SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

These unaudited financial statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Form 10-K for the year ended October 31, 2016 with our accounting policies described in Note 1. There were no significant changes to those accounting policies during the two months ended December 31, 2016 except as discussed below in "Nature of Operations and Basis of Consolidation."

UNAUDITED INTERIM FINANCIAL INFORMATION

The Condensed Consolidated Financial Statements have not been audited. We have prepared the unaudited Condensed Consolidated Financial Statements under the rules of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures normally included in annual financial statements prepared in conformity with generally accepted accounting principles (GAAP) in the United States of America are omitted in this interim report under these SEC rules and regulations. The unaudited Condensed Consolidated Financial Statements include all normal recurring adjustments necessary for a fair presentation of the statement of financial position as of December 31, 2016 and October 31, 2016, the results of operations and comprehensive income for the two months ended December 31, 2016 and 2015, and cash flows and changes in equity for the two months ended December 31, 2016 and 2015.

NATURE OF OPERATIONS AND BASIS OF CONSOLIDATION

Piedmont Natural Gas Company, Inc. is an energy services company primarily engaged in the distribution of natural gas to residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. We are invested in joint venture, energy-related businesses, including regulated interstate natural gas transportation and storage and regulated intrastate natural gas transportation. Our utility operations are regulated by three state regulatory commissions; see Note 4 for further information on regulatory matters. Unless the context requires otherwise, references to "we," "us," "our," "the Company" or "Piedmont" means consolidated Piedmont Natural Gas Company, Inc. and its subsidiaries.

On October 24, 2015, we entered into an Agreement and Plan of Merger (Merger Agreement) with Duke Energy Corporation (Duke Energy). On October 3, 2016, the merger was consummated between Duke Energy and Piedmont and Forest Subsidiary, Inc. (Merger Sub), a new wholly owned subsidiary of Duke Energy. The Merger Agreement provided for the merger of the Merger Sub with and into Piedmont, with Piedmont surviving as a wholly owned subsidiary of Duke Energy (the Acquisition). The Acquisition was recorded using the acquisition method of accounting. Under SEC regulations, Duke Energy elected to not apply push down accounting to the stand alone Piedmont financial statements. These adjustments will be recorded by Duke Energy. See Note 2 for further information.

Duke Energy and Piedmont performed a comparative analysis of accounting policies with no significant differences except for actuarial assumptions for pension and other postretirement benefit plans. See Note 13 for the discussion of the change of the discount rate in actuarial assumptions as well as the change of the year end of the plans.

The Condensed Consolidated Financial Statements reflect the accounts of Piedmont and its wholly owned subsidiaries whose financial statements are prepared for the same reporting period as Piedmont using consistent accounting policies. Inter-company transactions have been eliminated in consolidation where appropriate; however, we have not eliminated inter-company profit on sales to affiliates and costs from affiliates in accordance with accounting regulations prescribed under rate-based regulation.

Investments in unconsolidated affiliates, or joint ventures, are accounted for under the equity method as we do not have controlling voting interests or otherwise exercise control over the management of such companies. See Note 11 for further information on investments in unconsolidated affiliates and related party transactions with these affiliates.

CHANGE IN FISCAL YEAR

Effective November 1, 2016, Piedmont's fiscal year end was changed from October 31 to December 31. The information presented in this Form 10-Q for the two month periods ended December 31, 2016 and 2015 are presented solely for the registrant Piedmont on a stand-alone basis.

SEASONALITY AND USE OF ESTIMATES

Our business is seasonal in nature. The results of operations for the two months ended December 31, 2016 do not necessarily reflect the results to be expected for a full year.

In accordance with GAAP, we make certain estimates and assumptions regarding reported amounts of assets, liabilities, revenues and expenses and the related disclosures, using historical experience and other assumptions that we believe are reasonable at the time. Our estimates may involve complex situations requiring a high degree of judgment in the application and interpretation of existing literature or in the development of estimates that impact our financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, which are evaluated on a continual basis.

UNBILLED REVENUE

We record revenues when services are provided to our distribution service customers. Revenues are recognized monthly on the accrual basis, which includes estimated amounts for gas delivered to customers but not yet billed under the cycle-billing method from the last meter reading date to month end. The unbilled revenue estimate reflects factors requiring judgment related to estimated usage by customer class, customer mix, changes in weather during the period and the impact of the weather normalization adjustment or margin decoupling mechanisms, as applicable. As of December 31, 2016 and October 31, 2016, unbilled revenues of $76.6 million and $13.4 million, respectively, are included within "Receivables" on the Condensed Consolidated Balance Sheets.

RECENTLY ISSUED ACCOUNTING STANDARDS UPDATE (ASU)



Guidance	Description	Effective date	Effect on the financial statements or other significant matters
ASU 2014-09, May 2014, Revenue from Contracts with Customers (Topic 606), including subsequent ASUs clarifying the guidance	Under the new standard, entities will recognize revenue to depict the transfer of goods and services to customers in amounts that reflect consideration expected to be received in exchange for those goods or services. In doing so, more judgment and estimates may be needed than under current guidance. The disclosure requirements will provide information about the nature, amount, timing and uncertainty of revenue and cash flows from any entity's contracts with customers. An entity may choose to adopt the new standard on either a full retrospective basis (practical expedients available) or through a cumulative effect adjustment to retained earnings as of the start of first period of adoption.	Annual periods (and interim periods within those periods) beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016.	We intend to adopt the revised accounting guidance effective for the interim and annual periods beginning January 1, 2018. We are currently evaluating the effect on our financial position and results of operations, as well as monitoring specific developments for our industry. We intend to use the modified retrospective method of adoption. This method results in a cumulative change effect that will be recorded on the balance sheet as of the beginning of 2018 as if the standard had always been in effect. Disclosures for 2018 will include a comparison to what would have been reported for 2018 under the current revenue recognition rules in order to assist financial statement users in understanding how revenue recognition has changed as a result of this standard and to facilitate comparability with prior year reported results, which are not restated under the modified retrospective approach.
ASU 2016-02, February 2016, Leases (Topic 842)	Under the new standard, entities will recognize right-of-use (ROU) assets and related liabilities on the balance sheet for leases with a term greater than one year. Amortization of the ROU asset will be accounted for using: (1) the finance lease approach, or (2) the operating lease approach. Under the finance lease approach, the ROU asset will be amortized on a straight-line basis with the amortization and the interest on the lease liability presented separately in the income statement. Under the operating lease approach, a single straight-line expense will be presented in the income statement. Qualitative and quantitative disclosures are required to enable a user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach, including the option to elect practical expedients, is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements at the date of initial application.	Annual periods (and interim periods within those periods) beginning after December 15, 2018, with early adoption permitted.	We are currently evaluating the effect on our financial position and results of operations. We expect an increase in assets and liabilities from the recording of our operating leases.



Guidance	Description	Effective date	Effect on the financial statements or other significant matters
ASU 2016-15, August 2016, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments	The amendment is intended to provide specific guidance on eight cash flow classification issues to reduce the diversity in practice. The eight issues are: 1) debt prepayment or debt extinguishment costs, 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, 3) contingent consideration payments made after a business combination, 4) proceeds from the settlement of life insurance claims, 5) proceeds from the settlement of corporate owned life insurance policies, including bank-owned life insurance policies, 6) distributions received from equity method investees, 7) beneficial interests in securitization transactions and 8) separately identifiable cash flows and application of the predominance principle.	Annual periods (and interim periods within those periods) beginning after December 15, 2017. Early adoption is permitted in any interim or annual period if all amendments are adopted in that period with any adjustments reflected as of the beginning of the fiscal year that includes the interim period.	We are currently evaluating the effect on the presentation of our cash flows.