UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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	Exact name of registrants as specified in their charters, addresses of principal executive offices, telephone numbers and states of incorporation	IRS Employer Identification No.
1-32853	DUKE ENERGY CORPORATION 550 South Tryon Street Charlotte, NC 28202-4200 704-594-6200 State of Incorporation: Delaware	20-2777218
1-4928	DUKE ENERGY CAROLINAS, LLC 550 South Tryon Street Charlotte, NC 28202-4200 704-594-6200 State of Incorporation: North Carolina	56-0205520
1-1232	DUKE ENERGY OHIO, INC. 139 East Fourth Street Cincinnati, OH 45202 704-594-6200 State of Incorporation: Ohio	31-0240030
1-3543	DUKE ENERGY INDIANA, INC. 1000 East Main Street Plainfield, IN 46168 704-594-6200 State of Incorporation: Indiana	35-0594457

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Duke Energy Corporation (Duke Energy)    Yes  x    No  ¨

Duke Energy Carolinas, LLC (Duke Energy Carolinas)    Yes  x    No  ¨

Duke Energy Ohio, Inc. (Duke Energy Ohio)    Yes  x    No  ¨

Duke Energy Indiana, Inc. (Duke Energy Indiana)    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).

Duke Energy    Yes  x    No  ¨

Duke Energy Carolinas    Yes  x    No  ¨

Duke Energy Ohio    Yes  x    No  ¨

Duke Energy Indiana    Yes  x    No  ¨

Indicate by check mark whether the registrant 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):

Duke Energy	Large accelerated filer	x	Accelerated filer	¨
	Non-accelerated filer	¨	Smaller reporting company	¨
Duke Energy Carolinas	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	x	Smaller reporting company	¨
Duke Energy Ohio	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	x	Smaller reporting company	¨
Duke Energy Indiana	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	x	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Duke Energy    Yes  ¨    No  x

Duke Energy Carolinas    Yes  ¨    No  x

Duke Energy Ohio     Yes  ¨    No  x

Duke Energy Indiana    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.

Outstanding as of July 29, 2011 Registrant	Description	Shares
Duke Energy	Common Stock, par value $0.001		1,331,798,790
Duke Energy Carolinas	All of the registrant’s limited liability company member interests are directly owned by Duke Energy.
Duke Energy Ohio	All of the registrant’s common stock is indirectly owned by Duke Energy.
Duke Energy Indiana	All of the registrant’s common stock is indirectly owned by Duke Energy.

This combined Form 10-Q is filed separately by four registrants: Duke Energy, Duke Energy Carolinas, 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, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.

INDEX

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2011

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Duke Energy Corporation (Duke Energy)
	Unaudited Condensed Consolidated Statements of Operations		3
	Unaudited Condensed Consolidated Balance Sheets		4
	Unaudited Condensed Consolidated Statements of Cash Flows		6
	Unaudited Condensed Consolidated Statements of Equity and Comprehensive Income		7
	Duke Energy Carolinas, LLC (Duke Energy Carolinas)
	Unaudited Condensed Consolidated Statements of Operations		8
	Unaudited Condensed Consolidated Balance Sheets		9
	Unaudited Condensed Consolidated Statements of Cash Flows		11
	Unaudited Condensed Consolidated Statements of Member’s Equity and Comprehensive Income		12
	Duke Energy Ohio, Inc. (Duke Energy Ohio)
	Unaudited Condensed Consolidated Statements of Operations		13
	Unaudited Condensed Consolidated Balance Sheets		14
	Unaudited Condensed Consolidated Statements of Cash Flows		16
	Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity and Comprehensive Income (Loss)		17
	Duke Energy Indiana, Inc. (Duke Energy Indiana)
	Unaudited Condensed Consolidated Statements of Operations		18
	Unaudited Condensed Consolidated Balance Sheets		19
	Unaudited Condensed Consolidated Statements of Cash Flows		21
	Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity and Comprehensive Income		22
	Combined Notes to Unaudited Condensed Consolidated Financial Statements for Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana		23
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		82
3.	Quantitative and Qualitative Disclosures About Market Risk		98
4.	Controls and Procedures		98
PART II. OTHER INFORMATION
1.	Legal Proceedings		99
1A.	Risk Factors		99
2.	Unregistered Sales of Equity Securities and Use of Proceeds		99
4.	Submission of Matters to a Vote of Security Holders		99
6.	Exhibits		100
	Signatures		101

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. These forward-looking statements, which are intended to cover Duke Energy and the applicable Duke Energy Registrants, are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

• State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, as well as rulings that affect cost and investment recovery or have an impact on rate structures;

• Costs and effects of legal and administrative proceedings, settlements, investigations and claims;

• Industrial, commercial and residential growth or decline in the respective Duke Energy Registrants’ service territories, customer base or customer usage patterns;

• Additional competition in electric markets and continued industry consolidation;

• Political and regulatory uncertainty in other countries in which Duke Energy conducts business;

• The influence of weather and other natural phenomena on each of the Duke Energy Registrants’ operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornados;

• The impact on the Duke Energy Registrants’ facilities and business from a terrorist attack;

• The inherent risks associated with the operation and potential construction or 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;

• Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints;

• The performance of electric generation facilities and of projects undertaken by Duke Energy’s non-regulated businesses;

• The results of financing efforts, including the Duke Energy Registrants’ ability to obtain financing on favorable terms, which can be affected by various factors, including the respective Duke Energy Registrants’ credit ratings and general economic conditions;

• Declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans;

• The level of creditworthiness of counterparties to Duke Energy Registrants’ transactions;

• Employee workforce factors, including the potential inability to attract and retain key personnel;

• Growth in opportunities for the respective Duke Energy Registrants’ business units, including the timing and success of efforts to develop domestic and international power and other projects;

• Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, 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 ratepayers in a timely manner or at all;

• The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;

• The expected timing and likelihood of completion of the proposed merger with Progress Energy, Inc. (Progress Energy), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management’s time and attention from Duke Energy’s ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;

• The risk that the proposed merger with Progress Energy is terminated prior to completion and results in significant transaction costs to Duke Energy; and

• The ability to successfully complete merger, acquisition or divestiture plans.

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 Duke Energy has described. The Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per-share amounts)

Item 1. Financial Statements

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Operating Revenues
Regulated electric	$	2,576	$	2,531		$	5,149	$	5,156
Non-regulated electric, natural gas, and other		864		670			1,719		1,368
Regulated natural gas		94		86			329		357
Total operating revenues		3,534		3,287			7,197		6,881
Operating Expenses
Fuel used in electric generation and purchased power—regulated		834		789			1,646		1,608
Fuel used in electric generation and purchased power—non-regulated		388		282			764		560
Cost of natural gas and coal sold		63		46			214		236
Operation, maintenance and other		959		944			1,839		1,843
Depreciation and amortization		437		426			891		882
Property and other taxes		169		163			355		356
Goodwill and other impairment charges		9		656			9		656
Total operating expenses		2,859		3,306			5,718		6,141
Gains on Sales of Other Assets and Other, net		4		5			14		7
Operating Income (Loss)		679		(14	)		1,493		747
Other Income and Expenses
Equity in earnings of unconsolidated affiliates		48		36			80		65
Gains on sales of unconsolidated affiliates		12		—			14		—
Other income and expenses, net		97		88			214		179
Total other income and expenses		157		124			308		244
Interest Expense		203		212			422		422
Income (Loss) From Continuing Operations Before Income Taxes		633		(102	)		1,379		569
Income Tax Expense from Continuing Operations		192		116			425		342
Income (Loss) From Continuing Operations		441		(218	)		954		227
Income From Discontinued Operations, net of tax		—		1			—		1
Net Income (Loss)		441		(217	)		954		228
Less: Net Income Attributable to Noncontrolling Interests		6		5			8		5
Net Income (Loss) Attributable to Duke Energy Corporation	$	435	$	(222	)	$	946	$	223
Earnings Per Share—Basic and Diluted
Income (loss) from continuing operations attributable to Duke Energy Corporation common shareholders
Basic	$	0.33	$	(0.17	)	$	0.71	$	0.17
Diluted	$	0.33	$	(0.17	)	$	0.71	$	0.17
Income from discontinued operations attributable to Duke Energy Corporation common shareholders
Basic	$	—	$	—		$	—	$	—
Diluted	$	—	$	—		$	—	$	—
Net income (loss) attributable to Duke Energy Corporation common shareholders
Basic	$	0.33	$	(0.17	)	$	0.71	$	0.17
Diluted	$	0.33	$	(0.17	)	$	0.71	$	0.17
Dividends declared per share	$	0.495	$	0.485		$	0.74	$	0.725
Weighted-average shares outstanding
Basic		1,332		1,314			1,331		1,312
Diluted		1,333		1,314			1,332		1,313

See Notes to Unaudited Condensed Consolidated Financial Statements

3

PART I

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

	June 30, 2011		December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	1,362	$	1,670
Short-term investments		9		—
Receivables (net of allowance for doubtful accounts of $39 at June 30, 2011 and $34 at December 31, 2010)		796		855
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $39 at June 30, 2011 and $34 at December 31, 2010)		1,173		1,302
Inventory		1,415		1,318
Other		879		1,078
Total current assets		5,634		6,223
Investments and Other Assets
Investments in equity method unconsolidated affiliates		457		444
Nuclear decommissioning trust funds		2,137		2,014
Goodwill		3,868		3,858
Intangibles, net		468		467
Notes receivable		62		42
Restricted other assets of variable interest entities		151		139
Other		2,233		2,300
Total investments and other assets		9,376		9,264
Property, Plant and Equipment
Cost		59,352		57,597
Cost, variable interest entities		865		942
Less accumulated depreciation and amortization		18,607		18,195
Net property, plant and equipment		41,610		40,344
Regulatory Assets and Deferred Debits
Deferred debt expense		236		246
Regulatory assets related to income taxes		818		780
Other		2,118		2,233
Total regulatory assets and deferred debits		3,172		3,259
Total Assets	$	59,792	$	59,090

See Notes to Unaudited Condensed Consolidated Financial Statements

4

PART I

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

(In millions, except per-share amounts)

	June 30, 2011		December 31, 2010
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	1,189	$	1,587
Notes payable		5		—
Non-recourse notes payable of variable interest entities		275		216
Taxes accrued		358		412
Interest accrued		272		237
Current maturities of long-term debt		1,008		275
Other		1,279		1,170
Total current liabilities		4,386		3,897
Long-term Debt		16,765		16,959
Non-recourse long-term debt of variable interest entities		922		976
Deferred Credits and Other Liabilities
Deferred income taxes		7,359		6,978
Investment tax credits		368		359
Asset retirement obligations		1,869		1,816
Other		5,421		5,452
Total deferred credits and other liabilities		15,017		14,605
Commitments and Contingencies
Equity
Common Stock, $0.001 par value, 2 billion shares authorized; 1,332 million and 1,329 million shares outstanding at June 30, 2011 and December 31, 2010, respectively		1		1
Additional paid-in capital		21,045		21,023
Retained earnings		1,448		1,496
Accumulated other comprehensive income		89		2
Total Duke Energy Corporation shareholders’ equity		22,583		22,522
Noncontrolling interests		119		131
Total equity		22,702		22,653
Total Liabilities and Equity	$	59,792	$	59,090

See Notes to Unaudited Condensed Consolidated Financial Statements

5

PART I

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	954		$	228
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization (including amortization of nuclear fuel)		991			979
Equity component of AFUDC		(123	)		(110	)
Severance expense		—			98
Gains on sales of other assets		(27	)		(8	)
Impairment of goodwill and other long-lived assets		9			658
Deferred income taxes		461			245
Equity in earnings of unconsolidated affiliates		(80	)		(65	)
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions		13			6
Receivables		166			63
Inventory		(85	)		217
Other current assets		128			40
Increase (decrease) in
Accounts payable		(338	)		(124	)
Taxes accrued		(99	)		(43	)
Other current liabilities		(179	)		(121	)
Other assets		81			117
Other liabilities		(155	)		(56	)
Net cash provided by operating activities		1,717			2,124
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,938	)		(2,325	)
Investment expenditures		(49	)		(160	)
Acquisitions		(4	)		—
Purchases of available-for-sale securities		(1,266	)		(1,232	)
Proceeds from sales and maturities of available-for-sale securities		1,281			1,229
Net proceeds from the sales of other assets, and sales of and collections on notes receivable		109			5
Purchases of emission allowances		(4	)		(9	)
Sales of emission allowances		7			17
Change in restricted cash		24			(37	)
Other		2			4
Net cash used in investing activities		(1,838	)		(2,508	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the:
Issuance of long-term debt		499			1,363
Issuance of common stock related to employee benefit plans		10			112
Payments for the redemption of long-term debt		(82	)		(948	)
Notes payable and commercial paper		63			(16	)
Distributions to noncontrolling interests		(18	)		(5	)
Dividends paid		(657	)		(635	)
Other		(2	)		(19	)
Net cash used in financing activities		(187	)		(148	)
Net decrease in cash and cash equivalents		(308	)		(532	)
Cash and cash equivalents at beginning of period		1,670			1,542
Cash and cash equivalents at end of period	$	1,362		$	1,010
Supplemental Disclosures
Significant non-cash transactions:
Accrued capital expenditures	$	317		$	353
Dividends declared but not paid	$	337		$	322
Debt associated with the consolidation of variable interest entities	$	—		$	342

See Notes to Unaudited Condensed Consolidated Financial Statements

6

PART I

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

(In millions)

										Duke Energy Corporation Shareholders Accumulated Other Comprehensive Income (Loss)
	Common Stock Shares		Common Stock		Additional Paid-in Capital		Retained Earnings			Foreign Currency Adjustments			Net Gains (Losses) on Cash Flow Hedges			Other			Pension and OPEB Related Adjustments to AOCI			Common Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2009		1,309	$	1	$	20,661	$	1,460		$	17		$	(22	)	$	(31	)	$	(336	)	$	21,750		$	136		$	21,886
Net income		—		—		—		223			—			—			—			—			223			5			228
Other comprehensive income
Foreign currency translation adjustments		—		—		—		—			(30	)		—			—			—			(30	)		(5	)		(35	)
Pension and OPEB related adjustments to AOCI(a)		—		—		—		—			—			—			—			15			15			—			15
Net unrealized loss on cash flow hedges(b)		—		—		—		—			—			(10	)		—			—			(10	)		—			(10	)
Reclassification into earnings from cash flow hedges(c)		—		—		—		—			—			2			—			—			2			—			2
Unrealized gain on investments in auction rate securities(d)		—		—		—		—			—						6			—			6			—			6
Total comprehensive income																							206			—			206
Common stock issuances, including dividend reinvestment and employee benefits		9		—		128		—			—			—			—			—			128			—			128
Common stock dividends		—		—		—		(957	)		—			—			—			—			(957	)		—			(957	)
Balance at June 30, 2010		1,318		1	$	20,789	$	726		$	(13	)	$	(30	)	$	(25	)	$	(321	)	$	21,127		$	136		$	21,263
Balance at December 31, 2010		1,329	$	1	$	21,023	$	1,496		$	97		$	(18	)	$	(17	)	$	(60	)	$	22,522		$	131		$	22,653
Net income		—		—		—		946			—			—			—			—			946			8			954
Other comprehensive income																							—
Foreign currency translation adjustments		—		—		—		—			93			—			—			—			93			3			96
Pension and OPEB related adjustments to AOCI(a)		—		—		—		—			—			—			—			(7	)		(7	)		—			(7	)
Net unrealized loss on cash flow hedges(b)		—		—		—		—			—			(5	)		—			—			(5	)		—			(5	)
Reclassification into earnings from cash flow hedges(c)		—		—		—		—			—			2			—			—			2			—			2
Unrealized gain on investments of auction rate securities(d)		—		—		—		—			—			—			4			—			4			—			4
Total comprehensive income																							1,033			11			1,044
Common stock issuances, including dividend reinvestment and employee benefits		3		—		22		—			—			—			—			—			22			—			22
Common stock dividends		—		—		—		(994	)		—			—			—			—			(994	)		—			(994	)
Changes in noncontrolling interest in subsidiaries(e)		—		—		—		—			—			—			—			—			—			(23	)		(23	)
Balance at June 30, 2011		1,332	$	1	$	21,045	$	1,448		$	190		$	(21	)	$	(13	)	$	(67	)	$	22,583		$	119		$	22,702

(a) Net of $3 tax benefit in 2011 and $5 tax expense in 2010.

(b) Net of $2 tax benefit in 2011 and $3 tax benefit in 2010.

(c) Net of $1 tax expense in 2011 and insignificant tax benefit in 2010.

(d) Net of $1 tax expense in 2011 and $4 tax expense in 2010.

(e) Includes $18 in cash distributions to noncontrolling interests.

See Notes to Unaudited Condensed Consolidated Financial Statements

7

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions)

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues-Regulated Electric	$	1,607	$	1,513	$	3,159	$	3,058
Operating Expenses
Fuel used in electric generation and purchased power		511		458		980		912
Operation, maintenance and other		495		470		930		930
Depreciation and amortization		190		192		391		385
Property and other taxes		81		83		165		176
Total operating expenses		1,277		1,203		2,466		2,403
Gains on Sales of Other Assets and Other, net		1		3		1		5
Operating Income		331		313		694		660
Other Income and Expenses, net		50		62		92		112
Interest Expense		82		86		171		176
Income Before Income Taxes		299		289		615		596
Income Tax Expense		106		87		217		202
Net Income	$	193	$	202	$	398	$	394

See Notes to Unaudited Condensed Consolidated Financial Statements

8

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

	June 30, 2011		December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	143	$	153
Receivables (net of allowance for doubtful accounts of $3 at June 30, 2011 and December 31, 2010)		746		669
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $6 at June 30, 2011 and December 31, 2010)		630		637
Inventory		771		716
Other		284		398
Total current assets		2,574		2,573
Investments and Other Assets
Nuclear decommissioning trust funds		2,137		2,014
Other		1,066		1,119
Total investments and other assets		3,203		3,133
Property, Plant and Equipment
Cost		32,040		31,191
Less accumulated depreciation and amortization		11,264		11,126
Net property, plant and equipment		20,776		20,065
Regulatory Assets and Deferred Debits
Deferred debt expense		164		169
Regulatory assets related to income taxes		642		601
Other		776		847
Total regulatory assets and deferred debits		1,582		1,617
Total Assets	$	28,135	$	27,388

See Notes to Unaudited Condensed Consolidated Financial Statements

9

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

(In millions)

	June 30, 2011			December 31, 2010
LIABILITIES AND MEMBER’S EQUITY
Current Liabilities
Accounts payable	$	484		$	856
Taxes accrued		85			114
Interest accrued		113			109
Current maturities of long-term debt		757			8
Other		404			485
Total current liabilities		1,843			1,572
Long-term Debt		7,211			7,462
Non-recourse long-term debt of variable interest entities		300			300
Deferred Credits and Other Liabilities
Deferred income taxes		4,302			3,988
Investment tax credits		216			205
Accrued pension and other post-retirement benefits		242			242
Asset retirement obligations		1,778			1,728
Other		2,928			2,975
Total deferred credits and other liabilities		9,466			9,138
Commitments and Contingencies
Member’s Equity
Member’s Equity		9,336			8,938
Accumulated other comprehensive loss		(21	)		(22	)
Total member’s equity		9,315			8,916
Total Liabilities and Member’s Equity	$	28,135		$	27,388

See Notes to Unaudited Condensed Consolidated Financial Statements

10

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	398		$	394
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of nuclear fuel)		486			476
Equity component of AFUDC		(82	)		(83	)
Severance expense		—			64
Gains on sales of other assets and other, net		(1	)		(5	)
Deferred income taxes		311			145
Accrued pension and other post-retirement benefit costs		17			17
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions		2			—
Receivables		143			(3	)
Inventory		(43	)		142
Other current assets		141			1
Increase (decrease) in
Accounts payable		(322	)		(48	)
Taxes accrued		(29	)		(1	)
Other current liabilities		(57	)		(95	)
Other assets		(18	)		(1	)
Other liabilities		(143	)		(80	)
Net cash provided by operating activities		803			923
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,070	)		(1,190	)
Purchases of available-for-sale securities		(767	)		(640	)
Proceeds from sales and maturities of available-for-sale securities		743			627
Sales of emission allowances		1			5
Change in restricted cash		2			—
Notes due from affiliate		(211	)		303
Other		(7	)		(4	)
Net cash used in investing activities		(1,309	)		(899	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt		499			449
Payments for the redemption of long-term debt		(1	)		(502	)
Distribution to parent		—			(350	)
Other		(2	)		(2	)
Net cash provided by (used in) financing activities		496			(405	)
Net decrease in cash and cash equivalents		(10	)		(381	)
Cash and cash equivalents at beginning of period		153			394
Cash and cash equivalents at end of period	$	143		$	13
Supplemental Disclosures
Significant non-cash transactions:
Accrued capital expenditures	$	140		$	134

See Notes to Unaudited Condensed Consolidated Financial Statements

11

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

(In millions)

				Accumulated Other Comprehensive Income (Loss)
	Member’s Equity			Net Gains (Losses) on Cash Flow Hedges			Other			Total
Balance at December 31, 2009	$	8,304		$	(24	)	$	(9	)	$	8,271
Net income		394			—			—			394
Other comprehensive income
Reclassification into earnings from cash flow hedges(a)		—			1			—			1
Unrealized gain on investments in auction rate securities(b)		—			—			1			1
Total comprehensive income											396
Distribution to parent		(350	)		—			—			(350	)
Balance at June 30, 2010	$	8,348		$	(23	)	$	(8	)	$	8,317
Balance at December 31, 2010	$	8,938		$	(20	)	$	(2	)	$	8,916
Net income		398			—			—			398
Other comprehensive income											—
Reclassification into earnings from cash flow hedges(a)					1			—			1
Total comprehensive income											399
Balance at June 30, 2011	$	9,336		$	(19	)	$	(2	)	$	9,315

(a) Net of $2 tax expense in 2011 and $1 tax expense in 2010.

(b) Net of $1 tax expense in 2010.

See Notes to Unaudited Condensed Consolidated Financial Statements

12

PART I

DUKE ENERGY OHIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions)

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Operating Revenues
Regulated electric	$	361	$	447		$	733	$	929
Non-regulated electric and other		239		115			510		339
Regulated natural gas		94		87			330		358
Total operating revenues		694		649			1,573		1,626
Operating Expenses
Fuel used in electric generation and purchased power—regulated		91		129			188		270
Fuel used in electric generation and purchased power—non-regulated		147		97			311		181
Cost of natural gas and coal sold		22		20			141		178
Operation, maintenance and other		215		200			420		386
Depreciation and amortization		88		93			176		203
Property and other taxes		63		58			136		133
Goodwill and other impairment charges		9		837			9		837
Total operating expenses		635		1,434			1,381		2,188
Gains on Sales of Other Assets and Other, net		—		4			2		3
Operating Income (Loss)		59		(781	)		194		(559	)
Other Income and Expenses, net		4		7			9		14
Interest Expense		27		28			51		58
Income (Loss) Before Income Taxes		36		(802	)		152		(603	)
Income Tax Expense (Benefit)		3		(43	)		46		26
Net Income (Loss)	$	33	$	(759	)	$	106	$	(629	)

See Notes to Unaudited Condensed Consolidated Financial Statements

13

PART I

DUKE ENERGY OHIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

	June 30, 2011		December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	165	$	228
Receivables (net of allowance for doubtful accounts of $18 at June 30, 2011 and December 31, 2010)		680		888
Inventory		258		254
Other		79		121
Total current assets		1,182		1,491
Investments and Other Assets
Goodwill		921		921
Intangibles, net		234		248
Other		32		62
Total investments and other assets		1,187		1,231
Property, Plant and Equipment
Cost		10,422		10,259
Less accumulated depreciation and amortization		2,521		2,411
Net property, plant and equipment		7,901		7,848
Regulatory Assets and Deferred Debits
Deferred debt expense		21		23
Regulatory assets related to income taxes		75		78
Other		358		353
Total regulatory assets and deferred debits		454		454
Total Assets	$	10,724	$	11,024

See Notes to Unaudited Condensed Consolidated Financial Statements

14

PART I

DUKE ENERGY OHIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

(In millions, except share and per-share amounts)

	June 30, 2011			December 31, 2010
LIABILITIES AND COMMON STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	373		$	467
Taxes accrued		99			153
Interest accrued		25			22
Current maturities of long-term debt		7			7
Other		79			99
Total current liabilities		583			748
Long-term Debt		2,555			2,557
Deferred Credits and Other Liabilities
Deferred income taxes		1,719			1,640
Investment tax credits		8			9
Accrued pension and other post-retirement benefit costs		209			207
Asset retirement obligations		28			27
Other		336			372
Total deferred credits and other liabilities		2,300			2,255
Commitments and Contingencies
Common Stockholder’s Equity
Common Stock, $8.50 par value, 120,000,000 shares authorized; 89,663,086 shares outstanding at June 30, 2011 and December 31, 2010		762			762
Additional paid-in capital		5,285			5,570
Retained deficit		(740	)		(846	)
Accumulated other comprehensive loss		(21	)		(22	)
Total common stockholder’s equity		5,286			5,464
Total Liabilities and Common Stockholder’s Equity	$	10,724		$	11,024

See Notes to Unaudited Condensed Consolidated Financial Statements

15

PART I

DUKE ENERGY OHIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	106		$	(629	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		177			204
Severance expense		—			21
Gains on sales of other assets and other, net		(2	)		(3	)
Impairment of goodwill and other long-lived assets		9			837
Deferred income taxes		85			(70	)
Accrued pension and other post-retirement benefit costs		6			7
(Increase) decrease in
Net realized and unrealized mark-to-market and hedging transactions		12			(2	)
Receivables		124			71
Inventory		(4	)		22
Other current assets		15			41
Increase (decrease) in
Accounts payable		(79	)		(145	)
Taxes accrued		(55	)		—
Other current liabilities		(6	)		(21	)
Other assets		23			24
Other liabilities		(45	)		(18	)
Net cash provided by operating activities		366			339
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(230	)		(189	)
Purchases of emission allowances		(4	)		(8	)
Sales of emission allowances		6			9
Notes due from affiliate		86			(265	)
Change in restricted cash		4			—
Other		(2	)		—
Net cash used in investing activities		(140	)		(453	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt		—			7
Payments for the redemption of long-term debt		(4	)		(4	)
Dividend to parent		(285	)		—
Net cash (used in) provided by financing activities		(289	)		3
Net decrease in cash and cash equivalents		(63	)		(111	)
Cash and cash equivalents at beginning of period		228			127
Cash and cash equivalents at end of period	$	165		$	16
Supplemental Disclosures
Significant non-cash transactions:
Accrued capital expenditures	$	25		$	51

See Notes to Unaudited Condensed Consolidated Financial Statements

16

PART I

DUKE ENERGY OHIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

(In millions)

									Accumulated Other Comprehensive Income (Loss)
	Common Stock		Additional Paid-in Capital			Retained Earnings			Net Gains (Losses) on Cash Flow Hedges		Pension and OPEB Related Adjustments to AOCI			Total
Balance at December 31, 2009	$	762	$	5,570		$	(405	)	$	1	$	(30	)	$	5,898
Net loss		—		—			(629	)		—		—			(629	)
Other comprehensive income
Pension and OPEB related adjustments to AOCI(a)		—		—			—			—		1			1
Total comprehensive loss															(628	)
Balance at June 30, 2010	$	762	$	5,570		$	(1,034	)	$	1	$	(29	)	$	5,270
Balance at December 31, 2010	$	762	$	5,570		$	(846	)	$	—	$	(22	)	$	5,464
Net income		—		—			106			—		—			106
Other comprehensive income															—
Pension and OPEB related adjustments to AOCI(a)		—		—			—			—		1			1
Total comprehensive income															107
Dividends to parent				(285	)										(285	)
Balance at June 30, 2011	$	762	$	5,285		$	(740	)	$	—	$	(21	)	$	5,286

(a) Net of $1 tax expense in both 2011 and 2010.

See Notes to Unaudited Condensed Consolidated Financial Statements

17

PART I

DUKE ENERGY INDIANA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions)

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues-Regulated Electric	$	620	$	579	$	1,279	$	1,189
Operating Expenses
Fuel used in electric generation and purchased power		232		201		478		426
Operation, maintenance and other		163		171		324		314
Depreciation and amortization		97		85		197		186
Property and other taxes		19		13		41		33
Total operating expenses		511		470		1,040		959
Operating Income		109		109		239		230
Other Income and Expenses, net		21		14		44		32
Interest Expense		34		34		70		67
Income Before Income Taxes		96		89		213		195
Income Tax Expense		28		32		69		68
Net Income	$	68	$	57	$	144	$	127

See Notes to Unaudited Condensed Consolidated Financial Statements

18

PART I

DUKE ENERGY INDIANA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions)

	June 30, 2011		December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	19	$	54
Receivables (net of allowance for doubtful accounts of $2 at June 30, 2011 and $1 at December 31, 2010)		259		431
Inventory		297		267
Other		78		85
Total current assets		653		837
Investments and Other Assets
Intangibles, net		61		64
Other		126		126
Total investments and other assets		187		190
Property, Plant and Equipment
Cost		11,669		11,213
Less accumulated depreciation and amortization		3,383		3,341
Net property, plant and equipment		8,286		7,872
Regulatory Assets and Deferred Debits
Deferred debt expense		41		43
Regulatory assets related to income taxes		101		101
Other		553		588
Total regulatory assets and deferred debits		695		732
Total Assets	$	9,821	$	9,631

See Notes to Unaudited Condensed Consolidated Financial Statements

19

PART I

DUKE ENERGY INDIANA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

(In millions, except share and per-share amounts)

	June 30, 2011		December 31, 2010
LIABILITIES AND COMMON STOCKHOLDER’S EQUITY
Current Liabilities
Accounts payable	$	319	$	314
Taxes accrued		45		45
Interest accrued		52		47
Current maturities of long-term debt		12		11
Other		92		99
Total current liabilities		520		516
Long-term Debt		3,458		3,461
Deferred Credits and Other Liabilities
Deferred income taxes		1,009		973
Investment tax credits		144		145
Accrued pension and other post-retirement benefit costs		265		270
Asset retirement obligations		46		46
Other		668		653
Total deferred credits and other liabilities		2,132		2,087
Commitments and Contingencies
Common Stockholder’s Equity
Common Stock, no par; $0.01 stated value, 60,000,000 shares authorized; 53,913,701 shares outstanding at June 30, 2011 and December 31, 2010		1		1
Additional paid-in capital		1,358		1,358
Retained earnings		2,344		2,200
Accumulated other comprehensive income		8		8
Total common stockholder’s equity		3,711		3,567
Total Liabilities and Common Stockholder’s Equity	$	9,821	$	9,631

See Notes to Unaudited Condensed Consolidated Financial Statements

20

PART I

DUKE ENERGY INDIANA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	144		$	127
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		200			189
Equity component of AFUDC		(39	)		(23	)
Severance expense		—			26
Deferred income taxes and investment tax credit amortization		39			69
Accrued pension and other post-retirement benefit costs		11			11
(Increase) decrease in
Receivables		89			(22	)
Inventory		(31	)		52
Other current assets		6			(31	)
Increase (decrease) in
Accounts payable		(9	)		(114	)
Taxes accrued		—			(5	)
Other current liabilities		(4	)		(23	)
Other assets		15			12
Other liabilities		(27	)		(17	)
Net cash provided by operating activities		394			251
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(512	)		(644	)
Purchases of available-for-sale securities		(2	)		(12	)
Proceeds from sales and maturities of available-for-sale securities		1			14
Purchases of emission allowances		—			(1	)
Sales of emission allowances		—			3
Notes due from affiliate		85			15
Change in restricted cash		4			1
Other		(3	)		(1	)
Net cash used in investing activities		(427	)		(625	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt		—			12
Payments for the redemption of long-term debt		(2	)		(2	)
Capital contribution from parent		—			350
Net cash (used in) provided by financing activities		(2	)		360
Net decrease in cash and cash equivalents		(35	)		(14	)
Cash and cash equivalents at beginning of period		54			20
Cash and cash equivalents at end of period	$	19		$	6
Supplemental Disclosures
Significant non-cash transactions:
Accrued capital expenditures	$	143		$	140

See Notes to Unaudited Condensed Consolidated Financial Statements

21

PART I

DUKE ENERGY INDIANA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME

(Unaudited)

(In millions)

							Accumulated Other  Comprehensive Income (Loss)
	Common Stock		Additional Paid-in Capital		Retained Earnings		Net Gains (Losses) on Cash Flow Hedges			Total
Balance at December 31, 2009	$	1	$	1,008	$	1,915	$	10		$	2,934
Net income		—		—		127		—			127
Other comprehensive loss
Reclassification into earnings from cash flow hedges(a)		—		—		—		(1	)		(1	)
Total comprehensive income											126
Capital contribution from parent		—		350		—		—			350
Balance at June 30, 2010	$	1	$	1,358	$	2,042	$	9		$	3,410
Balance at December 31, 2010	$	1	$	1,358	$	2,200	$	8		$	3,567
Net income and total comprehensive income		—		—		144		—			144
Balance at June 30, 2011	$	1	$	1,358	$	2,344	$	8		$	3,711

(a) Net of insignificant tax benefit in 2010.

See Notes to Unaudited Condensed Consolidated Financial Statements

22

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements

Index to Combined Notes To Unaudited Condensed Consolidated Financial Statements

The unaudited notes to the condensed consolidated financial statements that follow are a combined presentation. The following list indicates the registrants to which the footnotes apply:

Registrant	Applicable Notes
Duke Energy Corporation	1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20
Duke Energy Carolinas, LLC	1, 2, 4, 5, 6, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19, 20
Duke Energy Ohio, Inc.	1, 2, 4, 5, 6, 7, 8, 9, 11, 14, 15, 16, 17, 18, 19, 20
Duke Energy Indiana, Inc.	1, 2, 4, 5, 6, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 19, 20

1. Organization and Basis of Presentation

Organization. Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) is an energy company primarily located in the Americas. Duke Energy operates in the United States (U.S.) primarily through its direct and indirect wholly-owned subsidiaries, Duke Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Ohio, Inc. (Duke Energy Ohio), which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky), and Duke Energy Indiana, Inc. (Duke Energy Indiana), as well as in South and Central America through International Energy. When discussing Duke Energy’s condensed consolidated financial information, it necessarily includes the results of its three separate subsidiary registrants, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to the Combined Notes. However, none of the registrants makes any representation as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself. See Note 2 for information related to reportable operating segments for each of the Duke Energy Registrants.

Duke Energy Carolinas generates, transmits, distributes and sells electricity in North Carolina and South Carolina. Duke Energy Carolinas is subject to the regulatory provisions of the North Carolina Utilities Commission (NCUC), the Public Service Commission of South Carolina (PSCSC), the U.S. Nuclear Regulatory Commission (NRC) and the Federal Energy Regulatory Commission (FERC). Substantially all of Duke Energy Carolinas’ operations are regulated and qualify for regulatory accounting treatment.

Duke Energy Ohio is a wholly-owned subsidiary of Cinergy Corp. (Cinergy), which is a wholly-owned subsidiary of Duke Energy. Duke Energy Ohio is a combination electric and gas public utility that provides service in the southwestern portion of Ohio and in northern Kentucky through its wholly-owned subsidiary Duke Energy Kentucky, as well as electric generation in parts of Ohio, Illinois, Indiana and Pennsylvania. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity and the sale of and/or transportation of natural gas. Duke Energy Ohio is subject to the regulatory provisions of the Public Utilities Commission of Ohio (PUCO), the Kentucky Public Service Commission (KPSC) and the FERC. Duke Energy Ohio applies regulatory accounting treatment to substantially all of the operations of its Franchised Electric and Gas operating segment and to certain rate riders associated with retail generation of its Commercial Power operating segment. See Note 2 for information about business segments.

Duke Energy Indiana is a wholly-owned subsidiary of Cinergy. Duke Energy Indiana is an electric utility that provides service in north central, central, and southern Indiana. Its primary line of business is generation, transmission and distribution of electricity. Duke Energy Indiana is subject to the regulatory provisions of the Indiana Utility Regulatory Commission (IURC) and the FERC. The substantial majority of Duke Energy Indiana’s operations are regulated and qualify for regulatory accounting treatment.

See Note 3 for information regarding Duke Energy’s pending merger with Progress Energy, Inc (Progress).

Basis of Presentation. These Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Unaudited Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP in the U.S. for annual financial statements. Because the interim Unaudited Condensed Consolidated Financial Statements and Notes do not include all of the information and notes required by GAAP in the U.S. for annual financial statements, the Unaudited Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the respective Consolidated Financial Statements and Notes in Duke Energy’s, Duke Energy Carolinas’, Duke Energy Ohio’s and Duke Energy Indiana’s respective Form 10-K for the year ended December 31, 2010. These Unaudited Condensed Consolidated Financial Statements reflect all normal recurring adjustments that are, in the opinion of the respective company’s management, necessary to fairly present the financial position and results of operations of each Duke Energy Registrant. Amounts reported in each Duke Energy Registrants’ interim Unaudited Condensed Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.

These Unaudited Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and all majority-owned subsidiaries where the respective Duke Energy Registrants have control and those variable interest entities (VIEs) where the respective Duke Energy Registrants are the primary beneficiary. These Unaudited Condensed Consolidated Financial Statements also reflect Duke Energy Carolinas’ approximate 19.25% proportionate share of the Catawba Nuclear Station, as well as Duke Energy Ohio’s proportionate share of certain generation and transmission facilities in Ohio, Indiana and Kentucky and Duke Energy Indiana’s proportionate share of certain generation and transmission facilities.

Use of Estimates. To conform to GAAP in the U.S., management makes estimates and assumptions that affect the amounts reported in the Unaudited Condensed Consolidated Financial Statements and Notes. Although these estimates are based on management’s best available information at the time, actual results could differ.

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Unbilled Revenue. Revenues on sales of electricity and gas are recognized when either the service is provided or the product is delivered. Unbilled retail revenues are estimated by applying average revenue per kilowatt-hour or per thousand cubic feet (Mcf) for all customer classes to the number of estimated kilowatt-hours or Mcfs delivered but not billed. Unbilled wholesale energy revenues are calculated by applying the contractual rate per megawatt-hour (MWh) to the number of estimated MWh delivered but not yet billed. Unbilled wholesale demand revenues are calculated by applying the contractual rate per megawatt (MW) to the MW volume delivered but not yet billed. The amount of unbilled revenues can vary significantly from period to period as a result of numerous factors, including seasonality, weather, customer usage patterns and customer mix.

At June 30, 2011 and December 31, 2010, Duke Energy, Duke Energy Carolinas and Duke Energy Ohio had unbilled revenues within Restricted Receivables of Variable Interest Entities and Receivables on their respective Condensed Consolidated Balance Sheets as follows:

	June 30, 2011		December 31, 2010
	(in millions)
Duke Energy	$	700	$	751
Duke Energy Carolinas		327		322
Duke Energy Ohio(a)		35		54

(a) Primarily relates to wholesale sales within the Commercial Power segment.

Additionally, Duke Energy Ohio and Duke Energy Indiana sell, on a revolving basis, nearly all of their retail and wholesale accounts receivable to Cinergy Receivables. These transfers meet sales/derecognition criteria and therefore, Duke Energy Ohio and Duke Energy Indiana, account for the transfers of receivables to Cinergy Receivables as sales, and accordingly the receivables sold are not reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana. Receivables for unbilled revenues related to retail and wholesale accounts receivable at Duke Energy Ohio and Duke Energy Indiana included in the sales of accounts receivable to Cinergy Receivables at June 30, 2011 and December 31, 2010 were as follows:

	June 30, 2011		December 31, 2010
	(in millions)
Duke Energy Ohio	$	64	$	112
Duke Energy Indiana		104		125

See Note 11 for additional information.

2. Business Segments

Management evaluates segment performance based on earnings before interest and taxes from continuing operations (excluding certain allocated corporate governance costs), after deducting expenses attributable to noncontrolling interests related to those profits (EBIT). On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of amounts attributable to noncontrolling interests related to those profits. Segment EBIT includes transactions between reportable segments. Cash, cash equivalents and short-term investments are managed centrally by Duke Energy, so the associated interest and dividend income and realized and unrealized gains and losses from foreign currency transactions on those balances are excluded from segment EBIT.

Duke Energy

Duke Energy has the following reportable operating segments: U.S. Franchised Electric and Gas (USFE&G), Commercial Power and International Energy.

USFE&G generates, transmits, distributes and sells electricity in central and western North Carolina, western South Carolina, central, north central and southern Indiana, and northern Kentucky. USFE&G also transmits and distributes electricity in southwestern Ohio. Additionally, USFE&G transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Carolinas, certain regulated portions of Duke Energy Ohio including Duke Energy Kentucky, and Duke Energy Indiana.

Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Commercial Power also has a retail sales subsidiary, Duke Energy Retail Sales, LLC (Duke Energy Retail), which is certified by the PUCO as a Competitive Retail Electric Service provider in Ohio. Through Duke Energy Generation Services, Inc. and its affiliates (DEGS), Commercial Power develops, owns and operates electric generation for large energy consumers, municipalities, utilities and industrial facilities. In addition, DEGS engages in the development, construction and operation of renewable energy projects and is also developing transmission projects.

International Energy principally operates and manages power generation facilities and engages in sales and marketing of electric power and natural gas outside the U.S. It conducts operations primarily through Duke Energy International, LLC and its affiliates and its activities principally target power generation in Latin America. Additionally, International Energy owns a 25% interest in National Methanol Company, located in Saudi Arabia, which is a large regional producer of methanol and methyl tertiary butyl ether.

The remainder of Duke Energy’s operations is presented as Other. While it is not an operating segment, Other primarily includes certain unallocated corporate costs, which include certain costs not allocable to Duke Energy’ reportable business segments, primarily governance, costs to achieve mergers and divestitures, and costs associated with certain corporate severance programs. It also includes, Bison Insurance Company Limited (Bison), Duke Energy’s wholly-owned, captive insurance subsidiary, Duke Energy’s 50% interest in DukeNet Communications, LLC (DukeNet) and related telecommunications businesses, and Duke Energy Trading and Marketing, LLC (DETM), which is 40% owned by Exxon Mobil Corporation and 60% owned by Duke Energy. Prior to the sale of a 50% ownership in DukeNet to investment funds managed by Alinda Capital Partners, LLC (collectively Alinda) in December 2010, Other reflected the results of Duke Energy’s 100% ownership of DukeNet.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Business Segment Data

	Unaffiliated Revenues			Intersegment Revenues			Total Revenues			Segment EBIT  / Consolidated Income(Loss) From  Continuing Operations Before Income Taxes			Depreciation  and Amortization
	(in millions)
Three Months Ended June 30, 2011
USFE&G	$	2,540		$	9		$	2,549		$	619		$	333
Commercial Power		592			3			595			59			58
International Energy		406			—			406			179			22
Total reportable segments		3,538			12			3,550			857			413
Other		(4	)		13			9			(57	)		24
Eliminations		—			(25	)		(25	)		—			—
Interest expense		—			—			—			(203	)		—
Interest income and other(c)		—			—			—			25			—
Add back of noncontrolling interest component of reportable segment and Other EBIT		—			—			—			11			—
Total consolidated	$	3,534		$	—		$	3,534		$	633		$	437
Three Months Ended June 30, 2010
USFE&G	$	2,416		$	6		$	2,422		$	671		$	326
Commercial Power(a)		537			3			540			(604	)		55
International Energy		310			—			310			126			21
Total reportable segments		3,263			9			3,272			193			402
Other(b)		24			13			37			(122	)		24
Eliminations		—			(22	)		(22	)		—			—
Interest expense		—			—			—			(212	)		—
Interest income and other(c)		—			—			—			26			—
Add back of noncontrolling interest component of reportable segment and Other EBIT		—			—			—			13			—
Total consolidated	$	3,287		$	—		$	3,287		$	(102	)	$	426
Six Months Ended June 30, 2011
USFE&G	$	5,214		$	18		$	5,232		$	1,331		$	680
Commercial Power		1,234			5			1,239			150			117
International Energy		754			—			754			359			43
Total reportable segments		7,202			23			7,225			1,840			840
Other		(5	)		25			20			(102	)		51
Eliminations		—			(48	)		(48	)		—			—
Interest expense		—			—			—			(422	)		—
Interest income and other(c)		—			—			—			46			—
Add back of noncontrolling interest component of reportable segment and Other EBIT		—			—			—			17			—
Total consolidated	$	7,197		$	—		$	7,197		$	1,379		$	891

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	Unaffiliated Revenues		Intersegment Revenues			Total Revenues			Segment EBIT  / Consolidated Income(Loss) From  Continuing Operations Before Income Taxes			Depreciation  and Amortization
	(in millions)
Six Months Ended June 30, 2010
USFE&G	$	5,083	$	15		$	5,098		$	1,415		$	683
Commercial Power(a)		1,114		5			1,119			(475	)		113
International Energy		646		—			646			266			42
Total reportable segments		6,843		20			6,863			1,206			838
Other(b)		38		27			65			(268	)		44
Eliminations		—		(47	)		(47	)		—			—
Interest expense		—		—			—			(422	)		—
Interest income and other(c)		—		—			—			37			—
Add back of noncontrolling interest component of reportable segment and Other EBIT		—		—			—			16			—
Total consolidated	$	6,881	$	—		$	6,881		$	569		$	882

(a) As discussed in Note 7, in the second quarter of 2010, Commercial Power recorded impairment charges of $660 million, which consisted of a $500 million goodwill impairment charge associated with the non-regulated Midwest generation operations and a $160 million charge to write-down the value of certain non-regulated Midwest generating assets and emission allowances primarily associated with these generation assets.

(b) During the three and six months ended June 30, 2010, Other recorded a $76 million and $144 million expense, respectively, related to the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina (See Note 15).

(c) Other within Interest Income and Other includes foreign currency transaction gains and losses and additional noncontrolling interest amounts not allocated to the reportable segments and Other results.

Segment assets in the following table exclude all intercompany assets.

Segment Assets

	June 30, 2011		December 31, 2010
	(in millions)
USFE&G	$	46,070	$	45,210
Commercial Power		6,654		6,704
International Energy		4,745		4,310
Total reportable segments		57,469		56,224
Other		2,198		2,845
Reclassifications (a)		125		21
Total consolidated assets	$	59,792	$	59,090

(a) Primarily represents reclassification of federal tax balances in consolidation.

Duke Energy Carolinas

Duke Energy Carolinas has one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity and conducts operations through Duke Energy Carolinas, which consists of the regulated electric utility business in North Carolina and South Carolina.

The remainder of Duke Energy Carolinas’ operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain corporate governance costs allocated by its parent, Duke Energy (see Note 17).

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Business Segment Data

	Segment EBIT/ Consolidated Income Before Income Taxes
	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(in millions)
Franchised Electric	$	413		$	436		$	859		$	913
Total reportable segment		413			436			859			913
Other(a)		(40	)		(77	)		(81	)		(159	)
Interest expense		(82	)		(86	)		(171	)		(176	)
Interest income		8			16			8			18
Total consolidated	$	299		$	289		$	615		$	596

(a) During the three and six months ended June 30, 2010, Other recorded a $44 million and a $85 million expense, respectively, related to the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina (See Note 15).

Unaffiliated Revenues

For the three and six months ended June 30, 2011 and 2010, substantially all of Duke Energy Carolinas’ revenues are from its Franchised Electric operating segment. There were no intersegment revenues for the three and six months ended June 30, 2011 and 2010.

Depreciation and Amortization

For the three and six months ended June 30, 2011 and 2010, substantially all of Duke Energy Carolinas’ depreciation and amortization are from its Franchised Electric operating segment.

Segment Assets

At June 30, 2011 and December 31, 2010, substantially all of Duke Energy Carolinas’ assets are owned by its Franchised Electric operating segment.

Duke Energy Ohio

Duke Energy Ohio has two reportable operating segments, Franchised Electric and Gas and Commercial Power.

Franchised Electric and Gas transmits and distributes electricity in southwestern Ohio and generates, transmits, distributes, and sells electricity in northern Kentucky. Franchised Electric and Gas also transports and sells natural gas in southwestern Ohio and northern Kentucky. It conducts operations primarily through Duke Energy Ohio and its wholly-owned subsidiary Duke Energy Kentucky.

Commercial Power owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants, as well as other contractual positions. Duke Energy Ohio’s Commercial Power reportable operating segment does not include the operations of DEGS or Duke Energy Retail, which is included in the Commercial Power reportable operating segment at Duke Energy.

The remainder of Duke Energy Ohio’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy (see Note 17).

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Business Segment Data

	Unaffiliated Revenues (a)		Segment EBIT/ Consolidated  Income (Loss) Before Income Taxes			Depreciation  and Amortization
	(in millions)
Three Months Ended June 30, 2011
Franchised Electric and Gas	$	315	$	61		$	45
Commercial Power		379		18			43
Total reportable segments		694		79			88
Other		—		(19	)		—
Interest expense		—		(27	)		—
Interest income and other		—		3			—
Total consolidated	$	694	$	36		$	88
Three Months Ended June 30, 2010
Franchised Electric and Gas(b)	$	322	$	(134	)	$	49
Commercial Power(c)		327		(618	)		44
Total reportable segments		649		(752	)		93
Other		—		(25	)		—
Interest expense		—		(28	)		—
Interest income and other		—		3			—
Total consolidated	$	649	$	(802	)	$	93
Six Months Ended June 30, 2011
Franchised Electric and Gas	$	779	$	158		$	91
Commercial Power		794		74			85
Total reportable segments		1,573		232			176
Other		—		(36	)		—
Interest expense		—		(51	)		—
Interest income and other		—		7			—
Total consolidated	$	1,573	$	152		$	176
Six Months Ended June 30, 2010
Franchised Electric and Gas(b)	$	837	$	(33	)	$	112
Commercial Power(c)		789		(469	)		91
Total reportable segments		1,626		(502	)		203
Other		—		(52	)		—
Interest expense		—		(58	)		—
Interest income and other		—		9			—
Total consolidated	$	1,626	$	(603	)	$	203

(a) There was an insignificant amount of intersegment revenues for the three and six months ended June 30, 2011 and 2010.

(b) In the second quarter of 2010, Franchised Electric and Gas recorded a goodwill impairment charge of $216 million related to the Ohio Transmission and Distribution (Ohio T&D) reporting unit. This impairment charge was not applicable to Duke Energy. See Note 7 for additional information.

(c) As discussed in Note 7, in the second quarter of 2010, Commercial Power recorded impairment charges of $621 million, which consisted of a $461 million goodwill impairment charge associated with the non-regulated Midwest generation operations and a $160 million charge to write-down the value of certain non-regulated Midwest generating assets and emission allowances primarily associated with these generation assets.

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Segment Assets

	June 30, 2011			December 31, 2010
	(in millions)
Franchised Electric and Gas	$	6,223		$	6,258
Commercial Power		4,675			4,821
Total reportable segments		10,898			11,079
Other		83			192
Eliminations and reclassifications		(257	)		(247	)
Total consolidated assets	$	10,724		$	11,024

Duke Energy Indiana

Duke Energy Indiana has one reportable operating segment, Franchised Electric, which generates, transmits, distributes and sells electricity and conducts operations through Duke Energy Indiana, which consists of the regulated electric utility business in north central, central and southern Indiana.

The remainder of Duke Energy Indiana’s operations is presented as Other. While it is not considered an operating segment, Other primarily includes certain governance costs allocated by its parent, Duke Energy (see Note 17).

Business Segment Data

	Segment EBIT/ Consolidated Income Before Income Taxes
	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(in millions)
Franchised Electric	$	139		$	148		$	301		$	306
Total reportable segment		139			148			301			306
Other		(13	)		(27	)		(26	)		(50	)
Interest expense		(34	)		(34	)		(70	)		(67	)
Interest income and other		4			2			8			6
Total consolidated	$	96		$	89		$	213		$	195

Unaffiliated Revenues

For the three and six months ended June 30, 2011 and 2010, substantially all of Duke Energy Indiana’s revenues are from its Franchised Electric operating segment. There were no intersegment revenues for the three and six months ended June 30, 2011 and 2010.

Depreciation and Amortization

For the three and six months ended June 30, 2011 and 2010, substantially all of Duke Energy Indiana’s depreciation and amortization are from its Franchised Electric operating segment.

Segment Assets

At June 30, 2011 and December 31, 2010, all of Duke Energy Indiana’s assets are owned by its Franchised Electric operating segment.

3. Acquisitions and Sales of Other Assets

Acquisitions. The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.

Duke Energy

On January 8, 2011, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly-owned subsidiary (Merger Sub) and Progress Energy, a North Carolina corporation. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Progress Energy with Progress Energy continuing as the surviving corporation and a wholly-owned subsidiary of Duke Energy.

Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share of Progress Energy common stock will automatically be cancelled and converted into the right to receive 2.6125 shares of common stock of Duke Energy, subject to appropriate adjustment for a reverse stock split of the Duke Energy common stock as contemplated in the Merger Agreement and except that any shares of Progress Energy common stock that are owned by Progress Energy or Duke Energy, other than in a fiduciary capacity, will be cancelled without any consideration therefor. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock will be converted into an option to acquire, or an equity award relating to 2.6125 shares of Duke Energy Common stock, as applicable, subject to appropriate adjustment for the reverse stock split. Based on Progress Energy shares

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

outstanding at June 30, 2011, Duke Energy would issue 770 million shares of common stock to convert the Progress Energy common shares in the merger under the unadjusted exchange ratio of 2.6125. The exchange ratio will be adjusted proportionately to reflect a 1-for-3 reverse stock split with respect to the issued and outstanding Duke Energy common stock that Duke Energy plans to implement prior to, and conditioned on, the completion of the merger. The resulting adjusted exchange ratio is 0.87083 of a share of Duke Energy common stock for each share of Progress Energy common stock. Based on Progress Energy shares outstanding at June 30, 2011, Duke Energy would issue 257 million shares of common stock, after the effect of the 1-for-3 reverse stock split, to convert the Progress Energy common shares in the merger. The merger will be accounted for under the acquisition method of accounting with Duke Energy treated as the acquirer, for accounting purposes. Based on the market price of Duke Energy common stock on June 30, 2011, the transaction would be valued at $14.5 billion and would result in incremental recorded goodwill to Duke Energy of $8.3 billion, according to current estimates. Duke Energy would also assume all of Progress Energy’s outstanding debt, which is estimated to be $13.8 billion based on Progress Energy’s outstanding indebtedness at June 30, 2011. The Merger Agreement has been unanimously approved by both companies’ Boards of Directors.

The merger is conditioned upon, among other things, approval by the shareholders of both companies, as well as expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval by the FERC, the Federal Communications Commission (FCC), the NRC, the NCUC, and the KPSC. In connection with the merger, Duke Energy and Progress Energy are also seeking approval of the PSCSC for the future merger of their Carolinas utility companies, Duke Energy Carolinas and Progress Energy Carolinas. Although there are no merger-specific regulatory approvals required in Indiana, Ohio or Florida, the companies will continue to update the public services commissions in those states on the merger, as applicable and as required. The status of these matters is as follows:

• On March 17, 2011, Duke Energy filed an initial registration statement on Form S-4 with the Securities and Exchange Commission (SEC) for shares to be issued to consummate the merger with Progress Energy. On July 7, 2011, the Form S-4 was declared effective by the SEC, and the joint proxy statement/prospectus contained in the Form S-4 was mailed to the shareholders of both companies thereafter. Meetings for Duke Energy and Progress Energy shareholders to vote on the Merger are scheduled for August 23, 2011.

• On March 28, 2011, Duke Energy and Progress Energy submitted Hart-Scott-Rodino antitrust filings to the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). The parties have met their obligations under the Hart-Scott-Rodino Act, which is no longer a bar to closing the transaction.

• On March 30, 2011, Progress Energy made filings with the NRC for approval for indirect transfer of control of licenses for Progress Energy’s nuclear facilities to include Duke Energy as the ultimate parent corporation on these licenses.

• On April 4, 2011, Duke Energy and Progress Energy filed a merger application and joint dispatch agreement with the NCUC. A public hearing has been scheduled to begin on September 20, 2011.

• On April 4, 2011, Duke Energy and Progress Energy filed a merger application with the KPSC. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Attorney General. A public hearing occurred on July 8, 2011. An order approving the settlement agreement was issued on August 2, 2011. The KPSC requires Duke Energy and Progress Energy to accept all the conditions contained in the order within seven days.

• On April 4, 2011, Duke Energy and Progress Energy made joint filings with the FERC. The FERC is expected to rule on the merger application within 180 days.

• On April 25, 2011, Duke Energy and Progress Energy, on behalf of their utility companies Duke Energy Carolinas and Progress Energy Carolinas, filed an application requesting the PSCSC to review the merger and approve the proposed Joint Dispatch Agreement and the prospective future merger of Duke Energy Carolinas and Progress Energy Carolinas. The PSCSC has not yet scheduled a public hearing.

• On July 12, 2011, Duke Energy and Progress Energy filed an application with the FCC for approval of radio system license transfers. The FCC approved the transfers July 27, 2011.

Duke Energy is targeting completion of the merger by the end of 2011, however no assurances can be given as to the timing of the satisfaction of all closing conditions or that all required approvals will be received.

The Merger Agreement contains certain termination rights for both Duke Energy and Progress Energy, and further provides for the payment of a termination fee of $400 million by Progress Energy under specified circumstances and a termination fee of $675 million by Duke Energy under specified circumstances.

For the three and six months ended June 30, 2011, Duke Energy incurred transaction costs related to the Progress Energy merger of $5 million and $16 million, respectively, which are recorded within Operating Expenses in Duke Energy’s Condensed Consolidated Statement of Operations.

See Note 5 for information regarding litigation related to the pending merger with Progress Energy.

    Sales of Other Assets.

Duke Energy Ohio

In May 2011, Duke Energy Vermillion II, LLC (Duke Energy Vermillion), an indirect wholly-owned subsidiary of Duke Energy Ohio, entered into an agreement to sell its 75% undivided ownership interest in the Vermillion Generating Station to Duke Energy Indiana and Wabash Valley Power Association (WVPA). If approved by the FERC and the IURC, Duke Energy Indiana and WVPA will acquire 62.5% and 12.5% interests in the Vermillion Generating Station, respectively. As Duke Energy Indiana is an affiliate of Duke Energy Vermillion the transaction will be accounted for as a transfer between entities under common control with no gain or loss recorded and is not expected to have a significant impact to Duke Energy Ohio or Duke Energy Indiana’s results of operations. At June 30, 2011, the carrying value of the proportionate share of Vermillion Generating Station which is expected to be sold to WVPA exceeded its estimated fair value. The estimated fair value was determined based on the expected proceeds to be received from WVPA less costs to sell. Accordingly, Duke Energy Ohio’s Commercial Power segment recorded an impairment of $9 million in the second quarter of 2011. This amount is presented in Goodwill and other impairment charges in Duke Energy and Duke Energy Ohio’s condensed consolidated statements of operations. See Note 5 for further discussion of the Vermillion transaction.

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Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

4. Regulatory Matters

Progress Energy Merger. See Note 3 for information regarding Duke Energy’s pending merger with Progress Energy, Inc.

Rate Related Information. The NCUC, PSCSC, IURC and KPSC approve rates for retail electric and gas services within their states. The PUCO approves rates for retail gas and electric service within Ohio, except that non-regulated sellers of gas and electric generation also are allowed to operate in Ohio. The FERC approves rates for electric sales to wholesale customers served under cost-based rates, as well as sales of transmission service.

Duke Energy Ohio Standard Service Offer (SSO). Ohio law provides the PUCO authority to approve an electric utility’s generation SSO. A SSO may include an Electric Security Plan (ESP), which would allow for the pricing structures used by Duke Energy Ohio since 2004, or a Market Rate Offer (MRO), in which pricing is determined, over time, through a competitive bidding process. On November 15, 2010, Duke Energy Ohio filed for approval of its next SSO to replace the existing ESP that expires on December 31, 2011. The filing requested approval of a MRO. On February 23, 2011, the PUCO stated that Duke Energy Ohio did not file an application for a five-year MRO as required under Ohio statute. On June 20, 2011, Duke Energy Ohio filed an application with the PUCO for approval of an ESP for its customers beginning January 1, 2012 with rates in effect through May 31, 2021. The ESP would unbundle generation service by separating capacity (physical assets) from energy (actual output). The capacity component would be paid by all customers through an unavoidable charge, adjusted on an annual basis, with all customers sharing in the net profits from Duke Energy Ohio’s sale of energy and ancillary services. The energy component would be procured through a competitive bidding process and would be avoidable by customers who choose alternative suppliers. The capacity charge would provide for a return of and on investment in Duke Energy Ohio’s generation assets and the cost to acquire capacity to meet reserve margin requirements. A hearing is scheduled for September 20, 2011, with an order expected before year-end.

Duke Energy Carolinas North Carolina Rate Case. On July 1, 2011, Duke Energy Carolinas filed a rate case with the NCUC to request an average 15% increase in retail revenues, or approximately $646 million, with rate of return on equity of 11.5%. The increase is designed to recover the cost of the ongoing generation fleet modernization program, environmental compliance and other capital investments made since 2009. A hearing is scheduled to begin with the NCUC on November 28, 2011. If approved by the NCUC, rates would likely go into effect in February 2012.

Duke Energy Carolinas South Carolina Rate Case. On August 5, 2011, Duke Energy Carolinas filed a rate case with the PSCSC to request an average 15% increase in retail revenues, or approximately $216 million, with rate of return on equity of 11.5%. The increase is designed to recover the cost of the ongoing generation fleet modernization program, environmental compliance and other capital investments made since 2009. If approved by the PSCSC, rates would likely go into effect in February 2012.

Duke Energy Indiana Energy Efficiency. On September 28, 2010, Duke Energy Indiana filed a petition for new energy efficiency programs to enable meeting the IURC’s energy efficiency mandates. Duke Energy Indiana’s proposal requests recovery of costs through a rider including lost revenues and incentives for core plus energy efficiency programs and lost revenues and cost recovery for core energy efficiency programs. A hearing was held in July 2011 and an order is expected by year-end.

Duke Energy Indiana Storm Cost Deferrals. On July 14, 2010, the IURC approved Duke Energy Indiana’s deferral of $12 million of retail jurisdictional storm expense until the next retail rate proceeding. This amount represents a portion of costs associated with a January 27, 2009 ice storm, which damaged Duke Energy Indiana’s distribution system. On August 12, 2010, the Indiana Office of Utility Consumer Counselor (OUCC) filed a notice of appeal with the IURC. On December 7, 2010, the IURC issued an order reopening this proceeding for review in consideration of the evidence presented as a result of an internal audit performed as part of an IURC investigation of Duke Energy Indiana’s hiring of an attorney from the IURC staff which resulted in the IURC’s termination of the employment of the Chairman of the IURC. The audit did not find that the order conflicted with the staff report; however, it did note that the staff report offered no specific recommendation to either approve or deny the requested relief, and that the original order was appealed. The IURC set a new procedural schedule to take supplemental testimony and an evidentiary hearing was held in June 2011. An order is expected by year end.

Duke Energy Ohio Storm Cost Recovery. On December 11, 2009, Duke Energy Ohio filed an application with the PUCO to recover Hurricane Ike storm restoration costs of $31 million through a discrete rider. The PUCO granted the request to defer the costs associated with the storm recovery; however, they further ordered Duke Energy Ohio to file a separate action pursuant to which the actual amount of recovery would be determined. On January 11, 2011, the PUCO approved recovery of $14 million plus carrying costs which will be spread over a three-year period. In December 2010, Duke Energy Ohio recorded a $17 million disallowance of costs previously deferred. Duke Energy Ohio filed an application for rehearing on February 10, 2011, as did the consumer advocate, the office of the Ohio Consumers’ Council (OCC). On March 9, 2011, the PUCO denied the rehearing requests of Duke Energy Ohio and the OCC. Duke Energy Ohio filed a notice of appeal with the Ohio Supreme Court on May 6, 2011.

Capital Expansion Projects.

Overview. USFE&G is engaged in planning efforts to meet projected load growth in its service territories. Capacity additions may include new nuclear, Integrated Gasification Combined Cycle (IGCC), coal facilities or gas-fired generation units. Because of the long lead times required to develop such assets, USFE&G is taking steps now to ensure those options are available.

Duke Energy Carolinas William States Lee III Nuclear Station. In December 2007, Duke Energy Carolinas filed an application with the NRC, which has been docketed for review, for a combined Construction and Operating License (COL) for two Westinghouse AP1000 (advanced passive) reactors for the proposed William States Lee III Nuclear Station (Lee Nuclear Station) at a site in Cherokee County, South Carolina. Each reactor is capable of producing 1,117 MW. Submitting the COL application does not commit Duke Energy Carolinas to build nuclear units. Duke Energy Carolinas had previously received approval to incur project development costs associated with Lee Nuclear Station from both the NCUC and the PSCSC. Through several separate orders, the NCUC and PSCSC have deemed Duke Energy’s decision to incur project development and pre-construction costs for the project as reasonable and prudent through December 31, 2009 and up to an aggregate maximum amount of $230 million. On November 15, 2010 and January 7, 2011, Duke Energy Carolinas filed amended project development applications with the NCUC and PSCSC, respectively. These applications request approval of Duke Energy Carolinas’ decision to continue to incur project development and pre-construction costs for the project through December 31, 2013 and up to $459 million. The hearing before the NCUC occurred March 15, 2011. The PSCSC hearing occurred on May 16 and May 17, 2011.

On July 1, 2011, the PSCSC issued an order approving the settlement agreement in its entirety. The order stated Duke Energy Carolinas must incur only those costs necessary to keep the project available as an option in the 2021 time frame, not to exceed South Carolina’s allocable share of $120 million, including allowance for funds used during construction (AFUDC), for the period of January 1, 2011 through June 30, 2012. Also, pursuant to the terms of the settlement agreement, Duke Energy Carolinas shall provide certain monthly reports to the PSCSC and the Office of Regulatory Staff (ORS). Duke Energy Carolinas has also agreed to provide a monthly report to certain parties on the progress of negotiations to acquire an interest in the V.C. Summer Nuclear Station (refer to discussion below) expansion being developed by South Carolina Public Service Authority (Santee Cooper) and South Carolina Electric & Gas Company (SCE&G). Any change in ownership interest, output allocation, sharing of costs or control and any future option agreements concerning Lee Nuclear Station shall be subject to prior approval of the PSCSC.

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On April 18, 2011, the Blue Ridge Environmental Defense League filed a petition requesting that the NRC suspend all pending reactor licensing decisions pending the investigation of lessons learned from the Fukushima Daiichi Nuclear Power Station accident in Japan. Duke Energy Carolinas filed a response to this petition and is awaiting a ruling from the NRC.

The NRC review of the COL application continues and the estimated receipt of the COL is in mid 2013. Duke Energy Carolinas filed with the DOE for a federal loan guarantee, which has the potential to significantly lower financing costs associated with the proposed Lee Nuclear Station; however, it was not among the four projects selected by the DOE for the final phase of due diligence for the federal loan guarantee program. The project could be selected in the future if the program funding is expanded or if any of the current finalists drop out of the program.

Duke Energy Carolinas is seeking partners for Lee Nuclear Station by issuing options to purchase an ownership interest in the plant. In the first quarter of 2011, Duke Energy Carolinas entered into an agreement with JEA that provides JEA with an option to purchase up to a 20% undivided ownership interest in Lee Nuclear Station. JEA has 90 days following Duke Energy Carolinas’ receipt of the COL to exercise the option.

Duke Energy Carolinas V.C. Summer Nuclear Station Letter of Intent. In July 2011, Duke Energy Carolinas signed a letter of intent with Santee Cooper related to the potential acquisition by the Company of a five percent to ten percent ownership interest in the V.C. Summer Nuclear Station being developed by Santee Cooper and SCE&G near Jenkinsville, South Carolina. The letter of intent provides a path for Duke Energy Carolinas to conduct the necessary due diligence to determine if future participation in this project is beneficial for its customers.

Duke Energy Carolinas Cliffside Unit 6. On March 21, 2007, the NCUC issued an order allowing Duke Energy Carolinas to build one 800 MW coal-fired unit. Following final equipment selection and the completion of detailed engineering, Cliffside Unit 6 is expected to have a net output of 825 MW. On January 31, 2008, Duke Energy Carolinas filed its updated cost estimate of $1.8 billion (excluding AFUDC of $600 million) for the approved new Cliffside Unit 6. In March 2010, Duke Energy Carolinas filed an update to the cost estimate of $1.8 billion (excluding AFUDC) with the NCUC where it reduced the estimated AFUDC financing costs to $400 million as a result of the December 2009 rate case settlement with the NCUC that allowed the inclusion of construction work in progress in rate base prospectively. Duke Energy Carolinas believes that the overall cost of Cliffside Unit 6 will be reduced by $125 million in federal advanced clean coal tax credits, as discussed in Note 5. Also, see note 5 for information related to the Cliffside Unit 6 air permit.

Duke Energy Carolinas Dan River and Buck Combined Cycle Facilities. In June 2008, the NCUC issued its order approving the Certificate of Public Convenience and Necessity (CPCN) applications to construct a 620 MW combined cycle natural gas fired generating facility at each of Duke Energy Carolinas’ existing Dan River Steam Station and Buck Steam Station. The Division of Air Quality (DAQ) issued a final air permit authorizing construction of the Buck and Dan River combined cycle natural gas-fired generating units in October 2008 and August 2009, respectively.

The Buck project is expected to begin operation by the end of 2011. The Dan River project is expected to begin operation by the end of 2012. Based on the most updated cost estimates, total costs (including AFUDC) for the Buck and Dan River projects are $700 million and $716 million, respectively.

Duke Energy Indiana Edwardsport IGCC Plant. On September 7, 2006, Duke Energy Indiana and Southern Indiana Gas and Electric Company d/b/a Vectren Energy Delivery of Indiana (Vectren) filed a joint petition with the IURC seeking a CPCN for the construction of a 618 MW IGCC power plant at Duke Energy Indiana’s Edwardsport Generating Station in Knox County, Indiana. The facility was initially estimated to cost approximately $1.985 billion (including $120 million of AFUDC). In August 2007, Vectren formally withdrew its participation in the IGCC plant and a hearing was conducted on the CPCN petition based on Duke Energy Indiana owning 100% of the project. On November 20, 2007, the IURC issued an order granting Duke Energy Indiana a CPCN for the proposed IGCC project, approved the cost estimate of $1.985 billion and approved the timely recovery of costs related to the project. On January 25, 2008, Duke Energy Indiana received the final air permit from the Indiana Department of Environmental Management. The Citizens Action Coalition of Indiana, Inc. (CAC), Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc., all intervenors in the CPCN proceeding, have appealed the air permit. On May 1, 2008, Duke Energy Indiana filed its first semi-annual IGCC rider and ongoing review proceeding with the IURC as required under the CPCN order issued by the IURC. In its filing, Duke Energy Indiana requested approval of a new cost estimate for the IGCC project of $2.35 billion (including $125 million of AFUDC) and for approval of plans to study carbon capture as required by the IURC’s CPCN order. On January 7, 2009, the IURC approved Duke Energy Indiana’s request, including the new cost estimate of $2.35 billion, and cost recovery associated with a study on carbon capture. Duke Energy Indiana was required to file its plans for studying carbon storage related to the project within 60 days of the order. On November 3, 2008 and May 1, 2009, Duke Energy Indiana filed its second and third semi-annual IGCC riders, respectively, both of which were approved by the IURC in full.

On November 24, 2009, Duke Energy Indiana filed a petition for its fourth semi-annual IGCC rider and ongoing review proceeding with the IURC. As Duke Energy Indiana experienced design modifications and scope growth above what was anticipated from the preliminary engineering design, capital costs to the IGCC project were anticipated to increase. Duke Energy Indiana forecasted that the additional capital cost items would use the remaining contingency and escalation amounts in the current $2.35 billion cost estimate and add $150 million, excluding the impact associated with the need to add more contingency. Duke Energy Indiana did not request approval of an increased cost estimate in the fourth semi-annual update proceeding; rather, Duke Energy Indiana requested, and the IURC approved, a subdocket proceeding in which Duke Energy Indiana would present additional evidence regarding an updated estimated cost for the IGCC project and in which a more comprehensive review of the IGCC project could occur. The evidentiary hearing for the fourth semi-annual update proceeding was held April 6, 2010, and an interim order was received on July 28, 2010. The order approves the implementation of an updated IGCC rider to recover costs incurred through September 30, 2009, effective immediately. The approvals are on an interim basis pending the outcome of the sub-docket proceeding involving the revised cost estimate as discussed further below.

Duke Energy Indiana filed a revised cost estimate for the IGCC project reflecting an estimated cost increase of $530 million on April 16, 2010, with its case-in-chief testimony in the subdocket proceeding. Duke Energy Indiana requested approval of the revised cost estimate of $2.88 billion (including $160 million of AFUDC), and for continuation of the existing cost recovery treatment. A major driver of the cost increase included design changes reflected in the final engineering leading to increased scope and complexity. On September 17, 2010 an agreement was reached with the OUCC, Duke Energy Indiana Industrial Group and Nucor Steel – Indiana to increase the authorized cost estimate of $2.35 billion to $2.76 billion, and to cap the project’s costs that could be passed on to customers at $2.975 billion. Any construction cost amounts above $2.76 billion would be subject to a prudence review similar to most other rate base investments in Duke Energy Indiana’s next general rate increase request before the IURC. Duke Energy Indiana agreed to accept a 150 basis point reduction in the equity return for any project construction costs greater than $2.35 billion. Additionally, Duke Energy Indiana agreed not to file for a general rate case

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increase before March 2012. Duke Energy Indiana also agreed to reduce depreciation rates earlier than would otherwise be required and to forego a deferred tax incentive related to the IGCC project. As a result of the settlement, Duke Energy Indiana recorded a pre-tax charge to earnings of $44 million in the third quarter of 2010 to reflect the impact of the reduction in the return on equity. Due to the IURC investigation discussed below, the IURC convened a technical conference on November 3, 2010 related to the continuing need for the Edwardsport IGCC facility.

On December 9, 2010, the parties to the settlement withdrew the settlement agreement to provide an opportunity to assess whether and to what extent the settlement agreement remained a reasonable allocation of risks and rewards and whether modifications to the settlement agreement were appropriate. Management determined that the $44 million charge discussed above was not impacted by the withdrawal of the settlement agreement.

Additionally, the CAC, Sierra Club, Inc., Save the Valley, Inc., and Valley Watch, Inc. filed motions for two subdocket proceedings alleging improper communications, undue influence, fraud, concealment and gross mismanagement, and a request for field hearing in this proceeding. Duke Energy Indiana opposed the requests. The IURC held two field hearings on February 28, 2011 and March 2, 2011, which provided an opportunity for the public to comment on the proceeding. During 2010, Duke Energy Indiana filed petitions for its fifth and sixth semi-annual IGCC riders. Evidentiary hearings are set for November 2011.

In January 2011, Duke Energy Indiana filed a motion with the IURC proposing an updated procedural schedule to address the undue influence issues described above. On February 25, 2011, the IURC issued an order which denied the request for a subdocket to investigate the allegations of improper communications and undue influence at this time, finding there were other agencies better suited for such investigation. The IURC also found that allegations of fraud, concealment and gross mismanagement related to the IGCC project should be heard in a Phase II proceeding of the cost estimate subdocket and set evidentiary hearings on both Phase I (cost estimate increase) and Phase II beginning in August 2011. In April 2011, after an attorneys’ conference, and in response to the other parties’ request for more time, the IURC scheduled hearings for Phase I to begin October 26, 2011 and Phase II hearings to begin November 3, 2011.

On March 10, 2011, Duke Energy Indiana filed testimony with the IURC proposing a framework designed to mitigate customer rate impacts associated with the Edwardsport IGCC project. Duke Energy Indiana’s filing proposed a cap on the project’s construction costs, (excluding financing costs), which can be recovered through rates at $2.72 billion. It also proposed rate-related adjustments that will lower the overall customer rate increase related to the project from an average of 19% to approximately 16%. The proposal is subject to the approval of the IURC in the Phase I hearings.

On June 27, 2011, Duke Energy Indiana filed testimony with the IURC in connection with its seventh semi-annual rider request which included an update on the current cost forecast of the Edwardsport project. The evidentiary hearing is set for December 13, 2011. The updated forecast excluding AFUDC has increased from $2.72 billion to $2.82 billion, not including any contingency for unexpected start-up events. Notwithstanding the revised forecast, Duke Energy Indiana has not increased its previous cost estimate of $2.72 billion (excluding AFUDC) because Duke Energy Indiana believes it is probable that it will be able to mitigate these incremental costs. The increased project cost forecast of approximately $100 million consists of labor productivity trends. Duke Energy Indiana also forecasted a potential additional $30 million for start-up event risk and an increase of approximately $115 million for AFUDC financing costs resulting from the delay in Construction Work in Progress (CWIP) rider proceedings that have not been processed and approved to date. Additional updates to the cost estimate could occur through the completion of the plant in 2012.

On June 30, 2011, the OUCC and intervenors filed testimony in Phase I recommending that Duke Energy Indiana be disallowed cost recovery of any of the additional cost estimate increase above the previously approved cost estimate of $2.35 billion. Duke Energy Indiana filed rebuttal testimony on August 3, 2011.

On July 14, 2011, the OUCC and certain intervenors filed testimony in Phase II alleging that Duke Energy Indiana concealed information and grossly mismanaged the project, and therefore Duke Energy Indiana should only be permitted to recover from customers $1.985 billion, the original IGCC project cost estimate approved by the Commission. Other intervenors recommended that Duke Energy Indiana not be able to rely on any cost recovery granted under the CPCN or the first cost increase order. Duke Energy Indiana believes it has diligently and prudently managed the project and will defend against these allegations in responsive testimony due September 9, 2011.

Duke Energy is unable to predict the ultimate outcome of these proceedings. In the event the IURC disallows a portion of the plant costs, additional charges to expense could occur.

Construction of the Edwardsport IGCC plant is ongoing and is currently expected to be completed and placed in-service in 2012.

Duke Energy Indiana Carbon Sequestration. Duke Energy Indiana filed a petition with the IURC requesting approval of its plans for studying carbon storage, sequestration and/or enhanced oil recovery for the carbon dioxide (CO₂) from the Edwardsport IGCC facility on March 6, 2009. On July 7, 2009, Duke Energy Indiana filed its case-in-chief testimony requesting approval for cost recovery of a $121 million site assessment and characterization plan for CO₂ sequestration options including deep saline sequestration, depleted oil and gas sequestration and enhanced oil recovery for the CO₂ from the Edwardsport IGCC facility. The OUCC filed testimony supportive of the continuing study of carbon storage, but recommended that Duke Energy Indiana break its plan into phases, recommending approval of only $33 million in expenditures at this time and deferral of expenditures rather than cost recovery through a tracking mechanism as proposed by Duke Energy Indiana. The CAC, an intervenor, recommended against approval of the carbon storage plan stating customers should not be required to pay for research and development costs. Duke Energy Indiana’s rebuttal testimony was filed October 30, 2009, wherein it amended its request to seek deferral of $42 million to cover the carbon storage site assessment and characterization activities scheduled to occur through the end of 2010, with further required study expenditures subject to future IURC proceedings. An evidentiary hearing was held on November 9, 2009, and an order is expected by the end of 2011.

Duke Energy Indiana IURC Investigation. On October 5, 2010, the Governor of Indiana terminated the employment of the Chairman of the IURC in connection with Duke Energy Indiana’s hiring of an attorney from the IURC staff. As requested by the governor, the Indiana Inspector General initiated an investigation into whether the IURC attorney violated any state ethics rules, and the IURC announced it would internally audit the Duke Energy Indiana cases dating from January 1, 2010 through September 30, 2010, on which this attorney worked while at the IURC, which includes the Indiana storm costs deferral request discussed above, as well as all Edwardsport IGCC cases dating back to 2006. Duke Energy Indiana engaged an outside law firm to conduct its own investigation regarding Duke Energy Indiana’s hiring of an IURC attorney and Duke Energy Indiana’s related hiring practices. On October 5, 2010, Duke Energy Indiana placed the attorney and President of Duke Energy Indiana on administrative leave. They were subsequently terminated on November 8, 2010. On December 7, 2010, the IURC released its internal audit findings concluding that the previous rulings were supported by sound, legal reasoning consistent with the Indiana Rules of Evidence and historical practice and procedures of the IURC and that the previous rulings appeared to be balanced and consistent among the parties. The audit concluded it did not reveal any bias or a resultant unfair advantage obtained by Duke Energy Indiana as a result of the evidentiary rulings of the former IURC attorney. As noted above, in the storm cost deferral case, the IURC found no conflict between the order and the staff report; however, the audit report noted the staff report offered no specific recommendation to either approve or deny the requested relief and that this was the only order that was subject to an appeal. As

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such, the IURC reopened that proceeding for further review and consideration of the evidence presented. The Inspector General’s investigation into whether the former IURC attorney violated any state ethics rules was the subject of an Indiana Ethics Commission hearing that was held on April 14, 2011, and a final report was issued on May 14, 2011. The final report pertained only to the conduct of the former IURC attorney as Duke Energy Indiana was not a subject of the investigation.

Other Matters.

Duke Energy Ohio and Duke Energy Kentucky Regional Transmission Organization. Duke Energy Ohio is in the advanced planning stages to transfer control of its transmission assets to effect a Regional Transmission Organization (RTO) realignment from the Midwest ISO to PJM Interconnection, LLC (PJM), effective January 1, 2012. On December 22, 2010, the KPSC issued an order granting approval of Duke Energy Kentucky’s request to effect the RTO realignment, subject to several conditions. The conditions accepted by Duke Energy Kentucky include a commitment to not seek to double-recover in a future rate case the transmission expansion fees that may be charged by the Midwest ISO and PJM in the same period or overlapping periods. On January 25, 2011, the KPSC issued an order stating that the order had been satisfied and is now unconditional. The order further requires Duke Energy Kentucky to submit to the KPSC internal procedures for the receipt and tracking of notices from PJM regarding customer requests to participate in PJM demand-response programs. Duke Energy Kentucky submitted its filing describing these internal procedures on March 30, 2011.

The FERC issued an order which approved Duke Energy Ohio and Duke Energy Kentucky’s RTO realignment request on October 21, 2010, and authorized Duke Energy Ohio and Duke Energy Kentucky to terminate their existing obligations to the Midwest ISO, subject to certain conditions. On December 16, 2010, FERC issued an order related to the Midwest ISO’s cost allocation methodology surrounding Multi-Value Projects (MVP), a type of Midwest ISO transmission expansion cost. The Midwest ISO expects that MVP will fund the costs of large transmission projects designed to bring renewable generation from the upper Midwest to load centers in the eastern portion of the Midwest ISO footprint. The order provides for the allocation of MVP costs to withdrawing transmission owners for projects approved by the Midwest ISO up to date of the withdrawing transmission owners’ exit from the Midwest ISO. The basis for allocating such MVP costs will be the withdrawing transmission owners’ historical usage of the Midwest ISO system. The impact of this order could result in a substantial increase in the Midwest ISO transmission expansion costs incurred by Duke Energy Ohio and Duke Energy Kentucky subsequent to a withdrawal from Midwest ISO. Duke Energy Ohio, among other parties, is seeking rehearing of the FERC MVP order.

On April 26, 2011, Duke Energy Ohio, Ohio Energy Group, The Office of Ohio Consumer’s Counsel and the Commission Staff filed an Application and a Stipulation with the PUCO regarding Duke Energy Ohio’s recovery of certain costs related to its proposed RTO realignment. The Stipulation is applicable to all retail jurisdictional customers in Duke Energy Ohio’s electric service area. Under the Stipulation, Duke Energy Ohio would recover the retail portion of all Midwest ISO MTEP costs, including but not limited to MVP costs, through a non-bypassable rider. Duke Energy Ohio would not seek to recover any portion of the Midwest ISO exit obligation, PJM integration fees, or internal costs associated with the RTO realignment (estimated to be $20 million). Also, Duke Energy Ohio would not seek to recover the first $121 million of PJM transmission expansion cost from Ohio retail customers. On May 25, 2011, the Stipulation was approved by the PUCO. An application for rehearing filed by Ohio Partners for Affordable Energy was denied by the PUCO on July 15, 2011.

5. Commitments and Contingencies

Environmental

Duke Energy is subject to international, federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants.

The following environmental matters impact all of the Duke Energy Registrants.

Remediation Activities. The Duke Energy Registrants are responsible for environmental remediation at various contaminated sites. These include some properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities, such as historic manufactured gas plant (MGP) sites. Most of these sites were decommissioned in the 1960s. While a majority of the MGP by-products were sold off-site during the time period when the plants operated, some residuals remained on-site during plant decommissioning. Remediation activities typically focus on the containment, removal and/or the management of these by-products. In some cases, Duke Energy no longer owns the property. Managed in conjunction with relevant federal, state and local agencies, activities vary with site conditions and locations, remediation requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for contamination caused by other parties. In some instances, the Duke Energy Registrants may share liability associated with contamination with other potentially responsible parties, and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Reserves associated with remediation activities at certain sites have been recorded and it is anticipated that additional costs associated with remediation activities at certain sites will be incurred in the future. All of these sites generally are managed in the normal course of business or affiliate operations.

The Duke Energy Registrants have accrued costs associated with remediation activities at some of its current and former sites, as well as other relevant environmental contingent liabilities. Management, in the normal course of business, continually assesses the nature and extent of known or potential environmental-related contingencies and records liabilities when losses become probable and are reasonably estimable. Costs associated with remediation activities within the Duke Energy Registrants’ operations are typically expensed unless regulatory recovery of the costs is deemed probable.

As of June 30, 2011, Duke Energy Ohio had a total reserve of $47 million, related to remediation work at certain MGP sites. Duke Energy Ohio has received an order from the PUCO to defer the costs incurred. The PUCO will rule on the recovery of these costs at a future proceeding. Management believes it is probable that additional liabilities will be incurred as work progresses at Ohio MGP sites; however, costs associated with future remediation cannot currently be reasonably estimated.

Clean Water Act 316(b). The Environmental Protection Agency (EPA) published its proposed cooling water intake structures rule on April 20, 2011, and public comments are due by August 18, 2011. The proposed rule advances one main approach and three alternatives. The main approach establishes aquatic protection requirements for existing facilities and new on-site facility additions that withdraw 2 million gallons or more of water per day from rivers, streams, lakes, reservoirs, estuaries, oceans, or other U.S. waters for cooling purposes. Based on the main approach proposed, most, if not all of the 23 coal and nuclear-fueled generating facilities in which the Duke Energy Registrants are either a whole or partial owner are likely affected sources. Additional sources, including some combined-cycle combustion turbine

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facilities, may also be impacted, at least for intake modifications.

The EPA has plans to finalize the 316(b) rule in July 2012. Compliance with portions of the rule could begin as early as 2015. Because of the wide range of potential outcomes, including the other three alternative proposals, the Duke Energy Registrants are unable to estimate its costs to comply at this time.

Clean Air Interstate Rule (CAIR) and the Cross-State Air Pollution Rule (CSAPR). The EPA finalized the CAIR in May 2005. The CAIR limits total annual and summertime nitrogen oxide (NO_x) emissions and annual sulfur dioxide (SO₂) emissions from electric generating facilities across the Eastern U.S. through a two-phased cap-and-trade program. Phase 1 began in 2009 for NO_x and in 2010 for SO₂. On July 11, 2008, the D.C. Circuit issued its decision in North Carolina v. EPA No. 05-1244 vacating the CAIR. In December 2008, as a result of a rehearing request from the EPA, the D.C. Circuit issued a decision remanding the CAIR to the EPA without vacatur which allowed the rule to remain in effect until EPA promulgated a replacement rule. On July 6, 2011 the EPA issued the final rule to replace CAIR, referred to as the CSAPR, (previously referred to as the Transport Rule). The CSAPR establishes state-level annual SO₂ and NO_x caps that take effect on January 1, 2012, and state-level ozone-season NO_x caps that take effect on May 1, 2012. The cap levels decline in 2014 for most states, including each state that the Duke Energy Registrants operate in, except for South Carolina where the cap levels remain constant.

Considering the Duke Energy Registrants’ recent amount of SO₂ and NO_x emissions compared with allocated emission allowances under CSAPR, Duke Energy Registrants will face varying degrees of challenges achieving either the 2012 or 2014 CSAPR requirements. As such, the Duke Energy Registrants are currently evaluating the most cost effective approach to achieve the CSAPR requirements. Activities being considered to meet these requirements include purchasing emission allowances, power purchases, and curtailing generation to reduce levels of SO₂ or NO_x emitted. The CSAPR trading restrictions coupled with lower than proposed SO₂ and NO_x allowance allocations in certain states (particularly SO₂ allowances in Ohio and Indiana), will add to Duke Energy’s cost of complying with the regulation. See Note 7 for further information regarding impairment of emissions allowances as a result of the CSAPR.

Coal Combustion Product (CCP) Management. Duke Energy currently estimates that it will spend $369 million ($131 million at Duke Energy Carolinas, $70 million at Duke Energy Ohio and $168 million at Duke Energy Indiana) over the period 2011-2015 to install synthetic caps and liners at existing and new CCP landfills and to convert some of its CCP handling systems from wet to dry systems to comply with current regulations. The EPA and a number of states are considering additional regulatory measures that will contain specific and more detailed requirements for the management and disposal of CCPs, primarily ash, from the Duke Energy Registrants’ coal-fired power plants.

On June 21, 2010, the EPA issued a proposal to regulate, under the Resource Conservation and Recovery Act, coal combustion residuals (CCR), a term the EPA uses to describe the CCPs associated with the generation of electricity. The EPA proposal contains two regulatory options whereby CCRs not employed in approved beneficial use applications would either be regulated as hazardous waste or would continue to be regulated as non-hazardous waste. Duke Energy cannot predict the outcome of this rulemaking. However, based on the proposal, the cost of complying with the final regulation will be significant. The EPA is not expected to issue a final rule until 2012 or later.

Utility Boiler Maximum Achievable Control Technology (MACT) Standards. On May 3, 2011, the Utility MACT Standards rule was published in the federal register. The rule proposes to establish emission limits for hazardous air pollutants from coal-fired electric generating units, including mercury. The EPA plans to finalize a rule in November 2011. Compliance with the final emission limits will be required by early 2015. Under the proposal, permitting authorities have the discretion to grant up to a 1-year compliance extension, on a case-by-case basis, to sources that are unable to install emission controls before 2015. Duke Energy cannot predict the outcome of this rulemaking. However, based on the proposal, the cost of complying with the final regulation will be significant.

Litigation

Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana

New Source Review (NSR). In 1999-2000, the DOJ, acting on behalf of the EPA and joined by various citizen groups and states, filed a number of complaints and notices of violation against multiple utilities across the country for alleged violations of the NSR provisions of the Clean Air Act (CAA). Generally, the government alleges that projects performed at various coal-fired units were major modifications, as defined in the CAA, and that the utilities violated the CAA when they undertook those projects without obtaining permits and installing the best available emission controls for SO₂, NO_x and particulate matter. The complaints seek injunctive relief to require installation of pollution control technology on various generating units that allegedly violated the CAA, and unspecified civil penalties in amounts of up to $32,500 per day for each violation. A number of the Duke Energy Registrants’ plants have been subject to these allegations. The Duke Energy Registrants assert that there were no CAA violations because the applicable regulations do not require permitting in cases where the projects undertaken are “routine” or otherwise do not result in a net increase in emissions.

In 2000, the government brought a lawsuit against Duke Energy Carolinas in the U.S. District Court in Greensboro, North Carolina. The EPA claims that 29 projects performed at 25 of Duke Energy Carolinas’ coal-fired units violate these NSR provisions. Three environmental groups have intervened in the case. In August 2003, the trial court issued a summary judgment opinion adopting Duke Energy Carolinas’ legal positions on the standard to be used for measuring an increase in emissions, and granted judgment in favor of Duke Energy Carolinas. The trial court’s decision was appealed and ultimately reversed and remanded for trial by the U.S. Supreme Court. At trial, Duke Energy Carolinas will continue to assert that the projects were routine or not projected to increase emissions. On July 29, 2010, the district court issued an order on outstanding motions for summary judgment filed in response to the Supreme Court remand. The court vacated large portions of the previous trial court’s opinion in light of the Supreme Court ruling and found that Duke Energy Carolinas has the burden of proof for the Routine Maintenance Repair and Replacement exclusion, but that the exception must be viewed in light of industry practice, not only in light of an individual unit. The court also clarified that it will apply the “actual-to-projected-actual” emissions test to determine whether Duke Energy Carolinas should reasonably have sought a pre-project permit for any of the projects at issue. On February 11, 2011, the trial judge held an initial status conference and on March 22, 2011, the judge entered an interim scheduling order. If the parties do not negotiate a resolution of the case, then motions to narrow the issues or resolve the case must be fully briefed by October 21, 2011. No trial date has been set, but a trial is not expected in 2011.

In November 1999, the U.S. brought a lawsuit in the U.S. Federal District Court for the Southern District of Indiana against Cinergy, Duke Energy Ohio, and Duke Energy Indiana alleging various violations of the CAA for various projects at six owned and co-owned generating stations in the Midwest. Three northeast states and two environmental groups intervened in the case. A jury verdict was returned on May 22, 2008. The jury found in favor of Cinergy, Duke Energy Ohio and Duke Energy Indiana on all but three units at Duke Energy Indiana’s Wabash River Station, including Duke Energy Indiana’s Gallagher Station units discussed below. Additionally, the plaintiffs had claimed that these were a violation of an Administrative Consent Order entered into in 1998 between the EPA and Cinergy relating to alleged violations of Ohio’s State Implementation Plan provisions governing particulate matter at Duke Energy Ohio’s W.C. Beckjord Station. On May 29, 2009, the court issued its remedy ruling for violations previously established at the Wabash River and W.C. Beckjord Stations and

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ordered the following relief: (i) Wabash River Units 2, 3 and 5 to be permanently retired by September 30, 2009; (ii) surrender of SO₂ allowances equal to the emissions from Wabash River Units 2, 3 and 5 from May 22, 2008 through September 30, 2009; (iii) civil penalty in the amount of $687,500 for W.C. Beckjord violations; and (iv) installation of a particulate continuous emissions monitoring system at W.C. Beckjord Units 1 and 2. The civil penalty has been paid. On October 12, 2010, the Seventh Circuit Court of Appeals issued a decision reversing the trial court and ordered issuance of judgment in favor of Cinergy (USA v. Cinergy), which includes Duke Energy Indiana and Duke Energy Ohio. The plaintiff’s motion for rehearing was denied on December 29, 2010. On January 6, 2011, the mandate from the Seventh Circuit was issued returning the case to the District Court and on April 15, 2011, the District Court issued its Final Amended Judgment in favor of Cinergy. Plaintiffs did not file a petition for certiorari with the United State Supreme Court prior to the March 29, 2011 filing deadline. This ruling allowed Wabash River Units 2, 3 and 5 to be placed back into service.

Regarding the Gallagher Station units, on October 21, 2008, plaintiffs filed a motion for a new liability trial claiming that defendants misled the plaintiffs and the jury by, among other things, not disclosing a consulting agreement with a fact witness and by referring to that witness as “retired” during the liability trial when in fact he was working for Duke Energy Indiana under the referenced consulting agreement in connection with the trial. On December 18, 2008, the court granted plaintiffs’ motion for a new liability trial on claims for which Duke Energy Indiana was not previously found liable. On May 19, 2009, the jury announced its verdict finding in favor of Duke Energy Indiana on four of the remaining six projects at issue. The two projects in which the jury found violations were undertaken at Gallagher Station Units 1 and 3. The parties to the remedy trial reached a negotiated agreement on those issues and filed a proposed consent decree with the court, which was approved and entered on March 18, 2010. The substantive terms of the proposed consent decree require: (i) conversion of Gallagher Station Units 1 and 3 to natural gas combustion by 2013 (or retirement of the units by February 2012); (ii) installation of additional pollution controls at Gallagher Station Units 2 and 4 by 2011; and (iii) additional environmental projects, payments and penalties. Duke Energy Indiana estimates that these and other actions in the settlement will cost $88 million. Due to the NSR remedy order and consent decree, Duke Energy Indiana has requested several approvals from the IURC including approval to add a dry sorbent injection system on Gallagher Station Units 2 and 4, approval to convert to natural gas or retire Gallagher Station Units 1 and 3, and approval to recover expenses for certain SO₂ emission allowance expenses required to be surrendered. On September 8, 2010, the IURC approved the implementation of the dry sorbent injection system. On September 28, 2010, Duke Energy Indiana filed a petition requesting the recovery of costs associated with the Gallagher consent decree. Testimony in support of the petition was filed in early December 2010. Duke Energy Indiana subsequently requested the IURC suspend the procedural schedule to allow it time to do a solicitation for capacity options to compare to the proposed conversion of Gallagher Units 1 and 3 to natural gas.

On May 26, 2011, Duke Energy Indiana filed testimony seeking approval of the purchase of a portion of the Vermillion Generating Station from its affiliate, Duke Energy Vermillion II, LLC, an indirect wholly-owned subsidiary of Duke Energy Ohio. Refer to Note 3 for further information on the Vermillion transaction. As a result of the proposed purchase, Duke Energy Indiana may retire Gallagher Units 1 and 3. The approval of the Vermillion transaction by the FERC and IURC under terms acceptable to Duke Energy Indiana is a condition to the closing of the transaction and the option of converting Gallagher Units 1 and 3 to gas is being preserved until such approvals have been obtained. A new procedural schedule has been set providing for a hearing in September 2011 with an order expected in the fourth quarter of 2011.

On April 3, 2008, the Sierra Club filed another lawsuit in the U.S. District Court for the Southern District of Indiana against Duke Energy Indiana and certain affiliated companies alleging CAA violations at Edwardsport Station. On October 20, 2009, the defendants filed a motion for summary judgment alleging that the applicable statute of limitations bars all of the plaintiffs’ claims. On September 14, 2010, the Court granted defendants’ motion for summary judgment in its entirety; however, entry of final judgment was stayed pending a decision from the Seventh Circuit Court of Appeals in USA v. Cinergy, referenced above, on a similar and potentially dispositive statute of limitations issue pending before that court. On October 12, 2010, the Seventh Circuit issued its decision in USA v. Cinergy in which the court ruled in favor of Cinergy and declined to address the referenced statute of limitations issue. The Seventh circuit issued its mandate on January 6, 2011 and the District Court issued final judgment in favor of Duke Energy Indiana on March 1, 2011. On March 2, 2011, the Sierra Club agreed not to pursue an appeal of the case in exchange for Duke Energy Indiana’s waiver of its right to seek reimbursement of costs.

It is not possible to estimate the damages, if any, that might be incurred in connection with the unresolved matters discussed above. Ultimate resolution of these matters could have a material adverse effect on the Duke Energy Registrants’ consolidated results of operations, cash flows or financial position. However, the appropriate regulatory treatment will be pursued for any costs incurred in connection with such resolution.

Duke Energy

CO₂ Litigation. In July 2004, the states of Connecticut, New York, California, Iowa, New Jersey, Rhode Island, Vermont, Wisconsin and the City of New York brought a lawsuit in the U.S. District Court for the Southern District of New York against Cinergy, AEP, American Electric Power Service Corporation, Southern Company, Tennessee Valley Authority, and Xcel Energy Inc. A similar lawsuit was filed in the U.S. District Court for the Southern District of New York against the same companies by Open Space Institute, Inc., Open Space Conservancy, Inc., and The Audubon Society of New Hampshire. These lawsuits allege that the defendants’ emissions of CO₂ from the combustion of fossil fuels at electric generating facilities contribute to global warming and amount to a public nuisance. The complaints also allege that the defendants could generate the same amount of electricity while emitting significantly less CO₂. The plaintiffs are seeking an injunction requiring each defendant to cap its CO₂ emissions and then reduce them by a specified percentage each year for at least a decade. In September 2005, the District Court granted the defendants’ motion to dismiss the lawsuit. The plaintiffs have appealed this ruling to the Second Circuit Court of Appeals. Oral arguments were held before the Second Circuit Court of Appeals on June 7, 2006. In September 2009, the Court of Appeals issued an opinion reversing the district court and reinstating the lawsuit. Defendants filed a petition for rehearing en banc, which was subsequently denied. Defendants filed a petition for certiorari to the U.S. Supreme Court on August 2, 2010. The Solicitor General filed a brief in which it agreed that the matter should have been dismissed but raised different arguments than did the defendants. On December 6, 2010, the Supreme Court granted certiorari. Argument on this matter was held on April 19, 2011. On June 20, 2011, the Supreme Court held that the Second Court of Appeals decision should be reversed on the basis that plaintiffs’ claims cannot proceed under federal common law, which was displaced by the CAA and actual or potential EPA regulations. The Court’s decision did not address plaintiffs’ state law claims as those claims had not been presented. The case was remanded to the district court for further proceedings.

Alaskan Global Warming Lawsuit. On February 26, 2008, plaintiffs, the governing bodies of an Inupiat village in Alaska, filed suit in the U.S. Federal Court for the Northern District of California against Peabody Coal and various oil and power company defendants, including Duke Energy and certain of its subsidiaries. Plaintiffs brought the action on their own behalf and on behalf of the village’s 400 residents. The lawsuit alleges that defendants’ emissions of CO₂ contributed to global warming and constitute a private and public nuisance. Plaintiffs also allege that certain defendants, including Duke Energy, conspired to mislead the public with respect to global warming. Plaintiffs seek

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unspecified monetary damages, attorney’s fees and expenses. On June 30, 2008, the defendants filed a motion to dismiss on jurisdictional grounds, together with a motion to dismiss the conspiracy claims. On October 15, 2009, the District Court granted defendants motion to dismiss. The plaintiffs filed a notice of appeal and briefing is complete. By Order dated February 23, 2011, the Court stayed oral argument in this case pending the Supreme Court’s ruling in the CO₂litigation discussed above. Following the Supreme Court’s June 20, 2011 decision the Ninth Circuit Court of Appeals was informed of the decision and that the case was ready for hearing or further briefing. It is not possible to predict with certainty whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with this matter.

Price Reporting Cases. A total of five lawsuits were filed against Duke Energy affiliates and other energy companies and remain pending in a consolidated, single federal court proceeding in Nevada.

In November 2009, the judge granted defendants’ motion for reconsideration of the denial of defendants’ summary judgment motion in two of the remaining five cases to which Duke Energy affiliates are a party. A hearing on that motion occurred on July 15, 2011, and on July 19, 2011, the judge granted the motion for summary judgment. Plaintiffs have indicated that they will file an appeal with the Ninth Circuit Court of Appeal. In December 2009, plaintiffs in the consolidated cases filed a motion to amend their complaints in the individual cases to add a claim for treble damages under the Sherman Act, including additional factual allegations regarding fraudulent concealment of defendants’ allegedly conspiratorial conduct. Those motions were denied on October 29, 2010.

Each of these cases contains similar claims, that the respective plaintiffs, and the classes they claim to represent, were harmed by the defendants’ alleged manipulation of the natural gas markets by various means, including providing false information to natural gas trade publications and entering into unlawful arrangements and agreements in violation of the antitrust laws of the respective states. Plaintiffs seek damages in unspecified amounts. It is not possible to predict with certainty whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with the remaining matters.

Duke Energy International Paranapanema Lawsuit. On July 16, 2008, Duke Energy International Geracao Paranapanema S.A. (DEIGP) filed a lawsuit in the Brazilian federal court challenging transmission fee assessments imposed under two new resolutions promulgated by the Brazilian electricity regulatory agency (ANEEL) (collectively, the Resolutions). The Resolutions purport to impose additional transmission fees (retroactive to July 1, 2004 and effective through June 30, 2009) on generation companies located in the State of São Paulo for utilization of the electric transmission system. The new charges are based upon a flat-fee that fails to take into account the locational usage by each generator. DEIGP’s additional assessment under these Resolutions amounts to approximately $69 million, inclusive of interest, through June 2011. Based on DEIGP’s continuing refusal to tender payment of the disputed sums, on April 1, 2009, ANEEL imposed an additional fine against DEIGP in the amount of $11 million. DEIGP filed a request to enjoin payment of the fine and for an expedited decision on the merits or, alternatively, an order requiring that all disputed sums be deposited in the court’s registry in lieu of direct payment to the distribution companies.

On June 30, 2009, the court issued a ruling in which it granted DEIGP’s request for injunction regarding the additional fine, but denied DEIGP’s request for an expedited decision on the original assessment or payment into the court registry. Under the court’s order, DEIGP was required to make installment payments on the original assessment directly to the distribution companies pending resolution on the merits. DEIGP filed an appeal and on August 28, 2009, the order was modified to allow DEIGP to deposit the disputed portion of each installment, which was most of the assessed amount, into an escrow account pending resolution on the merits. In the second quarter of 2009, Duke Energy recorded a pre-tax charge of $33 million associated with this matter.

Duke Energy Retirement Cash Balance Plan. A class action lawsuit was filed in federal court in South Carolina against Duke Energy and the Duke Energy Retirement Cash Balance Plan, alleging violations of Employee Retirement Income Security Act (ERISA) and the Age Discrimination in Employment Act (ADEA). These allegations arise out of the conversion of the Duke Energy Company Employees’ Retirement Plan into the Duke Energy Retirement Cash Balance Plan. The case also raises some Plan administration issues, alleging errors in the application of Plan provisions (i.e., the calculation of interest rate credits in 1997 and 1998 and the calculation of lump-sum distributions). Six causes of action were alleged, ranging from age discrimination, to various alleged ERISA violations, to allegations of breach of fiduciary duty. Plaintiffs sought a broad array of remedies, including a retroactive reformation of the Duke Energy Retirement Cash Balance Plan and a recalculation of participants’/ beneficiaries’ benefits under the revised and reformed plan. Duke Energy filed its answer in March 2006. A portion of this contingent liability was assigned to Spectra Energy Corp (Spectra Energy) in connection with the spin-off in January 2007. A hearing on the plaintiffs’ motion to amend the complaint to add an additional age discrimination claim, defendant’s motion to dismiss and the respective motions for summary judgment was held in December 2007. On June 2, 2008, the court issued its ruling denying plaintiffs’ motion to add the additional claim and dismissing a number of plaintiffs’ claims, including the claims for ERISA age discrimination. Subsequently, plaintiffs notified Duke Energy that they were withdrawing their ADEA claim. On September 4, 2009, the court issued its order certifying classes for three of the remaining claims but not certifying their claims as to plaintiffs’ fiduciary duty claims. At an unsuccessful mediation in September 2008, Plaintiffs quantified their claims as being in excess of $150 million. After mediation on September 21, 2010, the parties reached an agreement in principle to settle the lawsuit, subject to execution of a definitive settlement agreement, notice to the class members and approval of the settlement by the Court. In the third quarter of 2010, Duke Energy recorded a provision related to the settlement agreement. At a hearing on May 16, 2011, the court issued its final confirmation order and payments will be made in accordance with the settlement agreement.

Crescent Litigation. On September 3, 2010, the Crescent Resources Litigation Trust filed suit against Duke Energy along with various affiliates and several individuals, including current and former employees of Duke Energy, in the U.S. Bankruptcy Court for the Western District of Texas. The Crescent Resources Litigation Trust was established in May, 2010 pursuant to the plan of reorganization approved in the Crescent bankruptcy proceedings in the same court. The complaint alleges that in 2006 the defendants caused Crescent to borrow approximately $1.2 billion from a consortium of banks and immediately thereafter distribute most of the loan proceeds to Crescent’s parent company without benefit to Crescent. The complaint further alleges that Crescent was rendered insolvent by the transactions, and that the distribution is subject to recovery by the Crescent bankruptcy estate as an alleged fraudulent transfer. The plaintiff requests return of the funds as well as other statutory and equitable relief, punitive damages and attorneys’ fees. Duke Energy and its affiliated defendants believe that the referenced 2006 transactions were legitimate and did not violate any state or federal law. Defendants filed a motion to dismiss in December 2010. On March 21, 2011, the plaintiff filed a response to the defendant’s motion to dismiss and a motion for leave to file an amended complaint, which was granted. The Defendants filed a second motion to dismiss in response to plaintiffs’ amended complaint. A hearing on the motion is scheduled for August 19, 2011. No trial date has been set.

On October 14, 2010, a suit was filed in Mecklenburg County, North Carolina by a group of Duke Energy shareholders alleging breach of duty of loyalty and good faith by certain Duke Energy directors who were directors at the time of the 2006 Crescent transaction. On January 5, 2011, defendants filed a Notice of Designation of this case for the North Carolina Business Court. On July 22, 2011, the court granted the defendants’ motion to dismiss the lawsuit. It is not possible to predict at this time whether Duke Energy will incur any liability or to estimate the damages, if any, that Duke Energy might incur in connection with these lawsuits.

Progress Energy Merger Litigation. Duke Energy and Diamond Acquisition Corporation, a wholly owned subsidiary of Duke Energy have been named as defendants in 10 purported shareholder actions filed in North Carolina state court and two cases filed in federal court in

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North Carolina. The actions, which contain similar allegations, were brought by individual shareholders against the following defendants: Progress Energy, Duke Energy, Diamond Acquisition Corporation and Directors of Progress Energy. The lawsuits allege that the individual defendants breached their fiduciary duties to Progress Energy shareholders and that Duke Energy and Diamond Acquisition Corporation, aided and abetted the individual defendants. The plaintiffs seek damages and to enjoin the merger. One of the state court cases was voluntarily dismissed. On July 11, 2011, the parties to the remaining nine state court cases entered into a Memorandum of Understanding for a disclosure-based settlement of the litigation. On August 2, 2011, preliminary approval of the settlement was granted by the Court.

The plaintiff in one of the federal court lawsuits filed a motion for voluntary withdrawal, leaving one federal case pending. The complaint in the federal action includes allegations that defendants violated federal securities laws in connection with the statements contained in Duke Energy’s Registration Statement on Form S-4, as amended, and is now subject to the notice requirements of the Private Securities Litigation Reform Act. Plaintiff’s counsel in the federal case have sent a total of four derivative demand letters to Progress Energy demanding that Progress Energy’s board of directors make certain disclosures, desist from moving forward with the merger and engage in an auction of the company. Progress Energy has indicated that it is evaluating those demands. On August 2, 2011, the Plaintiffs’ filed a motion for a temporary restraining order, and for a preliminary injunction.

Federal Advanced Clean Coal Tax Credits. Duke Energy has been awarded $125 million of federal advanced clean coal tax credits associated with its construction of Cliffside Unit 6 and $134 million of federal advanced clean coal tax credits associated with its construction of the Edwardsport IGCC plant. In March, 2008, two environmental groups, Appalachian Voices and the Canary Coalition, filed suit against the Federal government challenging the tax credits awarded to incentivize certain clean coal projects. Although Duke Energy was not a party to the case, the allegations center on the tax incentives provided for the Cliffside and Edwardsport projects. The initial complaint alleged a failure to comply with the National Environmental Policy Act. The first amended complaint, filed in August 2008, added an Endangered Species Act claim and also sought declaratory and injunctive relief against the DOE and the U.S. Department of the Treasury. In 2008, the District Court dismissed the case. On September 23, 2009, the District Court issued an order granting plaintiffs’ motion to amend their complaint and denying, as moot, the motion for reconsideration. Plaintiffs have filed their second amended complaint. The Federal government has moved to dismiss the second amended complaint; the motion is pending. On July 26, 2010, the District Court denied plaintiffs’ motion for preliminary injunction seeking to halt the issuance of the tax credits.

Duke Energy Carolinas

Duke Energy Carolinas Cliffside Unit 6 Permit. On July 16, 2008, the Southern Alliance for Clean Energy, Environmental Defense Fund, National Parks Conservation Association, Natural Resources Defenses Council, and Sierra Club (collectively referred to as Citizen Groups) filed suit in U.S District Court for the Western District of North Carolina alleging that Duke Energy Carolinas violated the CAA when it commenced construction of Cliffside Unit 6 without obtaining a determination that the MACT emission limits will be met for all prospective hazardous air emissions at that plant. The Citizen Groups claim the right to injunctive relief against further construction at the plant as well as civil penalties in the amount of up to $32,500 per day for each alleged violation. In July 2008, Duke Energy Carolinas voluntarily performed a MACT assessment of air emission controls planned for Cliffside Unit 6 and submitted the results to the Department of Environment and Natural Resources (DENR). On December 2, 2008, the Court granted summary judgment in favor of the Plaintiffs and entered judgment ordering Duke Energy Carolinas to initiate a MACT process before the DAQ. The court did not order an injunction against further construction, but retained jurisdiction to monitor the MACT proceedings. On December 4, 2008, Duke Energy Carolinas submitted its MACT filing and supporting information to the DAQ specifically seeking DAQ’s concurrence as a threshold matter that construction of Cliffside Unit 6 is not a major source subject to section 112 of the CAA and submitting a MACT determination application. Concurrent with the initiation of the MACT process, Duke Energy Carolinas filed a notice of appeal to the Fourth Circuit Court of Appeals of the Court’s December 2, 2008 order to reverse the Court’s determination that Duke Energy Carolinas violated the CAA. The DAQ issued the revised permit on March 13, 2009, finding that Cliffside Unit 6 is a minor source of HAPs and imposing operating conditions to assure that emissions stay below the major source threshold. Based upon DAQ’s minor-source determination, Duke Energy Carolinas filed a motion requesting that the court abstain from further action on the matter and dismiss the plaintiffs’ complaint. The court granted Duke Energy Carolinas motion to abstain and dismissed the plaintiffs’ complaint without prejudice, but also ordered Duke Energy Carolinas to pay the plaintiffs’ attorneys’ fees. On August 3, 2009, plaintiffs filed a notice of appeal of the court’s order and Duke Energy Carolinas likewise appealed on the grounds, among others, that the dismissal should have been with prejudice and the court should not have ordered payment of attorneys’ fees. The appeals have been consolidated. On April 14, 2011, the Fourth Circuit Court of Appeals affirmed the district court’s ruling awarding fees to defendants. Duke Energy Carolinas filed a request for rehearing, which was denied, on May 10, 2011.

Asbestos-related Injuries and Damages Claims. Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement relating to damages for bodily injuries alleged to have arisen from the exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985. As of June 30, 2011, there were 265 asserted claims for non-malignant cases with the cumulative relief sought of up to $61 million, and 43 asserted claims for malignant cases with the cumulative relief sought of up to $12 million. Based on Duke Energy Carolinas’ experience, it is expected that the ultimate resolution of most of these claims likely will be less than the amount claimed.

Amounts recognized as asbestos-related reserves related to Duke Energy Carolinas in the respective Condensed Consolidated Balance Sheets totaled $828 million and $853 million as of June 30, 2011 and December 31, 2010, respectively, and are classified in Other within Deferred Credits and Other Liabilities and Other within Current Liabilities. These reserves are based upon the minimum amount in Duke Energy Carolinas’ best estimate of the range of loss for current and future asbestos claims through 2030. Management believes that it is possible there will be additional claims filed against Duke Energy Carolinas after 2030. In light of the uncertainties inherent in a longer-term forecast, management does not believe that they can reasonably estimate the indemnity and medical costs that might be incurred after 2030 related to such potential claims. Asbestos-related loss estimates incorporate anticipated inflation, if applicable, and are recorded on an undiscounted basis. These reserves are based upon current estimates and are subject to greater uncertainty as the projection period lengthens. A significant upward or downward trend in the number of claims filed, the nature of the alleged injury, and the average cost of resolving each such claim could change our estimated liability, as could any substantial adverse or favorable verdict at trial. A federal legislative solution, further state tort reform or structured settlement transactions could also change the estimated liability. Given the uncertainties associated with projecting matters into the future and numerous other factors outside our control, management believes that it is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.

Duke Energy Carolinas has a third-party insurance policy to cover certain losses related to asbestos-related injuries and damages above an aggregate self insured retention of $476 million. Duke Energy Carolinas’ cumulative payments began to exceed the self insurance retention on its insurance policy during the second quarter of 2008. Future payments up to the policy limit will be reimbursed by Duke Energy Carolinas’ third party insurance carrier. The insurance policy limit for potential future insurance recoveries for indemnification and medical cost claim payments is $1,005 million in excess of the self insured retention. Insurance recoveries of $850 million related to this policy are

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classified in the respective Condensed Consolidated Balance Sheets in Other within Investments and Other Assets and Receivables as of both June 30, 2011 and December 31, 2010. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Management believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.

Duke Energy Ohio

Antitrust Lawsuit. In January 2008, four plaintiffs, including individual, industrial and nonprofit customers, filed a lawsuit against Duke Energy Ohio in federal court in the Southern District of Ohio. Plaintiffs alleged that Duke Energy Ohio (then The Cincinnati Gas & Electric Company), conspired to provide inequitable and unfair price advantages for certain large business consumers by entering into non-public option agreements with such consumers in exchange for their withdrawal of challenges to Duke Energy Ohio’s pending RSP, which was implemented in early 2005. On March 31, 2009, the District Court granted Duke Energy Ohio’s motion to dismiss. Plaintiffs filed a motion to alter or set aside the judgment, which was denied by an order dated March 31, 2010. In April 2010, the plaintiffs filed their appeal of that order with the U.S. Court of Appeals for the Sixth Circuit. The matter is fully briefed and the parties are awaiting the scheduling of oral argument. It is not possible to predict at this time whether Duke Energy Ohio will incur any liability or to estimate the damages, if any, that Duke Energy Ohio might incur in connection with this lawsuit.

Duke Energy Indiana

Prosperity Mine, LLC. On October 12, 2009, Prosperity Mine, LLC (Prosperity) filed for arbitration under an Agreement for the Sale and Purchase of Coal dated October 30, 2008. The Agreement provided for sale by Prosperity and purchase by Duke Energy Indiana of 500,000 tons of coal per year, commencing on January 1, 2009 and continuing until December 31, 2014, unless sooner terminated under the terms of the Agreement. Duke Energy Indiana could terminate the Agreement if a force majeure event lasted more than three months. Prosperity declared a force majeure event on February 13, 2010 and, when Prosperity did not notify Duke Energy Indiana that the force majeure had ended; Duke Energy Indiana sent written notice of termination on May 14, 2010. Prosperity contends that the termination was improper and that it is owed damages, quantified at $88 million, for the full contractual volumes through 2014. On November 17, 2010, the arbitrators issued their decision, ruling in favor of Duke Energy Indiana on all counts. On January 7, 2011, Prosperity filed a lawsuit in Indiana state court alleging that the arbitrators exceeded their power and acted without authority and asking that the arbitrators’ award be vacated. The parties reached a commercial arrangement pursuant to which Prosperity agreed to dismiss the lawsuit.

Asbestos-related Injuries and Damages Claims. Duke Energy Indiana has been named as a defendant or co-defendant in lawsuits related to asbestos at its electric generating stations. The impact on Duke Energy Indiana’s consolidated results of operations, cash flows or financial position of these cases to date has not been material. Based on estimates under varying assumptions concerning uncertainties, such as, among others: (i) the number of contractors potentially exposed to asbestos during construction or maintenance of Duke Energy Indiana generating plants; (ii) the possible incidence of various illnesses among exposed workers, and (iii) the potential settlement costs without federal or other legislation that addresses asbestos tort actions, Duke Energy Indiana estimates that the range of reasonably possible exposure in existing and future suits over the foreseeable future is not material. This estimated range of exposure may change as additional settlements occur and claims are made and more case law is established.

Other Litigation and Legal Proceedings

The Duke Energy Registrants are involved in other legal, tax and regulatory proceedings arising in the ordinary course of business, some of which involve substantial amounts. Management believes that the final disposition of these proceedings will not have a material adverse effect on its consolidated results of operations, cash flows or financial position.

The Duke Energy Registrants have exposure to certain legal matters that are described herein. Duke Energy has recorded reserves, including reserves related to the aforementioned asbestos-related injuries and damages claims, of $840 million and $900 million as of June 30, 2011 and December 31, 2010, respectively, for these proceedings and exposures (the total of which is primarily related to Duke Energy Carolinas). These reserves represent management’s best estimate of probable loss as defined in the accounting guidance for contingencies. Duke Energy has insurance coverage for certain of these losses incurred. As of both June 30, 2011 and December 31, 2010, Duke Energy recognized $850 million of probable insurance recoveries related to these losses (the total of which is related to Duke Energy Carolinas).

The Duke Energy Registrants expense legal costs related to the defense of loss contingencies as incurred.

Other Commitments and Contingencies

General. As part of its normal business, the Duke Energy Registrants are a party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on the respective Condensed Consolidated Balance Sheets. The possibility of any of the Duke Energy Registrants having to honor their contingencies is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events.

In addition, the Duke Energy Registrants enter into various fixed-price, non-cancelable commitments to purchase or sell power (tolling arrangements or power purchase contracts), take-or-pay arrangements, transportation or throughput agreements and other contracts that may or may not be recognized on the respective Condensed Consolidated Balance Sheets. Some of these arrangements may be recognized at fair value on the respective Condensed Consolidated Balance Sheets if such contracts meet the definition of a derivative and the NPNS exception does not apply.

6. Debt and Credit Facilities

Significant changes to the Duke Energy Registrants’ debt and credit facilities since December 31, 2010 are as follows:

First Mortgage Bonds. In May 2011, Duke Energy Carolinas issued $500 million principal amount of first mortgage bonds, which carry a fixed interest rate of 3.90% and mature June 15, 2021. Proceeds from this issuance will be used to fund capital expenditures and for general corporate purposes.

Other Debt. In April 2011, Duke Energy filed a registration statement (Form S-3) with the SEC to sell up to $1 billion of variable denomination floating rate demand notes, called PremierNotes. The Form S-3 states that no more than $500 million of the notes will be outstanding at any particular time. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by

39

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The balance as of June 30, 2011 is $5 million. The notes reflect a short-term debt obligation of Duke Energy and are reflected as Notes payable on Duke Energy’s Condensed Consolidated Balance Sheets.

At June 30, 2011, Duke Energy Carolinas had $750 million principal amount of 6.25% senior unsecured notes due January 2012 classified as Current maturities of long-term debt on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets. At December 31, 2010, these notes were classified as Long-term Debt on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets.

Non-Recourse Notes Payable of VIEs. To fund the purchase of receivables, Cinergy Receivables borrows from third parties and such borrowings fluctuate based on the amount of receivables sold to Cinergy Receivables. The borrowings are secured by the assets of Cinergy Receivables and are non-recourse to Duke Energy. The debt is short-term because the facility has an expiration date of October 2011; however, Duke Energy expects to extend that expiration by one year prior to its current expiration. At June 30, 2011, Cinergy Receivables borrowings were $275 million and are reflected as Non-Recourse Notes Payable of VIEs on Duke Energy’s Condensed Consolidated Balance Sheets.

Money Pool. The Subsidiary Registrants receive support for their short-term borrowing needs through participation with Duke Energy and other Duke Energy subsidiaries in a money pool arrangement. Under this arrangement, those companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. The money pool is structured such that the Subsidiary Registrants separately manage their cash needs and working capital requirements. Accordingly, there is no net settlement of receivables and payables between the money pool participants. Per the terms of the money pool arrangement, Duke Energy may loan funds to its participating subsidiaries, but may not borrow funds through the money pool. Accordingly, as the money pool activity is between Duke Energy and its wholly-owned subsidiaries, all money pool balances are eliminated within Duke Energy’s Condensed Consolidated Balance Sheets. The following table shows the Subsidiary Registrants’ money pool balances and classification within their respective Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010:

	June 30, 2011				December 31, 2010
	Receivables		Long-term Debt		Receivables		Long-term Debt
	(in millions)
Duke Energy Carolinas	$	550	$	300	$	339	$	300
Duke Energy Ohio		394		—		480		—
Duke Energy Indiana		30		150		115		150

Increases or decreases in money pool receivables are reflected within investing activities on the respective Subsidiary Registrants’ Condensed Consolidated Statements of Cash Flows, while increases or decreases in money pool borrowings are reflected within financing activities on the respective Subsidiary Registrants Condensed Consolidated Statements of Cash Flows.

Available Credit Facilities. The total capacity under Duke Energy’s master credit facility, which expires in June 2012, is $3.14 billion. The credit facility contains an option allowing borrowing up to the full amount of the facility on the day of initial expiration for up to one year. Duke Energy anticipates that it will begin the process of negotiating a renewal of the master credit facility in the third quarter of 2011. The Duke Energy Registrants each have borrowing capacity under the master credit facility up to specified sub limits for each borrower. However, Duke Energy has the unilateral ability to increase or decrease the borrowing sub limits of each borrower, subject to per borrower maximum cap limitations, at any time. See the table below for the borrowing sub limits for each of the borrowers as of June 30, 2011. The amount available under the master credit facility has been reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, letters of credit and certain tax-exempt bonds. As indicated, borrowing sub limits for the Subsidiary Registrants are also reduced for amounts outstanding under the money pool arrangement.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Master Credit Facility Summary as of June 30, 2011 (in millions)^(a)(b)

	Duke Energy			Duke  Energy Carolinas			Duke Energy Ohio			Duke Energy Indiana			Total
Facility Size(c)	$	1,097		$	840		$	750		$	450		$	3,137
Less:
Notes Payable and Commercial Paper(d)		—			(300	)		—			(150	)		(450	)
Outstanding Letters of Credit		(28	)		(7	)		(27	)		—			(62	)
Tax-Exempt Bonds		(25	)		(95	)		(84	)		(81	)		(285	)
Available Capacity	$	1,044		$	438		$	639		$	219		$	2,340

(a) This summary only includes Duke Energy’s master credit facility and, accordingly, excludes certain demand facilities and committed facilities that are insignificant in size or which generally support very specific requirements, which primarily include facilities that backstop various outstanding tax-exempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of the respective Duke Energy Registrant.

(b) Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower.

(c) Represents the sub limit of each borrower at June 30, 2011. The Duke Energy Ohio sub limit includes $100 million for Duke Energy Kentucky.

(d) Duke Energy issued $450 million of Commercial Paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana (see money pool table above). The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolinas’ and Duke Energy Indiana’s Condensed Consolidated Balance Sheets.

Restrictive Debt Covenants. 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. As of June 30, 2011, each of the Duke Energy Registrants was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses.

7. Goodwill, Intangible Assets and Impairments

Goodwill

The following table shows goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio at June 30, 2011 and December 31, 2010:

	USFE&G		Commercial Power			International		Total
	(in millions)
Duke Energy
Balance at December 31, 2010:
Goodwill	$	3,483	$	940		$	306	$	4,729
Accumulated Impairment Charges		—		(871	)		—		(871	)
Balance at December 31, 2010, as adjusted for accumulated impairment charges		3,483		69			306		3,858
Foreign Exchange and Other Changes		—		—			10		10
Balance as of June 30, 2011:
Goodwill		3,483		940			316		4,739
Accumulated Impairment Charges		—		(871	)		—		(871	)
Balance at June 30, 2011, as adjusted for accumulated impairment charges, foreign exchange and other charges	$	3,483	$	69		$	316	$	3,868

	USFE&G			Commercial Power			Total
	(in millions)
Duke Energy Ohio
Balance at December 31, 2010:
Goodwill	$	1,137		$	1,188		$	2,325
Accumulated Impairment Charges		(216	)		(1,188	)		(1,404	)

41

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	USFE&G			Commercial Power			Total
	(in millions)
Balance at December 31, 2010, as adjusted for accumulated impairment charges		921			—			921
Balance as of June 30, 2011:
Goodwill		1,137			1,188			2,325
Accumulated Impairment Charges		(216	)		(1,188	)		(1,404	)
Balance at June 30, 2011, as adjusted for accumulated impairment charges	$	921		$	—		$	921

Duke Energy. Duke Energy is required to perform an annual goodwill impairment test as of the same date each year and, accordingly, performs its annual impairment testing of goodwill as of August 31. Duke Energy updates the test between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.

In the second quarter of 2010, based on circumstances discussed below, management determined that it was more likely than not that the fair value of Commercial Power’s non-regulated Midwest generation reporting unit was below its respective carrying value. Accordingly, an interim impairment test was performed for this reporting unit. Determination of reporting unit fair value was based on a combination of the income approach, which estimates the fair value of Duke Energy’s reporting units based on discounted future cash flows, and the market approach, which estimates the fair value of Duke Energy’s reporting units based on market comparables within the utility and energy industries. Based on completion of step one of the second quarter 2010 impairment analysis, management determined that the fair value of Commercial Power’s non-regulated Midwest generation reporting unit was less than its carrying value, which included goodwill of $500 million.

Commercial Power’s non-regulated Midwest generation reporting unit includes nearly 4,000 MW of primarily coal-fired generation capacity in Ohio which is dedicated under the ESP through December 31, 2011. These assets also generate revenues through sales outside the ESP load customer base if circumstances arise that result in availability of excess capacity. Additionally, this reporting unit has approximately 3,600 MW of gas-fired generation capacity in Ohio, Pennsylvania, Illinois and Indiana which provides generation to unregulated energy markets in the Midwest. The businesses within Commercial Power’s non-regulated Midwest generation reporting unit operate in market structures that are, to a degree, unregulated and allow for customer choice among suppliers. As a result, the operations within this reporting unit are subjected to competitive pressures that do not exist in any of Duke Energy’s regulated jurisdictions.

Commercial Power’s other businesses, including the renewable generation assets, are in a separate reporting unit for goodwill impairment testing purposes. No impairment existed with respect to Commercial Power’s renewable generation assets.

The fair value of Commercial Power’s non-regulated Midwest generation reporting unit is impacted by a multitude of factors, including current and forecasted customer demand, forecasted power and commodity prices, uncertainty of environmental costs, competition, the cost of capital, valuation of peer companies and regulatory and legislative developments. Management’s assumptions and views of these factors continually evolve, and certain views and assumptions used in determining the fair value of the reporting unit in the 2010 interim impairment test changed significantly from those used in the 2009 annual impairment test. These factors had a significant impact on the valuation of Commercial Power’s non-regulated Midwest generation reporting unit. More specifically, the following factors significantly impacted management’s valuation of the reporting unit:

• Sustained lower forward power prices—In Ohio, Duke Energy provides power to retail customers under the ESP, which utilizes rates approved by the PUCO through 2011. These rates in 2010 were above market prices for generation services, resulting in customers switching to other generation providers. As discussed in Note 4, Duke Energy Ohio will establish a new SSO for retail load customers for generation after the current ESP expires on December 31, 2011. Given forward power prices, which declined from the time of the 2009 impairment, significant uncertainty existed with respect to the generation margin that would be earned under the new SSO.

• Potentially more stringent environmental regulations from the U.S. EPA—In May and July of 2010, the EPA issued proposed rules associated with the regulation of CCRs to address risks from the disposal of CCRs (e.g., ash ponds) and to limit the interstate transport of emissions of NO_x and SO₂. These proposed regulations, along with other pending EPA regulations, could result in significant expenditures for coal fired generation plants, and could result in the early retirement of certain generation assets, which do not currently have control equipment for NO_x and SO₂, as soon as 2015.

• Customer switching—ESP customers have increasingly selected alternative generation service providers, as allowed by Ohio legislation, which further erodes margins on sales. In the second quarter of 2010, Duke Energy Ohio’s residential class became the target of an intense marketing campaign offering significant discounts to residential customers that switch to alternate power suppliers. Customer switching levels were at approximately 55% at June 30, 2010 compared to approximately 29% in the third quarter of 2009.

As a result of the factors above, a non-cash goodwill impairment charge of $500 million was recorded during the second quarter of 2010. This impairment charge represented the entire remaining goodwill balance for Commercial Power’s non-regulated Midwest generation reporting unit. In addition to the goodwill impairment charge, and as a result of factors similar to those described above, Commercial Power recorded $160 million of pre-tax impairment charges related to certain generating assets and emission allowances primarily associated with these generation assets in the Midwest to write-down the value of these assets to their estimated fair value. The generation assets that were subject to this impairment charge were those coal-fired generating assets that do not have certain environmental emissions control equipment, causing these generation assets to be heavily impacted by the EPA’s proposed rules on emissions of NO_x and SO₂. These impairment charges are recorded in Goodwill and Other Impairment Charges on Duke Energy’s Consolidated Statement of Operations.

The fair values of Commercial Power’s non-regulated Midwest generation reporting unit and generating assets for which impairments were recorded were determined using significant unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements.

Duke Energy completed its annual goodwill impairment test for all reporting units as of August 31, 2010, and determined that no additional impairments exist.

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Duke Energy Ohio. In the second quarter of 2010, based on circumstances discussed above for Duke Energy, management determined that is was more likely than not that the fair value of Duke Energy Ohio’s non-regulated Midwest generation reporting unit was less than its carrying value. Accordingly, Duke Energy Ohio also impaired its entire goodwill balance of $461 million related to this reporting unit during the second quarter of 2010. Also, as discussed above, Duke Energy Ohio recorded $160 million of pre-tax impairment charges related to certain generating assets and emission allowances primarily associated with these generation assets in the Midwest to write-down the value of these assets to their estimated fair value.

In the second quarter of 2010, goodwill for Ohio Transmission and Distribution (Ohio T&D) was also analyzed. The fair value of the Ohio T&D reporting unit is impacted by a multitude of factors, including current and forecasted customer demand, discount rates, valuation of peer companies, and regulatory and legislative developments. Management periodically updates the load forecasts to reflect current trends and expectations based on the current environment and future assumptions. The spring and summer 2010 load forecast indicated that load would not return to 2007 weather-normalized levels for several more years. Based on the results of the second quarter 2010 impairment analysis, the fair value of the Ohio T&D reporting unit was $216 million below its book value at Duke Energy Ohio and $40 million higher than its book value at Duke Energy. Accordingly, this goodwill impairment charge was only recorded by Duke Energy Ohio.

The fair value of Duke Energy Ohio’s Ohio T&D reporting unit for which an impairment was recorded was determined using significant unobservable inputs (i.e., Level 3 inputs) as defined by the accounting guidance for fair value measurements.

As management is not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach fair value, Duke Energy Ohio relied heavily on the income approach to estimate the fair value of the impaired assets.

All of the above impairment charges are recorded in Goodwill and Other Impairment Charges on Duke Energy Ohio’s Consolidated Statements of Operations.

Duke Energy Ohio completed its annual goodwill impairment test for all reporting units as of August 31, 2010, and determined that no additional impairments existed.

Intangible Assets. The net carrying amount of intangible assets as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011		December 31, 2010
	(In millions)
Duke Energy	$	468	$	467
Duke Energy Ohio		234		248
Duke Energy Indiana		61		64

The changes in net carrying amounts of intangible assets relates primarily to the consumption, purchases and/or sales of emission allowances during the six months ended June 30, 2011.

As discussed in Note 5, on July 6, 2011, the EPA issued the final rule to replace CAIR. As further discussed in Note 5, the CSAPR establishes state-level annual SO₂ and NO_x caps that take effect on January 1, 2012, and state-level ozone-season NO_x caps that take effect on May 1, 2012. The cap levels decline in 2014 for most states, including each state in which Duke Energy operates, except for South Carolina where the cap levels remain constant. The CSAPR will not utilize CAA emission allowances as the original CAIR provided. The EPA will issue new emission allowances to be used exclusively for purposes of complying with the CSAPR cap-and-trade program. Duke Energy is currently evaluating the effect of the CSAPR on the carrying value of emission allowances recorded at its USFE&G and Commercial Power segments. Based on the provisions of the CSAPR, Duke Energy Ohio expects to have more SO₂ allowances than will be needed to comply with the continuing CAA acid rain cap-and-trade program (excess emission allowances). Duke Energy Ohio expects to incur a pre-tax impairment of approximately $80 million in the third quarter of 2011 to write down the carrying value of excess emission allowances held by Commercial Power to fair value. This current estimate is based on the total allowances held by Commercial Power for compliance under the continuing CAA acid rain cap-and-trade program as of June 30, 2011.

8. Risk Management, Derivative Instruments and Hedging Activities

The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings.

Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as accounting hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the normal purchase normal sale (NPNS) exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively, thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts.

For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations.

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PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Information presented in the tables below relates to Duke Energy and Duke Energy Ohio. Separate disclosure for Duke Energy Carolinas and Duke Energy Indiana is not presented as the balances are immaterial and regulatory accounting treatment is applied to substantially all of their derivative instruments.

Commodity Price Risk

The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity required to purchase and sell electricity in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants’ coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.

Commodity Fair Value Hedges. At June 30, 2011, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At June 30, 2011, there were no open commodity derivative instruments that were designated as cash flow hedges.

Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.

Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. At June 30, 2011, Duke Energy Carolinas does not have any undesignated commodity contracts.

Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at June 30, 2011 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment.

Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at June 30, 2011 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances.

Interest Rate Risk

The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.

At June 30, 2011, derivative instruments related to interest rate risk are categorized as follows:

Duke Energy. $470 million notional amount of interest rate cash flow hedges related to non-recourse variable rate long-term debt of VIEs and $23 million notional amount of undesignated interest rate contracts, both related to Commercial Power’s wind business, as well as the notional amounts related to Duke Energy Carolinas and Duke Energy Ohio below. See Note 11 for additional information on non-recourse long-term debt of VIEs.

Duke Energy Carolinas. $500 million notional amount of undesignated forward starting interest rate swaps related to hedging anticipated fixed rate debt issuances in 2012, and $25 million notional amount of interest rate fair value hedges.

Duke Energy Ohio. $250 million notional amount of interest rate fair value hedges and $27 million notional amount of undesignated interest rate contracts.

At December 31, 2010, derivative instruments related to interest rate risk are categorized as follows:

Duke Energy. $492 million notional amount of interest rate cash flow hedges related to non-recourse variable rate long-term debt of VIEs and $34 million notional amount of undesignated interest rate contracts, both related to Commercial Power’s wind business, as well as the notional amounts related to Duke Energy Carolinas and Duke Energy Ohio below. See Note 11 for additional information on non-recourse long-term debt of VIEs.

Duke Energy Carolinas. $500 million notional amount of undesignated forward starting interest rate swaps related to hedging anticipated fixed rate debt issuances in 2012, and $25 million notional amount of interest rate fair value hedges.

Duke Energy Ohio. $250 million notional amount of interest rate fair value hedges and $27 million notional amount of undesignated interest rate hedges.

Volumes

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio’s commodity derivative activity outstanding as of June 30, 2011 and December 31, 2010. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke

44

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DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Energy and Duke Energy Ohio have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see “Interest Rate Risk” section above.

Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value

Duke Energy	June 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)		10,747		8,200
Electricity-capacity (Gigawatt-months)		—		58
Emission allowances: SO2 (thousands of tons)		8		8
Natural gas (millions of decatherms)		37		37
Financial contracts
Interest rates (dollars in millions)	$	1,295	$	1,328
Duke Energy Ohio	June 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)(a)		13,658		13,183
Electricity-capacity (Gigawatt-months)		—		60
Financial contracts
Interest rates (dollars in millions)	$	277	$	277

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

The following table shows fair value amounts of derivative contracts as of June 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.

45

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets

Balance Sheet Location

Duke Energy	June 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		3		—		5		—
Investments and Other Assets: Other		12		—		16		—
Current Liabilities: Other		—		13		—		13
Total Derivatives Designated as Hedging Instruments	$	15	$	13	$	21	$	13
Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	107	$	56	$	108	$	54
Investments and Other Assets: Other		44		4		55		4
Current Liabilities: Other		13		48		75		118
Deferred Credits and Other Liabilities: Other		7		82		3		72
Interest rate contracts
Current Assets: Other(a)		50		—		—		—
Investments and Other Assets: Other(a)		—		—		60		—
Current Liabilities: Other		—		2		—		2
Deferred Credits and Other Liabilities: Other		—		4		—		5
Total Derivatives Not Designated as Hedging Instruments	$	221	$	196	$	301	$	255
Total Derivatives	$	236	$	209	$	322	$	268

(a) Relates to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

Duke Energy Ohio	June 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		2		—		4		—
Investments and Other Assets: Other		5		—		2		—
Total Derivatives Designated as Hedging Instruments	$	7	$	—	$	6	$	—

46

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	89	$	60	$	106	$	57
Investments and Other Assets: Other		4		2		6		2
Current Liabilities: Other		14		27		75		98
Deferred Credits and Other Liabilities: Other		7		13		3		7
Interest rate contracts
Current Liabilities: Other		—		1		—		1
Deferred Credits and Other Liabilities: Other		—		4		—		4
Total Derivatives Not Designated as Hedging Instruments	$	114	$	107	$	190	$	169
Total Derivatives	$	121	$	107	$	196	$	169

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three and six months ended June 30, 2011 and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.

Cash Flow Hedges—Location and Amount of Pre-Tax Losses Recognized in Comprehensive Income

Duke Energy	Three Months Ended June  30,						Six Months Ended June  30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-tax Losses Reclassified from AOCI into Earnings(a)
Interest rate contracts
Interest expense		(2	)		(1	)		(3	)		(2	)
Total Pre-tax Losses Reclassified from AOCI into Earnings	$	(2	)	$	(1	)	$	(3	)	$	(2	)

(a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.

Duke Energy’s effective portion of losses on cash flow hedges that were recognized in AOCI during the three and six months ended June 30, 2011 were pre-tax losses of $10 million and $7 million, respectively, and pre-tax losses of $13 million during the three and six months ended June 30 2010. In addition, there was no hedge ineffectiveness during the three and six months ended June 30, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.

Duke Energy. At June 30, 2011, $36 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI, and a $13 million pre-tax loss is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.

Duke Energy Ohio. At June 30, 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and six months ended June 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

47

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in

Income or as Regulatory Assets or Liabilities

Duke Energy	Three Months Ended June  30,						Six Months Ended June  30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains and (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric	$	—		$	—		$	—		$	1
Revenue, non-regulated electric, natural gas and other		(12	)		(47	)		(25	)		(34	)
Fuel used in electric generation and purchased power-non-regulated		—			6			(1	)		6
Interest rate contracts
Interest expense		—			—			—			—
Total Pre-tax Losses Recognized in Earnings	$	(12	)	$	(41	)	$	(26	)	$	(27	)
Location of Pre-Tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset	$	(1	)	$	4		$	(1	)	$	2
Regulatory Liability		11			8			10			12
Interest rate contracts
Regulatory Asset		(21	)		(2	)		(9	)		(2	)
Total Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities	$	(11	)	$	10		$	—		$	12
Duke Energy Ohio	Three Months Ended June  30,						Six Months Ended June  30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains and (Losses) Recognized in Earnings
Commodity contracts
Revenue, non-regulated electric and other	$	(16	)	$	(79	)	$	(22	)	$	(18	)
Fuel used in electric generation and purchased power-non-regulated		—			6			(1	)		6
Interest rate contracts
Interest expense		(1	)		—			(1	)		—
Total Pre-tax Losses Recognized in Earnings(a)	$	(17	)	$	(73	)	$	(24	)	$	(12	)
Location of Pre-Tax Gains and (Losses) Recognized as Regulatory Assets
Commodity contracts
Regulatory Asset	$	(1	)	$	4		$	(1	)	$	2
Interest rate contracts
Regulatory Asset		—			(2	)		—			(2	)
Total Pre-tax Gains and (Losses) Recognized as Regulatory Assets	$	(1	)	$	2		$	(1	)	$	—

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

48

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Credit Risk

Certain of Duke Energy and Duke Energy Ohio’s derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio’s credit rating below investment grade.

The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at June 30, 2011 and December 31, 2010.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features

Duke Energy	June 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	84	$	148
Collateral Already Posted	$	16	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	6	$	14
Duke Energy Ohio	June 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	84	$	147
Collateral Already Posted	$	16	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	6	$	14

Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of June 30, 2011 and December 31, 2010. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	June 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	3		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets(a)	$	23		—	$	2	$	3
	June 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy Ohio	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	3		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets (a)		—	$	14		—	$	3

(a) Amounts for payables primarily represents initial margin deposits related to futures contracts.

49

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

9. Fair Value of Financial Assets and Liabilities

Under existing accounting guidance, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability versus an entry price, which would be the price paid to acquire an asset or received to assume a liability.

The Duke Energy Registrants classify recurring and non-recurring fair value measurements based on the following fair value hierarchy, as prescribed by the accounting guidance for fair value, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1—unadjusted quoted prices in active markets for identical assets or liabilities that Duke Energy has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information. Duke Energy does not adjust quoted market prices on Level 1 for any blockage factor.

Level 2—a fair value measurement utilizing inputs other than a quoted market price that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. A Level 2 measurement cannot have more than an insignificant portion of the valuation based on unobservable inputs.

Level 3—any fair value measurements which include unobservable inputs for the asset or liability for more than an insignificant portion of the valuation. A Level 3 measurement may be based primarily on level 2 inputs.

The fair value accounting guidance for financial instruments permits entities to elect to measure many financial instruments and certain other items at fair value that are not required to be accounted for at fair value under other GAAP. There are no financial assets or financial liabilities that are not required to be accounted for at fair value under GAAP for which the option to record at fair value has been elected by the Duke Energy Registrants. However, in the future, the Duke Energy Registrants may elect to measure certain financial instruments at fair value in accordance with this accounting guidance.

The Duke Energy Registrant’s Policy for the recognition of transfers between levels of the fair value hierarchy is to recognize the transfer at the end of the period.

Valuation methods of the primary fair value measurements disclosed below are as follows:

Investments in equity securities. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as NASDAQ and NYSE. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. Prices have not been adjusted to reflect for after-hours market activity. The majority of investments in equity securities are valued using Level 1 measurements.

Investments in available-for-sale auction rate securities. Duke Energy held $125 million par value ($99 million carrying value) and $149 million par value ($118 million carrying value) as of June 30, 2011, and December 31, 2010, respectively of auction rate securities for which an active market does not currently exist. During the three months ended June 30, 2011, $22 million of these investments in auction rate securities were redeemed by the issuer at full par value plus accrued interest. Duke Energy Carolinas held $16 million par value ($12 million carrying value) of these auction rate securities at both June 30, 2011, and December 31, 2010. The vast majority of these auction rate securities are AAA rated student loan securities for which substantially all the values are ultimately backed by the U.S. government. Those auction rate securities which are classified as long-term investments are valued using Level 3 measurements. The methods and significant assumptions used to determine the fair values of the investment in auction rate debt securities represent estimations of fair value using internal discounted cash flow models which incorporate primarily management’s own assumptions as to the term over which such investments will be recovered at par, the current level of interest rates, and the appropriate risk-adjusted discount rates when relevant observable inputs are not available to determine the present value of such cash flows. In preparing the valuations, all significant value drivers were considered, including the underlying collateral. Those auction rate securities which are classified as Short-term investments are valued using Level 2 measurements, as they are valued at par based on a commitment by the issuer to redeem at par value. As of June 30, 2011, Duke Energy held $9 million of auction rate securities classified as short-term investments. In July 2011, Duke Energy received $9 million from the issuer who redeemed the securities at par value. As a result, at June 30, 2011, Duke Energy recorded the fair value equal to the par value and transferred these securities from Level 3 to Level 2.

There were no other-than-temporary impairments associated with investments in auction rate debt securities during the six months ended June 30, 2011 or 2010.

Investments in debt securities. Most debt investments (including those held in the Nuclear Decomissioning Trust Funds (NDTF) are valued based on a calculation using interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. Most debt valuations are Level 2 measurements. If the market for a particular fixed income security is relatively inactive or illiquid, the measurement is a Level 3 measurement. U.S. Treasury debt is typically a Level 1 measurement.

Commodity derivatives. The pricing for commodity derivatives is primarily a calculated value which incorporates the forward price and is adjusted for liquidity (bid-ask spread), credit or non-performance risk (after reflecting credit enhancements such as collateral) and discounted to present value. The primary difference between a Level 2 and a Level 3 measurement has to do with the level of activity in forward markets for the commodity. If the market is relatively inactive, the measurement is deemed to be a Level 3 measurement. Some commodity derivatives are exchange traded contracts, which are classified as Level 1 measurements.

50

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Duke Energy

The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy’s Condensed Consolidated Balance Sheets at fair value at June 30, 2011 and December 31, 2010. Derivative amounts in the table below exclude cash collateral amounts which are disclosed in Note 8. See Note 10 for additional information related to investments by major security type.

	Total Fair Value Amounts at June 30, 2011			Level 1			Level 2			Level 3
	(in millions)
Description
Investments in available-for-sale auction rate securities(a)	$	99		$	—		$	9		$	90
Nuclear decommissioning trust fund equity securities		1,452			1,400			47			5
Nuclear decommissioning trust fund debt securities		685			86			551			48
Other long-term trading and available-for-sale equity securities(b)		73			65			8			—
Other long-term trading and available-for-sale debt securities(b)		220			27			193			—
Derivative assets(c)		156			15			65			76
Total Assets	$	2,685		$	1,593		$	873		$	219
Derivative liabilities(d)		(129	)		(11	)		(20	)		(98	)
Net Assets	$	2,556		$	1,582		$	853		$	121

(a) $90 million of these securities are included in Other within Investments and Other Assets and $9 million are classified as Short-Term Investments on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(c) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(d) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

	Total Fair Value Amounts at December 31, 2010			Level 1			Level 2			Level 3
	(in millions)
Description
Investments in available-for-sale auction rate securities(a)	$	118		$	—		$	—		$	118
Nuclear decommissioning trust fund equity securities		1,365			1,313			46			6
Nuclear decommissioning trust fund debt securities		649			35			573			41
Other long-term trading and available-for-sale equity securities(a)		164			157			7			—
Other long-term trading and available-for-sale debt securities(a)		221			10			211			—
Derivative assets(b)		186			21			81			84
Total Assets	$	2,703		$	1,536		$	918		$	249
Derivative liabilities(c)		(132	)		(8	)		(21	)		(103	)
Net Assets	$	2,571		$	1,528		$	897		$	146

(a) Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(c) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):

51

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Rollforward of Level 3 Measurements

	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments			Derivatives (net)			Total
Three Months Ended June 30, 2011
Balance at April 1, 2011	$	122		$	48		$	(24	)	$	146
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric, natural gas, and other		—			—			(11	)		(11	)
Total pre-tax losses included in other comprehensive income:
Losses on available for sale securities and other		(1	)		—			—			(1	)
Purchases, sales, issuances and settlements:
Purchases		—			6			—			6
Sales		—			(1	)		—			(1	)
Settlements		(22	)		—			(6	)		(28	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		—			—			19			19
Transfers out of Level 3		(9	)								(9	)
Balance at June 30, 2011	$	90		$	53		$	(22	)	$	121
Three Months Ended June 30, 2010
Balance at April 1, 2010	$	202		$	25		$	21		$	248
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric, natural gas, and other		—			—			(73	)		(73	)
Fuel used in electric generation and purchased power - non-regulated		—			—			(8	)		(8	)
Total pre-tax gains(losses) included in other comprehensive income:
Gains on available for sale securities and other		5									5
Losses on commodity cash flow hedges								(1	)		(1	)
Net purchases, sales, issuances and settlements		(29	)		23			41			35
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		—			—			13			13
Balance at June 30, 2010	$	178		$	48		$	(7	)	$	219
	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments			Derivatives (net)			Total
Six Months Ended June 30, 2011
Balance at January 1, 2011	$	118		$	47		$	(19	)	$	146
Transfers in to Level 3		—			—			—			—
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric, natural gas, and other		—			—			(19	)		(19	)
Fuel used in electric generation and purchased power-non-regulated		—			—			—			—
Total pre-tax gains included in other comprehensive income:
Gains on available for sale securities and other		5			—			—			5
Net purchases, sales, issuances and settlements:
Purchases		—			7			—			7
Sales		—			(3	)		—			(3	)
Settlements		(24	)		—			(3	)		(27	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability or as non-current liability		—			2			19			21
Transfers out of Level 3		(9	)								(9	)
Balance at June 30, 2011	$	90		$	53		$	(22	)	$	121

52

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments		Derivatives (net)			Total
Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at June 30, 2011:
Revenue, non-regulated electric, natural gas, and other	$	—		$	—	$	(10	)	$	(10	)
Total	$	—		$	—	$	(10	)	$	(10	)
Six Months Ended June 30, 2010
Balance at January 1, 2010	$	198		$	—	$	25		$	223
Transfers in to Level 3		—			—		—			—
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric, natural gas, and other		—			—		(29	)		(29	)
Fuel used in electric generation and purchased power-non-regulated		—			—		(11	)		(11	)
Total pre-tax gains included in other comprehensive income:					—		—
Gains on available for sale securities and other		10								10
Net purchases, sales, issuances and settlement		(30	)		48		(7	)		11
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability or as non-current liability		—			—		15			15
Balance at June 30, 2010	$	178		$	48	$	(7	)	$	219
Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at June 30, 2011:
Revenue, non-regulated electric, natural gas, and other	$	—		$	—	$	16		$	16
Fuel used in electric generation and purchased power-non-regulated		—			—		(1	)		(1	)
Total	$	—		$	—	$	15		$	15

Duke Energy Carolinas

The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets at fair value at June 30, 2011 and December 31, 2010. Amounts presented in the tables below exclude cash collateral amounts. See Note 10 for additional information related to investments by major security type.

	Total Fair Value Amounts at June 30, 2011		Level 1		Level 2		Level 3
	(in millions)
Description
Investments in available-for-sale auction rate securities(a)	$	12	$	—	$	—	$	12
Nuclear decommissioning trust fund equity securities		1,452		1,400		47		5
Nuclear decommissioning trust fund debt securities		685		86		551		48
Derivative assets(b)		51		—		51		—
Total assets	$	2,200	$	1,486	$	649	$	65

(a) Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

53

PART I

DUKE ENERGY CORPORATION - DUKE ENERGY CAROLINAS, LLC - DUKE ENERGY OHIO, INC. -

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	Total Fair Value Amounts at December 31, 2010			Level 1			Level 2		Level 3
	(in millions)
Description
Investments in available-for-sale auction rate securities(a)	$	12		$	—		$	—	$	12
Nuclear decommissioning trust fund equity securities		1,365			1,313			46		6
Nuclear decommissioning trust fund debt securities		649			35			573		41
Derivative assets(b)		62			1			61		—
Total assets		2,088			1,349			680		59
Derivative liabilities(c)		(1	)		(1	)		—		—
Net Assets	$	2,087		$	1,348		$	680	$	59

(a) Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(c) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):

Rollforward of Level 3 Measurements

	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments			Total
	(in millions)
Three Months Ended June 30, 2011
Balance at April 1, 2011	$	12		$	48		$	60
Purchases, sales, issuances and settlements:
Purchases		—			6			6
Sales		—			(1	)		(1	)
Balance at June 30, 2011	$	12		$	53		$	65
	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments			Total
	(in millions)
Three Months Ended June 30, 2010
Balance at April 1, 2010	$	66		$	25		$	91
Total pre-tax gains included in other comprehensive income:
Gains on available for sale securities and other		2			—			2
Net purchases, sales, issuances and settlements		(8	)		23			15
Balance at June 30, 2010	$	60		$	48		$	108

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments			Total
	(in millions)
Six Months Ended June 30, 2011
Balance at January 1, 2011	$	12		$	47		$	59
Purchases, sales, issuances and settlements:
Purchases		—			7			7
Sales		—			(3	)		(3	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		—			2			2
Balance at June 30, 2011	$	12		$	53		$	65
	Available-for- Sale Auction Rate Securities			Available-for- Sale NDTF Investments			Total
	(in millions)
Six Months Ended June 30, 2010
Balance at January 1, 2010	$	66		$	—		$	66
Total pre-tax gains included in other comprehensive income:
Gains on available for sale securities and other		2			—			2
Net purchases, sales, issuances and settlements		(8	)		48			40
Balance at June 30, 2010	$	60		$	48		$	108

Duke Energy Ohio

The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Ohio’s Condensed Consolidated Balance Sheets at fair value at June 30, 2011 and December 31, 2010. Amounts presented in the tables below exclude cash collateral amounts which are disclosed separately in Note 8.

	Total Fair Value Amounts at June 30, 2011			Level 1			Level 2			Level 3
	(in millions)
Description
Derivative assets(a)	$	38		$	14		$	7		$	17
Derivative liabilities(b)		(24	)		(9	)		(5	)		(10	)
Net Assets	$	14		$	5		$	2		$	7

(a) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	Total Fair Value Amounts at December 31, 2010			Level 1			Level 2			Level 3
	(in millions)
Description
Derivative assets(a)	$	59		$	20		$	6		$	33
Derivative liabilities(b)		(32	)		(7	)		(5	)		(20	)
Net Assets	$	27		$	13		$	1		$	13

(a) Included in Other within Current Assets and Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):

Rollforward of Level 3 Measurements

	Derivatives (net)
Three Months Ended June 30, 2011
Balance at April 1, 2011	$	17
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric and other		(10	)
Balance at June 30, 2011	$	7
Three Ended June 30, 2010
Balance at April 1, 2010	$	56
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric and other		(50	)
Fuel used in electric generation and purchased power - non-regulated		(8	)
Total pre-tax losses included in other comprehensive income:
Losses on commodity cash flow hedges		(1	)
Net purchases, sales, issuances and settlements		(4	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		3
Balance at June 30, 2010	$	(4	)
	Derivatives (net)
Six Months Ended June 30, 2011
Balance at January 1, 2011	$	13
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric and other		(6	)
Purchases, sales, issuances and settlements:
Settlements		(1	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		1
Balance at June 30, 2011	$	7
Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at June 30, 2011:
Revenue, non-regulated electric and other	$	1
Total	$	1

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	Derivatives (net)
Six Months Ended June 30, 2010
Balance at January 1, 2010	$	7
Total pre-tax realized or unrealized losses included in earnings:
Revenue, non-regulated electric and other		(2	)
Fuel used in electric generation and purchased power - non-regulated		(11	)
Net purchases, sales, issuances and settlements		(1	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		3
Balance at June 30, 2010	$	(4	)
Pre-tax amounts included in the Condensed Consolidated Statements of Operations related to Level 3 measurements outstanding at June 30, 2010:
Revenue, non-regulated electric and other	$	16
Fuel used in electric generation and purchased power - non-regulated		(1	)
Total	$	15

Duke Energy Indiana

The following tables provide the fair value measurement amounts for assets and liabilities recorded on Duke Energy Indiana’s Condensed Consolidated Balance Sheets at fair value at June 30, 2011 and December 31, 2010. Amounts presented in the tables below exclude cash collateral amounts. See Note 10 for additional information related to investments by major security type.

	Total Fair Value Amounts at June 30, 2011			Level 1		Level 2			Level 3
	(in millions)
Description
Available-for-sale equity securities(a)	$	49		$	49	$	—		$	—
Available-for-sale debt securities(a)		27			—		27			—
Derivative assets(b)		10			—		—			10
Total Assets		86			49		27			10
Derivative liabilities(c)		(2	)		—		(2	)		—
Net Assets	$	84		$	49	$	25		$	10

(a) Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Assets on the Condensed Consolidated Balance Sheets.

(c) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

	Total Fair Value Amounts at December 31, 2010			Level 1		Level 2			Level 3
	(in millions)
Description
Available-for-sale equity securities(a)	$	47		$	47	$	—		$	—
Available-for-sale debt securities(a)		26			—		26			—
Derivative assets(b)		4			—		—			4
Total Assets		77			47		26			4
Derivative liabilities(c)		(2	)		—		(2	)		—
Net Assets	$	75		$	47	$	24		$	4

(a) Included in Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(b) Included in Other within Current Assets on the Condensed Consolidated Balance Sheets.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

(c) Included in Other within Current Liabilities and Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

The following table provides a reconciliation of beginning and ending balances of assets measured at fair value on a recurring basis where the determination of fair value includes significant unobservable inputs (Level 3):

Rollforward of Level 3 measurements

	Derivatives (net)
	(in millions)
Three Months Ended June 30, 2011
Balance at April 1, 2011	$	1
Net purchases, sales, issuances and settlements:
Settlements		(10	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		19
Balance at June 30, 2011	$	10
Three Months Ended June 30, 2010
Balance at April 1, 2010	$	3
Net purchases, sales, issuances and settlements		(6	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		10
Balance at June 30, 2010	$	7

	Derivatives (net)
	(in millions)
Six Months Ended June 30, 2011
Balance at January 1, 2011	$	4
Net purchases, sales, issuances and settlements:
Settlements		(12	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		18
Balance at June 30, 2011	$	10
Six Months Ended June 30, 2010
Balance at January 1, 2010	$	4
Net purchases, sales, issuances and settlements		(9	)
Total gains included on the Condensed Consolidated Balance Sheet as regulatory asset or liability		12
Balance at June 30, 2010	$	7

Additional Fair Value Disclosures - Long-term debt: The fair value of long-term debt is summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates determined as of June 30, 2011 and December 31, 2010 are not necessarily indicative of the amounts the Duke Energy Registrants could have settled in current markets.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	As of June 30, 2011
	Duke Energy				Duke Energy Carolinas				Duke Energy Ohio				Duke Energy Indiana
	Book Value(a)		Fair Value		Book Value(a)		Fair Value		Book Value		Fair Value		Book Value		Fair Value
	(in millions)
Long-term debt, including current maturities	$	18,695	$	20,069	$	8,268	$	8,932	$	2,562	$	2,634	$	3,470	$	3,730

(a) Includes Non-recourse long-term debt of variable interest entities of $922 million for Duke Energy and $300 million for Duke Energy Carolinas.

	As of December 31, 2010
	Duke Energy				Duke Energy Carolinas				Duke Energy Ohio				Duke Energy Indiana
	Book Value		Fair Value		Book Value		Fair Value		Book Value		Fair Value		Book Value		Fair Value
	(in millions)
Long-term debt, including current maturities(a)	$	18,210	$	19,484	$	7,770	$	8,376	$	2,564	$	2,614	$	3,472	$	3,746

a) Includes Non-recourse long-term debt of variable interest entities of $976 million for Duke Energy and $300 million for Duke Energy Carolinas.

At both June 30, 2011 and December 31, 2010, the fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, commercial paper and non-recourse notes payables of variable interest entities are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.

10. Investments in Debt and Equity Securities

The Duke Energy Registrants classify their investments in debt and equity securities into two categories – trading and available-for-sale. Investments in debt and equity securities held in grantor trusts associated with certain deferred compensation plans and certain other investments are classified as trading securities and are reported at fair value in the Condensed Consolidated Balance Sheets with net realized and unrealized gains and losses included in earnings each period. All other investments in debt and equity securities are classified as available-for-sale securities, which are also reported at fair value on the Condensed Consolidated Balance Sheets with unrealized gains and losses excluded from earnings and reported either as a regulatory asset or liability, as discussed further below, or as a component of other comprehensive income until realized.

Trading Securities. Duke Energy holds investments in debt and equity securities in grantor trusts that are associated with certain deferred compensation plans. At June 30, 2011 and December 31, 2010, the fair value of these investments was $31 million and $29 million, respectively. Additionally, at December 31, 2010, Duke Energy held Windstream Corp. (Windstream) equity securities, which were received as proceeds from the sale of Duke Energy’s equity investment in Q-Comm Corporation during the fourth quarter of 2010. The fair value of these securities at December 31, 2010 was $87 million. Duke Energy subsequently sold these securities in the first quarter of 2011. Proceeds received from the sale of Windstream equity securities are reflected in Net proceeds from the sale of equity investments and other assets, and sales of and collections on notes receivable in the Duke Energy Condensed Consolidated Statement of Cash Flows.

Available for Sale Securities. Duke Energy’s available-for-sale securities are primarily comprised of investments held in the NDTF at Duke Energy Carolinas, investments in a grantor trust at Duke Energy Indiana related to other post-retirement benefit plans as required by the IURC, Duke Energy captive insurance investment portfolio and investments of Duke Energy and Duke Energy Carolinas in auction rate debt securities. The investments within the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust are managed by independent investment managers with discretion to buy, sell and invest pursuant to the objectives set forth by the trust agreements. Therefore, Duke Energy Carolinas and Duke Energy Indiana have limited oversight of the day-to-day management of these investments. Since day-to-day investment decisions, including buy and sell decisions, are made by the investment manager, the ability to hold investments in unrealized loss positions is outside the control of Duke Energy Carolinas and Duke Energy Indiana. Accordingly, all unrealized gains and losses associated with equity securities within the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust are considered other-than-temporary and are recognized immediately when the fair value of individual investments is less than the cost basis of the investment. Pursuant to regulatory accounting, substantially all unrealized losses associated with investments in debt and equity securities within the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust are deferred as a regulatory asset or liability. As a result there is no immediate impact on the earnings of Duke Energy Carolinas and Duke Energy Indiana. For investments in debt and equity securities held in the captive insurance investment portfolio and investments in auction rate debt securities, unrealized gains and losses are included in other comprehensive income until realized, unless it is determined that the carrying value of an investment is other-than-temporarily impaired. If so, the write-down to fair value may be included in earnings based on the criteria discussed below.

For available-for-sale securities outside of the Duke Energy Carolinas NDTF and the Duke Energy Indiana grantor trust, which are discussed separately above, Duke Energy analyzes all investment holdings each reporting period to determine whether a decline in fair value

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

should be considered other-than-temporary. Criteria used to evaluate whether an impairment associated with equity securities is other-than-temporary includes, but is not limited to, the length of time over which the market value has been lower than the cost basis of the investment, the percentage decline compared to the cost of the investment and management’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value is determined to be other-than-temporary, the investment is written down to its fair value through a charge to earnings.

With respect to investments in debt securities, under the accounting guidance for other-than-temporary impairment, if the entity does not have an intent to sell the security and it is not more likely than not that management will be required to sell the debt security before the recovery of its cost basis, the impairment write-down to fair value would be recorded as a component of other comprehensive income, except for when it is determined that a credit loss exists. In determining whether a credit loss exists, management considers, among other things, the length of time and the extent to which the fair value has been less than the amortized cost basis, changes in the financial condition of the issuer of the security, or in the case of an asset backed security, the financial condition of the underlying loan obligors, consideration of underlying collateral and guarantees of amounts by government entities, ability of the issuer of the security to make scheduled interest or principal payments and any changes to the rating of the security by rating agencies. If it is determined that a credit loss exists, the amount of impairment write-down to fair value would be split between the credit loss, which would be recognized in earnings, and the amount attributable to all other factors, which would be recognized in other comprehensive income. Management believes, based on consideration of the criteria above that no credit loss exists as of June 30, 2011 and December 31, 2010. Management does not have the intent to sell such investments in auction rate debt securities and the investments in debt securities within its captive insurance investment portfolio, and it is not more likely than not that management will be required to sell these securities before the anticipated recovery of their cost basis. Therefore, management has concluded that there were no other-than-temporary impairments necessary as of June 30, 2011 and December 31, 2010. Accordingly, all changes in the market value of investments in auction rate debt securities and captive insurance investments were reflected as a component of other comprehensive income in 2011 and 2010.

See Note 9 for additional information related to fair value measurements for investments in auction rate debt securities.

Management will continue to monitor the carrying value of its entire portfolio of investments in the future to determine if any other-than-temporary impairment losses should be recognized.

Investments in debt and equity securities are classified as either short-term investments or long-term investments based on management’s intent and ability to sell these securities, taking into consideration illiquidity factors in the current markets.

Short-term and Long-term investments. Duke Energy classifies its investments in debt and equity securities held in the Duke Energy Carolinas NDTF (see Note 9 for further information), the Duke Energy Indiana grantor trust and the captive insurance investment portfolio as long-term. Additionally, Duke Energy has classified $90 million carrying value ($116 million par value) and $118 million carrying value ($149 million par value) of investments in auction rate debt securities as long-term at June 30, 2011 and December 31, 2010, respectively, due to market illiquidity factors as a result of continued failed auctions. All of these investments are classified as available-for-sale and, therefore, are reflected on the Condensed Consolidated Balance Sheets at estimated fair value based on either quoted market prices or management’s best estimate of fair value based on expected future cash flow using appropriate risk-adjusted discount rates. Since management does not intend to use these investments in current operations, these investments are classified as long-term.

The estimated fair values of short-term and long-term investments classified as available-for-sale for Duke Energy, Duke Energy Carolinas and Duke Energy Indiana are as follows (in millions):

Duke Energy

	June 30, 2011							December 31, 2010
	Gross Unrealized Holding Gains(a)		Gross Unrealized Holding Losses(a)			Estimated Fair Value		Gross Unrealized Holding Gains(a)		Gross Unrealized Holding Losses(a)			Estimated Fair Value
Equity Securities	$	537	$	(19	)	$	1,517	$	481	$	(16	)	$	1,435
Corporate Debt Securities		9		(2	)		256		12		(3	)		270
Municipal Bonds		1		(8	)		63		1		(9	)		69
U.S. Government Bonds		11		—			294		10		(1	)		235
Auction Rate Debt Securities(b)		—		(26	)		99		—		(31	)		118
Other		6		(2	)		269		11		(5	)		274
Total long-term investments	$	564	$	(57	)	$	2,498	$	515	$	(65	)	$	2,401

(a) The table above includes unrealized gains and losses of $551 million and $30 million, respectively, at June 30, 2011 and unrealized gains and losses of $505 million and $32 million, respectively, at December 31, 2010 associated with investments held in the NDTF. Additionally, the table above includes unrealized gains of $9 million and an insignificant amount of unrealized losses, respectively, at June 30, 2011 and unrealized gains of $6 million and an insignificant amount of unrealized losses, respectively, at December 31, 2010 associated with investments held in the Duke Energy Indiana grantor trust. As discussed above, unrealized losses on investments within the NDTF and Duke Energy Indiana grantor trust are deferred as a regulatory asset pursuant to regulatory accounting treatment.

(b) At June 30, 2011, auction rate securities estimated fair value of $90 million are included in Other within Investments and Other Assets and estimated fair value of $9 million are classified as Short-Term Investments on the Condensed Consolidated Balance Sheets.

Debt securities held at June 30, 2011, which includes auction rate securities based on the stated maturity date, mature as follows: $64 million in less than one year, $178 million in one to five years, $199 million in six to 10 years and $441 million thereafter.

The fair values and gross unrealized losses of available-for-sale debt and equity securities which are in an unrealized loss position for which other-than-temporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below as of June 30, 2011 and December 31, 2010.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

	As of June 30, 2011								As of December 31, 2010
	Fair Value(a)		Unrealized Loss Position >12 months			Unrealized Loss Position <12 months			Fair Value(a)		Unrealized Loss Position >12 months			Unrealized Loss Position <12 months
Equity Securities	$	104	$	(12	)	$	(7	)	$	85	$	(11	)	$	(5	)
Corporate Debt Securities		55		(1	)		(1	)		73		(2	)		(2	)
Municipal Bonds		37		(7	)		(1	)		42		(8	)		(1	)
U.S. Government Bonds		62		—			—			38		—			(1	)
Auction Rate Debt Securities(b)		90		(26	)		—			118		(31	)		—
Other		53		(2	)		—			84		(1	)		(3	)
Total long-term investments	$	401	$	(48	)	$	(9	)	$	440	$	(53	)	$	(12	)

(a) The table above includes fair values of $232 million and $226 million at June 30, 2011 and December 31, 2010, respectively, associated with investments held in the NDTF. Additionally, the table above includes fair values of $9 million and $5 million at June 30, 2011 and December 31, 2010, respectively, associated with investments held in the Duke Energy Indiana grantor trust.

(b) See Note 9 for information about fair value measurements related to investments in auction rate debt securities.

Duke Energy Carolinas

	June 30, 2011							December 31, 2010
	Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
Equity Securities	$	528	$	(19	)	$	1,452	$	475	$	(16	)	$	1,365
Corporate Debt Securities		8		(2	)		204		10		(3	)		227
Municipal Bonds		—		(8	)		37		1		(9	)		43
U.S. Government Bonds		11		—			268		10		—			224
Auction Rate Debt Securities		—		(3	)		12		—		(3	)		12
Other		4		(1	)		176		9		(4	)		155
Total long-term investments	$	551	$	(33	)	$	2,149	$	505	$	(35	)	$	2,026

Debt securities held at June 30, 2011, which includes auction rate securities based on the stated maturity date, mature as follows: $53 million in less than one year, $119 million in one to five years, $162 million in six to 10 years and $351 million thereafter.

The fair values and gross unrealized losses of available-for-sale debt and equity securities which are in an unrealized loss position for which other-than-temporary impairment losses have not been recorded, summarized by investment type and length of time that the securities have been in a continuous loss position, are presented in the table below as of June 30, 2011 and December 31, 2010.

	As of June 30, 2011								As of December 31, 2010
	Fair Value		Unrealized Loss Position >12 months			Unrealized Loss Position <12 months			Fair Value		Unrealized Loss Position >12 months			Unrealized Loss Position <12 months
Equity Securities	$	99	$	(12	)	$	(7	)	$	79	$	(11	)	$	(5	)
Corporate Debt Securities		45		(1	)		(1	)		59		(2	)		(1	)
Municipal Bonds		28		(7	)		(1	)		28		(8	)		(1	)
U.S. Government Bonds		42		—			—			33		—			—
Auction Rate Debt Securities(a)		12		(3	)		—			12		(3	)		—
Other		18		(2	)		1			27		(1	)		(3	)
Total long-term investments	$	244	$	(25	)	$	(8	)	$	238	$	(25	)	$	(10	)

(a) See Note 9 for information about fair value measurements related to investments in auction rate debt securities.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

Duke Energy Indiana

	June 30, 2011						December 31, 2010
	Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value
Equity Securities	$	8	$	—	$	49	$	6	$	—	$	47
Municipal Bonds		1		—		27		—		—		26
Total long-term investments	$	9	$	—	$	76	$	6	$	—	$	73

Debt securities held at June 30, 2011 mature as follows: $1 million in less than one year, $18 million in one to five years, $6 million in six to 10 years and $2 million thereafter.

At Duke Energy Indiana, as of June 30, 2011 and December 31, 2010, $9 million and $14 million, respectively, carrying value of available-for-sale equity and debt securities were in an insignificant unrealized loss position for which other-than-temporary impairment losses have not been recorded.

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DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements – (Continued)

11. Variable Interest Entities

A VIE is an entity that is evaluated for consolidation using more than a simple analysis of voting control. The analysis to determine whether an entity is a VIE considers contracts with an entity, credit support for an entity, the adequacy of the equity investment of an entity and the relationship of voting power to the amount of equity invested in an entity. This analysis is performed either upon the creation of a legal entity or upon the occurrence of an event requiring reevaluation, such as a significant change in an entity’s assets or activities. If an entity is determined to be a VIE, a qualitative analysis of control determines the party that consolidates a VIE based on what party has the power to direct the most significant activities of the VIE that impact its economic performance as well as what party has rights to receive benefits or is obligated to absorb losses that are significant to the VIE. The analysis of the party that consolidates a VIE is a continual reassessment.

CONSOLIDATED VIEs

The table below shows the VIEs that Duke Energy and Duke Energy Carolinas consolidate and how these entities impact Duke Energy’s and Duke Energy Carolinas’ respective Condensed Consolidated Balance Sheets. None of these entities is consolidated by Duke Energy Ohio or Duke Energy Indiana.

Other than the discussion below related to Cinergy Receivables, no financial support was provided to any of the consolidated VIEs during the three or six months ended June 30, 2011 and the year ended December 31, 2010, respectively, or is expected to be provided in the future, that was not previously contractually required.

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DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

	Duke Energy
	Duke Energy Carolinas
	Duke Energy Receivables Financing LLC (DERF)		Cinergy Receivables		CinCap V		Renewables			Other		Total
	(in millions)
At June 30, 2011
VIE Balance Sheets
Restricted Receivables of VIEs	$	630	$	518	$	12	$	10		$	3	$	1,173
Other Current Assets		—		—		4		163			8		175
Intangibles, net		—		—		—		13			—		13
Restricted Other Assets of VIEs		—		—		70		18			63		151
Other Assets		—		—		22		—			5		27
Property, Plant and Equipment Cost, VIEs		—		—		—		865			—		865
Less Accumulated Depreciation and Amortization		—		—		—		(44	)		—		(44	)
Other Assets and Deferred Debits		—		—		—		25			1		26
Total Assets		630		518		108		1,050			80		2,386
Accounts Payable		—		—		—		1			2		3
Non-Recourse Notes Payable		—		275		—		—			—		275
Taxes Accrued		—		—		—		3			—		3
Current Maturities of Long-Term Debt		—		—		10		30			4		44
Other Current Liabilities		—		—		5		16			—		21
Non-Recourse Long-Term Debt		300		—		66		492			64		922
Deferred Income Taxes		—		—		—		202			—		202
Asset Retirement Obligation		—		—		—		12			—		12
Other Liabilities		—		—		20		5			1		26
Total Liabilities		300		275		101		761			71		1,508
Noncontrolling interests		—		—		—		—			2		2
Net Duke Energy Corporation Shareholders’ Equity	$	330	$	243	$	7	$	289		$	7	$	876

64

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

	Duke Energy
	Duke Energy Carolinas
	Duke Energy Receivables Financing LLC (DERF)		Cinergy Receivables		CinCap V		Renewables			Other			Total
	(in millions)
At December 31, 2010
VIE Balance Sheets
Restricted Receivables of VIEs	$	637	$	629	$	12	$	20		$	4		$	1,302
Other Current Assets		—		—		4		282			8			294
Intangibles, net		—		—		—		13			—			13
Restricted Other Assets of VIEs		—		—		76		(2	)		65			139
Other Assets		—		—		23		—			—			23
Property, Plant and Equipment Cost, VIEs		—		—		—		892			50			942
Less Accumulated Depreciation and Amortization		—		—		—		(26	)		(29	)		(55	)
Other Assets and Deferred Debits		—		—		—		24			(3	)		21
Total Assets		637		629		115		1,203			95			2,679
Accounts Payable		—		—		—		2			2			4
Non-Recourse Notes Payable		—		216		—		—			—			216
Taxes Accrued		—		—		—		1			—			1
Current Maturities of Long-Term Debt		—		—		9		45			7			61
Other Current Liabilities		—		—		5		16			—			21
Non-Recourse Long-Term Debt		300		—		71		518			87			976
Deferred Income Taxes		—		—		—		191			—			191
Asset Retirement Obligation		—		—		—		12			—			12
Other Liabilities		—		—		22		4			—			26
Total Liabilities		300		216		107		789			96			1,508
Noncontrolling interests		—		—		—		—			1			1
Net Duke Energy Corporation Shareholders’ Equity	$	337	$	413	$	8	$	414		$	(2	)	$	1,170

DERF. Duke Energy Carolinas securitizes certain accounts receivable through DERF, a bankruptcy remote, special purpose subsidiary. DERF is a wholly-owned limited liability company of Duke Energy Carolinas with a separate legal existence from its parent, and its assets are not intended to be generally available to creditors of Duke Energy Carolinas. As a result of the securitization, on a daily basis Duke Energy Carolinas sells certain accounts receivable, arising from the sale of electricity and/or related services as part of Duke Energy Carolinas’ franchised electric business, to DERF. In order to fund its purchases of accounts receivable, DERF has a $300 million secured credit facility with a commercial paper conduit, which expires in August 2012. Duke Energy Carolinas provides the servicing for the receivables (collecting and applying the cash to the appropriate receivables). Duke Energy Carolinas’ borrowing under the credit facility is limited to the amount of qualified receivables sold, which has been and is expected to be in excess of the amount borrowed, which is maintained at $300 million. The debt is classified as long-term since the facility has an expiration date of greater than one year from the balance sheet date.

The obligations of DERF under the facility are non-recourse to Duke Energy Carolinas. Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase assets of DERF or guarantee performance. DERF is considered a VIE because the equity capitalization is insufficient to support its operations. If deficiencies in the net worth of DERF were to occur, those deficiencies would be cured through funding from Duke Energy Carolinas. In addition, the most significant activity of DERF relates to the decisions made with respect to the management of delinquent receivables. Since those decisions are made by Duke Energy Carolinas and any net worth deficiencies of DERF would be cured through funding from Duke Energy Carolinas, Duke Energy Carolinas consolidates DERF.

Cinergy Receivables. Cinergy Receivables was formed in order to secure low cost financing for Duke Energy Ohio, including Duke Energy Kentucky, and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana sell on a revolving basis at a discount, nearly all of their customer accounts receivable and related collections to Cinergy Receivables. The receivables which are sold are selected in order to avoid any significant concentration of credit risk and exclude delinquent receivables. The receivables sold are securitized by Cinergy Receivables through a facility managed by two unrelated third parties and the receivables are used as collateral for commercial paper issued by the unrelated third parties. These loans provide the cash portion of the proceeds paid by Cinergy Receivables to Duke Energy Ohio and Duke Energy Indiana. The proceeds obtained by Duke Energy Ohio and Duke Energy Indiana from the sales of receivables are cash and a subordinated note from Cinergy Receivables (subordinated retained interest in the sold receivables) for a portion of the purchase price (typically approximates 25% of the total proceeds). The amount borrowed by Cinergy Receivables against these receivables is non-recourse to the general credit of Duke Energy, and the associated cash collections from the accounts receivable sold is the sole source of funds to satisfy the related debt obligation. Borrowing is limited to approximately 75% of the transferred receivables. Losses on collection in excess of the discount are first absorbed by the equity of Cinergy Receivables and next by the subordinated retained interests held by Duke Energy

65

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

Ohio and Duke Energy Indiana. The discount on the receivables reflects interest expense plus an allowance for bad debts net of a servicing fee charged by Duke Energy Ohio and Duke Energy Indiana. Duke Energy Ohio and Duke Energy Indiana are responsible for the servicing of the receivables (collecting and applying the cash to the appropriate receivables). Depending on the experience with collections, additional equity infusions to Cinergy Receivables may be required to be made by Duke Energy in order to maintain a minimum equity balance of $3 million. For each of the six months ended June 30, 2011 and 2010, Duke Energy infused $6 million of equity to Cinergy Receivables to remedy net worth deficiencies. The amount borrowed fluctuates based on the amount of receivables sold. The debt is short-term because the facility has an expiration date of less than one year from the balance sheet date. The current expiration date is October 2011. Cinergy Receivables is considered a VIE because the equity capitalization is insufficient to support its operations, the power to direct the most significant activities of the entity are not performed by the equity holder, Cinergy, and deficiencies in the net worth of Cinergy Receivables are not funded by Cinergy, but by Duke Energy. The most significant activity of Cinergy Receivables relates to the decisions made with respect to the management of delinquent receivables. These decisions, as well as the requirement to make up deficiencies in net worth, are made by Duke Energy and not by Duke Energy Ohio, Duke Energy Kentucky or Duke Energy Indiana. Thus, Duke Energy consolidates Cinergy Receivables. Neither Duke Energy Ohio or Duke Energy Indiana consolidate Cinergy Receivables.

CinCap V. CinCap V was created to finance and execute a power sale agreement with Central Maine Power Company for approximately 35 MW of capacity and energy. This agreement expires in 2016. CinCap V is considered a VIE because the equity capitalization is insufficient to support its operations. As Duke Energy has the power to direct the most significant activities of the entity, which are the decisions to hedge and finance the power sales agreement, CinCap V is consolidated by Duke Energy.

Renewables. Duke Energy’s renewable energy facilities include Green Frontier Windpower, LLC, Top of The World Wind Energy LLC and TX Solar I, LLC, all subsidiaries of DEGS, an indirect wholly-owned subsidiary of Duke Energy.

These renewable energy facilities are VIEs due to power purchase agreements with terms that approximate the expected life of the projects. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power. Duke Energy has consolidated these entities since inception because the most significant activities that impact the economic performance of these renewable energy facilities were the decisions associated with the siting, negotiation of the purchase power agreement, engineering, procurement and construction, all of which were made solely by Duke Energy.

The debt held by these renewable energy facilities is non-recourse to the general credit of Duke Energy. Duke Energy and its subsidiaries have no requirement to provide liquidity or purchase the assets of these renewable energy facilities. Duke Energy does not guarantee performance except for an immaterial Green Frontier Windpower, LLC multi-purpose letter of credit and immaterial debt service reserve and operations and maintenance reserve guarantees at Top of the World Wind Energy LLC and TX Solar I, LLC. The assets are restricted and they cannot be pledged as collateral or sold to third parties without the prior approval of the debt holders.

Other. Duke Energy has other VIEs with restricted assets and non-recourse debt. These VIEs include certain on-site power generation facilities. Duke Energy consolidates these particular on-site power generation entities because Duke Energy has the power to direct the majority of the most significant activities, which, most notably involve the oversight of operation and maintenance related activities that impact the economic performance of these entities.

During the second quarter of 2011, the customer for an on-site generation facility cancelled its contract. As a result, the entity providing the on-site generation services no longer has any activity or assets, other than a receivable with payments to be collected through 2017. As of June 30, 2011, Duke Energy no longer consolidates this entity.

NON-CONSOLIDATED VIEs

The table below shows the VIEs that the Duke Energy Registrants do not consolidate and how these entities impact Duke Energy’s, Duke Energy Ohio’s and Duke Energy Indiana’s respective Condensed Consolidated Balance Sheets. As discussed above, while Duke Energy consolidates Cinergy Receivables, Duke Energy Ohio and Duke Energy Indiana do not consolidate Cinergy Receivables as they are not the primary beneficiary.

					Duke Energy
	Duke Energy Ohio		Duke Energy Indiana		DukeNet		Renewables		Other		Total
At June 30, 2011
Consolidated Balance Sheets
Receivables	$	108	$	127	$	—	$	—	$	—	$	—
Investments in equity method unconsolidated affiliates		—		—		132		91		25		248
Intangibles		115		—		—		—		115		115
Total Assets		223		127		132		91		140		363
Other Current Liabilities		—		—		—		—		3		3
Deferred Credits and Other Liabilities		—		—		—		—		18		18
Total Liabilities		—		—		—		—		21		21
Net Duke Energy Corporation Shareholders’ Equity	$	223	$	127	$	132	$	91	$	119	$	342

66

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

					Duke Energy
	Duke Energy Ohio		Duke Energy Indiana		DukeNet		Renewables		Other		Total
At December 31, 2010
Consolidated Balance Sheets
Receivables	$	216	$	192	$	—	$	—	$	—	$	—
Investments in equity method unconsolidated affiliates		—		—		137		95		23		255
Intangibles		119		—		—		—		119		119
Total Assets		335		192		137		95		142		374
Other Current Liabilities		—		—		—		—		3		3
Deferred Credits and Other Liabilities		—		—		—		—		28		28
Total Liabilities		—		—		—		—		31		31
Net Duke Energy Corporation Shareholders’ Equity	$	335	$	192	$	137	$	95	$	111	$	343

No financial support that was not previously contractually required was provided to any of the unconsolidated VIEs during the three and six months ended June 30, 2011 and the year ended December 31, 2010, respectively, or is expected to be provided in the future.

With the exception of the power purchase agreement with the Ohio Valley Electric Corporation (OVEC), which is discussed below, and various guarantees, reflected in the table above as “Deferred Credits and Other Liabilities”, the Duke Energy Registrants are not aware of any situations where the maximum exposure to loss significantly exceeds the carrying values shown above.

Cinergy Receivables. As discussed above, Cinergy Receivables is consolidated only by Duke Energy. Accordingly, the retained interest in the sold receivables recorded on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana are eliminated in consolidation at Duke Energy.

The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price (typically approximates 25% of the total proceeds). The subordinated note is a retained interest (right to receive a specified portion of cash flows from the sold assets) and is classified within Receivables in Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010. The retained interests reflected on the Condensed Consolidated Balance Sheets of Duke Energy Ohio and Duke Energy Indiana approximate fair value.

The carrying values of the retained interests are determined by allocating the carrying value of the receivables between the assets sold and the interests retained based on relative fair value. Because the receivables generally turnover in less than two months, credit losses are reasonably predictable due to the broad customer base and lack of significant concentration, and the purchased beneficial interest (equity in Cinergy Receivables) is subordinate to all retained interests and thus would absorb losses first, the allocated basis of the subordinated notes are not materially different than their face value. The hypothetical effect on the fair value of the retained interests assuming both a 10% and a 20% unfavorable variation in credit losses or discount rates is not material due to the short turnover of receivables and historically low credit loss history. Interest accrues to Duke Energy Ohio, Duke Energy Indiana and Duke Energy Kentucky on the retained interests using the accretable yield method, which generally approximates the stated rate on the notes since the allocated basis and the face value are nearly equivalent. An impairment charge is recorded against the carrying value of both the retained interests and purchased beneficial interest whenever it is determined that an other-than-temporary impairment has occurred. The key assumptions used in estimating the fair value in 2011 and 2010 is detailed in the following table:

	2011			2010
Duke Energy Ohio
Anticipated credit loss ratio		0.8	%		0.8	%
Discount rate		2.6	%		2.7	%
Receivable turnover rate		12.7	%		12.6	%
Duke Energy Indiana
Anticipated credit loss ratio		0.4	%		0.5	%
Discount rate		2.6	%		2.7	%
Receivable turnover rate		10.2	%		10.2	%

67

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

The following table shows the gross and net receivables sold as of June 30, 2011 and December 31, 2010, respectively:

	Duke Energy Ohio		Duke Energy Indiana
Receivables sold as of June 30, 2011	$	279	$	273
Less: Retained interests		108		127
Net receivables sold as of June 30, 2011	$	171	$	146
	Duke Energy Ohio		Duke Energy Indiana
Receivables sold as of December 31, 2010	$	373	$	284
Less: Retained interests		216		192
Net receivables sold as of December 31, 2010	$	157	$	92

The following table shows the retained interests, sales, and cash flows during the three and six months ended June 30, 2011 and 2010, respectively:

Three Months Ended June 30, 2011	Duke Energy Ohio		Duke Energy Indiana
Sales
Receivables sold	$	521	$	630
Loss recognized on sale		5		4
Cash flows
Cash proceeds from receivables sold	$	560	$	646
Return received on retained interests		3		3
Three Months Ended June 30, 2010	Duke Energy Ohio		Duke Energy Indiana
Sales
Receivables sold	$	617	$	586
Loss recognized on sale		6		4
Cash flows
Cash proceeds from receivables sold	$	611	$	553
Collection fees received		1		—
Return received on retained interests		3		4

Six Months Ended June 30, 2011	Duke Energy Ohio		Duke Energy Indiana
Sales
Receivables sold	$	1,240	$	1,298
Loss recognized on sale		11		8
Cash flows
Cash proceeds from receivables sold	$	1,337	$	1,355
Return received on retained interests		7		7
Six Months Ended June 30, 2010	Duke Energy Ohio		Duke Energy Indiana
Sales
Receivables sold	$	1,506	$	1,207
Loss recognized on sale		14		8
Cash flows
Cash proceeds from receivables sold	$	1,529	$	1,200
Collection fees received		1		—
Return received on retained interests		8		7

Cash flows from the sale of receivables are reflected within Operating Activities on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Cash Flows.

Collection fees received in connection with the servicing of transferred accounts receivable are included in Operation, Maintenance and Other on Duke Energy Ohio’s and Duke Energy Indiana’s Condensed Consolidated Statements of Operations.

68

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

The loss recognized on the sale of receivables is calculated monthly by multiplying the receivables sold during the month by the required discount which is derived monthly utilizing a three year weighted average formula that considers charge-off history, late charge history, and turnover history on the sold receivables, as well as a component for the time value of money. The discount rate, or component for the time value of money, is calculated monthly by summing the prior month-end LIBOR plus a fixed rate of 2.39%.

DukeNet. In 2010, Duke Energy sold a 50% ownership interest in DukeNet to Alinda. The sale resulted in DukeNet becoming a joint venture with Duke Energy and Alinda each owning a 50% interest. In connection with the formation of the new DukeNet joint venture, a five-year, $150 million senior secured credit facility was executed with a syndicate of ten external financial institutions. This credit facility is non-recourse to Duke Energy. DukeNet is considered a VIE because it has entered into certain contractual arrangements that provide DukeNet with additional forms of subordinated financial support. The most significant activities that impact DukeNet’s economic performance relate to its business development and fiber optic capacity marketing and management activities. The power to direct these activities is jointly and equally shared by Duke Energy and Alinda. As a result, Duke Energy does not consolidate the DukeNet joint venture. Accordingly, DukeNet is a non-consolidated VIE that is reported as an equity method investment.

Unless consent by Duke Energy is given otherwise, Duke Energy and its subsidiaries have no requirement to provide liquidity, purchase the assets of DukeNet, or guarantee performance.

Renewables. Duke Energy’s Commercial Power business segment has investments in various entities that generate electricity through the use of renewable energy technology. Some of these entities are VIEs which are not consolidated due to the joint ownership of the entities when they were created. Instead, Duke Energy’s investment is recorded under the equity method of accounting. These entities are VIEs due to power purchase agreements with terms that approximate the expected life of the project. These fixed price agreements effectively transfer the commodity price risk to the buyer of the power.

Other. Duke Energy’s Commercial Power business segment has investments in various other entities that are VIEs which are not consolidated. The most significant of these investments is Duke Energy Ohio’s 9% ownership interest in OVEC. Through its ownership interest in OVEC, Duke Energy Ohio has a contractual arrangement through June 2040 to buy power from OVEC’s power plants. The proceeds from the sale of power by OVEC to its power purchase agreement counterparties, including Duke Energy Ohio, are designed to be sufficient for OVEC to meet its operating expenses, fixed costs, debt amortization and interest expense, as well as earn a return on equity. Accordingly, the value of this contract is subject to variability due to fluctuations in power prices and changes in OVEC’s costs of business, including costs associated with its 2,256 megawatts of coal-fired generation capacity. As discussed in Note 5, the proposed rulemaking on cooling water intake structures, utility boiler MACT, CSAPR and CCP’s could increase the costs of OVEC which would be passed through to Duke Energy Ohio. The initial carrying value of this contract was recorded as an intangible asset when Duke Energy acquired Cinergy in April 2006.

In addition, the company has guaranteed the performance of certain entities in which the company no longer has an equity interest. As a result, the company has a variable interest in certain other VIEs that are non-consolidated.

12. Earnings Per Common Share (EPS)

Basic EPS is computed by dividing net income attributable to Duke Energy common stockholders, adjusted for distributed and undistributed earnings allocated to participating securities, by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income attributable to Duke Energy common stockholders, as adjusted for distributed and undistributed earnings allocated to participating securities, by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, phantom shares and stock-based performance unit awards were exercised or settled.

The following table illustrates Duke Energy’s basic and diluted EPS calculations and reconciles the weighted-average number of common shares outstanding to the diluted weighted-average number of common shares outstanding for the three and six months ended June 30, 2011 and 2010.

	Income			Average Shares		EPS
	(in millions, except per- share amounts)
Three Months Ended June 30, 2011
Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic	$	434			1,332	$	0.33
Effect of dilutive securities:
Stock options, performance and restricted stock					1
Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted	$	434			1,333	$	0.33
Three Months Ended June 30, 2010
Loss from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic and diluted	$	(223	)		1,314	$	(0.17	)

69

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

	Income		Average Shares		EPS
	(in millions, except per- share amounts)
Six Months Ended June 30, 2011
Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic	$	944		1,331	$	0.71
Effect of dilutive securities:
Stock options, performance and restricted stock				1
Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted	$	944		1,332	$	0.71
Six Months Ended June 30, 2010
Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—basic	$	221		1,312	$	0.17
Effect of dilutive securities:
Stock options, performance and restricted stock				1
Income from continuing operations attributable to Duke Energy common stockholders, as adjusted for participating securities—diluted	$	221		1,313	$	0.17

As of June 30, 2011 and 2010, 11 million and 19 million, respectively, of stock options and performance and unvested stock awards were not included in the “effect of dilutive securities” in the above table because either the option exercise prices were greater than the average market price of the common shares during those periods, or performance measures related to the awards had not yet been met.

During the three and six months ended June 30, 2010, Duke Energy received proceeds of $77 million and $108 million, respectively, from the sale of common stock issued to fulfill obligations under its Dividend Reinvestment Plan (DRIP) and other internal plans, including 401(k) plans.

13. Stock-Based Compensation

For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period.

Duke Energy recorded pre-tax stock-based compensation expense for each of the three and six months ended June 30, 2011 and 2010 as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011(a)		2010(a)		2011(a)		2010(a)
	(in millions)				(in millions)
Stock Options	$	—	$	—	$	2	$	2
Phantom Awards		6		6		14		14
Performance Awards		5		6		11		12
Total	$	11	$	12	$	27	$	28

(a) Excludes stock-based compensation cost capitalized of approximately $1 million and $2 million for each of the three and six months, respectively, ended June 30, 2011 and 2010.

The tax benefit associated with the recorded expense for each of the three months ended June 30, 2011 and 2010 was $5 million. The tax benefit associated with the recorded expense for each of the six months ended June 30, 2011 and 2010 was $11 million.

70

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

14. Employee Benefit Obligations

Net periodic benefit costs disclosed in the tables below for the qualified pension, non-qualified pension and other post-retirement benefit plans represent the cost of the respective benefit plan to the Duke Energy Registrants for the periods presented. However, portions of the net periodic benefit costs disclosed in the tables below have been capitalized as a component of property, plant and equipment.

Duke Energy

The following table shows the components of the net periodic benefit costs for the Duke Energy U.S. qualified and non-qualified pension plans and other post-retirement benefit plans.

	Three Months Ended June 30, 2011								Three Months Ended June 30, 2010
	Qualified pension plans(a)			Non- Qualified pension plans		Other Post- Retirement Benefit plans(b)			Qualified pension plans(a)			Non- Qualified pension plans		Other Post- Retirement Benefit plans(b)
	(in millions)
Service cost	$	24		$	1	$	3		$	24		$	—	$	2
Interest cost on benefit obligation		58			2		9			62			2		11
Expected return on plan assets		(96	)		—		(4	)		(95	)		—		(4	)
Amortization of prior service cost (credit)		1			—		(2	)		2			—		(5	)
Amortization of net transition liability		—			—		2			—			—		2
Amortization of loss (gain)		19			—		(1	)		13			—		1
Other		5			—		—			4			—		—
Net periodic costs	$	11		$	3	$	7		$	10		$	2	$	7

(a) Excludes regulatory asset amortization of $3 million and $4 million for the three months ended June 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

(b) Excludes regulatory asset amortization of $2 million and $3 million for the three months ended June 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

	Six Months Ended June 30, 2011								Six Months Ended June 30, 2010
	Qualified pension plans(a)			Non- Qualified pension plans		Other Post- Retirement Benefit plans(b)			Qualified pension plans(a)			Non- Qualified pension plans		Other Post- Retirement Benefit plans(b)
	(in millions)
Service cost	$	48		$	1	$	4		$	48		$	1	$	4
Interest cost on benefit obligation		116			4		18			124			4		20
Expected return on plan assets		(192	)		—		(8	)		(189	)		—		(8	)
Amortization of prior service cost (credit)		3			1		(4	)		3			1		(8	)
Amortization of net transition liability		—			—		5			—			—		4
Amortization of loss (gain)		38			—		(2	)		25			—		2
Contractual termination benefit cost		—			—		—			10			—		—
Other		9			—		—			9			—		—
Net periodic costs	$	22		$	6	$	13		$	30		$	6	$	14

(a) Excludes regulatory asset amortization of $7 million and $8 million for the six months ended June 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

(b) Excludes regulatory asset amortization of $4 million and $5 million for the six months ended June 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

Each of the Subsidiary Registrants participate in qualified pension plans, non-qualified pension plans and other post-retirement benefit plans sponsored by Duke Energy. The net periodic benefit costs shown in the tables below represent the allocated cost of the respective benefit plan for the periods presented. Additionally, the Subsidiary Registrants are allocated their proportionate share of pension and other post-retirement benefit cost for employees of Duke Energy’s shared services affiliate that provide support to the respective Subsidiary Registrant. These allocated amounts are included in the governance and shared services costs for each Subsidiary Registrant discussed in Note 17.

71

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

Duke Energy Carolinas

	Three Months Ended June 30, 2011								Three Months Ended June 30, 2010
	Qualified pension plans			Non- Qualified pension plans		Other Post- Retirement Benefit plans			Qualified pension plans			Non- Qualified pension plans		Other Post- Retirement Benefit plans
	(in millions)
Service cost	$	10		$	—	$	1		$	9		$	—	$	1
Interest cost on benefit obligation		22			1		4			22			—		5
Expected return on plan assets		(38	)		—		(3	)		(36	)		—		(3	)
Amortization of prior service credit		—			—		(2	)		—			—		(2	)
Amortization of net transition liability		—			—		3			—			—		3
Amortization of loss		9			—		—			7			—		—
Other		2			—		—			2			—		—
Net periodic costs	$	5		$	1	$	3		$	4		$	—	$	4

	Six Months Ended June 30, 2011								Six Months Ended June 30, 2010
	Qualified pension plans			Non- Qualified pension plans		Other Post- Retirement Benefit plans			Qualified pension plans			Non- Qualified pension plans		Other Post- Retirement Benefit plans
	(in millions)
Service cost	$	19		$	—	$	1		$	18		$	—	$	1
Interest cost on benefit obligation		43			1		8			45			1		9
Expected return on plan assets		(75	)		—		(5	)		(73	)		—		(5	)
Amortization of prior service credit		—			—		(3	)		—			—		(3	)
Amortization of net transition liability		—			—		5			—			—		5
Amortization of loss		18			—		1			14			—		1
Other		4			—		—			4			—		—
Net periodic costs	$	9		$	1	$	7		$	8		$	1	$	8

See Note 17 for additional information related to amounts reflected on Duke Energy Carolinas’ Condensed Consolidated Balance Sheets associated with obligations related to qualified pension plans, non-qualified pension plans and other post-retirement benefit plans, which are allocated to Duke Energy Carolinas by Duke Energy.

Duke Energy Ohio

	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010
	Qualified pension plans(a)			Qualified pension plans(a)
	(in millions)
Service cost	$	1		$	1
Interest cost on projected benefit obligation		8			8
Expected return on plan assets		(11	)		(9	)
Amortization of loss		2			1
Other		1			—
Net periodic costs	$	1		$	1

(a) Excludes regulatory asset amortization of $1 million and $2 million for the three months ended June 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

72

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

	Six Months Ended June 30, 2011						Six Months Ended June 30, 2010
	Qualified pension plans(a)			Other Post- Retirement Benefit plans(b)			Qualified pension plans(a)			Other Post- Retirement Benefit plans(b)
	(in millions)
Service cost	$	3		$	—		$	3		$	—
Interest cost on projected benefit obligation		16			1			17			1
Expected return on plan assets		(22	)		—			(21	)		—
Amortization of loss (gain)		4			(1	)		2			(1	)
Other		1			—			1			—
Net periodic costs	$	2		$	—		$	2		$	—

(a) Excludes regulatory asset amortization of $3 million and $4 million for the six months ended June 30, 2011 and 2010, respectively, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

(b) Excludes regulatory asset amortization of $1 million for each of the six months ended June 30, 2011 and 2010, resulting from purchase accounting adjustments associated with Duke Energy’s merger with Cinergy in April 2006.

Components of net periodic costs for Duke Energy Ohio’s non-qualified pension plans were an insignificant amount for the three and six months ended June 30, 2011 and 2010. Components of net periodic costs for Duke Energy Ohio’s other post-retirement benefit plans were an insignificant amount for the three months ended June 30, 2011 and 2010.

See Note 17 for additional information related to amounts reflected on Duke Energy Ohio’s Condensed Consolidated Balance Sheets associated with obligations related to qualified pension plans, non-qualified pension plans and other post-retirement benefit plans, which are allocated to Duke Energy Ohio by Duke Energy.

Duke Energy Indiana

	Three Months Ended June 30, 2011						Three Months Ended June 30, 2010
	Qualified pension plans			Other Post- Retirement Benefit plans			Qualified pension plans			Other Post- Retirement Benefit plans
	(in millions)
Service cost	$	2		$	—		$	2		$	—
Interest cost on projected benefit obligation		8			2			8			2
Expected return on plan assets		(11	)		(1	)		(11	)		(1	)
Amortization of prior service cost		1			—			—			—
Amortization of loss		3			1			4			1
Other		1			—			1			—
Net periodic costs	$	4		$	2		$	4		$	2
	Six Months Ended June 30, 2011						Six Months Ended June 30, 2010
	Qualified pension plans			Other Post- Retirement Benefit plans			Qualified pension plans			Other Post- Retirement Benefit plans
	(in millions)
Service cost	$	5		$	—		$	5		$	—
Interest cost on projected benefit obligation		15			4			16			4
Expected return on plan assets		(22	)		(1	)		(22	)		(1	)
Amortization of prior service cost		1			—			1			—
Amortization of loss		7			1			6			1
Other		1			—			1			—
Net periodic costs	$	7		$	4		$	7		$	4

73

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

Components of net periodic costs for Duke Energy Indiana’s non-qualified pension plans were an insignificant amount for the three and six months ended June 30, 2011 and 2010.

See Note 17 for additional information related to amounts reflected on Duke Energy Indiana’s Condensed Consolidated Balance Sheets associated with obligations related to qualified pension plans, non-qualified pension plans and other post-retirement benefit plans, which are allocated to Duke Energy Indiana by Duke Energy.

Employee Savings Plan

Duke Energy sponsors employee savings plans that cover substantially all U.S. employees. Duke Energy made pre-tax employer matching contributions of $19 million and $50 million during the three and six months ended June 30, 2011, respectively. Duke Energy made pre-tax employer matching contributions of $18 million and $49 million during the three and six months ended June 30, 2010, respectively.

The Subsidiary Registrants participate in Duke Energy sponsored employee savings plans. The following table shows the respective Subsidiary Registrants’ expense related to its proportionate share of pre-tax employer matching contributions.

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(in millions)
Duke Energy Carolinas	$	8	$	8	$	20	$	20
Duke Energy Ohio		1		1		2		3
Duke Energy Indiana		2		1		5		4

15. Severance

Amounts included in the table below represent severance expense recorded by the Duke Energy Registrants during 2010. The Duke Energy Registrants recorded insignificant amounts for severance expense during 2011.

	Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
Duke Energy	$	76	$	144
Duke Energy Carolinas		44		85
Duke Energy Ohio		11		21
Duke Energy Indiana		16		26

These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations. During 2010, the majority of severance charges were related to a voluntary severance plan whereby eligible employees were provided a window during which to accept termination benefits. As this was a voluntary plan, all severance benefits offered under this plan were considered special termination benefits under GAAP. Special termination benefits are measured upon employee acceptance and recorded immediately absent a significant retention period. If a significant retention period exists, the cost of the special termination benefits are recorded ratably over the remaining service periods of the affected employees. Approximately 900 employees accepted the termination benefits during the voluntary window period, which closed March 31, 2010. Future severance costs under Duke Energy’s ongoing severance plan, if any, are currently not estimable.

The severance costs discussed above for the Subsidiary Registrants include an allocation of their proportionate share of severance costs for employees of Duke Energy’s shared services affiliate that provides support to the Subsidiary Registrants. Amounts included in the table below represent the severance liability recorded by Duke Energy Carolinas and Duke Energy Indiana for employees of those registrants, and excludes costs allocated from and paid by Duke Energy’s shared services affiliate.

	Balance at December 31, 2010		Provision/ Adjustments		Cash Reductions			Balance at June 30, 2011
	(in millions)
Duke Energy	$	87	$	2	$	(48	)	$	41
Duke Energy Carolinas		21		—		(18	)		3
Duke Energy Ohio		—		1		—			1
Duke Energy Indiana		1		—		(1	)		—

16. Income Taxes and Other Taxes

Duke Energy and its subsidiaries file income tax returns in the U.S. with federal and various state governmental authorities, and in certain foreign jurisdictions. The taxable income of Duke Energy and its subsidiaries is reflected in Duke Energy’s U.S. federal and state income tax returns. These subsidiaries have a tax sharing agreement with Duke Energy where the separate return method is used to allocate tax expenses and benefits to the subsidiaries whose investments or results of operations provide these tax expenses and benefits. The accounting for income taxes essentially represents the income taxes that each of these subsidiaries would incur if it were a separate company filing its own tax return as a C-Corporation.

74

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

The following table includes information regarding the Duke Energy Registrants unrecognized tax benefits.

June 30, 2011	Duke Energy		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
	(in millions)
Unrecognized tax benefits(a)	$	358	$	238	$	26	$	19
Amount that if recognized, would affect the effective tax rate or regulatory liability(b)		121		113		—		—
Amount that if recognized, would be recorded as a component of discontinued operations		11		—		—		—
December 31, 2010
Unrecognized tax benefits(a)		342		217		29		21

(a) The Duke Registrants do not anticipate a significant increase or decrease in unrecognized tax benefits in the next twelve months.

(b) Duke Energy and Duke Energy Carolinas are unable to estimate the specific amounts that would affect the effective tax rate or regulatory liability.

Duke Energy and its subsidiaries are no longer subject to U.S. federal examination for years before 2004. The years 2004 and 2005 are in Appeals. The Internal Revenue Service (IRS) is currently auditing the federal income tax returns for years 2006 and 2007. With few exceptions, Duke Energy and its subsidiaries are no longer subject to state, local or non-U.S. income tax examinations by tax authorities for years before 2000.

The effective tax rates for each of the Duke Energy Registrants are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Duke Energy		30.4	%		(114.2	)%		30.8	%		60.1	%
Duke Energy Carolinas		35.5	%		30.0	%		35.3	%		33.9	%
Duke Energy Ohio		9.6	%		5.4	%		30.4	%		(4.3	)%
Duke Energy Indiana		29.3	%		36.1	%		32.3	%		34.9	%

As discussed in Note 7, in the second quarter of 2010, Duke Energy recorded a non-deductible goodwill impairment charge of $500 million and Duke Energy Ohio recorded non-deductible goodwill impairment charges of $677 million. In the first quarter of 2010, a $17 million write-off of deferred tax assets was recorded due to a change in tax treatment of the Medicare Part D subsidy due to the passing of the health care reform legislation. Of this amount, $14 million was recorded by Duke Energy Carolinas. In the second quarter of 2011, Duke Energy Ohio recorded a reduction of deferred tax liabilities as a result of the transfer of certain gas-fired generation assets to its wholly owned subsidiary Duke Energy Commercial Asset Management, LLC (DECAM).

Excise Taxes. Certain excise taxes levied by state or local governments are collected by the Duke Energy Registrants from its customers. These taxes, which are required to be paid regardless of the Duke Energy Registrants’ ability to collect from the customer, are accounted for on a gross basis. When each of the Duke Energy Registrants act as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis. Excise taxes for each Duke Energy Registrant accounted for on a gross basis and recorded as revenues in the respective Condensed Consolidated Statements of Operations were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(in millions)				(in millions)
Duke Energy Carolinas	$	37	$	38	$	73	$	76
Duke Energy Ohio		25		25		59		62
Duke Energy Indiana		7		7		15		14
Total Duke Energy	$	69	$	70	$	147	$	152

75

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

17. Related Party Transactions

Duke Energy Carolinas

Duke Energy Carolinas engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 are as follows:

Assets/(Liabilities)

	June 30, 2011(a)			December 31, 2010(a)
	(in millions)
Current assets (b)	$	57		$	293
Non-current assets(c)		110			104
Current liabilities(d)		(114	)		(195	)
Non-current liabilities(e)		(42	)		(93	)
Net deferred tax liabilities(f)		(4,244	)		(3,906	)

(a) Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits and with money pool arrangements as discussed below.

(b) Of the balances at June 30, 2011, $4 million is classified as Receivables and $53 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balances at December 31, 2010, $90 million is classified as Receivables and $203 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.

(c) The balances at June 30, 2011 and December 31, 2010 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(d) The balances at June 30, 2011, and December 31, 2010, are classified as Accounts payable on the Condensed Consolidated Balance Sheets.

(e) The balances at June 30, 2011 and December 31, 2010 are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

(f) Of the balance at June 30, 2011, $(4,302) million is classified as Deferred income taxes and $58 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(3,988) million is classified as Deferred income taxes and $82 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.

As discussed further in Note 14, Duke Energy Carolinas participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other post-retirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Carolinas has been allocated accrued pension and other post-retirement benefit obligations of $252 million as of both June 30, 2011 and December 31, 2010. This amount has been classified in the Consolidated Balance Sheets as follows:

	June 30, 2011		December 31, 2010
	(in millions)
Other current liabilities	$	10	$	10
Accrued pension and other post-retirement benefit costs		242		242

Other Related Party Amounts

	Three months ended						Six months ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	(in millions)
Corporate governance and shared service expenses(a)	$	251		$	234		$	504		$	468
Indemnification coverages(b)		5			6			10			12
Rental income and other charged expenses, net(c)		(2	)		(1	)		(4	)		2

(a) Duke Energy Carolinas is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.

(b) Duke Energy Carolinas incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.

(c) Duke Energy Carolinas records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy.

As discussed further in Note 6, Duke Energy Carolinas participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. Interest income associated with money pool activity is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations, was insignificant for each of the three and six months ended June 30, 2011 and 2010. Interest expense associated with money pool activity is recorded in Interest Expense on the Condensed Consolidated Statements of Operations was insignificant for the three and six months ended June 30, 2011 and 2010.

76

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

In February 2010, Duke Energy Carolinas made a $200 million distribution to its parent, Duke Energy. In June 2010, Duke Energy Carolinas made a $150 million distribution to its parent, Duke Energy.

Duke Energy Ohio

Duke Energy Ohio engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011(a)			December 31, 2010(a)
	(in millions)
Current assets (b)	$	24		$	82
Non-current assets(c)		8			15
Current liabilities(d)		(22	)		(86	)
Non-current liabilities(e)		(25	)		(42	)
Net deferred tax liabilities(f)		(1,668	)		(1,579	)

(a) Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, Cinergy Receivables and money pool arrangements as discussed below.

(b) Of the balance at June 30, 2011, $13 million is classified as Receivables and $11 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $24 million is classified as Receivables and $58 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.

(c) The balances at June 30, 2011 and December 31, 2010 are classified as Other within Investments and Other Assets on the Condensed Consolidated Balance Sheets.

(d) Of the balance at June 30, 2011, ($58) million is classified as Accounts payable, $38 million is classified as Taxes accrued and ($2) million is classified as Other within Current Liabilities on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(83) million is classified as Accounts payable and $(3) million is classified as Other within Current Liabilities on the Condensed Consolidated Balance Sheets.

(e) The balances at June 30, 2011 and December 31, 2010, are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

(f) Of the balance at June 30, 2011, $(1,675) million is classified as Deferred income taxes, and $7 million is classified as Other within Current Assets, on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(1,588) million is classified as Deferred income taxes, and $9 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.

As discussed further in Note 14, Duke Energy Ohio participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other post-retirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Ohio has been allocated accrued pension and other post-retirement benefit obligations of $213 million at June 30, 2011 and $211 million at December 31, 2010. These amounts have been classified in the Condensed Consolidated Balance Sheets as follows:

	June  30, 2011		December  31, 2010
	(in millions)
Other current liabilities	$	4	$	4
Accrued pension and other post-retirement benefit costs		209		207

Other Related Party Amounts

	Three months ended					Six months ended
	June 30, 2011			June 30, 2010		June 30, 2011			June 30, 2010
	(in millions)
Corporate governance and shared service expenses(a)	$	91		$	55	$	186		$	158
Indemnification coverages(b)		4			4		8			9
Rental income and other charged expenses, net(c)		—	(e)		1		—	(e)		2
Cinergy receivables interest income(d)		3			3		7			8

(a) Duke Energy Ohio is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.

(b) Duke Energy Ohio incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.

(c) Duke Energy Ohio records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy.

77

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

(d) As discussed in Note 11, certain trade receivables have been sold by Duke Energy Ohio to Cinergy Receivables, a consolidated entity formed by Cinergy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price. The interest income associated with the subordinated note is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations.

(e) For the three and six months ended June 30, 2011, net rental income was insignificant.

As discussed further in Note 6, Duke Energy Ohio participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. Interest income associated with money pool activity is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations was insignificant for each of the three and six months ended June 30, 2011 and 2010. Interest expense associated with money pool activity is recorded in Interest Expense on the Condensed Consolidated Statements of Operations was insignificant for each of the three and six months ended June 30, 2011 and 2010.

Duke Energy Ohio enters into certain derivative positions on behalf of Duke Energy Retail, a consolidated affiliate of Duke Energy. These contracts are undesignated, thus the mark-to-market impacts of these contracts are reflected in Duke Energy Ohio’s Condensed Consolidated Statements of Operations. See Note 8 for additional information.

DECAM conducts hedging activities for certain of Duke Energy’s non-regulated entities. DECAM meets its funding needs through an intercompany loan agreement from Duke Energy Ohio’s parent entity, Cinergy. The intercompany loan was executed in February 2011. DECAM had no outstanding intercompany loan balance with Cinergy as of June 30, 2011.

In March 2011, Duke Energy Ohio paid a $285 million dividend to its parent, Cinergy.

Duke Energy Indiana

Duke Energy Indiana engages in related party transactions, which are generally performed at cost and in accordance with the applicable state and federal commission regulations. Balances due to or due from related parties included in the Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 are as follows:

	June 30, 2011(a)			December 31, 2010(a)
	(in millions)
Current assets (b)	$	47		$	51
Current liabilities(c)		(57	)		(69	)
Non-current liabilities(d)		(19	)		(20	)
Net deferred tax liabilities(e)		(970	)		(932	)

(a) Balances exclude assets or liabilities associated with accrued pension and other post-retirement benefits, Cinergy Receivables and money pool arrangements as discussed below.

(b) Of the balance at June 30, 2011, $34 million is classified as Receivables and $13 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $27 million is classified as Receivables and $24 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.

(c) Of the balance at June 30, 2011, $(55) million is classified as Accounts payable and $(2) million is classified as Taxes accrued on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(67) million is classified as Accounts payable and $(2) million is classified as Taxes accrued on the Condensed Consolidated Balance Sheets.

(d) The balances at June 30, 2011 and December 31, 2010 are classified as Other within Deferred Credits and Other Liabilities on the Condensed Consolidated Balance Sheets.

(e) Of the balance at June 30, 2011, $(1,009) million is classified as Deferred income taxes and $39 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets. Of the balance at December 31, 2010, $(973) million is classified as Deferred income taxes and $41 million is classified as Other within Current Assets on the Condensed Consolidated Balance Sheets.

As discussed further in Note 14, Duke Energy Indiana participates in Duke Energy’s qualified pension plan, non-qualified pension plan and other post-retirement benefit plans and is allocated its proportionate share of expenses associated with these plans. Additionally, Duke Energy Indiana has been allocated accrued pension and other post-retirement benefit obligations of $267 million at June 30, 2011 and $272 million at December 31, 2010. These amounts have been classified in the Condensed Consolidated Balance Sheets as follows:

	June  30, 2011		December  31, 2010
	(in millions)
Other current liabilities	$	2	$	2
Accrued pension and other post-retirement benefit costs		265		270

Other Related Party Amounts

	Three months ended				Six months ended
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
	(in millions)
Corporate governance and shared service expenses(a)	$	99	$	92	$	206	$	176
Indemnification coverages(b)		2		2		4		4
Rental income and other charged expenses, net(c)		2		3		3		4
Cinergy receivables interest income(d)		3		3		7		6

78

PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

(a) Duke Energy Indiana is charged its proportionate share of corporate governance and other costs by an unconsolidated affiliate that is a consolidated affiliate of Duke Energy. Corporate governance and other shared services costs are primarily related to human resources, employee benefits, legal and accounting fees, as well as other third party costs. These amounts are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.

(b) Duke Energy Indiana incurs expenses related to certain indemnification coverages through Bison, Duke Energy’s wholly-owned captive insurance subsidiary. These expenses are recorded in Operation, Maintenance and Other within Operating Expenses on the Condensed Consolidated Statements of Operations.

(c) Duke Energy Indiana records income associated with the rental of office space to a consolidated affiliate of Duke Energy, as well as its proportionate share of certain charged expenses from affiliates of Duke Energy.

(d) As discussed in Note 11, certain trade receivables have been sold by Duke Energy Indiana to Cinergy Receivables, a consolidated entity formed by Cinergy. The proceeds obtained from the sales of receivables are largely cash but do include a subordinated note from Cinergy Receivables for a portion of the purchase price. The interest income associated with the subordinated note is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations.

As discussed further in Note 6, Duke Energy Indiana participates in a money pool arrangement with Duke Energy and other Duke Energy subsidiaries. Interest income associated with money pool activity is recorded in Other Income and Expenses, net on the Condensed Consolidated Statements of Operations was insignificant for each of the three and six months ended June 30, 2011 and 2010. Interest expense associated with money pool activity is recorded in Interest Expense on the Condensed Consolidated Statements of Operations. For each of the three and six months ended June 30, 2011 and 2010 interest expense was insignificant.

In February 2010, Duke Energy Indiana received a $225 million capital contribution from its parent, Cinergy. In June 2010, Duke Energy Indiana received a $125 million capital contribution from its parent, Cinergy.

18. New Accounting Standards

The following new accounting standards were adopted by the Duke Energy Registrants subsequent to June 30, 2010 and the impact of such adoption, if applicable, has been presented in the respective Condensed Consolidated Financial Statements of the Duke Energy Registrants:

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605—Revenue Recognition (ASC 605). In October 2009, the FASB issued new revenue recognition accounting guidance in response to practice concerns related to the accounting for revenue arrangements with multiple deliverables. This new accounting guidance primarily applies to all contractual arrangements in which a vendor will perform multiple revenue generating activities and addresses the unit of accounting for arrangements involving multiple deliverables, as well as how arrangement consideration should be allocated to the separate units of accounting. For the Duke Energy Registrants, the new accounting guidance was effective January 1, 2011 and applied on a prospective basis. This new accounting guidance did not have a material impact to the consolidated results of operations, cash flows or financial position of the Duke Energy Registrants.

ASC 805—Business Combinations (ASC 805). In November 2010, the FASB issued new accounting guidance in response to diversity in the interpretation of pro forma information disclosure requirements for business combinations. The new accounting guidance requires an entity to present pro forma financial information as if a business combination occurred at the beginning of the earliest period presented as well as additional disclosures describing the nature and amount of material, nonrecurring pro forma adjustments. This new accounting guidance was effective January 1, 2011 and will be applied to all business combinations consummated after that date.

ASC 820—Fair Value Measurements and Disclosures (ASC 820). In January 2010, the FASB amended existing fair value measurements and disclosures accounting guidance to clarify certain existing disclosure requirements and to require a number of additional disclosures, including amounts and reasons for significant transfers between the three levels of the fair value hierarchy, and presentation of certain information in the reconciliation of recurring Level 3 measurements on a gross basis. For the Duke Energy Registrants, certain portions of this revised accounting guidance were effective on January 1, 2010, with additional disclosures effective for periods beginning January 1, 2011. The adoption of this accounting guidance resulted in additional disclosure in the notes to the consolidated financial statements but did not have an impact on the Duke Energy Registrants’ consolidated results of operations, cash flows or financial position. See note 9 for additional disclosures required by the revised accounting guidance in ASC 820.

The following new Accounting Standards Updates (ASU) have been issued, but have not yet been adopted by Duke Energy, as of June 30, 2011:

ASC 820—Fair Value Measurements and Disclosures (ASC 820). In May 2011, the FASB amended existing requirements for measuring fair value and for disclosing information about fair value measurements. This revised guidance results in a consistent definition of fair value, as well as common requirements for measurement and disclosure of fair value information between U.S. GAAP and International Financial Reporting Standards (IFRS). In addition, the amendments set forth enhanced disclosure requirements with respect to recurring Level 3 measurements, nonfinancial assets measured or disclosed at fair value, transfers between levels in the fair value hierarchy, and assets and liabilities disclosed but not recorded at fair value. For the Duke Energy Registrants, the revised fair value measurement guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2012. Duke Energy is currently evaluating the potential impact of the adoption of this revised guidance and is unable to estimate at this time the impact of adoption on its consolidated results of operations, cash flows, or financial position.

ASC 220—Comprehensive Income (ASC 220). In June 2011, the FASB amended the existing requirements for presenting comprehensive income in financial statements primarily to increase the prominence of items reported in other comprehensive income (OCI) and to facilitate the convergence of U.S. GAAP and IFRS. Specifically, the revised guidance eliminates the option currently provided under existing requirements to present components of OCI as part of the statement of changes in stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity will be required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. For the Duke Energy Registrants, this revised guidance is effective on a retrospective basis for interim and annual periods beginning January 1, 2012. Early adoption of this revised guidance is permitted. Duke Energy is currently evaluating the revised requirements for presenting comprehensive income in its financial statements and is unable to estimate at this time the impact of adoption of this revised guidance on its consolidated results of operations, cash flows or financial position.

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PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

19. Comprehensive Income and Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) for the Duke Energy Registrants includes net income and all other non-owner changes in equity. The tables below provide the components of other comprehensive income (loss) and total comprehensive income (loss) for the three months ended June 30, 2011 and 2010. Components of other comprehensive income (loss) and total comprehensive income (loss) for the six months ended June 30, 2011 and 2010 are presented in the respective Condensed Consolidated Statements of Equity and Comprehensive Income.

Duke Energy

	Common Stockholders’ Equity			Noncontrolling Interests		Total Equity
	(in millions)
Three Months Ended June 30, 2011
Net Income	$	435		$	6	$	441
Other comprehensive income
Foreign currency translation adjustments		62			3		65
Pension and OPEB related adjustments to AOCI(a)		2			—		2
Net unrealized loss on cash flow hedges (b)		(7	)		—		(7	)
Reclassification into earnings from cash flow hedges(c)		1			—		1
Unrealized gain on investments in auction rate securities(d)		1			—		1
Other comprehensive income, net of tax		59			3		62
Total Comprehensive Income	$	494		$	9	$	503

(a) Net of insignificant tax expense.

(b) Net of $3 million tax benefit.

(c) Net of $1 million tax expense.

(d) Net of $2 million tax benefit.

	Common Stockholders’ Equity			Noncontrolling Interests			Total Equity
	(in millions)
Three Months Ended June 30, 2010
Net (Loss) Income	$	(222	)	$	5		$	(217	)
Other comprehensive loss
Foreign currency translation adjustments		(12	)		(1	)		(13	)
Pension and OPEB related adjustments to AOCI(a)		2			—			2
Net unrealized loss on cash flow hedges (b)		(10	)		—			(10	)
Reclassification into earnings from cash flow hedges(c)		1			—			1
Unrealized gain on investments in auction rate securities(d)		3			—			3
Other comprehensive loss, net of tax		(16	)		(1	)		(17	)
Total Comprehensive (Loss) Income	$	(238	)	$	4		$	(234	)

(a) Net of $1 million tax expense.

(b) Net of $3 million tax benefit.

(c) Net of insignificant tax benefit.

(d) Net of $2 million tax expense.

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PART I

DUKE ENERGY CORPORATION

DUKE ENERGY CAROLINAS, LLC

DUKE ENERGY OHIO, INC.

DUKE ENERGY INDIANA, INC.

Combined Notes To Unaudited Condensed Consolidated Financial Statements—(Continued)

Duke Energy Carolinas

	Three Months  Ended June 30,
	2011		2010
	(in millions)
Net Income	$	193	$	202
Other comprehensive income
Reclassification into earnings from cash flow hedges(a)		1		1
Unrealized gain on investments in auction rate securities(a)		—		1
Other comprehensive income, net of tax		1		2
Total Comprehensive Income	$	194	$	204

(a) Net of $2 million tax expense for the three months ended June 30, 2011 and $1 million tax expense for the three months ended June 30, 2010.

Duke Energy Ohio

	Three Months  Ended June 30,
	2011		2010
	(in millions)
Net Income (Loss)	$	33	$	(759	)
Other comprehensive
Pension and OPEB related adjustments to AOCI(a)		1		2
Other comprehensive, net of tax		1		2
Total Comprehensive Income (Loss)	$	34	$	(757	)

(a) Net of insignificant tax expense for the three months ended June 30, 2011 and $1 million tax expense for the three months ended June 30, 2010.

Duke Energy Indiana

	Three Months  Ended June 30,
	2011		2010
	(in millions)
Net Income	$	68	$	57
Other comprehensive income, net of tax		—		—
Total Comprehensive Income	$	68	$	57

20. Subsequent Events

For information on subsequent events related to acquisitions, regulatory matters, commitments and contingencies and intangibles, see Notes 3, 4, 5 and 7 respectively.

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PART I

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

Proposed Merger with Progress Energy

On January 8, 2011, Duke Energy Corporation (collectively with its subsidiaries, Duke Energy) entered into an Agreement and Plan of Merger (Merger Agreement) among Diamond Acquisition Corporation, a North Carolina corporation and Duke Energy’s wholly-owned subsidiary (Merger Sub) and Progress Energy, Inc (Progress Energy), a North Carolina corporation. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Progress Energy with Progress Energy continuing as the surviving corporation and a wholly-owned subsidiary of Duke Energy.

Pursuant to the Merger Agreement, upon the closing of the merger, each issued and outstanding share of Progress Energy common stock will automatically be cancelled and converted into the right to receive 2.6125 shares of common stock of Duke Energy, subject to appropriate adjustment for a reverse stock split of the Duke Energy common stock as contemplated in the Merger Agreement and except that any shares of Progress Energy common stock that are owned by Progress Energy or Duke Energy, other than in a fiduciary capacity, will be cancelled without any consideration therefor. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock will be converted into an option to acquire, or an equity award relating to 2.6125 shares of Duke Energy Common stock, as applicable, subject to appropriate adjustment for the reverse stock split. Based on Progress Energy shares outstanding at June 30, 2011, Duke Energy would issue 770 million shares of common stock to convert the Progress Energy common shares in the merger under the unadjusted exchange ratio of 2.6125. The exchange ratio will be adjusted proportionately to reflect a 1-for-3 reverse stock split with respect to the issued and outstanding Duke Energy common stock that Duke Energy plans to implement prior to, and conditioned on, the completion of the merger. The resulting adjusted exchange ratio is 0.87083 of a share of Duke Energy common stock for each share of Progress Energy common stock. Based on Progress Energy shares outstanding at June 30, 2011, Duke Energy would issue 257 million shares of common stock, after the effect of the 1-for-3 reverse stock split, to convert the Progress Energy common shares in the merger. The merger will be accounted for under the acquisition method of accounting with Duke Energy treated as the acquirer, for accounting purposes. Based on the market price of Duke Energy common stock on June 30, 2011, the transaction would be valued at $14.5 billion and would result in incremental recorded goodwill to Duke Energy of $8.3 billion, according to current estimates. Duke Energy would also assume all of Progress Energy’s outstanding debt, which is estimated to be $13.8 billion based on Progress Energy’s outstanding indebtedness at June 30, 2011. The Merger Agreement has been unanimously approved by both companies’ Boards of Directors.

The merger is conditioned upon, among other things, approval by the shareholders of both companies, as well as expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval by the Federal Energy Regulatory Commission (FERC), the Federal Communications Commission (FCC), the Nuclear Regulatory Commission (NRC), the North Carolina Utilities Commission (NCUC), and the Kentucky Public Service Commission (KPSC). In connection with the merger, Duke Energy and Progress Energy are also seeking approval of the Public Service Commission of South Carolina (PSCSC) for the future merger of their Carolinas utility companies, Duke Energy Carolinas, LLC (Duke Energy Carolinas) and Progress Energy Carolinas, Inc (Progress Energy Carolinas). Although there are no merger-specific regulatory approvals required in Indiana, Ohio or Florida, the companies will continue to update the public services commissions in those states on the merger, as applicable and as required. The status of these matters is as follows:

• On March 17, 2011, Duke Energy filed an initial registration statement on Form S-4 with the Securities and Exchange Commission (SEC) for shares to be issued to consummate the merger with Progress Energy. On July 7, 2011, the Form S-4 was declared effective by the SEC, and the joint proxy statement/prospectus contained in the Form S-4 was mailed to the shareholders of both companies thereafter. Meetings for Duke Energy and Progress Energy shareholders to vote on the Merger are scheduled for August 23, 2011.

• On March 28, 2011, Duke Energy and Progress Energy submitted Hart-Scott-Rodino antitrust filings to the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). The parties have met their obligations under the Hart-Scott-Rodino Act, which is no longer a bar to closing the transaction.

• On March 30, 2011, Progress Energy made filings with the NRC for approval for indirect transfer of control of licenses for Progress Energy’s nuclear facilities to include Duke Energy as the ultimate parent corporation on these licenses.

• On April 4, 2011, Duke Energy and Progress Energy filed a merger application and joint dispatch agreement with the NCUC. A public hearing has been scheduled to begin on September 20, 2011.

• On April 4, 2011, Duke Energy and Progress Energy filed a merger application with the KPSC. On June 24, 2011, Duke Energy and Progress Energy filed a settlement agreement with the Attorney General. A public hearing occurred on July 8, 2011. An order approving the settlement agreement was issued on August 2, 2011. The KPSC requires Duke Energy and Progress Energy to accept all the conditions contained in the order within seven days.

• On April 4, 2011, Duke Energy and Progress Energy made joint filings with the FERC. The FERC is expected to rule on the merger application within 180 days.

• On April 25, 2011, Duke Energy and Progress Energy, on behalf of their utility companies Duke Energy Carolinas and Progress Energy Carolinas, filed an application requesting the PSCSC to review the merger and approve the proposed Joint Dispatch Agreement and the future merger of Duke Energy Carolinas and Progress Energy Carolinas. The PSCSC has not yet scheduled a public hearing.

• On July 12, 2011, Duke Energy and Progress Energy filed an application with the FCC for approval of radio system license transfers. The FCC approved the transfers July 27, 2011.

Duke Energy is targeting completion of the merger by the end of 2011, however no assurances can be given as to the timing of the satisfaction of all closing conditions or that all required approvals will be received.

The Merger Agreement contains certain termination rights for both Duke Energy and Progress Energy, and further provides for the payment of a termination fee of $400 million by Progress Energy under specified circumstances and a termination fee of $675 million by Duke Energy under specified circumstances.

For the three and six months ended June 30, 2011, Duke Energy incurred transaction costs related to the Progress Energy merger of $5 million and $16 million, respectively, which are recorded within Operating Expenses in Duke Energy’s Condensed Consolidated Statement of Operations.

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PART I

Duke Energy Corporation

Duke Energy is an energy company primarily located in the Americas. Duke Energy operates in the United States (U.S.) primarily through its wholly-owned subsidiaries, Duke Energy Carolinas, Duke Energy Ohio, Inc. (Duke Energy Ohio), which includes Duke Energy Kentucky, Inc. (Duke Energy Kentucky), and Duke Energy Indiana, Inc. (Duke Energy Indiana), as well as in South America and Central America through International Energy.

When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of its three separate subsidiary registrants, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively referred to as the Subsidiary Registrants), which, along with Duke Energy, are collectively referred to as the Duke Energy Registrants. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana. However, none of the registrants makes any representation as to information related solely to Duke Energy or the Subsidiary Registrants of Duke Energy other than itself.

Management’s Discussion and Analysis should be read in conjunction with the respective Unaudited Condensed Consolidated Financial Statements.

Duke Energy

EXECUTIVE OVERVIEW

Net income (loss) attributable to Duke Energy was income of $435 million for the three months ended June 30, 2011 as compared to a loss of $222 million for the three months ended June 30, 2010. Diluted earnings per share increased from a loss of $0.17 per share for the three months ended June 30, 2010 to income of $0.33 per share for the three months ended June 30, 2011 due to the increase in net income in the three months ended June 30, 2011 as compared to the same period in 2010, primarily as a result of a 2010 impairment of goodwill and certain generation assets associated with non-regulated generation operations in the Midwest, partially offset by other factors described further below. Income (loss) from continuing operations was income of $441 million for the three months ended June 30, 2011 as compared to a loss of $218 million for the same period in 2010. Total reportable segment EBIT (defined below in “Segment Results” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations) was $857 million for the three months ended June 30, 2011 as compared to $193 million for the same period in 2010.

Net income attributable to Duke Energy Corporation was $946 million for the six months ended June 30, 2011 as compared to $223 million for the same period in 2010. Diluted earnings per share increased from $0.17 per share for the six months ended June 30, 2010 to $0.71 per share for the six months ended June 30, 2011 due to the increase in net income in the six months ended June 30, 2011 as compared to the same period in 2010, primarily as a result of a 2010 impairment of goodwill and certain generation assets associated with non-regulated generation operations in the Midwest, partially offset by other factors described further below. Income from continuing operations was $954 million for the six months ended June 30, 2011 as compared to $227 million for the same period in 2010. Total reportable segment EBIT (defined below in “Segment Results” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations) was $1,840 million for the six months ended June 30, 2011 as compared to $1,206 million for the same period in 2010.

See “Results of Operations” below for a detailed discussion of the consolidated results of operations, as well as a detailed discussion of EBIT results for each of Duke Energy’s reportable business segments, as well as Other.

RESULTS OF OPERATIONS

Results of Operations and Variances

	Three Months Ended June 30,								Six Months Ended June 30,
	2011		2010			Increase (Decrease)			2011		2010		Increase (Decrease)
	(in millions)
Operating revenues	$	3,534	$	3,287		$	247		$	7,197	$	6,881	$	316
Operating expenses		2,859		3,306			(447	)		5,718		6,141		(423	)
Gains on sales of other assets and other, net		4		5			(1	)		14		7		7
Operating income (loss)		679		(14	)		693			1,493		747		746
Other income and expenses, net		157		124			33			308		244		64
Interest expense		203		212			(9	)		422		422		—
Income (loss) from continuing operations before income taxes		633		(102	)		735			1,379		569		810
Income tax expense from continuing operations		192		116			76			425		342		83
Income (loss) from continuing operations		441		(218	)		659			954		227		727
Income from discontinued operations, net of tax		—		1			(1	)		—		1		(1	)
Net income (loss)		441		(217	)		658			954		228		726
Less: Net income attributable to noncontrolling interests		6		5			1			8		5		3
Net income (loss) attributable to Duke Energy Corporation	$	435	$	(222	)	$	657		$	946	$	223	$	723

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PART I

The following is a summary discussion of the consolidated results of operations and variances, which is followed by a discussion of results by segment.

Consolidated Operating Revenues

Three Months Ended June 30, 2011 as Compared to June 30, 2010. Consolidated operating revenues for the three months ended June 30, 2011 increased $247 million compared to the same period in 2010. This change was primarily driven by the following:

• A $127 million increase at U.S. Franchised Electric and Gas (USFE&G). See Operating Revenues discussion within “Segment Results” for USFE&G below for further information;

• A $96 million increase at International Energy. See Operating Revenues discussion within “Segment Results” for International Energy below for further information; and

• A $55 million increase at Commercial Power. See Operating Revenues discussion within “Segment Results” for Commercial Power below for further information.

Partially offsetting these increases was:

• A $28 million decrease at Other. See Operating Revenues discussion within “Segment Results” for Other below for further information.

Six Months Ended June 30, 2011 as Compared to June 30, 2010. Consolidated operating revenues for the six months ended June 30, 2011 increased $316 million compared to the same period in 2010. This change was primarily driven by the following:

• A $134 million increase at USFE&G. See Operating Revenues discussion within “Segment Results” for USFE&G below for further information;

• A $120 million increase at Commercial Power. See Operating Revenues discussion within “Segment Results” for Commercial Power below for further information; and

• A $108 million increase at International Energy. See Operating Revenues discussion within “Segment Results” for International Energy below for further information.

Partially offsetting these increases was:

• A $45 million decrease at Other. See Operating Revenues discussion within “Segment Results” for Other below for further information.

Consolidated Operating Expenses

Three Months Ended June 30, 2011 as Compared to June 30, 2010. Consolidated operating expenses for the three months ended June 30, 2011 decreased $447 million compared to the same period in 2010. This change was primarily driven by the following:

• A $611 million decrease at Commercial Power. See Operating Expenses discussion within “Segment Results” for Commercial Power below for further information; and

• A $70 million decrease at Other. See Operating Expenses discussion within “Segment Results” for Other below for further information.

Partially offsetting these decreases were:

• A $182 million increase at USFE&G. See Operating Expenses discussion within “Segment Results” for USFE&G below for further information; and

• A $55 million increase at International Energy. See Operating Expenses discussion within “Segment Results” for International Energy below for further information.

Six Months Ended June 30, 2011 as Compared to June 30, 2010. Consolidated operating expenses for the six months ended June 30, 2011 decreased $423 million compared to the same period in 2009. This change was primarily driven by the following:

• A $511 million decrease at Commercial Power. See Operating Expenses discussion within “Segment Results” for Commercial Power below for further information; and

• A $174 million decrease at Other. See Operating Expenses discussion within “Segment Results” for Other below for further information.

Partially offsetting these decreases were:

• A $217 million increase at USFE&G. See Operating Expenses discussion within “Segment Results” for USFE&G below for further information; and

• A $46 million increase at International Energy. See Operating Expenses discussion within “Segment Results” for International Energy below for further information.

Consolidated Gains on Sales of Other Assets and Other, Net

Consolidated gains on sales of other assets and other, net, was $4 million and $5 million for the three months ended June 30, 2011 and 2010, respectively.

Consolidated gains on sales of other assets and other, net, was $14 million and $7 million for the six months ended June 30, 2011 and 2010, respectively. The increase is attributable primarily to 2011 gains on sales of certain assets resulting from a Commercial Power contract termination.

Consolidated Operating Income (Loss)

Consolidated operating income (loss) for the three months ended June 30, 2011 increased $693 million compared to the same period in 2010. Drivers to operating income (loss) are discussed above.

Consolidated operating income (loss) for the six months ended June 30, 2011 increased $746 million compared to the same period in 2010. Drivers to operating income (loss) are discussed above.

Consolidated Other Income and Expenses, net

Consolidated other income and expenses, net for the three months ended June 30, 2011 increased $33 million compared to the same period in 2010. The increase was driven primarily by $14 million in gains on investments that support benefit obligations, higher equity earnings of $12 million primarily from International Energy’s investment in National Methanol Company (NMC) and a higher equity component of allowance for funds used during construction (AFUDC) of $8 million due to additional capital spending for ongoing construction projects.

Consolidated other income and expenses, net for the six months ended June 30, 2011 increased $64 million compared to the same period in 2010. The increase was driven primarily by a $20 million Peru arbitration award, $16 million in gains on investments that support benefit obligations, higher equity earnings of $15 million primarily from International Energy’s investment in NMC and a higher equity component of AFUDC of $13 million due to additional capital spending for ongoing construction projects.

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PART I

Consolidated Interest Expense

Consolidated interest expense for the three months ended June 30, 2011 decreased $9 million compared to the same period in 2010. The decrease is due primarily to higher capitalized interest, including the debt component of AFUDC due to increased spending on capital projects.

Consolidated interest expense for the six months ended June 30, 2011 is consistent when compared to the same period in 2010.

Consolidated Income Tax Expense from Continuing Operations

Consolidated income tax expense from continuing operations for the three months ended June 30, 2011 increased $76 million compared to the same period in 2010, primarily due to an increase in pre-tax income. The effective tax rate for the three months ended June 30, 2011 and 2010 was 30% and (114)%, respectively. The change in the effective tax rate is primarily due to a $500 million impairment of non-deductible goodwill in the three months ended June 30, 2010.

Consolidated income tax expense from continuing operations for the six months ended June 30, 2011 increased $83 million compared to the same period in 2010, primarily due to an increase in pre-tax income. The effective tax rate for the six months ended June 30, 2011 and 2010 was 31% and 60%, respectively. The change in the effective tax rate is primarily due to a $500 million impairment of non-deductible goodwill in the six months ended June 30, 2010.

Segment Results

Management evaluates segment performance based on earnings before interest and taxes from continuing operations (excluding certain allocated corporate governance costs), after deducting amounts attributable to noncontrolling interests related to those profits (EBIT). On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of the amounts attributable to noncontrolling interests related to those profits. Cash, cash equivalents and short-term investments are managed centrally by Duke Energy, so interest and dividend income on those balances, as well as gains and losses on remeasurement of foreign currency denominated balances, are excluded from the segments’ EBIT. Management considers segment EBIT to be a good indicator of each segment’s operating performance from its continuing operations, as it represents the results of Duke Energy’s ownership interest in operations without regard to financing methods or capital structures.

See Note 2 to the Unaudited Condensed Consolidated Financial Statements, “Business Segments,” for a discussion of Duke Energy’s segment structure.

Duke Energy’s segment EBIT may not be comparable to a similarly titled measure of another company because other entities may not calculate EBIT in the same manner. Segment EBIT is summarized in the following table, and detailed discussions follow.

EBIT by Business Segment

	Three Months  Ended June 30,						Six Months  Ended June 30,
	2011			2010			2011			2010
	(in millions)
U.S. Franchised Electric and Gas	$	619		$	671		$	1,331		$	1,415
Commercial Power		59			(604	)		150			(475	)
International Energy		179			126			359			266
Total reportable segment EBIT		857			193			1,840			1,206
Other		(57	)		(122	)		(102	)		(268	)
Total reportable segment and other EBIT		800			71			1,738			938
Interest expense		(203	)		(212	)		(422	)		(422	)
Interest income and other(a)		25			26			46			37
Add back of noncontrolling interest component of reportable segment and Other EBIT		11			13			17			16
Consolidated (loss) income from continuing operations before income taxes	$	633		$	(102	)	$	1,379		$	569

(a) Other within Interest Income and other includes foreign currency transaction gains and losses and additional noncontrolling interest amounts not allocated to the reportable segment and Other EBIT.

Noncontrolling interest amounts presented in certain tables below includes only expenses and benefits related to EBIT of Duke Energy’s joint ventures. It does not include the noncontrolling interest component related to interest and taxes of the joint ventures.

Segment EBIT, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements.

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PART I

USFE&G

USFE&G includes the regulated operations of Duke Energy Carolinas, Duke Energy Indiana, Duke Energy Kentucky and certain regulated operations of Duke Energy Ohio.

	Three Months Ended June 30,							Six Months Ended June 30,
	2011		2010		Increase (Decrease)			2011		2010		Increase (Decrease)
(in millions, except where noted)
Operating revenues	$	2,549	$	2,422	$	127		$	5,232	$	5,098	$	134
Operating expenses		1,994		1,812		182			4,027		3,810		217
Gains on sales of other assets and other, net		1		3		(2	)		1		5		(4	)
Operating income		556		613		(57	)		1,206		1,293		(87	)
Other income and expenses, net		63		58		5			125		122		3
EBIT	$	619	$	671	$	(52	)	$	1,331	$	1,415	$	(84	)
Duke Energy Carolinas’ GWh sales(a)		20,210		20,308		(98	)		40,794		41,824		(1,030	)
Duke Energy Midwest’s GWh sales(a)(b)		13,917		14,443		(526	)		28,689		29,604		915
Net proportional MW capacity in operation(c)									26,907		26,947		(40	)

(a) Gigawatt-hours (GWh).

(b) Duke Energy Ohio (Ohio transmission and distribution only), Duke Energy Indiana and Duke Energy Kentucky collectively referred to as Duke Energy Midwest within this USFE&G segment discussion.

(c) Megawatt (MW).

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas for the three and six months ended June 30, 2011 compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.

	Three Months  Ended June 30, 2011			Six Months  Ended June 30, 2011
Increase (decrease) over prior year
Residential sales(a)		1.1	%		(4.4	)%
General service sales(a)		0.3	%		(0.6	)%
Industrial sales(a)		1.3	%		2.1	%
Wholesale power sales		16.4	%		2.8	%
Total Duke Energy Carolinas sales(b)		(0.5	)%		(2.5	)%
Average number of customers		0.3	%		0.3	%

(a) Major components of Duke Energy Carolinas’ retail sales.

(b) Consists of all components of Duke Energy Carolinas’ sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.

The following table shows the percent changes in GWh sales and average number of electric customers for Duke Energy Midwest for the three and six months ended June 30, 2011 compared to the same period in the prior year. Except as otherwise noted, the below percentages represent billed sales only and are not weather normalized.

	Three Months  Ended June 30, 2011			Six Months  Ended June 30, 2011
Increase (decrease) over prior year
Residential sales(a)		3.2	%		(0.8	)%
General service sales(a)		(0.9	)%		(0.4	)%
Industrial sales(a)		2.1	%		(0.4	)%
Wholesale power sales		(16.0	)%		(14.0	)%
Total Duke Energy Midwest sales(b)		(3.6	)%		(3.1	)%
Average number of customers		0.3	%		0.2	%

(a) Major components of Duke Energy Midwest’s retail sales.

(b) Consists of all components of Duke Energy Midwest’s sales, including all billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.

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PART I

Three Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The increase was driven primarily by:

• An $87 million increase in fuel revenues (including emission allowances) driven primarily by higher fuel rates for electric retail customers in the Midwest and South Carolina, and higher purchased power costs in Indiana, partially offset by lower fuel rates for electric retail customers in North Carolina, and lower natural gas fuel rates in Ohio and Kentucky. Fuel revenues represent sales to retail and wholesale customers;

• A $41 million net increase in retail rates and rate riders primarily due to the implementation of the North Carolina construction work in progress (CWIP) rider effective January 2011, and riders for the Edwardsport integrated gasification combined cycle (IGCC) plant that is currently under construction and the save-a-watt (SAW) program; and

• A $10 million increase in wholesale power revenues, net of sharing, primarily due to the addition of new customers served and additional volumes under long-term contracts in the Carolinas.

Partially offsetting these increases was:

• A $31 million decrease in GWh sales to retail customers due to less favorable weather conditions in 2011 compared to the same period in 2010. For the Carolinas, cooling degree days for the second quarter of 2011 were 31% above normal as compared to 51% above normal during the same period in 2010. For the Midwest, cooling degree days for the second quarter of 2011 were 17% above normal as compared to 51% above normal during the same period in 2010.

Operating Expenses. The increase was driven primarily by:

• An $86 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to purchases of power in Indiana, mainly as a result of decreased generation caused by increased outages in 2011 compared to the same period in 2010, and higher prices of coal used in electric generation;

• A $76 million increase in operating and maintenance expense primarily due to higher storm costs and higher maintenance at nuclear and fossil generation stations; and

• A $13 million increase in property and other taxes primarily due to overall higher property taxes.

EBIT. As discussed above, the decrease resulted primarily from higher operating and maintenance expenses, less favorable weather and higher property and other taxes. These negative impacts were partially offset by overall net higher retail rates and rate riders and higher wholesale power revenues.

Six Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The increase was driven primarily by:

• A $112 million net increase in retail rates and rate riders primarily due to new retail rates resulting from the implementation of the North Carolina CWIP rider, riders for the Edwardsport IGCC plant that is currently under construction and the SAW program, and the year-over-year impact of the new retail rates resulting from the South Carolina rate case in the first quarter of 2010;

• An $85 million increase in fuel revenues (including emission allowances) driven primarily by higher fuel rates for electric retail customers in the Midwest and South Carolina, and higher purchased power costs in Indiana, partially offset by decreased demand from electric retail customers in 2011 compared to the same period in 2010 mainly due to less favorable weather conditions, and lower fuel rates for electric retail customers in North Carolina, lower natural gas fuel rates in Ohio and Kentucky, and lower demand from natural gas retail customers. Fuel revenues represent sales to retail and wholesale customers; and

• A $13 million increase in wholesale power revenues, net of sharing, primarily due to the addition of new customers served and additional volumes under long-term contracts and increases in charges for capacity.

Partially offsetting these increases was:

• A $90 million decrease in GWh and thousand cubic feet (Mcf) sales to retail customers due to less favorable weather conditions in 2011 compared to the same period in 2010. For the Carolinas and Midwest, weather statistics for both heating degree days and cooling degree days in 2011 were unfavorable compared to the same period in 2010.

Operating Expenses. The increase was driven primarily by:

• A $128 million increase in operating and maintenance expense primarily due to higher storm costs, higher maintenance at nuclear and fossil generation stations, higher power and gas delivery maintenance costs, increased costs related to the implementation of the SAW program; and

• An $86 million increase in fuel expense (including purchased power and natural gas purchases for resale) primarily related to purchases of power in Indiana (mainly as a result of decreased generation caused by increased outages in 2011 compared to the same period in 2010) and in the Carolinas, and higher prices of coal used in electric generation, partially offset by lower volume of coal used in electric generation resulting from less favorable weather conditions, and lower natural gas prices and volumes to full-service retail customers.

EBIT. As discussed above, the decrease resulted primarily from less favorable weather and higher operating and maintenance expenses. These negative impacts were partially offset by overall net higher retail rates and rate riders and higher wholesale power revenues.

Matters Impacting Future USFE&G Results

Results of USFE&G are impacted by the completion of its major generation fleet modernization projects. See Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters,” for a discussion of the significant increase in the estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s Edwardsport Generating Station.

Duke Energy Carolinas has filed rate cases in North Carolina and South Carolina during 2011. Duke Energy Carolinas plans to file rate cases in North Carolina and South Carolina during 2012. Duke Energy Indiana plans to file a rate case in 2012. Duke Energy Ohio is evaluating the need for an electric distribution rate case in 2012. These planned rates cases are needed to recover investments in Duke Energy’s ongoing infrastructure modernization projects and operating costs. USFE&G’s earnings could be adversely impacted if any of these rate cases are denied or delayed by the various state regulatory commissions.

USFE&G evaluates the carrying amount of its recorded goodwill for impairment on an annual basis as of August 31 and performs interim impairment tests if a triggering event occurs that indicates it is more likely than not that the fair value of a reporting unit is less than its carrying value. For further information on key assumptions that impact USFE&G’s goodwill impairment assessments, see “Critical Accounting Policy for Goodwill Impairment Assessments” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2010. As of the August 31, 2010 impairment analysis, the fair value of the Ohio Transmission and Distribution (Ohio T&D) reporting unit exceeded its carrying value at Duke Energy, therefore no goodwill impairment charge was recorded. However, the fair value of the Ohio T&D reporting unit, which has a goodwill balance of $700 million as of June 30, 2011, exceeded its carrying value by approximately 15%. Management is continuing to monitor the impact of recent market and economic events to determine if it is more likely than not that the carrying value of the

87

Ohio T&D reporting unit has been impaired. Should any such triggering events or circumstances occur in 2011 that would more likely than not reduce the fair value of the Ohio T&D reporting unit below its carrying value, management would again perform an interim impairment test of the Ohio T&D goodwill and it is possible that a goodwill impairment charge could be recorded as a result of this test. Potential circumstances that could have a negative effect on the fair value of the Ohio T&D reporting unit include additional declines in load volume forecasts, changes in the weighted average cost of capital (WACC) and the equity valuations of peer companies, changes in the timing and/or recovery of and on investments in SmartGrid technology, and the success of future rate case filings.

Commercial Power

	Three Months Ended June 30,								Six Months Ended June 30,
	2011		2010			Increase (Decrease)			2011		2010			Increase (Decrease)
(in millions, except where noted)
Operating revenues	$	595	$	540		$	55		$	1,239	$	1,119		$	120
Operating expenses		544		1,155			(611	)		1,102		1,613			(511	)
Gains on sales of other assets and other, net		11		4			7			13		3			10
Operating income		62		(611	)		673			150		(491	)		641
Other income and expenses, net		5		12			(7	)		10		21			(11	)
Expense attributable to noncontrolling interest		8		5			3			10		5			5
EBIT	$	59	$	(604	)	$	663		$	150	$	(475	)	$	625
Actual Plant Production, GWh		7,072		6,551			521			15,369		13,125			2,245
Proportional MW capacity in operation										8,273		8,005			268

Three Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The increase was driven primarily by:

• A $57 million increase in wholesale electric revenues due to higher generation volumes, net of lower pricing;

• A $38 million increase in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of insignificant mark-to-market losses in 2011 compared to losses of $38 million in 2010; and

• A $17 million increase in renewables generation revenues due primarily to additional wind generation facilities placed in service after the second quarter of 2010.

Partially offsetting these increases were:

• A $56 million decrease in retail electric revenues resulting from lower sales volumes driven by increased customer switching levels and unfavorable weather, net of higher retail pricing under the Electric Security Plan (ESP) in 2011.

Operating Expenses. The decrease was driven primarily by:

• A $651 million decrease in impairment charges primarily related to a $660 million impairment charge related to goodwill and non-regulated coal-fired generation asset impairments in the Midwest in 2010. See Note 7 to the Unaudited Condensed Consolidated Financial Statements, “Goodwill, Intangible Assets and Impairments,” for additional information; and

• A $20 million decrease in retail fuel and purchased power expenses due to lower generation volumes net of higher purchased power volumes in 2011 as compared to 2010.

Partially offsetting these decreases were:

• A $41 million increase in wholesale fuel expenses due to higher generation volumes;

• A $10 million increase in operating expenses resulting primarily from higher maintenance expenses at operated and non-operated generation stations and higher transmission costs in 2011 compared to 2010; and

• A $6 million increase in mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market losses of $1 million in 2011 compared to gains of $5 million in 2010.

Gains on Sales of Other Assets and Other, net. The increase in 2011 as compared to 2010 is attributable to 2011 gains on sales of certain assets resulting from a contract termination.

Other Income and Expenses, net. The decrease in 2011 as compared to 2010 is primarily due to distributions from South Houston Green Power received in 2010 which did not recur in 2011.

EBIT. The increase is primarily attributable to lower goodwill and generating asset impairment charges, lower net mark-to-market losses on non-qualifying commodity hedge contracts in 2011 compared to 2010, an increase in renewables generation revenues, net of lower retail margins driven by customer switching.

Six Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The increase was driven primarily by:

• A $154 million increase in wholesale electric revenues due to higher generation volumes;

• A $35 million increase in renewables generation revenues due to additional wind generation facilities placed in service after the second quarter of 2010;

• A $27 million increase in PJM capacity revenues due to higher cleared auction pricing and additional MWs participating in the auction in 2011 compared to 2010; and

• A $16 million increase in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $1 million in 2011 compared to losses of $17 million in 2010.

Partially offsetting these increases was:

• A $107 million decrease in retail electric revenues resulting from lower sales volumes driven by increased customer switching levels and unfavorable weather net of higher retail pricing under the ESP in 2011.

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Operating Expenses. The decrease was driven primarily by:

• A $651 million decrease in impairment charges primarily related to a $660 million charge related to goodwill and non-regulated coal-fired generation asset impairments in the Midwest in 2010. See Note 7 to the Unaudited Condensed Consolidated Financial Statements, “Goodwill, Intangible Assets and Impairments,” for additional information; and

• A $34 million decrease in retail fuel and purchased power expenses due to lower generation volumes net of higher purchased power volumes in 2011 as compared to 2010.

Partially offsetting these decreases were:

• A $112 million increase in wholesale fuel expenses due to higher generation volumes net of favorable hedge realizations in 2011 as compared to 2010;

• A $42 million increase in operating expenses resulting primarily from higher maintenance expenses at operated and non-operated generation stations and higher transmission costs in 2011 compared to 2010; and

• A $16 million increase in mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market losses of $3 million in 2011 compared to gains of $13 million in 2010.

Gains on Sales of Other Assets and Other, net. The increase in 2011 as compared to 2010 is attributable to 2011 gains on sales of certain assets resulting from a contract termination.

Other Income and Expenses, net. The decrease in 2011 as compared to 2010 is primarily due to distributions from South Houston Green Power received in 2010 which did not recur in 2011.

EBIT. The increase is primarily attributable to lower goodwill and generating asset impairment charges, an increase in renewables generation revenues, and higher PJM capacity revenues, net of lower retail margins driven by customer switching.

Matters Impacting Future Commercial Power Results

Commercial Power operates in Ohio under an ESP that expires on December 31, 2011. On June 20, 2011, Duke Energy Ohio filed for approval of its next Standard Service Offer (SSO) to replace the existing ESP. The filing seeks approval of an ESP that would last for a term of nine years and five months. The ESP would unbundle generation service by separating capacity (physical assets) from energy (actual output). The capacity component would be paid by all customers through an unavoidable charge, adjusted on an annual basis, with all customers sharing in the net profits from Duke Energy Ohio’s sale of energy and ancillary services. The energy component would be procured through a competitive bidding process and would be avoidable by customers who choose alternative suppliers. The capacity charge would provide for a return of and on investment in Duke Energy Ohio’s generation assets and the cost to acquire capacity to meet reserve margin requirements. Hearings for this filing are scheduled to begin in September 2011. Commercial Power’s earnings after the expiration of the current ESP could be significantly different than its historical earnings.

The majority of Commercial Power’s gas-fired non-regulated generation assets earn capacity revenues from PJM. PJM capacity prices are determined through an auction process for planning years from June through May of the following year and are conducted approximately three years in advance of the capacity delivery period. Capacity prices for periods beginning June 2011 and continuing through May 2014, will be significantly lower than current and historical capacity prices. As a result, Commercial Power’s operating revenues and EBIT will be negatively impacted through 2014.

On July 6, 2011, the EPA issued the Cross-State Air Pollution Rule (CSAPR) which replaces the Clean Air Interstate Rule (CAIR). See Note 5, “Commitments and Contingencies,” to the Consolidated Financial Statements for a discussion of this rule. Duke Energy is currently evaluating the effect of the rule on the carrying value of emission allowances held by Commercial Power. Based on the provisions of the CSAPR, Commercial Power expects to have more SO₂ allowances than will be needed to comply with the continuing Clean Air Act (CAA) acid rain cap-and-trade program (excess emission allowances). Commercial Power expects to incur a pre-tax impairment of approximately $80 million in the third quarter of 2011 to write down the carrying value of excess emission allowances held to fair value. This current estimate is based on the total allowances held by Commercial Power for compliance under the continuing CAA acid rain cap-and-trade program as of June 30, 2011.

International Energy

	Three Months Ended June 30,							Six Months Ended June  30,
	2011		2010		Increase (Decrease)			2011		2010			Increase (Decrease)
(in millions, except where noted)
Operating revenues	$	406	$	310	$	96		$	754	$	646		$	108
Operating expenses		262		207		55			471		425			46
Losses on sales of other assets and other, net		—		—		—			—		(1	)		1
Operating income		144		103		41			283		220			63
Other income and expenses, net		42		30		12			89		59			30
Expense attributable to noncontrolling interest		7		7		—			13		13			—
EBIT	$	179	$	126	$	53		$	359	$	266		$	93
Sales, GWh		4,516		5,041		(525	)		9,303		10,732			(1,429	)
Proportional MW capacity in operation									4,190		4,203			(13	)

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Three Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The increase was driven primarily by:

• A $63 million increase in Central America due to higher average prices and dispatch as a result of drier weather;

• A $27 million increase in Brazil as a result of favorable exchange rates and higher average contract prices; and

• A $13 million increase in Peru due to higher average prices and contract volumes.

Partially offsetting these increases was:

• A $6 million decrease in Ecuador as a result of lower dispatch due to unfavorable hydrology.

Operating Expenses. The increase was driven primarily by:

• A $43 million increase in Central America primarily due to higher fuel prices and consumption as a result of higher dispatch; and

• An $11 million increase in Peru primarily due to higher purchased power costs and hydrocarbons royalty costs.

Other Income and Expenses, net. The increase was primarily driven by a $13 million increase in equity earnings from NMC due to higher average pricing for methyl tertiary butyl ether (MTBE) and methanol; partially offset by higher butane costs and lower MTBE volumes due to scheduled maintenance.

EBIT. The increase was primarily due to favorable exchange rates and higher average contract prices in Brazil, favorable hydrology and higher average prices in Central America, and higher equity earnings from NMC.

Six Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The increase was driven primarily by:

• A $58 million increase in Brazil due to favorable exchange rates and higher average contract prices;

• A $49 million increase in Central America as a result of higher average prices and dispatch due to drier weather; and

• A $26 million increase in Peru due to higher average prices and contract volumes.

Partially offsetting these increases was:

• A $24 million decrease in Ecuador as a result of lower dispatch due to a new hydro competitor commencing operations in the fourth quarter of 2010 and unfavorable hydrology.

Operating Expenses. The increase was driven primarily by:

• A $31 million increase in Central America primarily due to higher fuel prices;

• A $20 million increase in Peru as a result of higher fuel consumption, purchased power costs and hydrocarbons royalty costs; and

• A $15 million increase in Brazil due to unfavorable exchange rates and higher purchased power costs as a result of lower generation.

Partially offsetting these increases was:

• A $20 million decrease in Ecuador due to lower fuel consumption as a result of lower dispatch.

Other Income and Expenses, net. The increase was primarily driven by Peru arbitration award, as well as a $13 million increase in equity earnings from NMC due to higher average MTBE and methanol prices, partially offset by lower MTBE volumes due to scheduled maintenance.

EBIT. The increase was primarily due to favorable exchange rates and higher average contract prices in Brazil, favorable hydrology in Central America, an arbitration award in Peru, and higher equity earnings from NMC.

Other

	Three Months Ended June 30,									Six Months Ended June 30,
	2011			2010			Increase (Decrease)			2011			2010			Increase (Decrease)
	(in millions)
Operating revenues	$	9		$	37		$	(28	)	$	20		$	65		$	(45	)
Operating expenses		84			154			(70	)		166			340			(174	)
Losses on sales of other assets and other, net		(8	)		(2	)		(6	)		—			—			—
Operating income		(83	)		(119	)		36			(146	)		(275	)		129
Other income and expenses, net		22			(2	)		24			38			5			33
(Benefit) expense attributable to noncontrolling interests		(4	)		1			(5	)		(6	)		(2	)		(4	)
EBIT	$	(57	)	$	(122	)	$	65		$	(102	)	$	(268	)	$	166

Three Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The decrease was driven primarily by the deconsolidation of DukeNet Communications, LLC (DukeNet) in December 2010 and the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment and the mark-to-market activity at Duke Energy Trading and Marketing, LLC (DETM).

Operating Expenses. The decrease was driven primarily by $76 million of 2010 employee severance costs related to the voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina and a decrease as a result of the DukeNet consolidation in December 2010 and the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment; partially offset by higher deferred compensation expense due to favorable investment performance and higher underwriting expenses at Bison Insurance Company Limited (Bison).

Other Income and Expenses, net. The increase was driven primarily by favorable returns on investments that support benefit obligations in 2011 compared to losses in 2010 and a reversal of reserves related to certain guarantees Duke Energy had issued on behalf of Crescent JV (Crescent).

EBIT. As discussed above, the increase was due primarily to employee severance costs in the prior year.

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PART I

Six Months Ended June 30, 2011 as Compared to June 30, 2010

Operating Revenues. The decrease was driven primarily by the deconsolidation of DukeNet in December 2010 and the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment and the mark-to-market activity at DETM.

Operating Expenses. The decrease was driven primarily by $144 million of 2010 employee severance costs related to the voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina, a decrease as a result of the DukeNet consolidation in December 2010 and the subsequent accounting for Duke Energy’s investment in DukeNet as an equity method investment, and a $16 million donation to the Duke Energy Foundation, which is a non-profit organization funded by Duke Energy shareholders that makes charitable contributions to selected non-profits and government subdivisions; partially offset by higher deferred compensation expense due to favorable investment performance.

Other Income and Expenses, net. The increase was driven primarily by favorable returns on investments that support benefit obligations in 2011 compared to losses in 2010, an increase due to the final settlement of the sale of a 50% ownership interest in DukeNet in the fourth quarter of 2010, and a reversal of reserves related to certain guarantees Duke Energy had issued on behalf of Crescent.

EBIT. As discussed above, the increase was due primarily to employee severance costs in the prior year, a donation to the Duke Energy Foundation in the prior year, and a reversal of reserves related to certain guarantees Duke Energy had issued on behalf of Crescent.

Matters Impacting Future Other Results

Duke Energy previously held an effective 50% interest in Crescent, which was Duke Energy’s real estate joint venture that filed for Chapter 11 bankruptcy protection in June 2009. On June 9, 2010, Crescent restructured and emerged from bankruptcy and Duke Energy forfeited its entire 50% ownership interest to Crescent debt holders. This forfeiture caused Duke Energy to recognize its share of the net tax loss in the second quarter of 2010. Although Crescent has reorganized and emerged from bankruptcy with creditors owning all Crescent interest, there remains uncertainty as to the tax treatment associated with the restructuring. Based on this uncertainty, it is possible that Duke Energy could incur a future tax liability related to its inability to fully utilize tax losses associated with its partnership interest in Crescent and the resolution of issues associated with Crescent’s emergence from bankruptcy.

Duke Energy Carolinas

INTRODUCTION

Management’s Discussion and Analysis should be read in conjunction with Duke Energy Carolinas’ Unaudited Condensed Consolidated Financial Statements.

Duke Energy Carolinas, a wholly-owned subsidiary of Duke Energy, is an electric utility company that generates, transmits, distributes and sells electricity in North Carolina and South Carolina.

BASIS OF PRESENTATION

The results of operations and variance discussion for Duke Energy Carolinas is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

	Six Months Ended June 30,
	2011		2010		Increase (Decrease)
	(in millions)
Operating revenues	$	3,159	$	3,058	$	101
Operating expenses		2,466		2,403		63
Gains on sales of other assets and other, net		1		5		(4	)
Operating income		694		660		34
Other income and expenses, net		92		112		(20	)
Interest expense		171		176		(5	)
Income before income taxes		615		596		19
Income tax expense		217		202		15
Net income	$	398	$	394	$	4

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PART I

The $4 million increase in Duke Energy Carolinas’ net income for the six months ended June 30, 2011 compared to June 30, 2010 was primarily due to the following factors:

Operating Revenues. The increase was primarily due to:

• A $92 million net increase in retail rates and rate riders primarily due to the implementation of the North Carolina construction work in progress rider effective January 2011, riders for the save-a-watt program, and year-over-year impact related to a phase-in of the new retail rates resulting from the South Carolina rate case in the first quarter of 2010;

• A $66 million increase in fuel revenues driven primarily by increased fuel rates in South Carolina; partially offset by lower fuel rates in North Carolina. Fuel revenues represent sales to retail and wholesale customers; and

• A $13 million increase in wholesale power revenues, net of sharing, primarily due to the addition of new customers served and additional volumes under long-term contracts and increased capacity charges; partially offset by volume decreases and lower pricing for near-term sales.

Partially offsetting these increases was:

• A $77 million decrease in GWh sales to retail customers due to less favorable weather. Weather statistics for both heating degree days and cooling degree days in 2011 were unfavorable compared to 2010. Heating degree days were normal for 2011 as compared to 14% above normal in 2010 and cooling degree days for 2011 were 32% above normal compared to 49% above normal in 2010.

Operating Expenses. The increase was primarily due to:

• A $67 million increase in fuel expense (including purchased power) primarily related to purchases of power and higher prices of coal used in electric generation.

• Operating and maintenance expenses were essentially flat period over period, with decreased employee severance costs associated with the 2010 voluntary severance plan largely offset by increases in various other areas, including higher outage and maintenance costs at nuclear operating plants, costs related to the implementation of the save-a-watt program, higher power delivery costs, and increased corporate and storm costs.

Other Income and Expenses, net. The decrease is primarily due to higher interest income recorded in 2010 following the resolution of certain income tax matters related to prior years and lower deferred returns.

Income Tax Expense. The increase in income tax expense for the six months ended June 30, 2011 compared to the same period in the prior year was primarily due to an increase in pre-tax income and an increase in the effective tax rate. The effective tax rate was 35.3% as compared to an effective tax rate of 33.9% for the same period in 2010. The increase in the effective tax rate for 2011 was primarily due to a decrease in the manufacturing deduction in 2011 and a state tax adjustment in 2010, partially offset by the write-off of a deferred tax asset in the first quarter of 2010 due to a change in the tax treatment of the Medicare Part D subsidy due to the passing of health care reform legislation.

Matters Impacting Future Duke Energy Carolinas Results

Duke Energy Carolinas has filed rate cases in North Carolina and South Carolina during 2011. Duke Energy Carolinas plans to file rate cases in North Carolina and South Carolina during 2012. These planned rates cases are needed to recover investments in Duke Energy Carolinas’ ongoing infrastructure modernization projects and operating costs. Duke Energy Carolinas’ earnings could be adversely impacted if these rate cases are denied or delayed by either of the state regulatory commissions.

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PART I

Duke Energy Ohio

INTRODUCTION

Management’s Discussion and Analysis should be read in conjunction with Duke Energy Ohio’s Unaudited Condensed Consolidated Financial Statements.

Duke Energy Ohio is a wholly-owned subsidiary of Cinergy Corp. (Cinergy), which is a wholly-owned subsidiary of Duke Energy. Duke Energy Ohio’s principal lines of business include generation, transmission and distribution of electricity, the sale of and/or transportation of natural gas, and energy marketing.

BASIS OF PRESENTATION

The results of operations and variance discussion for Duke Energy Ohio is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

	Six Months Ended June 30,
	2011		2010			Increase (Decrease)
	(in millions)
Operating revenues	$	1,573	$	1,626		$	(53	)
Operating expenses		1,381		2,188			(807	)
Gains on sales of other assets and other, net		2		3			(1	)
Operating income (loss)		194		(559	)		753
Other income and expenses, net		9		14			(5	)
Interest expense		51		58			(7	)
Income (loss) before income taxes		152		(603	)		755
Income tax expense		46		26			20
Net income (loss)	$	106	$	(629	)	$	735

The $735 million increase in Duke Energy Ohio’s net income for the six months ended June 30, 2011 compared to June 30, 2010 was primarily due to the following factors:

Operating Revenues. The decrease was primarily driven by:

• A $161 million decrease in retail electric revenues resulting from lower sales volumes driven by increased customer switching levels net of higher retail pricing under the ESP in 2011;

• A $36 million decrease in retail electric revenues resulting from the expiration of the Ohio electric Regulatory Transition Charge for non-residential customers;

• A $32 million decrease in regulated fuel revenues driven primarily by lower natural gas costs and reduced sales volumes;

• A $12 million decrease related to less favorable weather conditions in 2011 compared to 2010; and

• A $10 million decrease in net mark-to-market revenues on non-qualifying power and capacity hedge contracts, consisting of mark-to-market losses of $11 million in 2011 compared to losses of $1 million in 2010;

Partially offsetting these decreases were:

• A $154 million increase in wholesale electric revenues due to higher generation volumes net of lower pricing and lower margin earned from participation in wholesale auctions in 2011;

• A $27 million increase in PJM capacity revenues due to higher cleared auction pricing and additional MW participating in the auction in 2011 compared to 2010;

• A $9 million increase due to higher Midwest Independent Transmission System Operator, Inc. (Midwest ISO) transmission revenue; and

• A $9 million increase in retail gas revenues from Ohio recovery riders for Accelerated Main Replacement and uncollectible accounts expense.

Operating Expenses. The decrease was primarily driven by:

• An $828 million decrease in impairment charges primarily related to a $677 million impairment of goodwill and a $160 million impairment of certain generation assets and emission allowances in 2010. See Note 7 to the Unaudited Condensed Consolidated Financial Statements, “Goodwill, Intangible Assets and Impairments,” for additional information.

• An $85 million decrease in retail fuel and purchased power expenses due to lower retail load driven by increased customer switching levels in 2011 compared to 2010;

• A $33 million decrease in regulated fuel expense primarily due to lower natural gas costs and reduced sales volumes;

• A $27 million decrease in depreciation and amortization costs primarily due to decreased regulatory amortization; and

• A $21 million decrease in employee severance costs related to the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina.

Partially offsetting these decreases were:

• A $111 million increase in wholesale fuel expenses due to higher generation volumes;

• A $51 million increase in operating and maintenance expenses primarily due to higher maintenance expenses and 2011 storm costs; and

• A $17 million increase in mark-to-market fuel expense on non-qualifying fuel hedge contracts, consisting of mark-to-market losses of $3 million in 2011 compared to gains of $14 million in 2010.

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Other Income and Expenses, net. The decrease in 2011 compared to 2010 is primarily attributable to reduced interest income accrued for uncertain income tax positions.

Interest Expense. The decrease was primarily due to reduced interest accrued for uncertain tax positions, post in-service carrying charges related to new projects, and a decrease in debt balances in 2011 compared to 2010.

Income Tax Expense. The increase in income tax expense for the six months ended June 30, 2011 compared to the same period in the prior year is primarily due to an increase in pre-tax income and an increase in the effective tax rate. The effective tax rate in 2011 was 30.4% as compared to an effective tax rate for the same period in 2010 of (4.3)%. The change in the effective tax rate is primarily due to a $677 million non-deductible impairment of goodwill in 2010, as discussed above.

Matters Impacting Future Duke Energy Ohio Results

Duke Energy Ohio evaluates the carrying amount of its recorded goodwill for impairment on an annual basis as of August 31 and performs interim impairment tests if a triggering event occurs that indicates it is more likely than not that the fair value of a reporting unit is less than its carrying value. For further information on key assumptions that impact Duke Energy Ohio’s goodwill impairment assessments, see Critical Accounting Policy for Goodwill Impairment Assessments in Duke Energy Ohio’s Annual Report on Form 10-K for the year ended December 31, 2010. In the second quarter of 2010, Duke Energy Ohio recorded a goodwill impairment charge of $216 million related to the Ohio T&D reporting unit to write down the goodwill to its implied fair value. Subsequent to this impairment charge, the carrying value of goodwill associated with the reporting unit is $746 million. Management is continuing to monitor the impact of current market and economic events to determine if it is more likely than not that the carrying value of the Ohio T&D reporting unit has been impaired. Should any such triggering events or circumstances occur in 2011 that would more likely than not reduce the fair value of the Ohio T&D reporting unit below its carrying value, management would again perform an interim impairment test of the Ohio T&D goodwill and it is possible that a goodwill impairment charge could be recorded as a result of this test. Potential circumstances that could have a negative effect on the fair value of the Ohio T&D reporting unit include additional declines in load volume forecasts, changes in the WACC and the equity valuations of peer companies, changes in the timing and/or recovery of and on investments in SmartGrid technology, and the success of future rate case filings.

Duke Energy Ohio operates under an ESP that expires on December 31, 2011. On June 20, 2011, Duke Energy Ohio filed for approval of its next SSO to replace the existing ESP. The filing seeks approval of an ESP that would last for a term of nine years and five months. The ESP would unbundle generation service by separating capacity (physical assets) from energy (actual output). The capacity component would be paid by all customers through an unavoidable charge, adjusted on an annual basis, with all customers sharing in the net profits from Duke Energy Ohio’s sale of energy and ancillary services. The energy component would be procured through a competitive bidding process and would be avoidable by customers who choose alternative suppliers. The capacity charge would provide for a return of and on investment in Duke Energy Ohio’s generation assets and the cost to acquire capacity to meet reserve margin requirements. Hearings for this filing are scheduled to begin in September 2011. Duke Energy Ohio’s earnings after the expiration of the current ESP could be significantly different than its historical earnings.

The majority of Duke Energy Ohio’s gas-fired non-regulated generation assets earn capacity revenues from PJM. PJM capacity prices are determined through an auction process for planning years from June through May of the following year and are conducted approximately three years in advance of the capacity delivery period. Capacity prices for periods beginning June 2011 and continuing through May 2014, will be significantly lower than current and historical capacity prices. As a result, Duke Energy Ohio’s operating revenues and EBIT will be negatively impacted through 2014.

On July 6, 2011, the EPA issued the Cross-State Air Pollution Rule (CSAPR) which replaces the Clean Air Interstate Rule (CAIR). See Note 5, “Commitments and Contingencies,” to the Consolidated Financial Statements for a discussion of this rule. Duke Energy Ohio is currently evaluating the effect of the rule on the carrying value of emission allowances held by Commercial Power. Based on the provisions of the CSAPR, Duke Energy Ohio expects to have more SO₂ allowances than will be needed to comply with the continuing Clean Air Act (CAA) acid rain cap-and-trade program (excess emission allowances). Duke Energy Ohio expects to incur a pre-tax impairment of approximately $80 million in the third quarter of 2011 to write down the carrying value of excess emission allowances held by Commercial Power to fair value. This current estimate is based on the total allowances held by Commercial Power for compliance under the continuing CAA acid rain cap-and-trade program as of June 30, 2011.

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PART I

Duke Energy Indiana

INTRODUCTION

Management’s Discussion and Analysis should be read in conjunction with Duke Energy Indiana’s Unaudited Condensed Consolidated Financial Statements.

Duke Energy Indiana is a wholly-owned subsidiary of Cinergy, which is a wholly-owned subsidiary of Duke Energy. Duke Energy Indiana is an electric utility company that generates, transmits, distributes and sells electricity in north central, central and southern Indiana.

BASIS OF PRESENTATION

The results of operations and variance discussion for Duke Energy Indiana is presented in a reduced disclosure format in accordance with General Instruction H(2) of Form 10-Q.

	Six Months Ended June 30,
	2011		2010		Increase (Decrease)
	(in millions)
Operating revenues	$	1,279	$	1,189	$	90
Operating expenses		1,040		959		81
Operating income		239		230		9
Other income and expenses, net		44		32		12
Interest expense		70		67		3
Income before income taxes		213		195		18
Income tax expense		69		68		1
Net income	$	144	$	127	$	17

The $17 million increase in Duke Energy Indiana’s net income for the six months ended June 30, 2011 compared to June 30, 2010 was primarily due to the following factors:

Operating Revenues. The increase was primarily due to:

• A $51 million increase in fuel revenues (including the riders for emission allowances) primarily due to increase in fuel rates as a result of higher fuel and purchased power costs; and

• A $37 million net increase in rate riders, for the Edwardsport IGCC plant that is currently under construction and higher recoveries of demand side management (DSM) costs.

Operating Expenses. The increase was primarily due to:

• A $52 million increase in fuel costs primarily due to an increase in fuel rates as a result of higher fuel and purchased power costs;

• An $11 million increase in depreciation and amortization expense primarily due to higher amortization of DSM regulatory assets and increase in production plant base; partially offset by lower amortization of deferred clean coal costs and software;

• A $10 million increase in operation and maintenance costs primarily due to higher storm and power delivery costs, partially offset by decreased costs associated with the 2010 voluntary severance plan and the consolidation of certain corporate office functions from the Midwest to Charlotte, North Carolina; and

• An $8 million increase in general taxes primarily due to certain property tax true-ups, higher property tax rates in 2011, and increases in gross receipts and payroll taxes.

Other Income and Expenses, net. The increase in 2011 compared to 2010 was primarily attributable to increased AFUDC in 2011 for additional capital spending related to the Edwardsport IGCC plant that is currently under construction.

Income Tax Expense. The increase in income tax expense for the six months ended June 30, 2011 compared to the same period in the prior year was primarily due to an increase in pre-tax income. The effective tax rate was 32.3% as compared to an effective tax rate of 34.9% for the same period in 2010. The decrease in the effective tax rate is primarily due to an increase in AFUDC equity.

Matters Impacting Future Duke Energy Indiana Results

See Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters,” for a discussion of the significant increase in the estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s Edwardsport Generating Station.

Duke Energy Indiana plans to file a rate case in 2012. This planned rate case is needed to recover investments in Duke Energy Indiana’s ongoing infrastructure modernization projects and operating costs. Duke Energy Indiana’s earnings could be adversely impacted if any of this rate case is denied or delayed by the Indiana Utility Regulatory Commission.

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LIQUIDITY AND CAPITAL RESOURCES

The following discussion of liquidity and capital resources is on a consolidated Duke Energy basis. Duke Energy’s significant cash requirements are largely due to the capital intensive nature of its operations, including capital expansion projects, fleet modernization and other expenditures for environmental compliance. Duke Energy relies upon its cash flows from operations, as well as its ability to access the long-term debt and equity capital markets for sources of liquidity. Additionally, Duke Energy has access to unsecured revolving credit facilities, which are not restricted upon general market conditions, as discussed further below.

Operating Cash Flows

Net cash provided by operating activities was $1,717 million for the six months ended June 30, 2011 compared to $2,124 million for the same period in 2010, a decrease in cash provided of $407 million. This change was driven primarily by:

• Traditional working capital decreased cash provided from operations $430 million, primarily due to an increase in coal inventory.

Investing Cash Flows

Net cash used in investing activities was $1,838 million for the six months ended June 30, 2011 compared to $2,508 million for the same period in 2010, a decrease in cash used of $670 million. This change was driven primarily by:

• A $500 million decrease in capital and investment expenditures and

• A $100 million cash inflow in 2011 primarily as a result of the sale of Windstream Corp. stock received in conjunction with the sale of Q-Comm Corporation in December 2010.

Financing Cash Flows and Liquidity

Net cash used in financing activities was $187 million for the six months ended June 30, 2011 compared to $148 million for the same period in 2010, an increase in cash used of $39 million. This change was driven primarily by:

• A $100 million decrease in proceeds from the issuance of common stock primarily related to the Dividend Reinvestment Plan and other internal plans and

• A $20 million increase in dividend payments, partially offset by

• An $80 million increase in proceeds from net issuances of notes payable and commercial paper.

Significant Financing Activities. Duke Energy issues shares of its common stock to meet certain employee benefit and long-term incentive obligations. Beginning in the first quarter of 2011, Duke Energy discontinued issuing authorized but unissued shares of common stock to fulfill obligations under its DRIP and other internal plans, including 401(k) plans.

In April 2011, Duke Energy filed a registration statement (Form S-3) with the Securities and Exchange Commission (SEC) to sell up to $1 billion (maximum of $500 million of notes outstanding at any particular time) of variable denomination floating rate demand notes, called PremierNotes. The notes are offered on a continuous basis and bear interest at a floating rate per annum determined by the Duke Energy PremierNotes Committee, or its designee, on a weekly basis. The interest rate payable on notes held by an investor may vary based on the principal amount of the investment. The notes have no stated maturity date, but may be redeemed in whole or in part by Duke Energy at any time. The notes are non-transferable and may be redeemed in whole or in part at the investor’s option. Proceeds from the sale of the notes will be used for general corporate purposes. The notes reflect a short-term debt obligation of Duke Energy and are reflected as Notes payable on Duke Energy’s Condensed Consolidated Balance Sheets.

In May 2011, Duke Energy Carolinas issued $500 million principal amount of first mortgage bonds, which carry a fixed interest rate of 3.90% and mature June 15, 2021. Proceeds from this issuance will be used to fund capital expenditures and for general corporate purposes.

Available Credit Facilities and Restrictive Debt Covenants. The total capacity under Duke Energy’s master credit facility, which expires in June 2012, is $3.14 billion. The credit facility contains an option allowing borrowing up to the full amount of the facility on the day of initial expiration for up to one year. Duke Energy anticipates that it will begin the process of negotiating a renewal of the master credit facility in the third quarter of 2011. Duke Energy, Duke Energy Carolinas, Duke Energy Ohio, including Duke Energy Kentucky, and Duke Energy Indiana (collectively referred to as the borrowers), each have borrowing capacity under the master credit facility up to specified sub limits for each borrower. However, Duke Energy has the unilateral ability to increase or decrease the borrowing sub limits of each borrower, subject to per borrower maximum cap limitations, at any time. See the table below for the borrowing sub limits for each of the borrowers as of June 30, 2011. The amount available under the master credit facility has been reduced, as indicated in the table below, by the use of the master credit facility to backstop the issuances of commercial paper, letters of credit and certain tax-exempt bonds. As indicated, borrowing sub limits for the Subsidiary Registrants are also reduced for amounts outstanding under the money pool arrangement.

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Master Credit Facility Summary as of June 30, 2011 (in millions)^(a)(b)

	Duke Energy			Duke Energy Carolinas			Duke Energy Ohio			Duke Energy Indiana			Total
Facility Size(c)	$	1,097		$	840		$	750		$	450		$	3,137
Less:
Notes Payable and Commercial Paper(d)		—			(300	)		—			(150	)		(450	)
Outstanding Letters of Credit		(28	)		(7	)		(27	)		—			(62	)
Tax-Exempt Bonds		(25	)		(95	)		(84	)		(81	)		(285	)
Available Capacity	$	1,044		$	438		$	639		$	219		$	2,340

(a) This summary only includes Duke Energy’s master credit facility and, accordingly, excludes certain demand facilities and committed facilities that are insignificant in size or which generally support very specific requirements, which primarily include facilities that backstop various outstanding tax-exempt bonds. These facilities that backstop various outstanding tax-exempt bonds generally have non-cancelable terms in excess of one year from the balance sheet date, such that the Duke Energy Registrants have the ability to refinance such borrowings on a long-term basis. Accordingly, such borrowings are reflected as Long-term Debt on the Condensed Consolidated Balance Sheets of the respective Duke Energy Registrant.

(b) Credit facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower.

(c) Represents the sub limit of each borrower at June 30, 2011. The Duke Energy Ohio sub limit includes $100 million for Duke Energy Kentucky.

(d) Duke Energy issued $450 million of Commercial Paper and loaned the proceeds through the money pool to Duke Energy Carolinas and Duke Energy Indiana. The balances are classified as long-term borrowings within Long-term Debt in Duke Energy Carolina’s and Duke Energy Indiana’s Condensed Consolidated Balance Sheets.

Restrictive Debt Covenants. 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. As of June 30, 2011, each of the Duke Energy Registrants was in compliance with all covenants related to its significant debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or the acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the significant debt or credit agreements contain material adverse change clauses.

Other Issues

Global Climate Change and Other Environmental Protection Agency (EPA) Regulations Recently Published and Under Development.

The EPA has issued and is in various stages of developing several non-greenhouse gas (non-GHG) environmental regulations that will affect Duke Energy registrants, including the final Cross-State Air Pollution Rule (previously referred to as the Transport Rule), and proposed regulations for coal combustion residuals, the Clean Water Act 316(b) and Utility Boiler Maximum Achievable Control Technology (MACT) emission standards. As a group, these final and proposed non-GHG environmental regulations will require the Duke Energy Registrants to install additional environmental controls and may result in the accelerated retirement of some coal-fired units. While the ultimate regulatory requirements for the Duke Energy Registrants from the EPA’s regulatory actions will not be known until all the rules have been finalized, for planning purposes, the Duke Energy Registrants currently estimate the cost of new control equipment that may need to be installed to comply with this group of rules could total $5 billion to $6 billion over the next 10 years. The Duke Energy Registrants may curtail generation from its plants and also expects to incur incremental fuel, purchased power and operation, maintenance, and other expenses in conjunction with the non-GHG EPA regulations. In addition to the planned retirements associated with new generation, the Duke Energy Registrants are evaluating the need to retire additional coal fired generating capacity if it is not economic to bring it into compliance with the EPA’s regulations; retirements could total as much as 3,200 MWs of coal-fired generating capacity. Until the final regulatory requirements are known and can be fully evaluated, the potential compliance costs associated with these EPA regulatory actions are subject to considerable uncertainty. Therefore, the actual compliance costs incurred and MW to be retired may be materially different from these estimates based on the timing and requirements of the final EPA regulations.

For further information on global climate change and other EPA regulations under development and the potential impacts on Duke Energy, see “Other Issues” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2010.

Merger with Progress Energy Inc. See Note 3 to the Unaudited Condensed Consolidated Financial Statements, “Acquisitions and Dispositions” for information related to Duke Energy’s pending merger with Progress Energy, Inc.

Nuclear Matters. In March 2011, a magnitude 9.0 earthquake and subsequent tsunami caused significant damage at the Fukushima Daiichi nuclear power station in northeast Japan. As a result, a Nuclear Regulatory Commission (NRC) special task force initiated a comprehensive review of processes and regulations to determine whether the agency should make additional improvements to the nuclear regulatory system. The Institute of Nuclear Power Operations (INPO) is leading United States nuclear industry reviews of the Fukushima Daiichi event, and additional reviews by other national and international organizations are ongoing or expected. Such reviews may impact future operations and/or capital requirements at U.S. nuclear facilities, including those owned by Duke Energy Carolinas. These events could also cause increased regulatory review and scrutiny by the NRC which could lead to delays in the process for obtaining required regulatory approvals. See Item 1A, “Risk Factors”, in the 2010 Form 10-K for further discussion of applicable risk factors.

The following discussion of off-balance sheet arrangements and contractual obligations is on a consolidated Duke Energy basis.

Off-Balance Sheet Arrangements

During the six months ended June 30, 2011, there were no material changes to Duke Energy’s off-balance sheet arrangements. For information on Duke Energy’s off-balance sheet arrangements, see “Off-Balance Sheet Arrangements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2010.

Contractual Obligations

Duke Energy enters into contracts that require cash payment at specified periods, based on specified minimum quantities and prices. During the six months ended June 30, 2011, there were no material changes in Duke Energy’s contractual obligations. For an in-depth discussion of Duke Energy’s contractual obligations, see “Contractual Obligations” and “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2010.

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New Accounting Standards

The following new Accounting Standards Updates (ASU) have been issued, but have not yet been adopted by Duke Energy, as of June 30, 2011:

ASC 820—Fair Value Measurements and Disclosures (ASC 820). In May 2011, the FASB amended existing requirements for measuring fair value and for disclosing information about fair value measurements. This revised guidance results in a consistent definition of fair value, as well as common requirements for measurement and disclosure of fair value information between U.S. GAAP and International Financial Reporting Standards (IFRS). In addition, the amendments set forth enhanced disclosure requirements with respect to recurring Level 3 measurements, nonfinancial assets measured or disclosed at fair value, transfers between levels in the fair value hierarchy, and assets and liabilities disclosed but not recorded at fair value. For the Duke Energy Registrants, the revised fair value measurement guidance is effective on a prospective basis for interim and annual periods beginning January 1, 2012. Duke Energy is currently evaluating the potential impact of the adoption of this revised guidance and is unable to estimate at this time the impact of adoption on its consolidated results of operations, cash flows, or financial position.

ASC 220—Comprehensive Income (ASC 220). In June 2011, the FASB amended the existing requirements for presenting comprehensive income in financial statements primarily to increase the prominence of items reported in other comprehensive income (OCI) and to facilitate the convergence of U.S. GAAP and IFRS. Specifically, the revised guidance eliminates the option currently provided under existing requirements to present components of OCI as part of the statement of changes in stockholders’ equity. Accordingly, all non-owner changes in stockholders’ equity will be required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. For the Duke Energy Registrants, this revised guidance is effective on a retrospective basis for interim and annual periods beginning January 1, 2012. Early adoption of this revised guidance is permitted.

Subsequent Events

For information on subsequent events related to acquisitions, regulatory matters, commitments and contingencies and intangibles, see Note 3, “Acquisitions and Sales of Other Assets,” Note 4, “Regulatory Matters,” Note 5, “Commitments and Contingencies,” and Note 7, “Goodwill, Intangible Assets and Impairments,” to the Unaudited Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes from the disclosures presented in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2010. For an in-depth discussion of Duke Energy’s market risks, see “Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk” in Duke Energy’s Annual Report on Form 10-K for the year ended December 31, 2010.

Item 4. Controls and Procedures. – Duke Energy, Duke Energy Carolinas, Duke Energy Ohio, Duke Energy Indiana

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s (SEC) rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Duke Energy Registrants in the reports they file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated their effectiveness of their disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2011, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.

Changes in Internal Control over Financial Reporting

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Duke Energy Registrants have evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2011 and have concluded no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding legal proceedings that became reportable events or in which there were material developments in the second quarter of 2011, see Note 4 to the Unaudited Condensed Consolidated Financial Statements, “Regulatory Matters” and Note 5 to the Unaudited Condensed Consolidated Financial Statements, “Commitments and Contingencies” under the heading “Litigation.”

Item 1A. Risk Factors.

In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in Duke Energy’s, Duke Energy Carolinas’, Duke Energy Ohio’s and Duke Energy Indiana’s Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect the Duke Energy Registrants’ financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities for Second Quarter of 2011

There were no issuer purchases of equity securities during the second quarter of 2011.

Item 4. Removed and Reserved.

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Item 6. Exhibits

(a) Exhibits

Exhibits filed or furnished herewith are designated by an asterisk (*).

Exhibit Number		Duke Energy		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
*12	Computation of Ratio of Earnings to Fixed Charges		X
*31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
*31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
*31.3	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
*31.4	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
*31.5	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.						X
*31.6	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.						X
*31.7	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.								X
*31.8	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.								X
*32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		X
*32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		X
*32.3	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
*32.4	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
*32.5	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						X
*32.6	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						X
*32.7	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.								X
*32.8	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.								X
*101	Financials in XBRL Format.		X		X		X		X

The total amount of securities of the registrant or its subsidiaries authorized under any instrument with respect to long-term debt not filed as an exhibit does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees, upon request of the Securities and Exchange Commission (SEC), to furnish copies of any or all of such instruments to it.

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SIGNATURES

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

	DUKE ENERGY CORPORATION DUKE ENERGY CAROLINAS, LLC DUKE ENERGY OHIO, INC. DUKE ENERGY INDIANA, INC.
Date: August 8, 2011	/S/    LYNN J. GOOD
	Lynn J. Good Chief Financial Officer
Date: August 8, 2011	/S/    STEVEN K. YOUNG
	Steven K. Young Senior Vice President and Controller

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