) assessed seven fines against DEIGP for failure to comply with reforestation measures allegedly required by state regulations in Brazil. DEIGP has challenged the fines in administrative and judicial proceedings. Two of the seven fines have subsequently been dismissed or otherwise resolved in favor of DEIGP. A third fine was determined legitimate by the trial court, but is under appeal. The remaining fines are pending. The total current amount of the IAP fines is approximately $10 million.
Additionally, DEIGP was assessed three fines by Brazil Institute of Environment and Renewable Natural Resources (IBAMA) for improper maintenance of existing reforested areas. One of these fines was determined legitimate by the trial court and is under appeal. The others are pending. The total current IBAMA assessment is approximately $400,000. DEIGP believes that it has properly maintained all reforested areas and has challenged the IBAMA assessments.
ITEM 4. MINE SAFETY DISCLOSURES
 
This is not applicable for any of the Duke Energy Registrants.

32


PART II

 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
The common stock of Duke Energy is listed and traded on the NYSE (ticker symbol DUK). As of January 31, 2016, there were 166,231 Duke Energy common stockholders of record.
There is no market for common stock of the Subsidiary Registrants, all of which is owned by Duke Energy.
Common Stock Data by Quarter
The following chart provides Duke Energy common stock trading prices as reported on the New York Stock Exchange and information on common stock dividends declared. Stock prices represent the intra-day high and low stock price.
Duke Energy expects to continue its policy of paying regular cash dividends; however, there is no assurance as to the amount of future dividends as they depend on future earnings, capital requirements, and financial condition, and are subject to declaration by the Duke Energy Board of Directors.
Duke Energy’s operating subsidiaries have certain restrictions on their ability to transfer funds in the form of dividends or loans to Duke Energy. See Note 4 to the Consolidated Financial Statements, “Regulatory Matters” for further information regarding these restrictions.
Securities Authorized for Issuance Under Equity Compensation Plans
 
Duke Energy will provide information that is responsive to this Item 5 in its definitive proxy statement or in an amendment to this annual report not later than 120 days after the end of the fiscal year covered by this annual report, in either case under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” and possibly elsewhere therein. That information is incorporated in this Item 5 by reference.
Issuer Purchases of Equity Securities for Fourth Quarter 2015
 
There were no repurchases of equity securities during the fourth quarter of 2015.

33


PART II

Stock Performance Graph
 
The following performance graph compares the cumulative total shareholder return from Duke Energy Corporation common stock, as compared with the Standard & Poor's 500 Stock Index (S&P 500) and the Philadelphia Utility Sector Index (Philadelphia Utility Index) for the past five years. The graph assumes an initial investment of $100 on December 31, 2010, in Duke Energy common stock, in the S&P 500 and in the Philadelphia Utility Index and that all dividends were reinvested. The stockholder return shown below for the five-year historical period may not be indicative of future performance.
NYSE CEO Certification
 
Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as e