10-K 1 duk-20161231x10k.htm FORM 10-K Document



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, 2016 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.
 
 
dukeenergylogo4ca02.jpg
 
 
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
(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
(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
(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.

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, LLC (Duke Energy Florida)
Yes x
 
No ¨
Duke Energy Carolinas, LLC (Duke Energy Carolinas)
Yes x
 
No ¨
 
Duke Energy Ohio, Inc. (Duke Energy Ohio)
Yes x
 
No ¨
Progress Energy, Inc. (Progress Energy)
Yes ¨
 
No x
 
Duke Energy Indiana, LLC (Duke Energy Indiana)
Yes x
 
No ¨
Duke Energy Progress, LLC (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. ¨ (Only applicable to Duke Energy)
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, 2016.
$
59,060,642,963

Number of shares of Common Stock, $0.001 par value, outstanding at January 31, 2017.
699,607,929

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Duke Energy definitive proxy statement for the 2017 Annual Meeting of the Shareholders or an amendment to this Annual Report are incorporated by reference into PART III, Items 10, 11, 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 10-K 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, 2016
 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 impoundment retirement obligations and costs related to significant weather events, and to 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;
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 private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs;
Advancements in technology;
Additional competition in electric and natural gas markets and continued industry consolidation;
The influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes, including extreme weather associated with climate change;
The ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources;
The ability to complete necessary or desirable pipeline expansion or infrastructure projects in our natural gas business;
Operational interruptions to our natural gas distribution and transmission activities;
The availability of adequate interstate pipeline transportation capacity and natural gas supply.
The impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches 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;
Credit ratings of the Duke Energy Registrants may be different from what is expected;
Declines in the market prices of equity and fixed-income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans and nuclear decommissioning trust funds;
Construction and development risks associated with the completion of the Duke Energy Registrants’ capital investment projects, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner, or at all;
Changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants;
The ability to control operation and maintenance costs;
The level of creditworthiness of counterparties to transactions;
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;
Substantial revision to the U.S. tax code, such as changes to the corporate tax rate or a material change in the deductibility of interest;
The impact of potential goodwill impairments;
The ability to successfully complete future merger, acquisition or divestiture plans; and
The ability to successfully integrate the natural gas businesses following the acquisition of Piedmont Natural Gas Company, Inc. and realize anticipated benefits.
Additional risks and uncertainties are identified and discussed in the Duke Energy Registrants' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made and the Duke Energy Registrants expressly disclaim an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.





Glossary of Terms 
The following terms or acronyms used in this Form 10-K are defined below:
Term or Acronym
Definition
 
 
the 2012 Settlement
Settlement agreement in 2012 among Duke Energy Florida, the Florida OPC and other customer advocates
 
 
the 2013 Settlement
Settlement agreement in 2013 among Duke Energy Florida, the Florida OPC and other customer advocates
 
 
2013 Agreement
2013 revised and restated stipulation and settlement agreement
 
 
the 2015 Plan
Duke Energy Corporation 2015 Long-Term Incentive Plan
 
 
ACP
Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy and Southern Company Gas
 
 
ACP Pipeline
The approximately 600-mile proposed interstate natural gas pipeline
 
 
AFUDC
Allowance for funds used during construction
 
 
AHFS
Assets held for sale
 
 
ALJ
Administrative Law Judge
 
 
Amended Complaint
Amended Verified Consolidated Shareholder Derivative Complaint
 
 
AMI
Advanced Metering Infrastructure
 
 
AOCI
Accumulated Other Comprehensive Income (Loss)
 
 
ARO
Asset Retirement Obligation
 
 
ARP
Alternative Revenue Programs
 
 
the ASR
Accelerated Stock Repurchase Program
 
 
ASRP
Accelerated natural gas service line replacement program
 
 
Barclays
Barclays Capital Inc.
 
 
BCWF
Benton County Wind Farm, LLC
 
 
Beckjord
Beckjord Generating Station
 
 
Bison
Bison Insurance Company Limited
 
 
Board of Directors
Duke Energy Board of Directors
 
 
Bresalier Complaint
Shareholder derivative lawsuit filed by Saul Bresalier related to ash basin management practices
 
 
Bresalier Defendants
Several current and former Duke Energy officers and directors named in the Bresalier Complaint
 
 
Bridge Facility
$4.9 billion senior secured financing facility with Barclays Capital Inc.
 
 
Brunswick
Brunswick Nuclear Plant
 
 
CAA
Clean Air Act
 
 
Calpine
Calpine Corporation
 
 
Cardinal
Cardinal Pipeline Company, LLC
 
 
Catawba
Catawba Nuclear Station
 
 
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 Operating License
 
 
the Company
Duke Energy Corporation and its subsidiaries
 
 
Consolidated Complaint
Corrected Verified Consolidated Shareholder Derivative Complaint
 
 
Constitution
Constitution Pipeline Company, LLC
 
 
CPCN
Certificate of Public Convenience and Necessity
 
 
CPP
Clean Power Plan
 
 
CRC
Cinergy Receivables Company LLC
 
 
Crystal River Unit 3
Crystal River Unit 3 Nuclear Plant
 
 
CSA
Comprehensive Site Assessment
 
 
CSAPR
Cross-State Air Pollution Rule
 
 
CT
Combustion Turbine
 
 
CTG
China Three Gorges Energy S.à.r.l.
 
 
CWA
Clean Water Act
 
 
DATC
Duke-American Transmission Co.
 
 
D.C. Circuit Court
U.S. Court of Appeals for the District of Columbia
 
 
the Dealers
Goldman, Sachs & Co. and JP Morgan Chase Bank
 
 
DEBS
Duke Energy Business Services, LLC
 
 
DECAM
Duke Energy Commercial Asset Management, LLC
 
 
DEFPF
Duke Energy Florida Project Finance, LLC
 
 
DEFR
Duke Energy Florida Receivables, LLC
 
 
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
 
 
DETM
Duke Energy Trading and Marketing, LLC
 
 
DHHS
North Carolina Department of Health and Human Services
 
 
DOE
U.S. Department of Energy
 
 
DOJ
Department of Justice
 
 
Dominion
Dominion Resources
 
 
DSM
Demand Side Management
 
 
Dth
Dekatherm
 
 
Duke Energy
Duke Energy Corporation (collectively with its subsidiaries)
 
 
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
 
 
Duke Energy Indiana
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
 
 





Duke Energy Registrants
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
 
 
Dynegy
Dynegy Inc.
 
 
East Bend
East Bend Generating Station
 
 
EE
Energy efficiency
 
 
EGU
Electric Generating Units
 
 
EIS
Environmental Impact Statement
 
 
ELG
Effluent Limitations Guidelines
 
 
EPA
U.S. Environmental Protection Agency
 
 
EPC
Engineering, Procurement and Construction agreement
 
 
EPS
Earnings Per Share
 
 
ESP
Electric Security Plan
 
 
ETR
Effective tax rate
 
 
Exchange Act
Exchange Act of 1934
 
 
FASB
Financial Accounting Standards Board
 
 
FERC
Federal Energy Regulatory Commission
 
 
Fitch
Fitch Ratings, Inc.
 
 
FirstEnergy
FirstEnergy Corp.
 
 
Florida OPC
Florida Office of Public Counsel
 
 
Form S-3
Registration statement
 
 
FP&L
Florida Power & Light Company
 
 
FPSC
Florida Public Service Commission
 
 
FTR
Financial transmission rights
 
 
GAAP
Generally Accepted Accounting Principles in the United States
 
 
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
 
 
I Squared
ISQ Enerlam Aggregator, L.P. and Enerlam Holding Ltd.
 
 
IBNR
Incurred but not yet reported
 
 
ICPA
Inter-company Power Agreement
 
 
IGCC
Integrated Gasification Combined Cycle
 
 
IGCC Rider
Tracking mechanism used to recover costs related to the Edwardsport IGCC plant from retail electric customers
 
 
IGCC Settlement
2015 Settlement to resolve disputes with intervenors related to 5 IGCC riders
 
 
IMR
Integrity Management Rider
 
 
Interim FERC Mitigation
Interim firm power sale agreements mitigation plans related to the Progress Energy merger
 
 
International Disposal Group
Duke Energy's international business, excluding National Methanol Company
 
 
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
 
 
KO Transmission
KO Transmission Company
 
 
KPSC
Kentucky Public Service Commission
 
 
kV
Kilovolt
 
 
kWh
Kilowatt-hour
 
 
LDC
Local Distribution Company
 
 
Legacy Duke Energy Directors
Members of the pre-merger Duke Energy Board of Directors
 
 
Levy
Duke Energy Florida’s proposed nuclear plant in Levy County, Florida
 
 
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
 
 
Mcf
Thousand cubic feet
 
 
McGuire
McGuire Nuclear Station
 
 
Merger Chancery Litigation
Four shareholder derivative lawsuits filed in the Delaware Chancery Court related to the Progress Energy merger
 
 
Mesirov Complaint
Shareholder derivative complaint file by Judy Mesirov
 
 
MGP
Manufactured gas plant
 
 
Midwest Generation Disposal Group
Duke Energy Ohio’s nonregulated Midwest generation business and Duke Energy Retail Sales, LLC
 
 
MISO
Midcontinent Independent System Operator, Inc.
 
 
MMBtu
Million British Thermal Unit
 
 
MPP
Money Purchase Pension
 
 
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
 
 
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
 
 
NCRS
Nuclear Power Plant Cost Recovery Statutes
 
 
NCUC
North Carolina Utilities Commission
 
 
NC WARN
N.C. Waste Awareness and Reduction Network
 
 
NDTF
Nuclear decommissioning trust funds
 
 





NEIL
Nuclear Electric Insurance Limited
 
 
NYSDEC
New York State Department of Environmental Conservation
 
 
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
 
 
NWPA
Nuclear Waste Policy Act of 1982
 
 
NYAG
New York Attorney General
 
 
NYSE
New York Stock Exchange
 
 
Oconee
Oconee Nuclear Station
 
 
OPEB
Other Post-Retirement Benefit Obligations
 
 
OPEB Assets
Other post-retirement plan assets are comprised of the Retirement Plan of Piedmont 401(h) Medical Plan, and the following Voluntary Employees' Beneficiary Association Trusts: Duke Energy Corporation Employee Benefits Trust, Piedmont Natural Gas Company 501(c)(9) Trust for Retired Bargaining Unit Employees and the Piedmont Natural Gas Company 501(c)(9) Trust for Retired Non-Bargaining Unit Employees.
 
 
ORS
Office of Regulatory Staff
 
 
Osprey Plant acquisition
Duke Energy Florida's purchase of a Calpine Corporation's 599 MW combined-cycle natural gas plant in Auburndale, Florida
 
 
OTTI
Other-than-temporary impairment
 
 
OVEC
Ohio Valley Electric Corporation
 
 
the Parent
Duke Energy Corporation Holding Company
 
 
the Payments
Fines and restitution related to the North Carolina Ash Basin Grand Jury Investigation
 
 
PGA
Purchased Gas Adjustments
 
 
Phase I CCR Compliance Projects
Duke Energy Indiana's federally mandated compliance projects to comply with the EPA's CCR rule
 
 
Piedmont
Piedmont Natural Gas Company, Inc.
 
 
Piedmont Pension Assets
Qualified pension plan assets associated with the Retirement Plan of Piedmont
 
 
Pioneer
Pioneer Transmission, LLC
 
 
PJM
PJM Interconnection, LLC
 
 
PPA
Purchase Power Agreement
 
 
Progress Energy
Progress Energy, Inc.
 
 
PSCSC
Public Service Commission of South Carolina
 
 
PTC
Production Tax Credits
 
 
PUCO
Public Utilities Commission of Ohio
 
 
PUCO Order
Order issued by PUCO approving a settlement of Duke Energy Ohio’s natural gas base rate case and authorizing the recovery of certain MGP costs
 
 
PURPA
Public Utility Regulatory Policies Act of 1978
 
 
QF
Qualifying Facility
 
 
RCA
Revolving Credit Agreement
 
 
RCRA
Resource Conservation and Recovery Act
 
 
RFP
Requests for Proposal
 
 
Relative TSR
TSR of Duke Energy stock relative to a pre-defined peer group
 
 





Robinson
Robinson Nuclear Plant
 
 
RTO
Regional Transmission Organization
 
 
Sabal Trail
Sabal Trail Transmission, LLC
 
 
Sabal Trail Pipeline
Sabal Trail Natural Gas Pipeline
 
 
SACE
Southern Alliance of Clean Energy
 
 
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.
 
 
S.C. Court of Appeals
Court of Appeals of South Carolina
 
 
SCCL
South Carolina Coastal Conservation League
 
 
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 Capital
Spectra Energy Capital, LLC
 
 
S&P
Standard & Poor’s Rating Services
 
 
SSO
Standard Service Offer
 
 
State Utility Commissions
NCUC, PSCSC, FPSC, PUCO, IURC, KPSC and TRA (Collectively)
 
 
State Electric Utility Commissions
NCUC, PSCSC, FPSC, PCO, IURC and KPSC (Collectively)
 
 
State Gas Utility Commissions
NCUC, PSCSC, PUCO, TRA and KPSC (Collectively)
 
 
Subsidiary Registrants
Duke Energy Carolinas, Progress Energy, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont
 
 
Sutton
L.V. Sutton combined cycle facility
 
 
T&D Rider
Tracking mechanism to recover grid infrastructure improvement costs in Indiana
 
 
Term Loan
Duke Energy (Parent) $1.5 billion term loan facility, as amended maturing on July 31, 2017
 
 
TRA
Tennessee Regulatory Authority
 
 
TSR
Total shareholder return
 
 
Uprate Project
Hines Chiller Uprate Project
 
 
U.S.
United States
 
 
U.S. Court of Appeals
U.S. Court of Appeals for the Second Circuit
 
 
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
 
 
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.) primarily through its direct and indirect subsidiaries. Certain Duke Energy subsidiaries are also subsidiary registrants, including Duke Energy Carolinas, LLC (Duke Energy Carolinas); Progress Energy, Inc. (Progress Energy); Duke Energy Progress, LLC (Duke Energy Progress); Duke Energy Florida, LLC (Duke Energy Florida); Duke Energy Ohio, Inc. (Duke Energy Ohio); and Duke Energy Indiana, LLC (Duke Energy Indiana). On October 3, 2016, Duke Energy acquired Piedmont Natural Gas Company, Inc. (Piedmont) which also became a wholly owned subsidiary and subsidiary registrant of Duke Energy. Duke Energy's consolidated financial statements include Piedmont's results of operations and cash flow activity subsequent to the acquisition. See Note 2 for additional information regarding the acquisition. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its seven separate subsidiary registrants (collectively referred to as the Subsidiary Registrants), which along with Duke Energy, are collectively referred to as the Duke Energy Registrants (Duke Energy Registrants).
Piedmont, a North Carolina corporation, is an energy services company whose principal business is the distribution of natural gas to over one million residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee, including customers served by municipalities who are Piedmont's sales for resale customers. In October 2016, Duke Energy completed the acquisition of Piedmont for a total cash purchase price of $5.0 billion and assumed Piedmont's existing long-term debt, which had an estimated fair value of approximately $2.0 billion at the time of the acquisition. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to supplement and complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. For additional information on the details of this transaction, including preliminary purchase price allocation and acquisition financing, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions."
In December 2016, Duke Energy completed the sale of its Latin American businesses to focus on its domestic regulated electric and gas businesses, which was further bolstered by the acquisition of Piedmont. The sale of the International Energy businesses, excluding an equity method investment in National Methanol Company (NMC), was completed through two transactions including the sale of Duke Energy's Brazilian business to China Three Gorges and Duke Energy's remaining Central and South American businesses to I Squared Capital (collectively, the International Disposal Group). See Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information.
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
The acquisition of Piedmont and sale of the International Disposal Group has resulted in a realigned business with three reportable operating segments (business segments); Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. Duke Energy's chief operating decision maker routinely 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 business segments, as well as Other.

9


PART I

ELECTRIC UTILITIES AND INFRASTRUCTURE
Electric Utilities and Infrastructure conducts operations primarily through the regulated public utilities of Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana and Duke Energy Ohio. Electric Utilities and Infrastructure provides retail electric service through the generation, transmission, distribution and sale of electricity to approximately 7.5 million customers within the Southeast and Midwest regions of the U.S. The service territory is approximately 95,000 square miles across six states with a total estimated population of 24 million people. The operations include electricity sold wholesale to municipalities, electric cooperative utilities and other load-serving entities. Electric Utilities and Infrastructure is also a joint owner in certain electric transmission projects. Electric Utilities and Infrastructure has a 50 percent ownership interest in Duke-American Transmission Co. (DATC), a partnership with American Transmission Company, formed to design, build and operate transmission infrastructure. DATC owns 72 percent of the transmission service rights to Path 15, an 84-mile transmission line in central California. Electric Utilities and Infrastructure also has a 50 percent ownership interest in Pioneer Transmission, LLC, which builds, owns and operates electric transmission facilities in North America.
The electric operations and investments in projects 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).
The following table represents the distribution of billed sales by customer class for the year ended December 31, 2016.
 
Duke

Duke

 
Duke

 
Duke

 
Duke

 
Energy

Energy

 
Energy

 
Energy

 
Energy

 
Carolinas(a)

Progress(a)

 
Florida(b)

 
Ohio(c)

 
Indiana(d)

Residential
32
%
26
%
 
50
%
 
35
%
 
26
%
General service
33
%
23
%
 
38
%
 
38
%
 
24
%
Industrial
25
%
15
%
 
8
%
 
24
%
 
31
%
Total retail sales
90
%
64
%
 
96
%
 
97
%
 
81
%
Wholesale and other sales
10
%
36
%
 
4
%
 
3
%
 
19
%
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 and general service customers within the Electric Utilities and Infrastructure service territory is expected to increase over time. While economic conditions within the service territory continue to improve, sales growth has been hampered by continued adoption of energy efficiencies and self-generation. The continued adoption of more efficient housing and appliances is expected to have a negative impact on average usage per residential customer over time. While residential sales increased in 2016 compared to 2015, the growth rate was modest when compared to historical periods.
Seasonality and the Impact of Weather
Revenues and costs are influenced by seasonal weather patterns. Peak sales of electricity occur during the summer and winter months which results in higher revenue and cash flows during these periods. By contrast, lower sales of electricity occur during the spring and fall, allowing for scheduled plant maintenance. Residential and general service customers are more impacted by weather than industrial customers. 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 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.
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.

10


PART I

Competition
Retail
Electric Utilities and Infrastructure’s 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. Electric Utilities and Infrastructure 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 private solar, at residential, general service and/or industrial customer sites.
Duke Energy is not aware of any proposed legislation within any of its jurisdictions that would provide retail customers the right to choose their electricity provider or otherwise restructure or deregulate the electric industry, including broadly subsidizing distributed generation such as private solar.
Although there is no pending legislation at this time, if the retail jurisdictions served by Electric Utilities and Infrastructure become subject to deregulation, the recovery of stranded costs could become a significant consideration. Stranded costs primarily include the generation assets of Electric Utilities and Infrastructure 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.
Electric Utilities and Infrastructure’s 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 $2.8 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, Electric Utilities and Infrastructure conducts competitive auctions for electricity supply. The cost of energy purchased through these auctions is recovered from retail customers. Electric Utilities earns retail margin in Ohio on the transmission and distribution of electricity and not on the cost of the underlying energy.
Wholesale
Duke Energy competes with other utilities and merchant generators for bulk power sales, sales to municipalities and cooperatives and wholesale transactions under primarily cost-based contracts approved by FERC. 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 Electric Utilities and Infrastructure’s 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 Electric Utilities and Infrastructure to attract new customers and to retain existing customers.
Energy Capacity and Resources
Electric Utilities and Infrastructure owns approximately 49,300 megawatts (MW) of generation capacity. For additional information on owned 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 Electric Utilities and Infrastructure to purchase power for its customers include generating plant outages, extreme weather conditions, generation reliability, demand growth and price. Electric Utilities and Infrastructure 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.
Electric Utilities and Infrastructure’s 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, primarily because these facilities do not have the requisite emission control equipment 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.”

11


PART I

On October 23, 2015, the EPA published in the Federal Register the final Clean Power Plan (CPP) rule that regulates 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 existing fossil fuel-fired EGUs. Petitions challenging the rule have been filed by several groups. On February 9, 2016, the Supreme Court issued a stay of the final CPP rule, halting implementation of the CPP until legal challenges are resolved. States in which the Duke Energy Registrants operate have suspended work on CPP compliance plans as a result of the stay. Oral arguments before 10 of the 11 judges on D.C. Circuit Court were heard on September 27, 2016. The court is expected to decide the case in early 2017.
Compliance with CPP could cause the industry to replace coal-fired generation with natural gas and renewables. Costs to operate coal-fired generation plants continue to grow due to increasing environmental compliance requirements, including ash management costs unrelated to CPP, which may result in the retirement of coal-fired generation plants earlier than the current end of useful lives. If the CPP is ultimately upheld by the courts and implementation goes forward, the Duke Energy Registrants could incur increased fuel, purchased power, operation and maintenance and other costs for replacement generation as a result of this rule. Due to the uncertainties related to the implementation of the CPP, the Duke Energy Registrants cannot predict the outcome of these matters.
Sources of Electricity
Electric Utilities and Infrastructure relies principally on coal, nuclear fuel and natural gas for its generation of electricity. The following table lists sources of electricity and fuel costs for the three years ended December 31, 2016.
 
 
 
Cost of Delivered Fuel per Net
 
Generation by Source
 
Kilowatt-hour Generated (Cents)
 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

Coal(a)
27.1
%
 
29.0
%
 
33.5
%
 
3.07

 
3.24

 
3.54

Nuclear(a)
27.4
%
 
27.0
%
 
26.1
%
 
0.66

 
0.65

 
0.65

Natural gas and oil(a)
22.9
%
 
23.1
%
 
19.0
%
 
3.07

 
3.74

 
4.70

All fuels (cost-based on weighted average)(a)
77.4
%
 
79.1
%
 
78.6
%
 
2.22

 
2.50

 
2.86

Hydroelectric and solar(b)
0.7
%
 
0.8
%
 
0.8
%
 
 
 
 
 
 
Total generation
78.1
%
 
79.9
%
 
79.4
%
 
 
 
 
 
 
Purchased power and net interchange
21.9
%
 
20.1
%
 
20.6
%
 
 
 
 
 
 
Total sources of energy
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
(a)
Statistics related to all fuels reflect Electric Utilities and Infrastructure's ownership interest in jointly owned generation facilities.
(b)
Generating figures are net of output required to replenish pumped storage facilities during off-peak periods. 
Coal
Electric Utilities and Infrastructure 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. Electric Utilities and Infrastructure 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 2017 to 2019 for Duke Energy Carolinas, 2017 to 2019 for Duke Energy Progress, 2017 to 2019 for Duke Energy Florida, 2017 for Duke Energy Ohio and 2017 to 2025 for Duke Energy Indiana. Electric Utilities and Infrastructure 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 Kentucky is delivered by barge and is produced from mines along the Ohio River in Illinois, Ohio, West Virginia and Pennsylvania. Coal purchased for Indiana is primarily produced in Indiana and Illinois. Electric Utilities and Infrastructure has an adequate supply of coal under contract to meet its hedging guidelines regarding projected future consumption. As a result of volatility in natural gas prices and the associated impacts on coal-fired dispatch within the generation fleet, coal inventories will continue to fluctuate. Electric Utilities and Infrastructure continues to actively manage its portfolio and has worked with suppliers to obtain increased flexibility in its coal contracts.
The current average sulfur content of coal purchased by Electric Utilities and Infrastructure 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 3 percent for Duke Energy Florida, between 3 percent and 3.5 percent for Duke Energy Ohio and between 2.5 percent and 3 percent for Duke Energy Indiana. Electric Utilities and Infrastructure's environmental controls, in combination with the use of sulfur dioxide (SO2) emission allowances, enable Electric Utilities and Infrastructure 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.

12


PART I

Electric Utilities and Infrastructure 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. Electric Utilities and Infrastructure 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, Electric Utilities and Infrastructure generally sources these services to a single domestic supplier on a plant-by-plant basis using multi-year contracts.
Electric Utilities and Infrastructure 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, Electric Utilities and Infrastructure 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.
Natural Gas and Fuel Oil
Natural gas and fuel oil supply for Electric Utilities and Infrastructure’s generation fleet is purchased under standard industry agreements from various suppliers, including Piedmont. Natural gas supply agreements typically provide for a percentage of forecasted burns being procured over time, with varied expiration dates. Electric Utilities and Infrastructure believes it has access to an adequate supply of natural gas and fuel oil for the reasonably foreseeable future.
Electric Utilities and Infrastructure has certain dual-fuel generating facilities that can operate utilizing both natural gas and fuel oil. The cost of Electric Utilities and Infrastructure’s natural gas and fuel oil is fixed price or determined by published market prices as reported in certain industry publications, plus any transportation and freight costs. Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida and Duke Energy Indiana use derivative instruments to manage a portion of their exposure to price fluctuations for natural gas.
Electric Utilities and Infrastructure has firm interstate and intrastate natural gas transportation agreements and storage agreements in place to support generation needed for load requirements. Electric Utilities and Infrastructure may purchase additional shorter-term gas transportation and utilize natural gas interruptible transportation agreements to support generation needed for load requirements. The Electric Utilities and Infrastructure natural gas plants are served by various supply zones and multiple pipelines.
Purchased Power
Electric Utilities and Infrastructure purchases a portion of its capacity and system requirements through purchase obligations, leases and purchase contracts. Electric Utilities and Infrastructure 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:
 
2016

 
2015

 
2014

Purchase obligations and leases (in millions of megawatt-hours (MWh))(a)
18

 
14.9

 
14.3

Purchase capacity under contract (in MW)(b)
4,588

 
4,573

 
4,500

(a)
Represents approximately 7 percent of total system requirements for 2016 and 6 percent for 2015 and 2014.
(b)    These agreements include approximately 451 MW of firm capacity under contract by Duke Energy Florida with QFs.
Inventory
Generation of electricity is capital intensive. Electric Utilities and Infrastructure 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, 2016, the inventory balance for Electric Utilities and Infrastructure was approximately $3.4 billion. 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, and July 14, 2016. The Coal Ash Act, as amended, regulates the handling of coal ash within the state and requires closure of ash impoundments by no later than December 31, 2029, based on risk rankings, among other detailed requirements. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of coal ash 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 in the Federal Register a rule to regulate the disposal of coal combustion residuals (CCR) from electric utilities as solid waste. The rule classifies CCR as nonhazardous under Subtitle D of the Resource Conservation and Recovery Act (RCRA). 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 North Carolina sites specified as high risk by the Coal Ash Act, including moving coal ash off-site for use in structural fill or to lined landfills. Additional modifications to operating coal plants are underway to comply with RCRA.
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.

13


PART I

Nuclear Matters
Duke Energy owns, wholly or partially, 11 operating nuclear reactors located at six stations. The Crystal River Unit 3 Nuclear Plant (Crystal River Unit 3) permanently ceased operation in February 2013. Nuclear insurance includes: nuclear liability coverage; property, decontamination and premature decommissioning coverage; and replacement power expense coverage. Joint owners reimburse Duke Energy 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 is approximately $13.4 billion. For additional information on nuclear insurance see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.”
Duke Energy 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 Duke Energy 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, 2016

 
December 31, 2015

 
Decommissioning Costs(a)(b)

 
Year of Cost Study
Duke Energy
$
6,205

 
$
5,825

 
$
8,150

 
2013 and 2014
Duke Energy Carolinas
3,273

 
3,050

 
3,420

 
2013
Duke Energy Progress
2,217

 
2,035

 
3,550

 
2014
Duke Energy Florida(c)
715

 
740

 
1,180

 
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 form the NDTF for costs related to ongoing decommissioning activity of Crystal River Unit 3 during 2016.
The NCUC, PSCSC, FPSC and FERC have allowed Electric Utilities and Infrastructure to recover estimated decommissioning costs through retail and wholesale rates over the expected remaining service periods of their nuclear stations. Electric Utilities and Infrastructure 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. Electric Utilities and Infrastructure 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, Shearon Harris Nuclear Plant (Harris) has sufficient storage capacity in its spent fuel pools through the expiration of its renewed operating license. Crystal River Unit 3 was retired in 2013 and placed in SAFSTOR prior to final decommissioning. The spent fuel is currently stored in the spent fuel pool. 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 (Brunswick), Catawba Nuclear Station (Catawba), McGuire Nuclear Station (McGuire), Oconee Nuclear Station (Oconee) and Robinson Nuclear Plant (Robinson). 
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.

14


PART I

Electric Utilities and Infrastructure 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
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, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."
On October 27, 2016, and December 15, 2016, the NRC issued combined operating licenses for Duke Energy Florida's proposed Levy Nuclear Plant Units 1 and 2 (Levy) and Duke Energy Carolinas' William States Lee III Nuclear Station Units 1 and 2, respectively. For additional information on these proposed nuclear plants, see Note 4 to the Consolidated Financial Statements, "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 electric utility commissions) approve rates for Duke Energy's retail electric service within their respective states. The state electric utility commissions, to varying degrees, have authority over the construction and operation of Electric Utilities and Infrastructure’s generating facilities. Certificates of Public Convenience and Necessity issued by the state electric utility commissions, as applicable, authorize Electric Utilities and Infrastructure to construct and operate its electric facilities and to sell electricity to retail and wholesale customers. Prior approval from the relevant state electric utility commission is required for the entities within Electric Utilities and Infrastructure 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.
In addition to rates approved in base rate cases, each of the state electric 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.
Fuel, fuel-related costs and certain purchased power costs are eligible for recovery by Electric Utilities and Infrastructure. Electric Utilities and Infrastructure uses coal, hydroelectric, natural gas, oil, renewable generation 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 Electric Utilities and Infrastructure, 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 Electric Utilities and Infrastructure.
On December 8, 2016, the PSCSC approved Duke Energy Progress' 2016 South Carolina rate case authorizing an increase of approximately $56 million in revenues over a two-year period. An increase of approximately $38 million in revenues was effective January 1, 2017, and an additional increase of approximately $18.5 million in revenues will be effective January 1, 2018. Duke Energy Progress will amortize approximately $18.5 million from the cost of removal reserve in 2017. Other terms include a rate of return on equity of 10.1 percent, recovery of coal ash costs incurred from January 1, 2015, through June 30, 2016, over a 15-year period and ongoing deferral of allocated ash basin closure costs from July 1, 2016, until the next base rate case. This represents the only base rate case approved and effective in the past three years.
For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Federal
The FERC approves Electric Utilities and Infrastructure’s cost-based rates for electric sales to certain power and transmission wholesale customers. Regulations of FERC and the state electric utility commissions govern access to regulated electric and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Electric Utilities and Infrastructure.

15


PART I

Regional Transmission Organizations (RTO). PJM Interconnection, LLC (PJM) and Midcontinent Independent 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 control the day-to-day operations of bulk power systems through central dispatch.
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. Electric Utilities and Infrastructure 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 MD&A 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.
GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure conducts natural gas operations primarily through the regulated public utilities of Piedmont and Duke Energy Ohio. The natural gas operations are subject to the rules and regulations of the NCUC, PSCSC, PUCO, KPSC, Tennessee Regulatory Authority (TRA) and the FERC. Gas Utilities and Infrastructure serves residential, commercial, industrial and power generation natural gas customers. Gas Utilities and Infrastructure has over 1.5 million customers, including more than 1 million customers located in North Carolina, South Carolina and Tennessee, and an additional 529,000 customers located within southwestern Ohio and northern Kentucky. In the Carolinas, Ohio and Kentucky, the service areas are comprised of numerous cities, towns and communities. In Tennessee, the service area is the metropolitan area of Nashville.
The number of residential, commercial and industrial customers within the Gas Utilities and Infrastructure service territory is expected to increase over time. Average usage per residential customer is expected to remain flat or decline for the foreseeable future, however decoupled rates in North Carolina and various rate design mechanisms in other jurisdictions to partially mitigate the impact of the declining usage per customer trend on overall profitability. While total industrial and general service sales increased in 2016 when compared to 2015, the growth rate was modest when compared to historical periods.
Gas Utilities and Infrastructure also owns, operates and has investments in various pipeline transmission and natural gas storage facilities.
Natural Gas for Retail Distribution
Gas Utilities and Infrastructure is responsible for the distribution of natural gas to retail customers in its North Carolina, South Carolina, Tennessee, Ohio and Kentucky service territories. Gas Utilities and Infrastructure’s natural gas procurement strategy is to contract primarily with major and independent producers and marketers for gas supply. It also purchases a diverse portfolio of transportation and storage service from interstate pipelines. This strategy allows Gas Utilities and Infrastructure to assure reliable natural gas supply and transportation for its firm customers during peak winter conditions. When firm pipeline services or contracted gas supplies are temporarily not needed due to market demand fluctuations, Gas Utilities and Infrastructure may release these services and supplies in the secondary market under FERC-approved capacity release provisions or make wholesale secondary market sales. In 2016, firm supply purchase commitment agreements provided approximately 86 percent of the natural gas supply for Piedmont and 53 percent for Duke Energy Ohio.
Seasonality and the Impact of Weather
Gas Utilities and Infrastructure's costs and revenues are influenced by seasonal patterns due to peak natural gas sales occurring during the winter months. Residential customers are the most impacted by weather. There are certain regulatory mechanisms for the North Carolina, South Carolina and Tennessee service territories that normalize the margins collected from certain customer classes during the winter, providing for an adjustment either up or down. In North Carolina, rate design provides protection from both weather and other usage variations such as conservation, while South Carolina and Tennessee revenues are adjusted solely based on weather. Rate design for the Ohio service territory also mitigates the impacts of weather on customer bills. 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.
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. The methodology used to estimate the applicable impact of weather does not consider all variables that may impact customer response to weather conditions, such as wind chill. The precision of this estimate may also be impacted by applying long-term weather trends to shorter-term periods.
Competition
Gas Utilities and Infrastructure’s businesses operate as the sole supplier of natural gas within their retail service territories, with the exception of Ohio, which has a competitive natural gas supply market for distribution service. Gas Utilities and Infrastructure owns and operates facilities necessary to transport and distribute natural gas. Gas Utilities and Infrastructure earns retail margin on the transmission and distribution of natural gas and not on the cost of the underlying commodity. 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 natural gas at fair prices.

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In residential, commercial and industrial customer markets, natural gas distribution operations compete with other companies that supply energy, primarily electric companies, propane and fuel oil dealers, renewable energy providers and coal companies in relation to sources of energy for electric power plants, as well as nuclear energy. A significant competitive factor is price. Gas Utilities and Infrastructure's primary product competition is with electricity for heating, water heating and cooking. Increases in the price of natural gas or decreases in the price of other energy sources could negatively impact competitive position by decreasing the price benefits of natural gas to the consumer. In the case of industrial customers, such as manufacturing plants, adverse economic or market conditions, including higher gas costs, could cause these customers to suspend business operations or to use alternative sources of energy in favor of energy sources with lower per-unit costs.
Higher gas costs or decreases in the price of other energy sources may allow competition from alternative energy sources for applications that have traditionally used natural gas, encouraging some customers to move away from natural gas-fired equipment to equipment fueled by other energy sources. Competition between natural gas and other forms of energy is also based on efficiency, performance, reliability, safety and other non-price factors. Technological improvements in other energy sources and events that impair the public perception of the non-price attributes of natural gas could erode our competitive advantage. These factors in turn could decrease the demand for natural gas, impair our ability to attract new customers and cause existing customers to switch to other forms of energy or to bypass our systems in favor of alternative competitive sources. This could result in slow or no customer growth and could cause customers to reduce or cease using our product, thereby reducing our ability to make capital expenditures and otherwise grow our business and adversely affecting our earnings.
Pipeline and Storage Investments
Duke Energy, through its Gas Utilities and Infrastructure segment, is a 47 percent equity member of Atlantic Coast Pipeline, LLC (ACP) that plans to build and own the proposed Atlantic Coast Pipeline (ACP Pipeline), an approximately 600-mile interstate natural gas pipeline. Prior to the Piedmont acquisition, Duke Energy owned a 40 percent equity ownership in ACP. The pipeline is intended to transport diverse gas supplies into southeastern markets. Duke Energy Carolinas, Duke Energy Progress and Piedmont, among others, will be customers of the pipeline. The estimated in-service date of the pipeline is in the second half of 2019.
Gas Utilities and Infrastructure also has a 7.5 percent equity ownership interest in Sabal Trail Transmission, LLC (Sabal Trail). Sabal Trail is a joint venture that is constructing a 515-mile natural gas pipeline (Sabal Trail pipeline) to transport natural gas to Florida. The Sabal Trail pipeline has received regulatory approvals and initiated construction of the pipeline with an expected in-service date in mid-2017. The Sabal Trail pipeline will traverse Alabama, Georgia and Florida.
As a result of the Piedmont acquisition, Duke Energy, through its Gas Utilities and Infrastructure segment, has a 21.49 percent equity ownership interest in Cardinal Pipeline Company, LLC (Cardinal), an intrastate pipeline located in North Carolina regulated by the NCUC, and a 24 percent equity ownership interest in Constitution Pipeline Company, LLC (Constitution), an interstate pipeline development company formed to develop, construct, own and operate a 124-mile natural gas pipeline and related facilities connecting shale natural gas supplies and gathering systems in Susquehanna County, Pennsylvania, to Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York, regulated by the FERC.
Duke Energy, as a result of the Piedmont acquisition, also has a 45 percent equity ownership in Pine Needle LNG Company, LLC (Pine Needle), an interstate liquefied natural gas storage facility located in North Carolina and a 50 percent equity ownership interest in Hardy Storage Company, LLC (Hardy Storage), an underground interstate natural gas storage facility located in Hardy and Hampshire counties in West Virginia, both regulated by the FERC.
KO Transmission Company (KO Transmission), a wholly owned subsidiary of Duke Energy Ohio, is an interstate pipeline company engaged in the business of transporting natural gas and is subject to the rules and regulations of FERC. KO Transmission's 90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An approximately 70-mile portion of KO Transmission's pipeline facilities is co-owned by Columbia Gas Transmission Corporation.
See Notes 4, 12 and 17 to the Consolidated Financial Statements, "Regulatory Matters," "Investments in Unconsolidated Affiliates" and "Variable Interest Entities," respectively, for further information on Duke Energy's pipeline investments.
Inventory
Gas Utilities and Infrastructure must maintain adequate natural gas inventory in order to provide reliable delivery to customers. As of December 31, 2016, the inventory balance for Gas Utilities and Infrastructure was $108 million. For more information on inventory, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."
Regulation
State
The NCUC, PSCSC, PUCO, TRA and KPSC (collectively, the state gas utility commissions) approve rates for Duke Energy's retail natural gas service within their respective states. The state gas utility commissions, to varying degrees, have authority over the construction and operation of Gas Utilities and Infrastructure’s natural gas distribution facilities. Certificates of Public Convenience and Necessity or Certificates of Environmental Compatibility and Public Necessity issued by the state gas utility commissions or other government agencies, as applicable, authorize Gas Utilities and Infrastructure to construct and operate its natural gas distribution facilities and to sell natural gas to retail and wholesale customers. Prior approval from the relevant state gas utility commission is required for Gas Utilities and Infrastructure 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 a reasonable rate of return on its invested capital, including equity.
In addition to amounts collected from customers though approved base rates, each of the state gas 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.

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Natural gas costs are eligible for recovery by Gas Utilities and Infrastructure. Due to the associated regulatory treatment and the method allowed for recovery, changes in natural gas costs from year to year have no material impact on operating results of Gas Utilities and Infrastructure, unless a commission finds a portion of such costs to have not been prudent. However, delays between the expenditure for natural gas and recovery from customers can adversely impact the timing of cash flows of Gas Utilities and Infrastructure.
The following table summarizes certain components underlying recently approved and effective base rates during 2016.
 
Annual

 
Return

 
Equity

 
 
 
Increase

 
on

 
Component of

 
 
 
(in millions)

 
Equity

 
Capital Structure

 
Effective Date
Piedmont 2013 North Carolina Rate Case
$
31

 
10.0
%
 
50.7
%
 
January 2014
Piedmont 2016 South Carolina Rate Stabilization Adjustment Filing(a)
8

 
10.2
%
 
53.0
%
 
November 2016
(a)
Under the rate stabilization adjustment mechanism, Piedmont resets rates in South Carolina based on updated costs and revenues on an annual basis.
Gas Utilities and Infrastructure has integrity management rider (IMR) mechanisms in North Carolina and Tennessee designed to separately track and recover certain costs associated with capital investments incurred to comply with federal pipeline safety and integrity programs, as well as additional state safety and integrity requirements in Tennessee. The following table summarizes information related to recently approved IMR filings.
 
Cumulative

Annual Margin

Effective
(in millions)
Investment

Revenues

Date
Piedmont 2016 IMR Filing - North Carolina(a)
$
513

$
56

December 2016
Piedmont 2016 IMR Filing - Tennessee(b)(c)
173

21

January 2016
(a)    Cumulative investment amounts through September 30, 2016.
(b)    Cumulative investment amounts through October 31, 2015.
(c)
In November 2016, Piedmont filed a petition with the TRA seeking authority to collect an additional $1.7 million in annual margin revenue effective January 2017 based on approximately $20 million of capital investments over the twelve month period ending October 31, 2016. A ruling from the TRA is pending.
For more information on rate matters and other regulatory proceedings, see Note 4 to the Consolidated Financial Statements, “Regulatory Matters.”
Federal
Gas Utilities and Infrastructure is subject to various federal regulations, including regulations that are particular to the natural gas industry. These federal regulations include but are not limited to the following:
Regulations of the FERC affect the certification and siting of new interstate natural gas pipeline projects, the purchase and sale of, the prices paid for, and the terms and conditions of service for the interstate transportation and storage of natural gas.
Regulations of the U.S. Department of Transportation affect the design, construction, operation, maintenance, integrity, safety and security of natural gas distribution and transmission systems.
Regulations of the EPA relate to the environment including proposed air emissions regulations that would expand to include emissions of methane. For a discussion of environmental regulation, see “Environmental Matters” in this section. Refer to “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.
Regulations of FERC and the state gas utility commissions govern access to regulated natural gas and other data by nonregulated entities and services provided between regulated and nonregulated energy affiliates. These regulations affect the activities of nonregulated affiliates with Gas Utilities and Infrastructure.
COMMERCIAL RENEWABLES
Commercial Renewables primarily acquires, builds, develops and operates wind and solar renewable generation throughout the continental U.S. The portfolio includes nonregulated renewable energy and energy storage businesses.
Commercial Renewables' renewable energy includes utility-scale wind and solar generation assets which total 2,900 MW across 14 states from 21 wind farms and 63 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 eligible wind and solar projects are placed in service, Commercial Renewables 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.

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As part of its growth strategy, Commercial Renewables has expanded its investment portfolio through the addition of distributed solar companies and projects, energy storage systems and energy management solutions specifically tailored to commercial businesses. These investments include the 2015 acquisition of REC Solar Corp., a California-based provider of solar installations for retail, manufacturing, agriculture, technology, government and nonprofit customers across the U.S. and Phoenix Energy Technologies Inc., a California-based provider of enterprise energy management and information software to commercial businesses.
For additional information on Commercial Renewables' generation facilities, see Item 2, “Properties.”
Regulation
Commercial Renewables 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 and services provided between regulated and nonregulated utilities.
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 Renewables' main competitors include other nonregulated generators and wholesale power providers.
Sources of Electricity
Commercial Renewables 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), contributions to the Duke Energy Foundation, Duke Energy's 25 percent equity interest in NMC and immaterial investments in businesses Duke Energy has retained from previous divestitures that are no longer part of its current operating segments.
Bison is a wholly owned captive insurance subsidiary of Duke Energy with principal activities that include the indemnification of various business risks and losses, such as property, workers’ compensation and general liability of Duke Energy subsidiaries and affiliates.
NMC is a joint venture that operates in Jubail, Saudi Arabia as a large regional producer of methanol and methyl tertiary butyl ether (MTBE), an additive to gasoline. Duke Energy has an effective economic ownership interest in NMC of 25 percent and records activity of the investment using the equity method of accounting. Upon the successful startup of NMC's polyacetal production facility, which is expected to occur in the second quarter of 2017, Duke Energy’s economic ownership interest in NMC will decrease to 17.5 percent while Duke Energy will retain 25 percent of the NMC's board representation and voting rights.
Regulation
Certain entities within Other are subject to the jurisdiction of federal, state and local agencies.
Employees
On December 31, 2016, Duke Energy had a total of 28,798 employees on its payroll. The total includes 5,509 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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PART I

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
 
57

 
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
 
58

 
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
 
59

 
Executive Vice President, Energy Solutions and President, Midwest and Florida Regions. Mr. Esamann assumed his current position in September 2016 and was Executive Vice President and President, Midwest and Florida Regions since June 2015. Prior to that, he was President, Duke Energy Indiana since November 2010.
Lloyd M. Yates
 
56

 
Executive Vice President, Customer and Delivery Operations and President, Carolinas Region. Mr. Yates assumed his current position in September 2016 and was Executive Vice President, Market Solutions and President, Carolinas Region since 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
 
60

 
Executive Vice President and Chief Operating Officer. Mr. Jamil assumed the role of Chief Operating Officer in May 2016. Prior to his current position, he had held the title Executive Vice President and President, Regulated Generation and Transmission since 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 to August 2014, and Chief Nuclear Officer from February 2008 to February 2013. He also served as Chief Generation Officer for Duke Energy from July 2009 to June 2012.
Franklin H. Yoho
 
57

 
Executive Vice President and President, Natural Gas. Mr. Yoho assumed his current position in October 2016 upon the acquisition of Piedmont by Duke Energy. Prior to this appointment, he served as Senior Vice President and Chief Commercial Officer of Piedmont since August 2011. Prior to that, he served as Senior Vice President-Commercial Operations since March 2002.
Julia S. Janson
 
52

 
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.
Melissa H. Anderson
 
52

 
Executive Vice President, Administration and Chief Human Resources Officer. Ms. Anderson assumed her position in May 2016 and had been Executive Vice President and Chief Human Resources Officer since January 2015. Prior to joining Duke Energy, she served as Senior Vice President of Human Resources at Domtar Inc. since 2010.
William E. Currens Jr.
 
47

 
Senior Vice President, Chief Accounting Officer and Controller. Mr. Currens assumed his current position in May 2016. Prior to that, he had held the position of Vice President, Investor Relations since 2008.
(a)    The ages of the officers provided are as of December 31, 2016.
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. 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 navigable waters.
The Comprehensive Environmental Response, Compensation and Liability Act, which can require any individual or entity that currently owns or in the past 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 National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their permitting and licensing decisions, including siting approvals.

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Coal Ash Act, as amended, which establishes requirements regarding the use and closure of existing ash basins, the disposal of ash at active coal plants and the handling of surface and groundwater water impacts from ash basins in North Carolina.
RCRA, which creates the framework for the proper management of hazardous and nonhazardous solid waste, classifies CCR as nonhazardous waste and establishes requirements regarding landfill design and management and monitoring of CCR, including ash basins.
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 oversight program.
For more information on environmental matters, see Notes 5 and 9 to the Consolidated Financial Statements, “Commitments and Contingencies – Environmental” and "Asset Retirement Obligations," respectively, and the “Other Matters” section of MD&A. Except as otherwise described in these sections, costs to comply with current federal, state and local provisions regulating the discharge of materials into the environment or other potential costs related to protecting the environment are incorporated into the routine cost structure of our various business segments and are 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.
The "Other Matters" section of MD&A includes an estimate of future capital expenditures required to comply with environmental regulations and a discussion of Global Climate Change including the potential impact of current and future legislation related to greenhouse gas (GHG) emissions on the Duke Energy Registrants' operations. Recently passed and potential future environmental statutes 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 statutes and regulations become effective, the Duke Energy Registrants will seek appropriate regulatory recovery of costs to comply within its regulated operations.
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, Electric Utilities and Infrastructure. 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, Electric Utilities and Infrastructure. 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, Electric Utilities and Infrastructure. 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 1.8 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, Electric Utilities and Infrastructure. For additional information regarding this business segment, including financial information, see Note 3 to the Consolidated Financial Statements, “Business Segments.”

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PART I

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.
Duke Energy Ohio’s service area covers approximately 3,000 square miles and supplies electric service to approximately 850,000 residential, commercial and industrial customers and provides transmission and distribution services for natural gas to approximately 529,000 customers. For information about Duke Energy Ohio's generating facilities, see Item 2, “Properties.”
KO Transmission, a wholly owned subsidiary of Duke Energy Ohio, is an interstate pipeline company engaged in the business of transporting natural gas and is subject to the rules and regulations of FERC. KO Transmission's 90-mile pipeline supplies natural gas to Duke Energy Ohio and interconnects with the Columbia Gulf Transmission pipeline and Tennessee Gas Pipeline. An approximately 70-mile portion of KO Transmission's pipeline facilities is co-owned by Columbia Gas Transmission Corporation.
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 has two reportable operating segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. For additional information on these business segments, 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 820,000 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, Electric Utilities and Infrastructure. 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 of Financial Condition and Results of Operations – 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.
Business Strategy Risks
Duke Energy’s future results could be adversely affected if it is unable to implement its business strategy.
Duke Energy’s future results of operations depend, in significant part, on the extent to which it can implement its business strategy successfully. Duke Energy's strategy, including transforming the customer experience, modernizing the energy grid, generating cleaner energy, expansion of natural gas infrastructure and engaging employees and stakeholders to accomplish these priorities, is subject to business, economic and competitive uncertainties and contingencies, many of which are beyond its control. As a consequence, Duke Energy may not be able to fully implement or realize the anticipated results of its strategy.

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PART I

Regulatory, Legislative and Legal Risks
The Duke Energy Registrants’ regulated utility revenues, earnings and results are dependent on state legislation and regulation that affect electric generation, electric and gas transmission, distribution and related activities, which may limit their ability to recover costs.
The Duke Energy Registrants’ regulated electric and natural gas 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, Tennessee, Indiana and Kentucky. If the Duke Energy Registrants’ regulated utility earnings exceed the returns established by the state utility commissions, retail electric and natural gas 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. Federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could result in customers leaving the electric distribution system and an increase in customer net energy metering, which allows customers with private 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 Duke Energy is not able to fully recover the costs and investment in generation.
State regulators have approved various mechanisms to stabilize natural gas utility margins, including margin decoupling in North Carolina, rate stabilization in South Carolina and uncollectible natural gas cost recovery in all states. State regulators have approved other margin stabilizing mechanisms that, for example, allow for recovery of margin losses associated with negotiated transactions designed to retain large volume customers that could use alternative fuels or that may otherwise directly access natural gas supply through their own connection to an interstate pipeline. If regulators decided to discontinue the Duke Energy Registrants' use of tariff mechanisms, it would negatively impact results of operations, financial condition and cash flows. In addition, regulatory authorities also review whether natural gas costs are prudent and can disallow the recovery of a portion of natural gas costs that the Duke Energy Registrants seek to recover from customers, which would adversely impact earnings.
The electric rates that the Duke Energy Registrants’ regulated utility businesses are allowed to charge are established by state utility commissions in rate case proceedings, which may limit their ability to recover costs and earn an appropriate return on investment.
The rates that the Duke Energy Registrants’ regulated utility business are allowed to charge significantly influences the results of operations, financial position and liquidity of the Duke Energy Registrants. The regulation of the rates that the regulated utility businesses charge customers is determined, in large part, by state utility commissions in rate case proceedings. Negative decisions made by these regulators could have a material adverse effect on the Duke Energy Registrants’ results of operations, financial position or liquidity and affect the ability of the Duke Energy Registrants to recover costs and an appropriate return on the significant infrastructure investments being made. Duke Energy cannot predict the outcome of these rate case proceedings.
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 and a wide variety of laws and governmental policies, including taxes, that may change over time in ways that affect operations and costs.
Duke Energy is subject to regulations under a wide variety of U.S. federal and state regulations and policies. There can be no assurance that laws, regulations and policies will not be changed in ways that result in material modifications of business models and objectives or affect returns on investment by restricting activities and products, subjecting them to escalating costs or prohibiting them outright. In particular, a substantial revision to the U.S. tax code, such as changes to the corporate tax rate or a material change in the deductibility of interest could significantly change Duke Energy's effective tax rate, the cost of capital and have an impact on results of operations and cash flows.
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.

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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.
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.
The Duke Energy Registrants' operations, capital expenditures and financial results may be affected by regulatory changes related to the impacts of global climate change.
There is continued concern, both nationally and internationally, about climate change. Although there is no federal climate change legislation, in 2016, the United States signed the Paris Agreement on climate change by which the signatories agreed to pursue efforts to limit the increase in the global average temperature by less than 2 degrees Celsius above pre-industrial levels. If the United States honors the Paris accord, the EPA may adopt and implement regulations to further restrict emissions of GHGs. Increased regulation of GHG emissions could impose significant additional costs on the Duke Energy Registrants' operations, their suppliers and customers. Regulatory changes could also result in generation facilities to be retired early and result in stranded costs if Duke Energy is not able to fully recover the costs and investment in generation. At this time, the effect that climate change regulation may have in the future on Duke Energy's business, financial condition or results of operations is not able to be predicted.
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 operations. Declines in demand for electricity or natural gas as a result of economic downturns in the Duke Energy Registrants’ regulated service territories will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity and the use of natural gas. Although the Duke Energy Registrants’ regulated electric and natural gas businesses are subject to regulated allowable rates of return and recovery of certain costs, such as fuel and purchased gas costs, under periodic adjustment clauses, overall declines in electricity or natural gas 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 and natural gas are as follows:
weather conditions, including abnormally mild winter or summer weather that cause lower energy or natural gas usage for heating or cooling purposes, as applicable, 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 natural gas plants, and customer usage of energy-efficient equipment that reduces energy demand;
natural gas, crude oil and refined products production levels and prices;

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PART I

ability to procure satisfactory levels of inventory, such as coal, natural gas and uranium; and
capacity and transmission service into, or out of, the Duke Energy Registrants’ markets.
Duke Energy’s acquisition of Piedmont may not achieve its intended results.
Duke Energy and Piedmont completed the merger agreement with the expectation that the transaction will result in various benefits, including, among other things, being accretive to earnings and foundational to establishing a broader natural 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.
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 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 ash 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.
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, protection and remedial 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. Closure activities began in 2015 at the four sites specified as high priority by the 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 off-site locations for use as structural fill, to appropriate engineered off-site or onsite lined landfills or conversion of the ash for beneficial use. At other sites, preliminary planning and closure methods have been studied and factored into the estimated retirement and management costs. The 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. As the closure and CCR management work progresses and final closure plans and corrective action measures 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 natural gas 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.

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PART I

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, including extreme weather conditions associated with climate change.
Electric power generation and natural gas distribution are generally seasonal businesses. In most parts of the U.S., the demand for power peaks during the warmer summer months, with market prices also typically peaking at that time. In other areas, demand for power peaks during the winter. Demand for natural gas peaks during the winter months. Further, extreme weather conditions such as heat waves, winter storms and severe weather associated with climate change could cause these seasonal fluctuations to be more pronounced. As a result, the overall operating results of the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant.
Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, tornadoes, severe thunderstorms, snow and ice storms, can result in lost operating revenues due to outages, property damage, including downed transmission and distribution lines, and additional and unexpected expenses to mitigate storm damage. The cost of storm restoration efforts may not be fully recoverable through the regulatory process.
The Duke Energy Registrants’ sales may decrease if they are unable to gain adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver electricity sold to the wholesale market. FERC’s power transmission regulations 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.
Duke Energy may be unable to complete necessary or desirable pipeline expansion or infrastructure development or maintenance projects, which may delay or prevent the Duke Energy Registrants from serving natural gas customers or expanding the natural gas business.
In order to serve current or new natural gas customers or expand the service to existing customers, the Duke Energy Registrants need to maintain, expand or upgrade distribution, transmission and/or storage infrastructure, including laying new pipeline and building compressor stations. Various factors, such as the inability to obtain required approval from local, state and/or federal regulatory and governmental bodies, public opposition to projects, inability to obtain adequate financing, competition for labor and materials, construction delays, cost overruns and the inability to negotiate acceptable agreements relating to rights of way, construction or other material development components, may prevent or delay the completion of projects or increase costs. As a result, the Duke Energy Registrants may be unable to adequately serve existing natural gas customers or support customer growth or could incur higher than anticipated costs, which could have a negative financial impact.
The availability of adequate interstate pipeline transportation capacity and natural gas supply may decrease.
The Duke Energy Registrants purchase almost all of their natural gas supply from interstate sources that must be transported to the applicable service territories. Interstate pipeline companies transport the natural gas to the Duke Energy Registrants' systems under firm service agreements that are designed to meet the requirements of their core markets. A significant disruption to interstate pipelines capacity or reduction in natural gas supply due to events including, but not limited to, operational failures or disruptions, hurricanes, tornadoes, floods, freeze off of natural gas wells, terrorist or cyberattacks or other acts of war or legislative or regulatory actions or requirements, including remediation related to integrity inspections, could reduce the normal interstate supply of natural gas and thereby reduce earnings. Moreover, if additional natural gas infrastructure, including, but not limited to, exploration and drilling rigs and platforms, processing and gathering systems, off-shore pipelines, interstate pipelines and storage, cannot be built at a pace that meets demand, then growth opportunities could be limited and earnings negatively impacted.
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.

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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' ability 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. 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 increase. 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, results of operations or cash flows could be negatively affected.
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.

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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 current or past 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 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, financial condition, cash flows 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 significantly 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 flows from their operations and to fund investments originally financed through debt instruments with disparate maturities, the Duke Energy Registrants rely on access to short-term money markets as well as longer-term capital markets. The Subsidiary Registrants also rely on access to short-term intercompany borrowings. If the Duke Energy Registrants are not able to access capital at competitive rates or at all, the ability to finance their operations and implement their strategy and business plan as scheduled could be adversely affected. An inability to access capital may limit the Duke Energy Registrants’ ability to pursue improvements or acquisitions that they may otherwise rely on for future growth.
Market disruptions may increase the cost of borrowing or adversely affect the ability to access one or more financial markets. Such disruptions could include: economic downturns, the bankruptcy of an unrelated energy company, unfavorable capital market conditions, 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.

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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.

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ITEM 2. PROPERTIES
 
ELECTRIC UTILITIES AND INFRASTRUCTURE
The following table provides information related to the Electric Utilities and Infrastructure's generation stations as of December 31, 2016. The MW displayed in the table below are based on summer capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated.
 
 
 
 
Owned MW

Facility
Plant Type
Primary Fuel
Location
Capacity

Duke Energy Carolinas
 
 
 
 
Oconee
Nuclear
Uranium
SC
2,554

McGuire
Nuclear
Uranium
NC
2,316

Catawba(a)
Nuclear
Uranium
SC
441

Belews Creek
Fossil
Coal
NC
2,220

Marshall
Fossil
Coal
NC
2,078

J.E. Rogers 
Fossil
Coal
NC
1,396

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

Allen
Fossil
Coal
NC
1,127

Rockingham CT
Fossil
Gas/Oil
NC
825

Buck Combined Cycle (CC)
Fossil
Gas
NC
668

Dan River CC
Fossil
Gas
NC
651

Mill Creek CT
Fossil
Gas/Oil
SC
596

W.S. Lee
Fossil
Gas
SC
170

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

Bad Creek
Hydro
Water
SC
1,360

Jocassee
Hydro
Water
SC
780

Cowans Ford
Hydro
Water
NC
325

Keowee
Hydro
Water
SC
152

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

Distributed generation
Renewable
Solar
NC
11

Total Duke Energy Carolinas
 
 
 
19,685

 
 
 
 
Owned MW

Facility
Plant Type
Primary Fuel
Location
Capacity

Duke Energy Progress
 
 
 
 
Brunswick
Nuclear
Uranium
NC
1,870

Harris
Nuclear
Uranium
NC
928

Robinson
Nuclear
Uranium
SC
741

Roxboro
Fossil
Coal
NC
2,439

Smith CC
Fossil
Gas/Oil
NC
1,088

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

Wayne County CT
Fossil
Gas/Oil
NC
863

Smith CT
Fossil
Gas/Oil
NC
780

Darlington CT
Fossil
Gas/Oil
SC
735

Mayo
Fossil
Coal
NC
727

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

Asheville
Fossil
Coal
NC
378

Asheville CT
Fossil
Gas/Oil
NC
324

Weatherspoon CT
Fossil
Gas/Oil
NC
128

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

Blewett CT
Fossil
Oil
NC
52

Walters
Hydro
Water
NC
112

Other small facilities (3 plants)
Hydro
Water
NC
115

Distributed generation
Renewable
Solar
NC
62

Total Duke Energy Progress
 
 
 
12,935


30


PART I

 
 
 
 
Owned MW

Facility
Plant Type
Primary Fuel
Location
Capacity

Duke Energy Florida
 
 
 
 
Crystal River
Fossil
Coal
FL
2,291

Hines CC
Fossil
Gas/Oil
FL
1,912

Bartow CC
Fossil
Gas/Oil
FL
1,105

Anclote
Fossil
Gas
FL
1,041

Intercession City CT
Fossil
Gas/Oil
FL
984

DeBary CT
Fossil
Gas/Oil
FL
583

Tiger Bay CC
Fossil
Gas/Oil
FL
205

Bartow CT
Fossil
Gas/Oil
FL
175

Bayboro CT
Fossil
Oil
FL
174

Suwannee River CT
Fossil
Gas
FL
155

Higgins CT
Fossil
Gas/Oil
FL
114

Avon Park CT
Fossil
Gas/Oil
FL
50

University of Florida CoGen CT
Fossil
Gas
FL
46

Distributed generation
Renewable
Solar
FL
4

Total Duke Energy Florida
 
 
 
8,839

 
 
 
 
Owned MW

Facility
Plant Type
Primary Fuel
Location
Capacity

Duke Energy Ohio
 
 
 
 
East Bend
Fossil
Coal
KY
600

Woodsdale CT
Fossil
Gas/Propane
OH
462

Total Duke Energy Ohio
 
 
 
1,062

 
 
 
 
Owned MW

Facility
Plant Type
Primary Fuel
Location
Capacity

Duke Energy Indiana
 
 
 
 
Gibson(b)
Fossil
Coal
IN
2,822

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

Edwardsport
Fossil
Coal
IN
595

Madison CT
Fossil
Gas
OH
576

Vermillion CT(d)
Fossil
Gas
IN
355

Wheatland CT
Fossil
Gas
IN
460

Noblesville CC
Fossil
Gas/Oil
IN
285

Gallagher
Fossil
Coal
IN
280

Henry County CT
Fossil
Gas/Oil
IN
129

Cayuga CT
Fossil
Gas/Oil
IN
99

Connersville CT
Fossil
Oil
IN
86

Miami Wabash CT
Fossil
Oil
IN
80

Markland
Hydro
Water
IN
45

Total Duke Energy Indiana
 
 
 
6,817

 
 
 
 
Owned MW

Totals by Type
 
 
 
Capacity

Total Electric Utilities
 
 
 
49,338

Totals By Plant Type
 
 
 
 
Nuclear
 
 
 
8,850

Fossil
 
 
 
36,856

Hydro
 
 
 
3,555

Renewable
 
 
 
77

Total Electric Utilities
 
 
 
49,338


31


PART I

(a)
Jointly owned with North Carolina Municipal Power Agency Number 1, North Carolina Electric Membership Corporation and Piedmont Municipal Power Agency. Duke Energy Carolinas' ownership is 19.25 percent of the facility.
(b)
Duke Energy Indiana owns and operates Gibson Station Units 1 through 4 and is a joint owner of unit 5 with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency. Duke Energy Indiana operates unit 5 and owns 50.05 percent.
(c)     Includes Cayuga Internal Combustion.
(d)    Jointly owned with WVPA. Duke Energy Indiana's ownership is 62.5 percent of the facility.
The following table provides information related to Electric Utilities and Infrastructure's electric transmission and distribution properties as of December 31, 2016.
 
 
Duke

Duke

Duke

Duke

Duke

 
Duke

Energy

Energy

Energy

Energy

Energy

 
Energy

Carolinas

Progress

Florida

Ohio

Indiana

Electric Transmission Lines
 
 
 
 
 
 
Miles of 500 to 525 kilovolt (kV)
1,100

600

300

200



Miles of 345 kV
1,700




1,000

700

Miles of 230 kV
8,500

2,700

3,400

1,700


700

Miles of 100 to 161 kV
12,500

6,800

2,600

1,000

700

1,400

Miles of 13 to 69 kV
8,400

3,000


2,300

700

2,400

Total conductor miles of electric transmission lines
32,200

13,100

6,300

5,200

2,400

5,200

Electric Distribution Lines
 
 
 
 
 
 
Miles of overhead lines
172,300

66,600

45,000

24,600

13,700

22,400

Miles of underground line
96,400

37,100

24,600

20,000

5,900

8,800

Total conductor miles of electric distribution lines
268,700

103,700

69,600

44,600

19,600

31,200

Number of electric transmission and distribution substations
3,300

1,500

500

500

300

500

Substantially all of Electric Utilities and Infrastructure's 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.
GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure owns transmission pipelines and distribution mains that are generally underground, located near public streets and highways, or on property owned by others for which Duke Energy Ohio and Piedmont have obtained the necessary legal rights to place and operate facilities on such property located within the Gas Utilities and Infrastructure service territories. The following table provides information related to Gas Utilities and Infrastructure's gas distribution as of December 31, 2016.
 
 
Duke

 
Duke

Energy

 
Energy

Ohio

Miles of gas distribution and transmission pipelines
32,900

7,200

Miles of gas service lines
26,600

6,200


32


PART I

COMMERCIAL RENEWABLES
The following table provides information related to Commercial Renewables' electric generation facilities as of December 31, 2016. The MW displayed in the table below are based on summer capacity. Ownership interest in all facilities is 100 percent unless otherwise indicated.
 
 
 
 
Owned MW

Facility
Plant Type
Primary Fuel
Location
Capacity

Duke Energy Renewables – Wind
 
 
 
 
Los Vientos Windpower
Renewable
Wind
TX
912

Top of the World
Renewable
Wind
WY
200

Frontier
Renewable
Wind
OK
200

Notrees
Renewable
Wind
TX
153

Campbell Hill
Renewable
Wind
WY
99

North Allegheny
Renewable
Wind
PA
70

Laurel Hill Wind Energy
Renewable
Wind
PA
69

Ocotillo
Renewable
Wind
TX
59

Kit Carson
Renewable
Wind
CO
51

Silver Sage
Renewable
Wind
WY
42

Happy Jack
Renewable
Wind
WY
29

Shirley
Renewable
Wind
WI
20

Sweetwater IV(a)
Renewable
Wind
TX
113

Sweetwater V(a)
Renewable
Wind
TX
38

Ironwood(a)
Renewable
Wind
KS
84

Cimarron II(a)
Renewable
Wind
KS
66

Mesquite Creek(a)
Renewable
Wind
TX
106

Total Renewables – Wind
 
 
 
2,311

Duke Energy Renewables – Solar
 
 
 
 
Conetoe II
Renewable
Solar
NC
80

Seville I & II
Renewable
Solar
CA
50

Rio Bravo I & II
Renewable
Solar
CA
40

Caprock
Renewable
Solar
NM
25

Kelford
Renewable
Solar
NC
22

Highlander
Renewable
Solar
CA
21

Dogwood
Renewable
Solar
NC
20

Halifax Airport
Renewable
Solar
NC
20

Pasquotank
Renewable
Solar
NC
20

Pumpjack
Renewable
Solar
CA
20

Wildwood
Renewable
Solar
CA
20

Shawboro
Renewable
Solar
NC
20

Longboat
Renewable
Solar
CA
20

Bagdad
Renewable
Solar
AZ
15

TX Solar
Renewable
Solar
TX
14

Creswell Alligood
Renewable
Solar
NC
14

Victory
Renewable
Solar
CO
13

Washington White Post
Renewable
Solar
NC
12

Whitakers
Renewable
Solar
NC
12

Other small solar
Renewable
Solar
Various
125

Total Renewables – Solar
 
 
 
583

Total Commercial Renewables
 
 
 
2,894

(a) Commercial Renewables owns 47 percent of Sweetwater IV and V and 50 percent of Ironwood, Cimarron II and Mesquite Creek.
OTHER
Duke Energy owns approximately 8 million square feet and leases 2.3 million square feet of corporate, regional and district office space spread throughout its service territories.
Duke Energy also owns a 25 percent equity interest in NMC. In 2016, NMC produced approximately 765,000 metric tons of methanol and approximately 974,000 metric tons of MTBE. Approximately 40 percent of methanol is normally used in the MTBE production.

33


PART I

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.
MTBE Litigation
On June 19, 2014, the Commonwealth of Pennsylvania filed suit against, among others, Duke Energy Merchants, 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. Discovery in this case continues.
ITEM 4. MINE SAFETY DISCLOSURES
 
This is not applicable for any of the Duke Energy Registrants.

34


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 New York Stock Exchange (NYSE) (ticker symbol DUK). As of January 31, 2017, there were 165,640 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 NYSE and information on common stock dividends declared. Stock prices represent the intra-day high and low stock price.
duk-2015123_chartx33725a01.jpg
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
 
See Item 12 of Part III within this Annual Report for information regarding Securities Authorized for Issuance Under Equity Compensation Plans.
Issuer Purchases of Equity Securities for Fourth Quarter 2016
 
There were no repurchases of equity securities during the fourth quarter of 2016.

35


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, 2011, 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.
duk-2015123_chartx35372a01.jpg
NYSE CEO Certification
 
Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2016.

36


PART II

ITEM 6. SELECTED FINANCIAL DATA
 
The following table provides selected financial data for the years of 2012 through 2016.
(in millions, except per-share amounts)
2016

 
2015(a)

 
2014(a)

 
2013(a)

 
2012(a)

Statement of Operations(b)
 
 
 
 
 
 
 
 
 
Total operating revenues
$
22,743

 
$
22,371

 
$
22,509

 
$
21,211

 
$
16,363

Operating income
5,341

 
5,078

 
4,842

 
4,305

 
2,403

Income from continuing operations
2,578

 
2,654

 
2,538

 
2,278

 
1,289

(Loss) Income from discontinued operations, net of tax
(408
)
 
177

 
(649
)
 
398

 
493

Net income
2,170

 
2,831

 
1,889

 
2,676

 
1,782

Net income attributable to Duke Energy Corporation
2,152

 
2,816

 
1,883

 
2,665

 
1,768

Common Stock Data
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Duke Energy Corporation common stockholders(c)
 
 
 
 
 
 
 
 
 
Basic
$
3.71

 
$
3.80

 
$
3.58

 
$
3.21

 
$
2.23

Diluted
3.71

 
3.80

 
3.58

 
3.21

 
2.23

(Loss) Income from discontinued operations attributable to Duke Energy Corporation common stockholders(c)
 
 
 
 
 
 
 
 
 
Basic
$
(0.60
)
 
$
0.25

 
$
(0.92
)
 
$
0.56

 
$
0.84

Diluted
(0.60
)
 
0.25

 
(0.92
)
 
0.55

 
0.84

Net income attributable to Duke Energy Corporation common stockholders(c)
 
 
 
 
 
 
 
 
 
Basic
$
3.11

 
$
4.05

 
$
2.66

 
$
3.77

 
$
3.07

Diluted
3.11

 
4.05

 
2.66

 
3.76

 
3.07

Dividends declared per share of common stock(c)
3.36

 
3.24

 
3.15

 
3.09

 
3.03

Balance Sheet
 
 
 
 
 
 
 
 
 
Total assets
$
132,761

 
$
121,156

 
$
120,557

 
$
114,779

 
$
113,856

Long-Term debt including capital leases, less current maturities
45,576

 
36,842

 
36,075

 
37,065

 
35,512

(a)
Prior year data has been recast to reflect the classification of the International Disposal Group as discontinued operations.
(b)
Significant transactions reflected in the results above include: (i) the sale of the International Disposal Group in 2016, including a loss on sale recorded within discontinued operations (see Note 2 to the Consolidated Financial Statements, “Acquisitions and Dispositions”) (ii) the acquisition of Piedmont in 2016, including losses on interest rate swaps related to the acquisition financing (see Note 2); (iii) 2014 impairment of the Midwest Disposal Group (see Note 2); (iv) 2014 incremental tax expense resulting from the decision to repatriate all cumulative historical undistributed foreign earnings (see Note 22, "Income Taxes"); (v) 2014 increase in the litigation reserve related to the criminal investigation of the Dan River coal ash release (see Note 5, “Commitments and Contingencies”); (vi) 2013 pretax charges of $360 million related to Crystal River Unit 3 and nuclear development costs; (vii) the 2012 merger with Progress Energy; (viii) costs to achieve mergers in 2016, 2015, 2014, 2013 and 2012; and (ix) 2012 pretax impairment and other charges related to the Edwardsport Integrated Gasification Combined Cycle (IGCC) project of $628 million.
(c)
On July 2, 2012, immediately prior to the merger with Progress Energy, Duke Energy executed a one-for-three reverse stock split. All share and earnings per share amounts are presented as if the one-for-three reverse stock split had been effective at the beginning of the earliest period presented.

37


PART II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis includes financial information prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.), as well as certain non-GAAP financial measures such as adjusted earnings and adjusted earnings per share discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) and its subsidiaries Duke Energy Carolinas, LLC (Duke Energy Carolinas), Progress Energy, Inc. (Progress Energy), Duke Energy Progress, LLC (Duke Energy Progress), Duke Energy Florida, LLC (Duke Energy Florida), Duke Energy Ohio, Inc. (Duke Energy Ohio) and Duke Energy Indiana, LLC (Duke Energy Indiana). However, none of the registrants make any representation as to information related solely to Duke Energy or the subsidiary registrants of Duke Energy other than itself. Subsequent to Duke Energy's acquisition of Piedmont Natural Gas Company, Inc. (Piedmont) on October 3, 2016, Piedmont is a wholly owned subsidiary of Duke Energy. The financial information for Duke Energy includes results of Piedmont subsequent to October 3, 2016. See Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information regarding the acquisition.
DUKE ENERGY
Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2016, 2015 and 2014.
Executive Overview
Acquisition of Piedmont Natural Gas
On October 3, 2016, Duke Energy completed the acquisition of Piedmont, a North Carolina corporation primarily engaged in regulated natural gas distribution to residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. Piedmont is also invested in joint-venture, energy-related businesses, including regulated interstate natural gas transportation and storage and regulated intrastate natural gas transportation. The acquisition provides a foundation for Duke Energy to establish a broader, long-term strategic natural gas infrastructure platform to complement its existing natural gas pipeline investments and regulated natural gas business in the Midwest. Cost savings, efficiencies and other benefits are expected from combined operations.
Duke Energy acquired all of Piedmont's outstanding common stock for a total cash purchase price of $5.0 billion and assumed Piedmont's existing long-term debt, which had an estimated fair value of approximately $2.0 billion at the time of the acquisition. The excess of the purchase price over the estimated fair value of Piedmont's assets and liabilities on the acquisition date was recorded as goodwill. The transaction resulted in incremental goodwill of approximately $3.4 billion.
Duke Energy financed the transaction with a combination of debt, equity issuances and other cash sources. Financings to fund the transaction included $3.75 billion of long-term debt issued in August 2016, $750 million borrowed under a short-term loan facility (Term Loan) in September 2016, as well as the issuance of 10.6 million shares of common stock in October 2016. The share issuance resulted in net cash proceeds of approximately $723 million. See Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for additional information related to the debt issuance and Note 18, "Common Stock," for additional information related to the equity issuance.
Duke Energy recorded pretax non-recurring transaction and integration costs associated with the acquisition of $439 million in 2016, including interest expense of $234 million related to the acquisition financing. The interest expense primarily relates to losses on forward-starting interest rate swaps. The remaining charges include commitments made in conjunction with the transaction, such as charitable contributions and a one-time bill credit to Piedmont customers, as well as professional fees and severance. Duke Energy also expects to incur system integration and other acquisition-related transition costs, primarily through 2018, that are necessary to achieve certain anticipated cost savings, efficiencies and other benefits.
See Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions," for additional information regarding the transaction.
Sale of International Energy
In February 2016, Duke Energy announced it had initiated a process to divest its Latin American generation businesses and, in October 2016, reached agreements to sell the businesses in two separate transactions for a combined enterprise value of $2.4 billion. Both deals closed ahead of schedule in December 2016. Duke Energy sold its Brazilian business to China Three Gorges for approximately $1.2 billion, including the assumption of debt, and its remaining Central and South American businesses to I Squared Capital in a deal also valued at approximately $1.2 billion. The transactions generated cash proceeds of $1.9 billion, excluding transaction costs, which were primarily used to reduce Duke Energy holding company debt. Existing favorable tax attributes result in no immediate U.S. federal-level cash tax impacts.
As a result of the transactions, the International Energy Disposal Group was classified as held for sale and as discontinued operations in the fourth quarter of 2016.

38


PART II

In conjunction with the advancement of marketing efforts, in the second quarter of 2016 Duke Energy performed recoverability tests of the asset groups of the International Disposal Group, and as a result recorded an after-tax impairment charge of $145 million related to certain assets in Central America. In the fourth quarter of 2016, Duke Energy recorded an after-tax loss on disposal of $640 million, which includes the recognition of cumulative foreign currency translation losses of $620 million. Both charges are included within Loss from Discontinued Operations, net of tax on the Consolidated Statements of Operations for the year ended December 31, 2016. See Note 2 to the Consolidated Financial Statements, "Acquisitions and Dispositions" for additional information.
Financial Results
duk-2015123_chartx33536a01.jpgduk-2015123_chartx34913a01.jpg
(a)
See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted earnings per share as well as a reconciliation of this non-GAAP financial measure to net income attributable to Duke Energy and net income attributable to Duke Energy per diluted share.
2016 GAAP reported earnings were impacted by charges related to the International Energy sale described above, which were recorded to discontinued operations. See “Results of Operations” below for a detailed discussion of the consolidated results of operations, as well as a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other.
2016 Areas of Focus and Accomplishments
Duke Energy advanced a number of important strategic initiatives to transform its energy future with a focus on customers, employees, operations and growth. The company has responded to an environment of changing customer demands, investing in electric and gas infrastructure that customers value and that provide an opportunity for sustainable growth.
Portfolio Transition. With the acquisition of Piedmont and the sale of International Energy, Duke Energy completed a multi-year portfolio transition. The Piedmont acquisition reflects the growing importance of natural gas to the future of the energy infrastructure within the company's service territory and throughout the U.S., and establishes a strategic platform for future growth in natural gas infrastructure. Duke Energy's exit of the Latin American market results in a portfolio of domestic electric and gas infrastructure businesses with a lower risk profile and enhances the ability to generate more consistent earnings and cash flows over time.
Operational Excellence. Duke Energy continues to focus on the safe and efficient operation of its generation fleet. During the year Duke Energy's safety performance metrics led the utilities industry, and its regulated fuel costs averaged $2.22/kwh, which is the lowest in the past several years. Additionally, the nuclear fleet increased its capacity factor for a fourth consecutive year to approximately 96 percent, with several units setting all-time generation records.
Storm Response and System Restoration. Duke Energy’s service territories experienced numerous storms during 2016, including Winter Storm Jonas and Hurricane Matthew. During Hurricane Matthew, over 1.7 million customers in Florida and the Carolinas were without power. In the Carolinas, 1.4 million outages were restored in record time, helping communities start the rebuilding process. Power was restored to customers through the commitment and resolve of employees and contractors.
Customer Satisfaction. Higher J.D. Power customer satisfaction scores in 2016 reflect progress in the Company's efforts to improve customer satisfaction. In Florida, scores improved more than 30 points. The work to improve customer satisfaction will continue, but all jurisdictions remain on track to make steady gains in the years ahead as Duke Energy continues to transform the customer experience.
Constructive Regulatory Outcomes. Through constructive stakeholder engagement, Duke Energy reached settlements for the Edwardsport IGCC facility in Indiana and Duke Energy Progress South Carolina rate case. These settlements have been approved by the Indiana Utility Regulatory Commission (IURC) and Public Service Commission of South Carolina (PSCSC), respectively. Duke Energy will also save its Florida customers more than $800 million over approximately 20 years through the successful securitization financing of its regulatory asset related to Crystal River 3.

39


PART II

Coal Ash Management. Duke Energy continued to make significant progress on the safe storage of coal ash in 2016. Closure activities are underway at five sites and comprehensive closure plans for all Duke Energy coal ash sites were developed and disclosed publicly during 2016, consistent with Federal Coal Combustion Residuals (CCR) requirements. In May 2016, Duke Energy received preliminary risk rankings for its coal ash sites in North Carolina from the North Carolina Department of Environmental Quality (NCDEQ), and in July 2016 new legislation was passed that provided clarity on the risk ranking framework. The legislation also required the completion of dam improvement projects and the installation of water lines for residents within a half mile of coal ash sites in the state. Work was completed on all required deadlines under the new legislation.
Cost Management and Efficiencies. Duke Energy has a demonstrated track record of driving efficiencies and productivity, including merger integration. These efficiencies will help in Duke Energy's objective to keep overall customer rates below the national average, while moderating customer bill increases over time. In June 2016, Duke Energy achieved the $687 million of guaranteed savings for customers in the Carolinas from the 2012 merger with Progress Energy, a full year ahead of its original commitment.
Growth in the Dividend. In 2016, Duke Energy continued to grow the dividend payment to shareholders by approximately 4 percent. 2016 represented the 90th consecutive year Duke Energy paid a cash dividend on its common stock.
Duke Energy Objectives – 2017 and Beyond
Duke Energy will continue to deliver exceptional value to customers, be an integral part of the communities in which it does business, and provide attractive returns to investors. Duke Energy is committed to lead the way to cleaner, smarter energy solutions that customers value through a strategy focused on:
Transformation of the customer experience to meet changing customer expectations through enhanced convenience, control and choice in energy supply and usage.
Modernization of the electric grid, including storm hardening, to ensure the system is better prepared for severe weather and to improve the system's reliability and flexibility, as well as to provide better information and services for customers.
Generation of cleaner energy through an increased amount of natural gas, renewables generation and the continued safe and reliable operation of nuclear plants.
Expansion of natural gas infrastructure, from midstream gas pipelines to local distribution systems.
Operational excellence through engagement with employees and being an industry leader in safety performance and efficient operations.
Stakeholder engagement to ensure the regulatory rules in the states in which Duke Energy operates benefit customers and allow Duke Energy to recover its significant investments in a timely manner.
Primary objectives toward the implementation of this strategy include:
Growth Initiatives. Growth in the Electric Utilities and Infrastructure business is expected to be supported by the investment of significant capital in the electric transmission and distribution grid, and in cleaner, more efficient generation. Duke Energy expects to invest approximately $30 billion in Electric Utilities and Infrastructure growth projects over the next five years, continuing its efforts to generate cleaner energy. Duke Energy intends to work constructively with regulators to evaluate the current construct and seek modernized recovery solutions, such as riders, rate decoupling and multiyear rate plans, that benefit both customers and shareholders.
Investment projects at Electric Utilities and Infrastructure currently underway that will support growth initiatives include:
Duke Energy Indiana's $1.4 billion grid modernization plan, which was approved by the IURC in 2016, is aimed at improving reliability, including fewer outages and quicker restoration. The plan allows for recovery of Duke Energy's investment through a rider. As part of the settlement, Duke Energy also received approval to install AMI meters, deferring the costs for future recovery in a rate case.
Significant investments in natural gas-fired combined cycle plants, including completing the $1.5 billion Citrus Country plant in Florida, the $600 million Lee facility in South Carolina and the $1 billion investment in the Western Carolinas Modernization Project. These investments will allow Duke Energy to replace older, less efficient coal units early.
Duke Energy expects to continue to advance other cleaner energy sources within its regulated electric jurisdictions, including hydro, wind, solar and combined heat-and-power projects, increasing the flexibility of the system and allowing Duke Energy to continue lowering carbon emissions.
Electric Utilities and Infrastructure will also invest significantly in modernizing the electric grid to provide greater flexibility, better reliability and power quality, as well as more valuable products and services for its customers.
These significant investments will result in the need to file rate cases with regulators to update customer rates. Duke Energy will also focus on modernizing the regulatory constructs in its jurisdictions to minimize rate impacts to customers and recover costs in a more timely manner.
Duke Energy expects to invest around $6 billion in its Gas Utilities and Infrastructure business over the next five years. Growth in Gas Utilities and Infrastructure will be focused on the following:
With the acquisition of Piedmont, Duke Energy now operates gas distribution businesses across five states. The continued integration of Piedmont, as well as additional investments in the gas Local Distribution Company (LDC) system, will help maintain system integrity and expand gas distribution to new customers.
Duke Energy will continue to grow its midstream pipeline business, underpinned by investments in the Atlantic Coast Pipeline, Sabal Trail and Constitution pipeline projects. These highly-contracted pipelines will bring much needed, low-cost gas supplies to the eastern U.S., spurring economic growth and helping Duke Energy to grow its customer base in the Southeast.

40


PART II

For Commercial Renewables, Duke Energy will continue to pursue long-term, highly-contracted wind and solar projects that meet its return criteria.
Cost Management. Duke Energy has a demonstrated track record of driving efficiencies and productivity into the business and continues to identify sustainable cost savings as an essential element in response to a transforming industry.
Execute on Coal Ash Management Strategy. Duke Energy will continue the company's compliance strategy with the North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) and Resource Conservation and Recovery Act. Duke Energy will update ash management plans to comply with the appropriate regulations and expand excavation and other compliance work at additional sites once plans and permits are approved.
Results of Operations
Non-GAAP Measures
Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations attributable to Duke Energy, adjusted for the dollar and per-share impact of special items. As discussed below, special items include certain charges and credits which management believes are not indicative of Duke Energy's ongoing performance. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods.
Management uses these non-GAAP financial measures for planning and forecasting, and for reporting financial results to the Duke Energy Board of Directors (Board of Directors), employees, stockholders, analysts and investors. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation (GAAP Reported Earnings) and Diluted EPS Attributable to Duke Energy Corporation common stockholders (GAAP Reported EPS).
Special items included in the periods presented include the following items which management believes do not reflect ongoing costs:
Costs to Achieve Mergers represents charges that result from potential or completed strategic acquisitions.
Cost Savings Initiatives represents severance charges related to company-wide initiatives to standardize processes and systems, leverage technology and workforce optimization.
Commercial Renewables Impairment and Asset Impairment represent other-than-temporary impairments.
Edwardsport Settlement, Ash Basin Settlement and Penalties, and Coal Ash Plea Agreements Reserve represent charges related to Plea Agreements and settlement agreements with regulators and other governmental entities.
Adjusted earnings also include the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Midwest Generation Disposal Group) and the International Disposal Group, which have been classified as discontinued operations. Management believes inclusion of the operating results of the Disposal Groups within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance during the period.
Duke Energy’s adjusted earnings and adjusted diluted EPS may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner.
Reconciliation of GAAP Reported Amounts to Adjusted Amounts
The following table presents a reconciliation of adjusted earnings and adjusted diluted EPS to the most directly comparable GAAP measures.