DUK 10-K diff: FY 2023-12-31 → FY 2024-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+45 paragraphs −35 paragraphs ~35 changed
FY 2023-12-31 (earlier)
ITEM 1A. RISK FACTORS
In addition to other disclosures within this Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations – Matters Impacting Future Results" for each registrant in Item 7, and other documents filed with the SEC from time to time, the following factors should be considered in evaluating Duke Energy and its subsidiaries. Such factors could affect actual results of operations and cause results to differ substantially from those currently expected or sought. Unless otherwise indicated, risk factors discussed below generally relate to risks associated with all of the Duke Energy Registrants. Risks identified at the Subsidiary Registrant level are generally applicable to Duke Energy.23RISK FACTORS
BUSINESS STRATEGY RISKSDuke Energy’s future results could be adversely affected if it is unable to implement its business strategy including achieving its carbon emissions reduction goals.
Duke Energy’s results of operations depend, in significant part, on the extent to which it can implement its business strategy successfully. Duke Energy's clean energy transition, which includes achieving net-zero carbon emissions from electricity generation by 2050, modernizing the regulatory construct, transforming the customer experience, and digital transformation, is subject to business, policy, regulatory, technology, economic and competitive uncertainties and contingencies, many of which are beyond its control and may make those goals difficult to achieve.
Federal or state policies could be enacted that restrict the availability of fuels or generation technologies, such as natural gas or nuclear power, that enable Duke Energy to reduce its carbon emissions. Supportive policies may be needed to facilitate the siting and cost recovery of transmission and distribution upgrades needed to accommodate the build out of large volumes of renewables and energy storage. Further, the approval of our state regulators will be necessary for the Company to continue to retire existing carbon emitting assets or make investments in new generating capacity. The Company may be constrained by the ability to procure resources or labor needed to build new generation at a reasonable price as well as to construct projects on time. In addition, new technologies that are not yet commercially available or are unproven at utility scale will likely be needed including new resources capable of following electric load over long durations such as advanced nuclear, hydrogen and long-duration storage. If these technologies are not developed or are not available at reasonable prices, or if we invest in early stage technologies that are then supplanted by technological breakthroughs, Duke Energy’s ability to achieve a net-zero target by 2050 at a cost-effective price could be at risk.
Achieving our carbon reduction goals will require continued operation of our existing carbon-free technologies including nuclear and renewables. The rapid transition to and expansion of certain low-carbon resources, such as renewables without cost-effective storage, may challenge our ability to meet customer expectations of reliability in a carbon constrained environment. Our nuclear fleet is central to our ability to meet these objectives and customer expectations. We are continuing to seek to renew the operating licenses of the 11 reactors we operate at six nuclear stations for an additional 20 years, extending their operating lives to and beyond midcentury. Failure to receive approval from the NRC for the relicensing of any of these reactors could affect our ability to achieve a net-zero target by 2050.As a consequence, Duke Energy may not be able to fully implement or realize the anticipated results of its energy transition strategy, which may have an adverse effect on its financial condition.
REGULATORY, LEGISLATIVE AND LEGAL RISKS
The Duke Energy Registrants’ regulated utility revenues, earnings and results of operations are dependent on state legislation and regulation that affect electric generation, electric and natural gas transmission, distribution and related activities, which may limit their ability to recover costs.The Duke Energy Registrants’ regulated electric and natural gas utility businesses are regulated on a cost-of-service/rate-of-return basis subject to statutes and regulatory commission rules and procedures of North Carolina, South Carolina, Florida, Ohio, Tennessee, Indiana and Kentucky. If the Duke Energy Registrants’ regulated utility earnings exceed the returns established by the state utility commissions, retail electric and natural gas rates may be subject to review and possible reduction by the commissions, which may decrease the Duke Energy Registrants’ earnings. Additionally, if regulatory or legislative bodies do not allow recovery of costs incurred in providing service, or do not do so on a timely basis, the Duke Energy Registrants’ earnings could be negatively impacted. Differences in regulation between jurisdictions with concurrent operations, such as North Carolina and South Carolina in Duke Energy Carolinas' and Duke Energy Progress' service territory, may also result in failure to recover costs.If legislative and regulatory structures were to evolve in such a way that the Duke Energy Registrants’ exclusive rights to serve their regulated customers were eroded, their earnings could be negatively impacted. Federal and state regulations, laws, commercialization and reduction of costs and other efforts designed to promote and expand the use of EE measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could reduce recovery of fixed costs in Duke Energy service territories or result in customers leaving the electric distribution system and an increase in customer net energy metering, which allows customers with private solar to receive bill credits for surplus power up to the full retail credit amount. Over time, customer adoption of these technologies could result in Duke Energy not being able to fully recover the costs and investment in generation.State regulators have approved various mechanisms to stabilize natural gas utility margins, including margin decoupling in North Carolina and rate stabilization in South Carolina. Additionally, certain jurisdictions have established performance incentive mechanisms and revenue decoupling mechanisms for EU&I. Performance incentive mechanisms condition some portion of the respective utility's earnings on its performance on established measurable consumer, utility system, or public policy outcomes. Revenue decoupling mechanisms provide periodic rate adjustments to ensure actual revenues match allowed revenues for certain customer classes. State regulators have also approved other margin stabilizing mechanisms that, for example, allow for recovery of margin losses associated with negotiated transactions designed to retain large volume customers that could use alternative fuels or that may otherwise directly access natural gas supply through their own connection to an interstate pipeline. If regulators decided to discontinue the Duke Energy Registrants' use of tariff mechanisms or other mechanisms intended to stabilize utility margins, it would negatively impact results of operations, financial position and cash flows. In addition, regulatory authorities also review whether natural gas costs are prudently incurred and can disallow the recovery of a portion of natural gas costs that the Duke Energy Registrants seek to recover from customers, which would adversely impact earnings.
The rates that the Duke Energy Registrants’ regulated utility businesses are allowed to charge are established by state utility commissions in rate case proceedings, which may limit their ability to recover costs and earn an appropriate return on investment.
The rates that the Duke Energy Registrants’ regulated utility businesses are allowed to charge significantly influences the results of operations, financial position and cash flows of the Duke Energy Registrants. The regulation of the rates that the regulated utility businesses charge customers is determined, in large part, by state utility commissions in rate case proceedings. Negative decisions made by these regulators, or by any court on appeal of a rate case proceeding, have, and in the future could have, a material adverse effect on the Duke Energy Registrants’ results of operations, financial position or cash flows and affect the ability of the Duke Energy Registrants to adequately recover costs on a timely basis, including an appropriate return on the significant infrastructure investments being made.24
RISK FACTORSDeregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect the Duke Energy Registrants’ results of operations, financial position or cash flows and their utility businesses.Increased competition resulting from deregulation or restructuring legislation could have a significant adverse impact on the Duke Energy Registrants’ results of operations, financial position or cash flows and their utility businesses. If the retail jurisdictions served by the Duke Energy Registrants become subject to deregulation, the impairment of assets, loss of retail customers, lower profit margins or increased costs of capital, and recovery of stranded costs could have a significant adverse financial impact on the Duke Energy Registrants. Stranded costs primarily include the generation assets of the Duke Energy Registrants whose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from QFs from whom the Duke Energy Registrants are legally obligated to purchase energy at an avoided cost rate under PURPA. The Duke Energy Registrants cannot predict the extent and timing of entry by additional competitors into the electric markets. The Duke Energy Registrants cannot predict if or when they will be subject to changes in legislation or regulation, nor can they predict the impact of these changes on their results of operations, financial position or cash flows.The Duke Energy Registrants’ businesses are subject to extensive federal regulation and a wide variety of laws and governmental policies, including taxes and environmental regulations, that may change over time in ways that affect operations and costs.The Duke Energy Registrants are subject to regulations under a wide variety of U.S. federal and state regulations and policies, including by FERC, NRC, EPA and various other federal agencies as well as the North American Electric Reliability Corporation. Regulation affects almost every aspect of the Duke Energy Registrants’ businesses, including, among other things, their ability to: take fundamental business management actions; determine the terms and rates of transmission and distribution services; make acquisitions; issue equity or debt securities; engage in transactions with other subsidiaries and affiliates; and pay dividends upstream to the Duke Energy Registrants. Changes to federal regulations are continuous and ongoing. There can be no assurance that laws, regulations and policies will not be changed in ways that result in material modifications of business models and objectives or affect returns on investment by restricting activities and products, subjecting them to escalating costs, causing delays, or prohibiting them outright.The Duke Energy Registrants are subject to numerous environmental laws and regulations requiring significant capital expenditures that can increase the cost of operations, and which may impact or limit business plans, or cause exposure to environmental liabilities.The Duke Energy Registrants are subject to numerous environmental laws and regulations affecting many aspects of their present and future operations, including CCRs, air emissions, water quality, wastewater discharges, solid waste and hazardous waste. These laws and regulations can result in increased capital, operating and other costs. These laws and regulations generally require the Duke Energy Registrants to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Compliance with environmental laws and regulations can require significant expenditures, including expenditures for cleanup costs and damages arising from contaminated properties. Failure to comply with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets, as well as reputational damage. The steps the Duke Energy Registrants could be required to take to ensure their facilities are in compliance could be prohibitively expensive. As a result, the Duke Energy Registrants may be required to shut down or alter the operation of their facilities, which may cause the Duke Energy Registrants to incur losses. Further, the Duke Energy Registrants may not be successful in recovering capital and operating costs incurred to comply with new environmental regulations through existing regulatory rate structures and their contracts with customers. Also, the Duke Energy Registrants may not be able to obtain or maintain from time to time all required environmental regulatory approvals for their operating assets or development projects. Delays in obtaining any required environmental regulatory approvals, failure to obtain and comply with them or changes in environmental laws or regulations to more stringent compliance levels could result in additional costs of operation for existing facilities or development of new facilities being prevented, delayed or subject to additional costs. Although it is not expected that the costs to comply with current environmental regulations will have a material adverse effect on the Duke Energy Registrants’ results of operations, financial position and cash flows due to regulatory cost recovery, the Duke Energy Registrants are at risk that the costs of complying with environmental regulations in the future will have such an effect.
The EPA has issued or proposed federal regulations governing the management of cooling water intake structures, wastewater, CCR management units, and CO 2 emissions. New state legislation could impose carbon reduction goals that are more aggressive than the Company's plans. These regulations may require the Duke Energy Registrants to make additional capital expenditures and increase operating and maintenance costs.
The Duke Energy Registrants' operations, capital expenditures and financial results may be affected by regulatory changes related to the impacts of global climate change.
There is continued concern, and increasing activism, both nationally and internationally, about climate change. The EPA and state regulators have, and may adopt and implement, additional regulations to restrict emissions of GHGs to address global climate change, as well as reporting requirements regarding such emissions and related climate-goal claims. Certain local and state jurisdictions have also enacted laws to restrict or prevent new natural gas infrastructure. Increased regulation of GHG emissions and reporting requirements could impose significant additional costs on the Duke Energy Registrants' electric and natural gas operations, their suppliers and customers and affect demand for energy conservation and renewable products, which could impact both our electric and natural gas businesses. Regulatory changes could also result in generation facilities to be retired earlier than planned to meet our net-zero 2050 goal. Though we would plan to seek cost recovery for investments related to GHG emissions reductions through regulatory rate structures, changes in the regulatory climate could result in the delay in or failure to fully recover such costs and investment in generation.
25RISK FACTORSOPERATIONAL RISKS
The Duke Energy Registrants’ results of operations may be negatively affected by overall market, economic and other conditions that are beyond their control.
Sustained downturns or sluggishness in the economy generally affect the markets in which the Duke Energy Registrants operate and negatively influence operations. Declines in demand for electricity or natural gas as a result of economic downturns in the Duke Energy Registrants’ regulated service territories will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity and the use of natural gas. Although the Duke Energy Registrants’ regulated electric and natural gas businesses are subject to regulated allowable rates of return and recovery of certain costs, such as fuel and purchased natural gas costs, under periodic adjustment clauses, overall declines in electricity or natural gas sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations.A continuation of adverse economic conditions including economic downturn or high commodity prices could also negatively impact the financial stability of certain of our customers and result in their inability to pay for electric and natural gas services. This could lead to increased bad debt expense and higher allowance for doubtful account reserves for the Duke Energy Registrants and result in delayed or unrecovered operating costs and lower financial results. Additionally, prolonged economic downturns that negatively impact the Duke Energy Registrants’ results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values. The Duke Energy Registrants also monitor the impacts of inflation on the procurement of goods and services and seek to minimize its effects in future periods through pricing strategies, productivity improvements, and cost reductions. Rapidly rising prices as a result of inflation or other factors may impact the ability of the Company to recover costs timely or execute on its business strategy including the achievement of growth objectives.The Duke Energy Registrants sell electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, the Duke Energy Registrants are not guaranteed any rate of return on their capital investments through mandated rates, and revenues and results of operations are likely to depend, in large part, upon prevailing market prices. These market prices may fluctuate substantially over relatively short periods of time and could negatively impact the Company's ability to accurately forecast the financial impact or reduce the Duke Energy Registrants’ revenues and margins, thereby diminishing results of operations.
Factors that could impact sales volumes, generation of electricity and market prices at which the Duke Energy Registrants are able to sell electricity and natural gas are as follows:• weather conditions, including abnormally mild winter or summer weather that cause lower energy or natural gas usage for heating or cooling purposes, as applicable, and periods of low rainfall that decrease the ability to operate facilities in an economical manner;
• supply of and demand for energy commodities;• transmission or transportation constraints or inefficiencies;
• availability of purchased power;
• availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal, nuclear or natural gas plants, and customer usage of energy-efficient equipment that reduces energy demand;
• natural gas, crude oil and refined products production levels and prices;
• ability to procure satisfactory levels of inventory, including materials, supplies, and fuel such as coal, natural gas and uranium; and
• capacity and transmission service into, or out of, the Duke Energy Registrants’ markets.Natural disasters or operational accidents may adversely affect the Duke Energy Registrants’ operating results.
Natural disasters or operational accidents within the Company or industry (such as forest fires, earthquakes, hurricanes or natural gas transmission pipeline explosions) could have direct or indirect impacts to the Duke Energy Registrants or to key contractors and suppliers. Further, the generation of electricity and the transportation and storage of natural gas involve inherent operating risks that may result in accidents involving serious injury or loss of life, environmental damage or property damage. Such events could impact the Duke Energy Registrants through civil or criminal legal proceedings or changes to policies, laws and regulations whose compliance costs have a significant impact on the Duke Energy Registrants’ results of operations, financial position and cash flows. In addition, if a serious operational accident were to occur, existing insurance policies may not cover all of the potential exposures or the actual amount of loss incurred, including potential litigation awards. Any losses not covered by insurance, or any increases in the cost of applicable insurance as a result of such accident, could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.The reputation and financial condition of the Duke Energy Registrants could be negatively impacted due to their obligations to comply with federal and state regulations, laws, and other legal requirements that govern the operations, assessments, storage, closure, remediation, disposal and monitoring relating to CCR, the high costs and new rate impacts associated with implementing these new CCR-related requirements and the strategies and methods necessary to implement these requirements in compliance with these legal obligations.
As a result of electricity produced for decades at coal-fired power plants, the Duke Energy Registrants manage large amounts of CCR that are primarily stored in dry storage within landfills or combined with water in surface impoundments, all in compliance with applicable regulatory requirements. A CCR-related operational incident could have a material adverse impact on the reputation and results of operations, financial position and cash flows of the Duke Energy Registrants.26
RISK FACTORS
During 2015, EPA regulations were enacted related to the management of CCR from power plants. These regulations classify CCR as nonhazardous waste under the RCRA and apply to electric generating sites with new and existing landfills and, new and existing surface impoundments, and establish requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures for the disposal and management of CCR. In addition to the federal regulations, CCR landfills and surface impoundments will continue to be regulated by existing state laws, regulations and permits, as well as additional legal requirements that may be imposed in the future, such as the settlement reached with the NCDEQ to excavate seven of the nine remaining coal ash basins in North Carolina, and partially excavate the remaining two, and the EPA's January 11, 2022, issuance of a letter interpreting the CCR Rule, including its applicability and closure provisions. These federal and state laws, regulations and other legal requirements may require or result in additional expenditures, including increased operating and maintenance costs, which could affect the results of operations, financial position and cash flows of the Duke Energy Registrants. The Duke Energy Registrants will continue to seek full cost recovery for expenditures through the normal ratemaking process with state and federal utility commissions, who permit recovery in rates of necessary and prudently incurred costs associated with the Duke Energy Registrants’ regulated operations, and through other wholesale contracts with terms that contemplate recovery of such costs, although there is no guarantee of full cost recovery. In addition, the timing for and amount of recovery of such costs could have a material adverse impact on Duke Energy's cash flows.
The Duke Energy Registrants have recognized significant AROs related to these CCR-related requirements. Closure activities began in 2015 at the four sites specified as high priority by the Coal Ash Act and at the W.S. Lee Steam Station site in South Carolina in connection with other legal requirements. Excavation at these sites involves movement of CCR materials to off-site locations for use as structural fill, to appropriately engineered off-site or on-site lined landfills or conversion of the ash for beneficial use. Duke Energy has completed excavation of coal ash at the four high-priority North Carolina sites. At other sites, planning and closure methods have been studied and factored into the estimated retirement and management costs, and closure activities have commenced. As the closure and CCR management work progresses and final closure plans and corrective action measures are developed and approved at each site, the scope and complexity of work and the amount of CCR material could be greater than estimates and could, therefore, materially increase compliance expenditures and rate impacts.The Duke Energy Registrants’ results of operations, financial position and cash flows may be negatively affected by a lack of growth or slower growth in the number of customers, or decline in customer demand or number of customers.Growth in customer accounts and growth of customer usage each directly influence demand for electricity and natural gas and the need for additional power generation and delivery facilities. Customer growth and customer usage are affected by several factors outside the control of the Duke Energy Registrants, such as mandated EE measures, demand-side management goals, distributed generation resources and economic and demographic conditions, such as inflation and interest rate volatility, population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.In addition, certain regulatory and legislative bodies have passed legislation implementing the extension of certain tax credits to be used toward the costs of residential solar installation or have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates in response to concerns related to climate change. Additionally, technological advances driven by federal laws mandating new levels of EE in end-use electric and natural gas devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.
Advances in distributed generation technologies that produce power, including fuel cells, microturbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production utilized by the Duke Energy Registrants. In addition, the electrification of buildings and appliances currently relying on natural gas could reduce the number of customers in our natural gas distribution business.
Some or all of these factors could result in a lack of growth or decline in customer demand for electricity or number of customers and may cause the failure of the Duke Energy Registrants to fully realize anticipated benefits from significant capital investments and expenditures, which could have a material adverse effect on their results of operations, financial position and cash flows.Furthermore, the Duke Energy Registrants currently have EE riders in place to recover the cost of EE programs in North Carolina, South Carolina, Florida, Indiana, Ohio and Kentucky. Should the Duke Energy Registrants be required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact.
The Duke Energy Registrants future results of operations may be impacted by changing expectations and demands including heightened emphasis on environmental, social and governance concerns.
Duke Energy’s ability to execute its strategy and achieve anticipated financial outcomes are influenced by the expectations of our customers, regulators, investors, and stakeholders. Those expectations are based in part on the core fundamentals of reliability and affordability but are also increasingly focused on our ability to meet rapidly changing demands for new and varied products, services and offerings. Additionally, the risks of global climate change continues to shape our customers’ sustainability goals and energy needs as well as the investment and financing criteria of investors. Failure to meet these increasing expectations or to adequately address the risks and external pressures from regulators, customers, investors and other stakeholders may impact Duke Energy’s reputation and affect its ability to achieve favorable outcomes in future rate cases and the results of operations for the Duke Energy Registrants. Furthermore, the increasing use of social media may accelerate and increase the potential scope of negative publicity we might receive and could increase the negative impact on our reputation, business, results of operations, and financial condition.
As it relates to electric generation, a diversified fleet with increasingly clean generation resources may facilitate more efficient financing and lower costs. Conversely, jurisdictions utilizing more carbon-intensive generation such as coal may experience difficulty attracting certain investors and obtaining the most economical financing terms available. Furthermore, with this heightened emphasis on environmental, social, and governance concerns, and climate change in particular, there is an increased risk of litigation, activism, and legislation from groups both in support of and opposed to various environmental, social and governance initiatives, which could cause delays and increase the costs of our clean energy transition.
27RISK FACTORSThe Duke Energy Registrants’ operating results may fluctuate on a seasonal and quarterly basis and can be negatively affected by changes in weather conditions and severe weather, including extreme weather conditions and changes in weather patterns from climate change.
Electric power generation and natural gas distribution are generally seasonal businesses. In most parts of the U.S., the demand for power peaks during the warmer summer months, with market prices also typically peaking at that time. In other areas, demand for power peaks during the winter. Demand for natural gas peaks during the winter months. Further, changing frequency or magnitude of extreme weather conditions such as hurricanes, droughts, heat waves, winter storms and severe weather, including from climate change, could cause these seasonal fluctuations to be more pronounced. As a result, the overall operating results of the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant.Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, flooding, tornadoes, severe thunderstorms, snow and ice storms, including from climate change, can result in lost operating revenues due to outages, property damage, including downed transmission and distribution lines, reputational harm, and additional and unexpected expenses to mitigate storm damage. The cost of storm restoration efforts may not be fully recoverable through the regulatory process.The Duke Energy Registrants’ sales may decrease if they are unable to gain adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver electricity sold to the wholesale market. In addition, the growth of renewables and energy storage will put strains on existing transmission assets and require transmission and distribution upgrades. The FERC’s power transmission regulations require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. If transmission is disrupted, or if transmission capacity is inadequate, the Duke Energy Registrants’ ability to sell and deliver products may be hindered.
The different regional power markets have changing regulatory structures, which could affect growth and performance in these regions. In addition, the ISOs who oversee the transmission systems in regional power markets have imposed in the past, and may impose in the future, price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms may adversely impact the profitability of the Duke Energy Registrants’ wholesale power marketing business.
The availability of adequate interstate pipeline transportation capacity and natural gas supply may decrease.
The Duke Energy Registrants purchase almost all of their natural gas supply from interstate sources that must be transported to the applicable service territories. Interstate pipeline companies transport the natural gas to the Duke Energy Registrants' systems under firm service agreements that are designed to meet the requirements of their core markets. A significant disruption to interstate pipelines capacity or reduction in natural gas supply due to events including, but not limited to, operational failures or disruptions, hurricanes, tornadoes, floods, freeze off of natural gas wells, terrorist or cyberattacks or other acts of war or legislative or regulatory actions or requirements, including remediation related to integrity inspections or regulations and laws enacted to address climate change, could reduce the normal interstate supply of natural gas and thereby reduce earnings. Moreover, if additional natural gas infrastructure, including, but not limited to, exploration and drilling rigs and platforms, processing and gathering systems, offshore pipelines, interstate pipelines and storage, cannot be built at a pace that meets demand, then growth opportunities could be limited.Fluctuations in commodity prices or availability may adversely affect various aspects of the Duke Energy Registrants’ operations as well as their results of operations, financial position and cash flows.The Duke Energy Registrants are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity and other energy-related commodities as a result of their ownership of energy-related assets. Fuel costs are recovered primarily through cost recovery clauses, subject to the approval of state utility commissions.
Additionally, the Duke Energy Registrants are exposed to risk that counterparties will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of, among other things, bankruptcies, transportation delays, weather, labor relations, force majeure events or environmental regulations affecting any of these fuel suppliers, could limit the Duke Energy Registrants' ability to operate their facilities. Should counterparties fail to perform, the Duke Energy Registrants might be forced to replace the underlying commitment at prevailing market prices possibly resulting in losses in addition to the amounts, if any, already paid to the counterparties.Certain of the Duke Energy Registrants’ hedge agreements may result in the receipt of, or posting of, collateral with counterparties, depending on the daily market-based calculation of financial exposure of the derivative positions. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties could negatively impact liquidity. Downgrades in the Duke Energy Registrants’ credit ratings could lead to additional collateral posting requirements. The Duke Energy Registrants continually monitor derivative positions in relation to market price activity.28
RISK FACTORSCyberattacks and data security breaches could adversely affect the Duke Energy Registrants' businesses.
Cybersecurity risks have increased in recent years as a result of the proliferation of new technologies and the increased sophistication, magnitude and frequency of cyberattacks and data security breaches. Duke Energy relies on the continued operation of sophisticated digital information technology systems and network infrastructure, which are part of an interconnected regional grid. Additionally, connectivity to the internet continues to increase through grid modernization and other operational excellence initiatives. Because of the critical nature of the infrastructure, increased connectivity to the internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, the Duke Energy Registrants face a heightened risk of cyberattacks from foreign or domestic sources and have been subject, and will likely continue to be subject, to cyberattacks designed to gain unauthorized access to information and/or information systems or to disrupt utility operations through computer viruses and phishing attempts either directly or indirectly through its material vendors or related third parties. In the event of a significant cybersecurity breach on either the Duke Energy Registrants or with one of our material vendors or related third parties, the Duke Energy Registrants could (i) have business operations disrupted, including the disruption of the operation of our natural gas and electric assets and the power grid, theft of confidential company, employee, retiree, shareholder, vendor or customer information, and general business systems and process interruption or compromise, including preventing the Duke Energy Registrants from servicing customers, collecting revenues or the recording, processing and/or reporting financial information correctly, (ii) experience substantial loss of revenues, repair and restoration costs, penalties and costs for lack of compliance with relevant regulations, implementation costs for additional security measures to avert future cyberattacks and other financial loss and (iii) be subject to increased regulation, litigation and reputational damage. While Duke Energy maintains insurance relating to cybersecurity events, such insurance does not protect Duke Energy from such cyberattacks occurring, and while it does provide some potential mitigation of the financial impacts resulting from such cyberattacks, it is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage experienced. Also, the market for cybersecurity insurance is relatively new and coverage available for cybersecurity events is evolving as the industry matures.
The Duke Energy Registrants are subject to standards enacted by the North American Electric Reliability Corporation and enforced by FERC regarding protection of the physical and cybersecurity of critical infrastructure assets required for operating North America's bulk electric system. The Duke Energy Registrants are also subject to regulations set by the Nuclear Regulatory Commission regarding the protection of digital computer and communication systems and networks required for the operation of nuclear power plants. The Duke Energy Registrants that operate designated critical pipelines that transport natural gas are also subject to security directives issued by the Department of Homeland Security's Transportation Security Administration (TSA) requiring such registrants to implement specific cybersecurity mitigation measures. While the Duke Energy Registrants believe they are in compliance with, or, in the case of recent TSA security directives, are in the process of implementing such standards and regulations, the Duke Energy Registrants have from time to time been, and may in the future be, found to be in violation of such standards and regulations. In addition, compliance with or changes in the applicable standards and regulations may subject the Duke Energy Registrants to higher operating costs and/or increased capital expenditures as well as substantial fines for non-compliance.
The Duke Energy Registrants’ operations have been and may be affected by pandemic health events, including COVID-19, in ways listed below and in ways the Duke Energy Registrants cannot predict at this time.
The COVID-19 pandemic and efforts to respond to it have resulted in widespread adverse consequences on the global economy and on the Duke Energy Registrants’ customers, third-party vendors, and other parties with whom we do business. If the COVID-19 pandemic or other health epidemics and outbreaks that may occur are significantly prolonged, it could impact the Duke Energy Registrants' business strategy, results of operations, financial position and cash flows in the future as a result of delays in rate cases or other legal proceedings, an inability to obtain labor or equipment necessary for the construction of large capital projects, an inability to procure satisfactory levels of fuels or other necessary equipment for the continued production of electricity and delivery of natural gas, volatility in global equity securities markets, and the health and availability of our critical personnel and their ability to perform business functions.Duke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO presents risks that could have a material adverse effect on their results of operations, financial position and cash flows.
The rules governing the various regional power markets may change, which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/or revenues. Both Duke Energy Ohio and Duke Energy Indiana have trackers to recover approved RTO costs, but to the degree Duke Energy Ohio and Duke Energy Indiana incur significant additional fees and increased costs to participate in an RTO that are not approved for recovery, their results of operations may be impacted. Duke Energy Ohio and Duke Energy Indiana may be allocated a portion of the cost of transmission facilities built by others due to changes in RTO transmission rate design, while being able to allocate costs of projects built by Duke Energy Ohio and Duke Energy Indiana to others. Duke Energy Ohio and Duke Energy Indiana may be required to expand their transmission system according to decisions made by an RTO rather than their own internal planning process. In addition, RTOs have been developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights that may have a financial impact on the results of operations, financial position and cash flows of Duke Energy Ohio and Duke Energy Indiana.
As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are subject to certain additional risks, including those associated with the allocation among RTO members, of losses caused by unreimbursed defaults of other participants in the RTO markets not covered by collateral requirements and those associated with complaint cases filed against an RTO that may seek refunds of revenues previously earned by RTO members.
The Duke Energy Registrants may not recover costs incurred to begin construction on projects that are canceled.
Duke Energy’s long-term strategy requires the construction of new projects, either wholly owned or partially owned, which involve a number of risks, including construction delays, delays in or failure to receive required regulatory approvals and/or sitting or environmental permits, nonperformance by equipment and other third-party suppliers, and increases in equipment and labor costs. To limit the risks of these construction projects, the Duke Energy Registrants enter into equipment purchase orders and construction contracts and incur engineering and design service costs in advance of receiving necessary regulatory approvals and/or siting or environmental permits. If any of these projects are canceled for any reason, including failure to receive necessary regulatory approvals and/or siting or environmental permits, significant cancellation penalties under the equipment purchase orders and construction contracts could occur. In addition, if any construction work or investments have been recorded as an asset, an impairment may need to be recorded in the event the project is canceled.29
RISK FACTORSThe Duke Energy Registrants are subject to risks associated with their ability to obtain adequate insurance at acceptable costs.
The financial condition of some insurance companies, actual or threatened physical or cyberattacks, and natural disasters, among other things, could have disruptive effects on insurance markets. The availability of insurance covering risks that the Duke Energy Registrants and their respective competitors typically insure against may decrease, and the insurance that the Duke Energy Registrants are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Further, the insurance policies may not cover all of the potential exposures or the actual amount of loss incurred. Any losses not covered by insurance, or any increases in the cost of applicable insurance, could adversely affect the results of operations, financial position or cash flows of the affected Duke Energy Registrant.
Our business could be negatively affected as a result of actions of activist shareholders.
While we strive to maintain constructive communications with our shareholders, activist shareholders may, from time to time, engage in proxy solicitations or advance shareholder proposals, or otherwise attempt to affect changes and assert influence on our Board and management. Perceived uncertainties as to the future direction or governance of the Company may cause concern to our current or potential regulators, vendors or strategic partners, or make it more difficult to execute on our strategy or to attract and retain qualified personnel, which may have a material impact on our business and operating results.
In addition, actions such as those described above could cause fluctuations in the trading price of our common stock, based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
NUCLEAR GENERATION RISKS
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida may incur substantial costs and liabilities due to their ownership and operation of nuclear generating facilities.
Ownership interests in and operation of nuclear stations by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various risks. These risks include, among other things: the potential harmful effects on the environment and human health resulting from the current or past operation of nuclear facilities and the storage, handling and disposal of radioactive materials; limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives; and the threat of a terrorist attack or cyber incident and other potential liabilities arising out of the ownership or operation of nuclear facilities.
Ownership and operation of nuclear generation facilities requires compliance with licensing and safety-related requirements imposed by the NRC. In the event of non-compliance, the NRC may increase regulatory oversight, impose fines or shut down a unit depending upon its assessment of the severity of the situation. Revised security and safety requirements promulgated by the NRC, which could be prompted by, among other things, events within or outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, such as a serious nuclear incident at a facility owned by a third party, could necessitate substantial capital and other expenditures, as well as assessments to cover third-party losses. In addition, if a serious nuclear incident were to occur, it could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.LIQUIDITY, CAPITAL REQUIREMENTS AND COMMON STOCK RISKS
The Duke Energy Registrants rely on access to short-term borrowings and longer-term debt and equity markets to finance their capital requirements and support their liquidity needs. Access to those markets can be adversely affected by a number of conditions, many of which are beyond the Duke Energy Registrants’ control.The Duke Energy Registrants’ businesses are significantly financed through issuances of debt and equity. The maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from their assets. Accordingly, as a source of liquidity for capital requirements not satisfied by the cash flows from their operations and to fund investments originally financed through debt instruments with disparate maturities, the Duke Energy Registrants rely on access to short-term money markets as well as longer-term capital markets. The Subsidiary Registrants also rely on access to short-term intercompany borrowings. If the Duke Energy Registrants are not able to access debt or equity at competitive rates or at all, the ability to finance their operations and implement their strategy and business plan as scheduled could be adversely affected. An inability to access debt and equity may limit the Duke Energy Registrants’ ability to pursue improvements or acquisitions that they may otherwise rely on for future growth.
Market disruptions may increase the cost of borrowing or adversely affect the ability to access one or more financial markets. Such disruptions could include: economic downturns, unfavorable capital market conditions, market prices for natural gas and coal, geopolitical risks, actual or threatened terrorist attacks, or the overall health of the energy industry. Additionally, rapidly rising interest rates could impact the ability to affordably finance the capital plan or increase rates to customers and could have an impact on our ability to execute on our clean energy transition. The availability of credit under Duke Energy’s Master Credit Facility depends upon the ability of the banks providing commitments under the facility to provide funds when their obligations to do so arise. Systemic risk of the banking system and the financial markets could prevent a bank from meeting its obligations under the facility agreement.Duke Energy maintains a revolving credit facility to provide backup for its commercial paper program and letters of credit to support variable rate demand tax-exempt bonds that may be put to the Duke Energy Registrant issuer at the option of the holder. The facility includes borrowing sublimits for the Duke Energy Registrants, each of whom is a party to the credit facility, and financial covenants that limit the amount of debt that can be outstanding as a percentage of the total capital for the specific entity. Failure to maintain these covenants at a particular entity could preclude Duke Energy from issuing commercial paper or the Duke Energy Registrants from issuing letters of credit or borrowing under the Master Credit Facility.30
RISK FACTORSThe Duke Energy Registrants must meet credit quality standards and there is no assurance they will maintain investment grade credit ratings. If the Duke Energy Registrants are unable to maintain investment grade credit ratings, they would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect their liquidity.
Each of the Duke Energy Registrants’ senior long-term debt issuances is currently rated investment grade by various rating agencies. The Duke Energy Registrants cannot ensure their senior long-term debt will be rated investment grade in the future.
If the rating agencies were to rate the Duke Energy Registrants below investment grade, borrowing costs would increase, perhaps significantly. In addition, the potential pool of investors and funding sources would likely decrease. Further, if the short-term debt rating were to fall, access to the commercial paper market could be significantly limited.
A downgrade below investment grade could also require the posting of additional collateral in the form of letters of credit or cash under various credit, commodity and capacity agreements and trigger termination clauses in some interest rate derivative agreements, which would require cash payments. All of these events would likely reduce the Duke Energy Registrants’ liquidity and profitability and could have a material effect on their results of operations, financial position and cash flows.
Non-compliance with debt covenants or conditions could adversely affect the Duke Energy Registrants’ ability to execute future borrowings.
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements.
Market performance and other changes may decrease the value of the NDTF investments of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, which then could require significant additional funding.
Ownership and operation of nuclear generation facilities also requires the maintenance of funded trusts that are intended to pay for the decommissioning costs of the respective nuclear power plants. The performance of the capital markets affects the values of the assets held in trust to satisfy these future obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have significant obligations in this area and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below projected rates of return. Although a number of factors impact funding requirements, a decline in the market value of the assets may increase the funding requirements of the obligations for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are unable to successfully manage their NDTF assets or if the cost of decommissioning nuclear generation facilities exceeds the amount available in decommissioning funds and such costs cannot be recovered through insurance or regulatory mechanisms, their results of operations, financial position and cash flows could be negatively affected.Poor investment performance of the Duke Energy pension plan holdings and other factors impacting pension plan costs could unfavorably impact the Duke Energy Registrants’ liquidity and results of operations.
The costs of providing non-contributory defined benefit pension plans are dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary contributions made to the plans. The Subsidiary Registrants are allocated their proportionate share of the cost and obligations related to these plans. Without sustained growth in the pension investments over time to increase the value of plan assets and, depending upon the other factors impacting costs as listed above, Duke Energy could be required to fund its plans with significant amounts of cash. Such cash funding obligations, and the Subsidiary Registrants’ proportionate share of such cash funding obligations, could have a material adverse impact on the Duke Energy Registrants’ results of operations, financial position and cash flows.
Duke Energy is a holding company and depends on the cash flows from its subsidiaries to meet its financial obligations.Because Duke Energy is a holding company with no operations or cash flows of its own, its ability to meet its financial obligations, including making interest and principal payments on outstanding indebtedness and to pay dividends on its common stock, is primarily dependent on the net income and cash flows of its subsidiaries and the ability of those subsidiaries to pay upstream dividends or to repay borrowed funds. Prior to funding Duke Energy, its subsidiaries have regulatory restrictions and financial obligations that must be satisfied. These subsidiaries are separate legal entities and have no obligation to provide Duke Energy with funds. In addition, Duke Energy may provide capital contributions or debt financing to its subsidiaries under certain circumstances, which would reduce the funds available to meet its financial obligations, including making interest and principal payments on outstanding indebtedness and to pay dividends on Duke Energy’s common stock.GENERAL RISKS
The failure of Duke Energy information technology systems, or the failure to enhance existing information technology systems and implement new technology, could adversely affect the Duke Energy Registrants’ businesses.Duke Energy’s operations are dependent upon the proper functioning of its internal systems, including the information technology systems that support our underlying business processes. Any significant failure or malfunction of such information technology systems may result in disruptions of our operations. In the ordinary course of business, we rely on information technology systems, including the internet and third-party hosted services, to support a variety of business processes and activities and to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of our customers, employees, retirees and shareholders and (iv) data with respect to invoicing and the collection of payments, accounting, procurement, and supply chain activities. Our information technology systems are dependent upon global communications and cloud service providers, as well as their respective vendors, many of whom have at some point experienced significant system failures and outages in the past and may experience such failures and outages in the future. These providers’ systems are susceptible to cybersecurity and data breaches, outages from fire, floods, power loss, telecommunications failures, break-ins and similar events. Failure to prevent or mitigate data loss from system failures or outages could materially affect the results of operations, financial position and cash flows of the Duke Energy Registrants.
31
RISK FACTORS
In addition to maintaining our current information technology systems, Duke Energy believes the digital transformation of its business is key to driving internal efficiencies as well as providing additional capabilities to customers. Duke Energy’s information technology systems are critical to cost-effective, reliable daily operations and our ability to effectively serve our customers. We expect our customers to continue to demand more sophisticated technology-driven solutions and we must enhance or replace our information technology systems in response. This involves significant development and implementation costs to keep pace with changing technologies and customer demand. If we fail to successfully implement critical technology, or if it does not provide the anticipated benefits or meet customer demands, such failure could materially adversely affect our business strategy as well as impact the results of operations, financial position and cash flows of the Duke Energy Registrants.Potential terrorist activities, or military or other actions, could adversely affect the Duke Energy Registrants’ businesses.
The continued threat of terrorism and the impact of retaliatory military and other action by the U.S. and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil, which may have material adverse effects in ways the Duke Energy Registrants cannot predict at this time. In addition, future acts of terrorism and possible reprisals as a consequence of action by the U.S. and its allies could be directed against companies operating in the U.S. Information technology systems, transportation systems for our fuel sources including natural gas pipelines, transmission and distribution and generation facilities such as nuclear plants could be potential targets of terrorist activities or harmful activities by individuals or groups that could have a material adverse effect on Duke Energy Registrants' businesses. In particular, the Duke Energy Registrants may experience increased capital and operating costs to implement increased security for their information technology systems, transmission and distribution and generation facilities, including nuclear power plants under the NRC’s design basis threat requirements. These increased costs could include additional physical plant security and security personnel or additional capability following a terrorist incident.
Failure to attract and retain an appropriately qualified workforce could unfavorably impact the Duke Energy Registrants’ results of operations.
Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the lengthy time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If the Duke Energy Registrants are unable to successfully attract and retain an appropriately qualified workforce, their results of operations, financial position and cash flows could be negatively affected.
FY 2024-12-31 (later)
ITEM 1A. RISK FACTORS
In addition to other disclosures within this Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations – Matters Impacting Future Results" for each registrant in Item 7, and other documents filed with the SEC from time to time, the following factors should be considered in evaluating Duke Energy and its subsidiaries. Such factors could affect actual results of operations and cause results to differ substantially from those currently expected or sought. Unless otherwise indicated, risk factors discussed below generally relate to risks associated with all of the Duke Energy Registrants. Risks identified at the Subsidiary Registrant level are generally applicable to Duke Energy.22RISK FACTORS
BUSINESS STRATEGY RISKSDuke Energy’s future results could be adversely affected if it is unable to implement its business strategy to reliably and affordably serve its customers while also balancing its grid and fleet modernization objectives and carbon emissions reduction goals.
Duke Energy’s results of operations depend, in significant part, on the extent to which it can implement its business strategy and goals successfully. Duke Energy is working to meet growing and evolving customer energy needs while balancing customer reliability and affordability, and other priorities including the need to modernize its fleet and the regulatory construct. Duke Energy is subject to business, policy, regulatory, technology, economic and competitive uncertainties and contingencies, many of which are beyond its control and may make those goals difficult to achieve.
Federal or state policies could be enacted that restrict the availability of, and increase the costs associated with the use of, fuels or generation technologies, such as natural gas or nuclear power, that enable Duke Energy to reduce its carbon emissions. For example, Duke Energy anticipates that its nuclear stations in North Carolina and South Carolina will continue to qualify for significant tax incentives in the form of nuclear production tax credits under the IRA. Nuclear energy is a reliable and clean energy source and nuclear tax incentives allowed under the IRA, including nuclear production tax credits, are expected to reduce the cost of the energy transition for our customers. If such nuclear production tax credits were eliminated or reduced, it could negatively impact our ability to return the anticipated cost benefits to customers.
Additionally, new EPA rules issued in April 2024 impose stringent GHG emission reduction standards, revised air toxic limits, and wastewater discharge limitations that may impact our carbon-reduction targets, and operational timeline and costs associated with certain new and existing generation. Supportive policies may be needed to facilitate the siting and cost recovery of transmission and distribution upgrades needed to accommodate the build out of large volumes of renewables and energy storage. Further, the approval of our state regulators will be necessary for the Company to continue to retire existing carbon emitting assets or make investments in new generating capacity. The Company may be constrained by the ability to procure resources or labor needed to build new generation at a reasonable price as well as to construct projects on time. In addition, new technologies that are not yet commercially available or are unproven at utility scale will likely be needed, including carbon capture and sequestration and supporting infrastructure as well as new resources capable of following electric load over long durations such as advanced nuclear, hydrogen and long-duration storage. If these technologies are not developed or are not available at reasonable prices, or if we invest in early stage technologies that are then supplanted by technological breakthroughs, Duke Energy’s ability to achieve a net-zero target by 2050 at a cost-effective price could be at risk.
Meeting the evolving and growing energy needs of our customers will require continued operation of our existing carbon-free technologies including nuclear and renewables. The rapid transition to and expansion of certain low-carbon resources, such as renewables without cost-effective storage, may challenge our ability to meet customer expectations of reliability and affordability in a carbon constrained environment, particularly as demand increases. Our nuclear fleet is central to our ability to meet these objectives and customer expectations. We are continuing to seek to renew the operating licenses of the 11 reactors we operate at six nuclear stations for an additional 20 years, extending their operating lives to and beyond midcentury. Failure to receive approval from the NRC for the relicensing of any of these reactors could affect our ability to achieve a net-zero target by 2050.As a consequence, Duke Energy may not be able to fully implement or realize the anticipated results of its energy transition strategy, which may have an adverse effect on its financial condition.
REGULATORY, LEGISLATIVE AND LEGAL RISKS
The Duke Energy Registrants’ regulated utility revenues, earnings and results of operations are dependent on state legislation and regulation that affect electric generation, electric and natural gas transmission, distribution and related activities, which may limit their ability to recover costs.The Duke Energy Registrants’ regulated electric and natural gas utility businesses are regulated on a cost-of-service/rate-of-return basis subject to statutes and regulatory commission rules and procedures of North Carolina, South Carolina, Florida, Ohio, Tennessee, Indiana and Kentucky. If the Duke Energy Registrants’ regulated utility earnings exceed the returns established by the state utility commissions, retail electric and natural gas rates may be subject to review and possible reduction by the commissions, which may decrease the Duke Energy Registrants’ earnings. Additionally, if regulatory or legislative bodies do not allow recovery of costs incurred in providing service, or do not do so on a timely basis, the Duke Energy Registrants’ results of operations, financial position or cash flows could be negatively impacted. Differences in regulation between jurisdictions with concurrent operations, such as North Carolina and South Carolina in Duke Energy Carolinas' and Duke Energy Progress' service territory, may also result in failure to recover costs.If legislative and regulatory structures were to evolve in such a way that the Duke Energy Registrants’ exclusive rights to serve their regulated customers were eroded, their earnings could be negatively impacted. Federal and state regulations, laws, commercialization and reduction of costs and other efforts designed to promote and expand the use of EE measures and distributed generation technologies, such as private solar and battery storage, in Duke Energy service territories could reduce recovery of fixed costs in Duke Energy service territories or result in customers leaving the electric distribution system and an increase in customer net energy metering, which allows customers with private solar to receive bill credits for surplus power up to the full retail credit amount. Over time, customer adoption of these technologies could result in Duke Energy not being able to fully recover the costs and investment in generation.23
RISK FACTORSState regulators have approved various mechanisms to stabilize natural gas utility margins, including margin decoupling in North Carolina and rate stabilization in South Carolina. Additionally, certain jurisdictions have established performance incentive mechanisms and revenue decoupling mechanisms for EU&I. Performance incentive mechanisms condition some portion of the respective utility's earnings on its performance on established measurable consumer, utility system, or public policy outcomes. Revenue decoupling mechanisms provide periodic rate adjustments to ensure actual revenues match allowed revenues for certain customer classes. State regulators have also approved other margin stabilizing mechanisms that, for example, allow for recovery of margin losses associated with negotiated transactions designed to retain large volume customers that could use alternative fuels or that may otherwise directly access natural gas supply through their own connection to an interstate pipeline. If regulators decided to discontinue the Duke Energy Registrants' use of tariff mechanisms or other mechanisms intended to stabilize utility margins, it would negatively impact results of operations, financial position and cash flows. In addition, regulatory authorities also review whether natural gas costs are prudently incurred and can disallow the recovery of a portion of natural gas costs that the Duke Energy Registrants seek to recover from customers, which would adversely impact earnings.
The rates that the Duke Energy Registrants’ regulated utility businesses are allowed to charge are established by state utility commissions in rate case proceedings, which may limit their ability to recover costs and earn an appropriate return on investment.
The rates that the Duke Energy Registrants’ regulated utility businesses are allowed to charge significantly influences the results of operations, financial position and cash flows of the Duke Energy Registrants. The regulation of the rates that the regulated utility businesses charge customers is determined, in large part, by state utility commissions in rate case proceedings. Negative decisions made by these regulators, or by any court on appeal of a rate case proceeding, have, and in the future could have, a material adverse effect on the Duke Energy Registrants’ results of operations, financial position or cash flows and affect the ability of the Duke Energy Registrants to adequately recover costs on a timely basis, including an appropriate return on the significant infrastructure investments being made.Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs that could adversely affect the Duke Energy Registrants’ results of operations, financial position or cash flows and their utility businesses.Increased competition resulting from deregulation or restructuring legislation could have a significant adverse impact on the Duke Energy Registrants’ results of operations, financial position or cash flows and their utility businesses. If the retail jurisdictions served by the Duke Energy Registrants become subject to deregulation, the impairment of assets, loss of retail customers, lower profit margins or increased costs of capital, and recovery of stranded costs could have a significant adverse financial impact on the Duke Energy Registrants. Stranded costs primarily include the generation assets of the Duke Energy Registrants whose value in a competitive marketplace may be less than their current book value, as well as above-market purchased power commitments from QFs from whom the Duke Energy Registrants are legally obligated to purchase energy at an avoided cost rate under the Public Utility Regulatory Policies Act of 1978. The Duke Energy Registrants cannot predict the extent and timing of entry by additional competitors into the electric markets. The Duke Energy Registrants cannot predict if or when they will be subject to changes in legislation or regulation, nor can they predict the impact of these changes on their results of operations, financial position or cash flows.The Duke Energy Registrants’ businesses are subject to extensive federal regulation and a wide variety of laws and governmental policies, including taxes and environmental regulations, that may change over time in ways that affect operations and costs.The Duke Energy Registrants are subject to regulations under a wide variety of U.S. federal and state regulations and policies, including by FERC, NRC, EPA and various other federal agencies as well as the North American Electric Reliability Corporation. Regulation affects almost every aspect of the Duke Energy Registrants’ businesses, including, among other things, their ability to: take fundamental business management actions; determine the terms and rates for services; make acquisitions; issue equity or debt securities; engage in transactions with other subsidiaries and affiliates; and pay dividends upstream to the Duke Energy Registrants. Changes to federal regulations are continuous and ongoing. There can be no assurance that laws, regulations and policies, including tax incentives and credits, will not be changed in ways that result in material modifications of business models and objectives or affect returns on investment by restricting activities and products, subjecting them to escalating costs, causing delays, or prohibiting them outright, which could have a material effect on the Duke Energy Registrants' results of operations, financial position and cash flows. Such potential changes that may have adverse consequences could include no longer allowing tax incentives and credits currently provided for under the IRA, including the ability to record or sell related tax credits to third parties.The Duke Energy Registrants are subject to numerous environmental laws and regulations requiring significant capital expenditures that can increase the cost of operations, and which may impact or limit business plans, or cause exposure to environmental liabilities.The Duke Energy Registrants are subject to numerous environmental laws and regulations affecting many aspects of their present and future operations, including CCRs, air emissions, water quality, wastewater discharges, solid waste and hazardous waste. For example, new EPA
rules issued in April 2024, among other things, impose stringent GHG emissions limitations on existing coal plants and new natural gas plants
and more stringent air toxic limits on existing coal plants, increase limitations on wastewater discharge, and impose groundwater monitoring and
corrective action requirements on previously unregulated coal ash sources at regulated facilities (CCR Management Units) and inactive surface
impoundments at retired generating facilities (Legacy CCR Surface Impoundments). Potential legal challenges to such rules may not be
successful, and adherence to these rules may increase the cost of compliance, impact generation resource mix and carbon-reduction targets,
and negatively impact customer reliability and affordability due to such rules' imposition of stringent GHG emissions limitations and reliance on
carbon capture technologies that are not yet adequately demonstrated at utility scale. These and other environmental laws and regulations can result in increased capital, operating and other costs.
These laws and regulations generally require the Duke Energy Registrants to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Compliance with environmental laws and regulations can require significant expenditures, including expenditures for cleanup costs and damages arising from contaminated properties. Failure to comply with environmental regulations may result in the imposition of fines, penalties and injunctive measures affecting operating assets, as well as reputational damage. The steps the Duke Energy Registrants could be required to take to ensure their facilities are in compliance could be prohibitively expensive. As a result, the Duke Energy Registrants may be required to shut down or alter the operation of their facilities, which may cause the Duke Energy Registrants to incur losses. Further, the Duke Energy Registrants may not be successful in recovering capital and operating costs incurred to comply with new environmental regulations through existing regulatory rate structures and their contracts with customers. Also, the Duke Energy Registrants may not be able to obtain or maintain from time to time all required environmental regulatory approvals for their operating assets or development projects. Delays in obtaining any required environmental regulatory approvals, failure to obtain and comply with them or changes in
24RISK FACTORSenvironmental laws or regulations to more stringent compliance levels could, and are likely to, result in additional costs of operation for existing facilities or development of new facilities being prevented, delayed or subject to additional costs. The costs to comply with environmental laws and regulations could have a material effect on the Duke Energy Registrants’ results of operations, financial position and cash flows.
The EPA has issued or proposed federal regulations, including the new rules issued in April 2024, governing the management of wastewater, CCR management units and CO 2 emissions. New state legislation in response to such regulations could impose carbon reduction goals that are more aggressive than the Company's plans. These regulations may require the Duke Energy Registrants to make additional capital expenditures and increase operating and maintenance costs.
The Duke Energy Registrants' operations, capital expenditures and financial results may be affected by regulatory changes related to the impacts of global climate change.
There is continued concern, and increasing and conflicting activism, both nationally and internationally, about climate change. The EPA and state regulators have, and may adopt and implement, additional regulations to restrict emissions of GHGs to address global climate change, as well as reporting requirements regarding such emissions and related climate-goal claims. Certain local and state jurisdictions have also enacted laws to restrict or prevent new natural gas infrastructure. Increased regulation of GHG emissions and reporting requirements could impose significant additional costs on the Duke Energy Registrants' electric and natural gas operations, their suppliers and customers and affect demand for energy conservation and renewable products, which could impact both our electric and natural gas businesses. Regulatory changes and/or uncertainty of applicability of such legislative and regulatory initiatives could also result in generation facilities to be retired earlier than planned to meet our net-zero 2050 goal. Though we would plan to seek cost recovery for investments related to GHG emissions reductions through regulatory rate structures, changes in the regulatory climate could result in the delay in or failure to fully recover such costs and investment in generation.OPERATIONAL RISKS
The Duke Energy Registrants’ results of operations may be negatively affected by overall market, economic and other conditions that are beyond their control.
Sustained downturns or sluggishness in the economy generally affect the markets in which the Duke Energy Registrants operate and negatively influence operations. Declines in demand for electricity or natural gas as a result of economic downturns in the Duke Energy Registrants’ regulated service territories will reduce overall sales and lessen cash flows, especially as industrial customers reduce production and, therefore, consumption of electricity and the use of natural gas. Although the Duke Energy Registrants’ regulated electric and natural gas businesses are subject to regulated allowable rates of return and recovery of certain costs, such as fuel and purchased natural gas costs, under periodic adjustment clauses, overall declines in electricity or natural gas sold as a result of economic downturn or recession could reduce revenues and cash flows, thereby diminishing results of operations.A continuation of adverse economic conditions including economic downturn or high commodity prices could also negatively impact the financial stability of certain of our customers and result in their inability to pay for electric and natural gas services. This could lead to increased bad debt expense and higher allowance for doubtful account reserves for the Duke Energy Registrants and result in delayed or unrecovered operating costs and lower financial results. Additionally, prolonged economic downturns that negatively impact the Duke Energy Registrants’ results of operations and cash flows could result in future material impairment charges to write-down the carrying value of certain assets, including goodwill, to their respective fair values. The Duke Energy Registrants also monitor the impacts of inflation on the procurement of goods and services and seek to minimize its effects in future periods through pricing strategies, productivity improvements, and cost reductions. Rapidly rising prices as a result of inflation, tariffs, or other factors may impact the ability of the Company to recover costs timely or execute on its business strategy including the achievement of growth objectives.The Duke Energy Registrants sell electricity into the spot market or other competitive power markets on a contractual basis. With respect to such transactions, the Duke Energy Registrants are not guaranteed any rate of return on their capital investments through mandated rates, and revenues and results of operations are likely to depend, in large part, upon prevailing market prices. These market prices may fluctuate substantially over relatively short periods of time and could negatively impact the Company's ability to accurately forecast the financial impact or reduce the Duke Energy Registrants’ revenues and margins, thereby diminishing results of operations.
Factors that could impact sales volumes, generation of electricity and market prices at which the Duke Energy Registrants are able to sell electricity and natural gas are as follows:• weather conditions, including extreme winter or summer weather that could cause significantly lower or higher demand for energy or natural gas usage for heating or cooling purposes, as applicable, storm-related customer outages resulting in lower usage, or periods of low rainfall that decrease the ability to operate facilities in an economical manner;
• supply of and demand for energy commodities, including potential usage of electricity by data centers;• transmission or transportation constraints or inefficiencies;
• availability of purchased power;
• availability of competitively priced alternative energy sources, which are preferred by some customers over electricity produced from coal, nuclear or natural gas plants, and customer usage of energy-efficient equipment that reduces energy demand;
• natural gas, crude oil and refined products production levels and prices;
• ability to procure satisfactory levels of inventory, including materials, supplies, and fuel such as coal, natural gas and uranium; and
• capacity and transmission service into, or out of, the Duke Energy Registrants’ markets.25
RISK FACTORS
Natural disasters or operational accidents may adversely affect the Duke Energy Registrants’ operating results, financial position or cash flows.
Natural disasters or operational accidents within the Company or industry (such as wild fires, earthquakes, hurricanes or natural gas transmission pipeline explosions) could have direct or indirect impacts to the Duke Energy Registrants or to key contractors and suppliers. Such events can and in the past, have, negatively impacted sales volume such as in the case of storm-related customer outages resulting in lower usage, and costs to restore service and rebuild assets after such events may be, and in the case of hurricanes Helene and Milton experienced in 2024, have been, material and did impact the results of operations, financial position or cash flows of the Duke Energy Registrants, and such events may do so in the future, until complete and timely cost recovery is approved and occurs under existing relevant regulatory mechanisms across our jurisdictions. Further, the generation of electricity and the transportation and storage of natural gas involve inherent operating risks that may result in accidents involving serious injury or loss of life, environmental damage or property damage. Such events could impact the Duke Energy Registrants through civil or criminal legal proceedings or changes to policies, laws and regulations whose compliance costs have a significant impact on the Duke Energy Registrants’ results of operations, financial position and cash flows. In addition, if a serious operational accident were to occur, existing insurance policies may not cover all of the potential exposures or the actual amount of loss incurred, including potential litigation awards. Any losses not covered by insurance, or any increases in the cost of applicable insurance as a result of such accident, could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.The reputation and financial condition of the Duke Energy Registrants could be negatively impacted due to their obligations to comply with federal and state regulations, laws, and other legal requirements that govern the operations, assessments, storage, closure, remediation, disposal and monitoring relating to CCR, the high costs and new rate impacts associated with implementing these new CCR-related requirements and the strategies and methods necessary to implement these requirements in compliance with these legal obligations.
As a result of electricity produced for decades at coal-fired power plants, the Duke Energy Registrants manage large amounts of CCR that are primarily stored in dry storage within landfills or combined with water in surface impoundments, all in compliance with applicable regulatory requirements. A CCR-related operational incident could have a material adverse impact on the reputation and results of operations, financial position and cash flows of the Duke Energy Registrants.The 2015 CCR Rule classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. The rule establishes requirements regarding design and operating criteria, groundwater monitoring and corrective action, closure requirements and post-closure care, and recordkeeping, notifications, and internet posting requirements to ensure the safe disposal and management of CCR. In addition to the federal regulations, CCR landfills and surface impoundments will continue to be regulated by existing state laws, regulations and permits, as well as additional legal requirements, including judicial orders.
The 2024 CCR Rule significantly expands the scope of the 2015 CCR Rule to apply to legacy CCR surface impoundments (inactive impoundments at retired facilities) and CCR management units (previously unregulated coal ash sources at regulated facilities). These federal and state laws, regulations and other legal requirements may require or result in additional expenditures, including increased operating and maintenance costs, which could affect the results of operations, financial position and cash flows of the Duke Energy Registrants. The Duke Energy Registrants will continue to seek full cost recovery for expenditures through the normal ratemaking process with state and federal utility commissions, who permit recovery in rates of reasonable and prudently incurred costs associated with the Duke Energy Registrants’ regulated operations, and through other wholesale contracts with terms that contemplate recovery of such costs, although there is no guarantee of full cost recovery. In addition, the timing for and amount of recovery of such costs could have a material adverse impact on Duke Energy's cash flows.
The Duke Energy Registrants have recognized significant AROs related to these CCR-related requirements. At all sites requiring CCR closure and groundwater remediation, closure methods and groundwater corrective action remedies have been studied and factored into the estimated retirement and management costs. As the closure and CCR management work progresses and final closure plans and corrective action measures are developed and approved at each site, the scope and complexity of work and the amount of CCR material could be greater than estimates and could, therefore, materially increase compliance expenditures and rate impacts.The Duke Energy Registrants’ results of operations, financial position and cash flows may be negatively affected by a lack of growth or slower growth in the number of customers, or decline in customer demand or number of customers.Growth in customer accounts and growth of customer usage each directly influence demand for electricity and natural gas and the need for additional power generation and delivery facilities. Customer growth and customer usage are affected by several factors outside the control of the Duke Energy Registrants, such as mandated EE measures, demand-side management goals, advancements in technology that may impact the energy usage by large commercial customers, such as data centers, distributed generation resources and economic and demographic conditions, such as inflation, tariffs, and interest rate volatility, population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.In addition, certain regulatory and legislative bodies have passed legislation implementing the extension of certain tax credits to be used toward the costs of residential solar installation or have introduced or are considering requirements and/or incentives to reduce energy consumption by certain dates in response to concerns related to climate change. Additionally, technological advances driven by federal laws mandating new levels of EE in end-use electric and natural gas devices or other improvements in or applications of technology could lead to declines in per capita energy consumption.
Advances in distributed generation technologies that produce power, including fuel cells, microturbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production utilized by the Duke Energy Registrants. In addition, the electrification of buildings and appliances currently relying on natural gas could reduce the number of customers in our natural gas distribution business.
Some or all of these factors could result in a lack of growth or decline in customer demand for electricity or number of customers and may cause the failure of the Duke Energy Registrants to fully realize anticipated benefits from significant capital investments and expenditures, which could have a material adverse effect on their results of operations, financial position and cash flows.26RISK FACTORSFurthermore, the Duke Energy Registrants currently have EE riders in place to recover the cost of EE programs in North Carolina, South Carolina, Florida, Indiana, and Kentucky. Should the Duke Energy Registrants be required to invest in conservation measures that result in reduced sales from effective conservation, regulatory lag in adjusting rates for the impact of these measures could have a negative financial impact.
The Duke Energy Registrants' future results of operations may be impacted by changing or conflicting expectations and demands, particularly regarding environmental, social and governance concerns.
Duke Energy’s ability to execute its strategy and achieve anticipated financial outcomes are influenced by the expectations of our customers, regulators, investors and stakeholders. Those expectations are based in part on the core fundamentals of reliability and affordability but are also increasingly focused on our ability to meet rapidly changing demands for new and varied products, services and offerings. Additionally, the risks of global climate change continue to shape our customers’ sustainability goals and energy needs as well as the investment and financing criteria of investors. Failure to meet these increasing expectations or to adequately address the risks and external pressures from regulators, customers, investors and other stakeholders may impact Duke Energy’s reputation and affect its ability to achieve favorable outcomes in future rate cases and the results of operations for the Duke Energy Registrants. Furthermore, the increasing use of social media and conflicting expectations and demands regarding environmental, social, and governance concerns, may accelerate and increase the potential scope of negative publicity we might receive and could increase the negative impact on our reputation, business, results of operations and financial condition.
As it relates to electric generation, a diversified fleet with increasingly clean generation resources may facilitate more efficient financing and lower costs. Conversely, jurisdictions utilizing more carbon-intensive generation such as coal may experience difficulty attracting certain investors and obtaining the most economical financing terms available. Furthermore, with this heightened emphasis on environmental, social, and governance concerns, and climate change in particular, there is an increased risk of litigation, activism, and legislation from groups both in support of and opposed to various environmental, social and governance initiatives, which could cause delays and increase the costs of our energy transition.The Duke Energy Registrants’ operating results may fluctuate on a seasonal and quarterly basis and can be negatively affected by changes in weather conditions and severe weather, including extreme weather conditions and changes in weather patterns from climate change.
Electric power generation and natural gas distribution are generally seasonal businesses. In most parts of the U.S., the demand for power peaks during the warmer summer months, with market prices also typically peaking at that time. In other areas, demand for power peaks during the winter. Demand for natural gas peaks during the winter months. Further, changing frequency or magnitude of extreme weather conditions such as hurricanes, droughts, heat waves, winter storms and severe weather, including from climate change, could cause these seasonal fluctuations to be more pronounced. As a result, the overall operating results of the Duke Energy Registrants’ businesses may fluctuate substantially on a seasonal and quarterly basis and thus make period-to-period comparison less relevant.Sustained severe drought conditions could impact generation by hydroelectric plants, as well as fossil and nuclear plant operations, as these facilities use water for cooling purposes and for the operation of environmental compliance equipment. Furthermore, destruction caused by severe weather events, such as hurricanes, flooding, tornadoes, severe thunderstorms, snow and ice storms, droughts, extreme temperatures, and wild fires, including from climate change, can result in lost operating revenues due to outages, property damage or total loss, including downed transmission and distribution lines, personal injury, reputational harm, and additional and unexpected expenses to mitigate storm damage, including incremental financing costs. The cost of storm restoration efforts may not be fully recoverable or recoverable on a timely basis through the regulatory process and may impact the results of operations, financial position or cash flows of the Duke Energy Registrants.The Duke Energy Registrants’ sales may decrease if they are unable to gain adequate, reliable and affordable access to transmission assets.
The Duke Energy Registrants depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver electricity sold to the wholesale market. In addition, the growth of renewables and energy storage will put strains on existing transmission assets and require transmission and distribution upgrades. The FERC’s power transmission regulations require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. If transmission is disrupted, or if transmission capacity is inadequate, the Duke Energy Registrants’ ability to sell and deliver products may be hindered.
The different regional power markets have changing regulatory structures, which could affect growth and performance in these regions. In addition, the ISOs who oversee the transmission systems in regional power markets have imposed in the past, and may impose in the future, price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms may adversely impact the profitability of the Duke Energy Registrants’ wholesale power marketing business.
The availability of adequate interstate pipeline transportation capacity and natural gas supply may decrease.
The Duke Energy Registrants purchase almost all of their natural gas supply from interstate sources that must be transported to the applicable service territories. Interstate pipeline companies transport the natural gas to the Duke Energy Registrants' systems under firm service agreements that are designed to meet the requirements of their core markets. A significant disruption to interstate pipelines capacity or reduction in natural gas supply due to events including, but not limited to, operational failures or disruptions, hurricanes, tornadoes, floods, freeze off of natural gas wells, terrorist or cyberattacks or other acts of war or legislative or regulatory actions or requirements, including remediation related to integrity inspections or regulations and laws enacted to address climate change, could reduce the normal interstate supply of natural gas and thereby reduce earnings. Moreover, if additional natural gas infrastructure, including, but not limited to, exploration and drilling rigs and platforms, processing and gathering systems, offshore pipelines, interstate pipelines and storage, cannot be built at a pace that meets demand, then growth opportunities could be limited.27
RISK FACTORSFluctuations in commodity prices or availability may adversely affect various aspects of the Duke Energy Registrants’ operations as well as their results of operations, financial position and cash flows.The Duke Energy Registrants are exposed to the effects of market fluctuations in the price of natural gas, coal, fuel oil, nuclear fuel, electricity and other energy-related commodities as a result of their ownership of energy-related assets. Fuel costs are recovered primarily through cost recovery clauses, subject to the approval of state utility commissions. Additionally, the Duke Energy Registrants are exposed to risk that counterparties will not be able to fulfill their obligations. Disruption in the delivery of fuel, including disruptions as a result of, among other things, changing economic conditions, bankruptcies, transportation delays, weather, labor relations, force majeure events or environmental regulations affecting any of these fuel suppliers, could limit the Duke Energy Registrants' ability to operate their facilities. Should counterparties fail to perform, the Duke Energy Registrants might be forced to replace the underlying commitment at prevailing market prices possibly resulting in losses in addition to the amounts, if any, already paid to the counterparties.Certain of the Duke Energy Registrants’ hedge agreements may result in the receipt of, or posting of, collateral with counterparties, depending on the daily market-based calculation of financial exposure of the derivative positions. Fluctuations in commodity prices that lead to the return of collateral received and/or the posting of collateral with counterparties could negatively impact liquidity. Downgrades in the Duke Energy Registrants’ credit ratings could lead to additional collateral posting requirements. The Duke Energy Registrants continually monitor derivative positions in relation to market price activity.Cyberattacks and data security breaches could adversely affect the Duke Energy Registrants' businesses.
Cybersecurity risks have increased in recent years as a result of the proliferation of new technologies and the increased sophistication, magnitude and frequency of cyberattacks and data security breaches. Duke Energy relies on the continued operation of advanced digital information technology systems and network infrastructure, which are part of an interconnected regional grid. Additionally, connectivity to the internet continues to increase through grid modernization and other operational excellence initiatives. Because of the critical nature of the infrastructure, increased connectivity to the internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, the Duke Energy Registrants face a heightened risk of cyberattacks from foreign or domestic sources and have been subject, and will likely continue to be subject, to cyberattacks designed to gain unauthorized access to information and/or information systems or to disrupt utility operations through computer viruses and phishing attempts either directly or indirectly through its material vendors or related third parties. In the event of a significant cybersecurity breach on either the Duke Energy Registrants or with one of our material vendors or related third parties, the Duke Energy Registrants could (i) have business operations disrupted, including the disruption of the operation of our natural gas and electric assets and the power grid, theft of confidential company, employee, retiree, shareholder, vendor or customer information, and general business systems and process interruption or compromise, including preventing the Duke Energy Registrants from servicing customers, collecting revenues or the recording, processing and/or reporting financial information correctly, (ii) experience substantial loss of revenues, repair and restoration costs, penalties and costs for lack of compliance with relevant regulations, implementation costs for additional security measures to avert future cyberattacks and other financial loss and (iii) be subject to increased regulation, litigation and reputational damage. While Duke Energy maintains insurance relating to cybersecurity events, such insurance does not protect Duke Energy from such cyberattacks occurring, and while it does provide some potential mitigation of the financial impacts resulting from such cyberattacks, it is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage experienced. Also, the market for cybersecurity insurance is relatively new and coverage available for cybersecurity events is evolving as the industry matures.
The Duke Energy Registrants are subject to standards enacted by the North American Electric Reliability Corporation and enforced by FERC regarding protection of the physical and cybersecurity of critical infrastructure assets required for operating North America's bulk electric system. The Duke Energy Registrants are also subject to regulations set by the NRC regarding the protection of digital computer and communication systems and networks required for the operation of nuclear power plants. The Duke Energy Registrants that operate designated critical pipelines that transport natural gas are also subject to security directives issued by the Department of Homeland Security's Transportation Security Administration (TSA) requiring such registrants to implement specific cybersecurity mitigation measures. While the Duke Energy Registrants believe they are in compliance with, or, in the case of recent TSA security directives, are in the process of implementing such standards and regulations, the Duke Energy Registrants have from time to time been, and may in the future be, found to be in violation of such standards and regulations. In addition, compliance with or changes in the applicable standards and regulations may subject the Duke Energy Registrants to higher operating costs and/or increased capital expenditures as well as substantial fines for non-compliance.
The Duke Energy Registrants’ operations have been and may be affected by pandemic health events in ways listed below and in ways the Duke Energy Registrants cannot predict at this time.
The COVID-19 pandemic and efforts to respond to it resulted in widespread adverse consequences on the global economy and on the Duke Energy Registrants’ customers, third-party vendors, and other parties with whom we do business. If another pandemic or health epidemic or outbreak occurs and is significantly prolonged, it could impact the Duke Energy Registrants' business strategy, results of operations, financial position and cash flows in the future as a result of delays in rate cases or other legal proceedings, an inability to obtain labor or equipment necessary for the construction of large capital projects, an inability to procure satisfactory levels of fuels or other necessary equipment for the continued production of electricity and delivery of natural gas, volatility in global equity securities markets, and the health and availability of our critical personnel and their ability to perform business functions.28
RISK FACTORSDuke Energy Ohio’s and Duke Energy Indiana’s membership in an RTO presents risks that could have a material adverse effect on their results of operations, financial position and cash flows.
The rules governing the various regional power markets may change, which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/or revenues. Both Duke Energy Ohio and Duke Energy Indiana have trackers to recover approved RTO costs, but to the degree Duke Energy Ohio and Duke Energy Indiana incur significant additional fees and increased costs to participate in an RTO that are not approved for recovery, their results of operations may be impacted. Duke Energy Ohio and Duke Energy Indiana may be allocated a portion of the cost of transmission facilities built by others due to changes in RTO transmission rate design, while being able to allocate costs of projects built by Duke Energy Ohio and Duke Energy Indiana to others. Duke Energy Ohio and Duke Energy Indiana may be required to expand their transmission system according to decisions made by an RTO rather than their own internal planning process. In addition, RTOs have been developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights that may have a financial impact on the results of operations, financial position and cash flows of Duke Energy Ohio and Duke Energy Indiana.
As members of an RTO, Duke Energy Ohio and Duke Energy Indiana are subject to certain additional risks, including those associated with the allocation among RTO members, of losses caused by unreimbursed defaults of other participants in the RTO markets not covered by collateral requirements and those associated with complaint cases filed against an RTO that may seek refunds of revenues previously earned by RTO members.
The Duke Energy Registrants may not recover costs incurred to begin construction on projects that are canceled.
Duke Energy’s long-term strategy requires the construction of new projects, either wholly owned or partially owned, which involve a number of risks, including construction delays, delays in or failure to receive required regulatory approvals and/or sitting or environmental permits, nonperformance by equipment and other third-party suppliers, and increases in equipment and labor costs. To limit the risks of these construction projects, the Duke Energy Registrants enter into equipment purchase orders and construction contracts and incur engineering and design service costs in advance of receiving necessary regulatory approvals and/or siting or environmental permits. If any of these projects are canceled for any reason, including failure to receive necessary regulatory approvals and/or siting or environmental permits, significant cancellation penalties under the equipment purchase orders and construction contracts could occur. In addition, if any construction work or investments have been recorded as an asset, an impairment may need to be recorded in the event the project is canceled.The Duke Energy Registrants are subject to risks associated with their ability to obtain adequate insurance at acceptable costs.
The financial condition of some insurance companies, actual or threatened physical or cyberattacks, and natural disasters, among other things, could have disruptive effects on insurance markets. The availability of insurance covering risks that the Duke Energy Registrants and their respective competitors typically insure against may decrease, and the insurance that the Duke Energy Registrants are able to obtain may have higher deductibles, higher premiums, and more restrictive policy terms. Further, the insurance policies may not cover all of the potential exposures or the actual amount of loss incurred. Any losses not covered by insurance, or any increases in the cost of applicable insurance, could adversely affect the results of operations, financial position or cash flows of the affected Duke Energy Registrant.
Our business could be negatively affected as a result of actions of activist shareholders.
While we strive to maintain constructive communications with our shareholders, activist shareholders may, from time to time, engage in proxy solicitations or advance shareholder proposals, or otherwise attempt to affect changes and assert influence on our Board and management. Perceived uncertainties as to the future direction or governance of the Company may cause concern to our current or potential regulators, vendors or strategic partners, or make it more difficult to execute on our strategy or to attract and retain qualified personnel, which may have a material impact on our business and operating results.
In addition, actions such as those described above could cause fluctuations in the trading price of our common stock, based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
NUCLEAR GENERATION RISKS
Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida may incur substantial costs and liabilities due to their ownership and operation of nuclear generating facilities.
Ownership interests in and operation of nuclear stations by Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida subject them to various risks. These risks include, among other things: the potential harmful effects on the environment and human health resulting from the current or past operation of nuclear facilities and the storage, handling and disposal of radioactive materials; limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives; and the threat of a terrorist attack or cyber incident and other potential liabilities arising out of the ownership or operation of nuclear facilities.
Ownership and operation of nuclear generation facilities requires compliance with licensing and safety-related requirements imposed by the NRC. In the event of non-compliance, the NRC may increase regulatory oversight, impose fines or shut down a unit depending upon its assessment of the severity of the situation. Revised security and safety requirements promulgated by the NRC, which could be prompted by, among other things, events within or outside of the control of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, such as a serious nuclear incident at a facility owned by a third party, could necessitate substantial capital and other expenditures, as well as assessments to cover third-party losses. In addition, if a serious nuclear incident were to occur, it could have a material adverse effect on the results of operations, financial position, cash flows and reputation of the Duke Energy Registrants.29
RISK FACTORSLIQUIDITY, CAPITAL REQUIREMENTS AND COMMON STOCK RISKS
The Duke Energy Registrants rely on access to short-term borrowings and longer-term debt and equity markets to finance their capital requirements and support their liquidity needs. Access to those markets can be adversely affected by a number of conditions, many of which are beyond the Duke Energy Registrants’ control.The Duke Energy Registrants’ businesses are significantly financed through issuances of debt and equity. The maturity and repayment profile of debt used to finance investments often does not correlate to cash flows from their assets. Accordingly, as a source of liquidity for capital requirements not satisfied by the cash flows from their operations and to fund investments originally financed through debt instruments with disparate maturities, the Duke Energy Registrants rely on access to short-term money markets as well as longer-term capital markets. The Subsidiary Registrants also rely on access to short-term intercompany borrowings. Access to capital markets may also be critical to finance unexpected material expenditures such as unusually volatile commodity costs or significant storm restoration activities for severe weather events. If the Duke Energy Registrants are not able to access debt or equity at competitive rates or at all, the ability to finance their operations and implement their strategy and business plan as scheduled could be adversely affected. An inability to access debt and equity may limit the Duke Energy Registrants’ ability to pursue improvements or acquisitions that they may otherwise rely on for future growth.
Market disruptions may increase the cost of borrowing or adversely affect the ability to access one or more financial markets. Such disruptions could include: economic downturns, unfavorable capital market conditions, market prices for natural gas and coal, geopolitical risks, actual or threatened terrorist attacks, or the overall health of the energy industry. Additionally, rapidly rising interest rates could impact the ability to affordably finance the capital plan or increase rates to customers and could have an impact on our ability to execute on our energy transition. The availability of credit under Duke Energy’s Master Credit Facility depends upon the ability of the banks providing commitments under the facility to provide funds when their obligations to do so arise. Systemic risk of the banking system and the financial markets could prevent a bank from meeting its obligations under the facility agreement.Duke Energy maintains a revolving credit facility to provide backup for its commercial paper program and letters of credit to support variable rate demand tax-exempt bonds that may be put to the Duke Energy Registrant issuer at the option of the holder. The facility includes borrowing sublimits for the Duke Energy Registrants, each of whom is a party to the credit facility, and financial covenants that limit the amount of debt that can be outstanding as a percentage of the total capital for the specific entity. Failure to maintain these covenants at a particular entity could preclude Duke Energy from issuing commercial paper or the Duke Energy Registrants from issuing letters of credit or borrowing under the Master Credit Facility.The Duke Energy Registrants must meet credit quality standards and there is no assurance they will maintain investment grade credit ratings. If the Duke Energy Registrants are unable to maintain investment grade credit ratings, they would be required under credit agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect their liquidity.
Each of the Duke Energy Registrants’ senior long-term debt issuances is currently rated investment grade by various rating agencies. The Duke Energy Registrants cannot ensure their senior long-term debt will be rated investment grade in the future.
If the rating agencies were to rate the Duke Energy Registrants below investment grade, borrowing costs would increase, perhaps significantly. In addition, the potential pool of investors and funding sources would likely decrease. Further, if the short-term debt rating were to fall, access to the commercial paper market could be significantly limited.
A downgrade below investment grade could also require the posting of additional collateral in the form of letters of credit or cash under various credit, commodity and capacity agreements and trigger termination clauses in some interest rate derivative agreements, which would require cash payments. All of these events would likely reduce the Duke Energy Registrants’ liquidity and profitability and could have a material effect on their results of operations, financial position and cash flows.
Non-compliance with debt covenants or conditions could adversely affect the Duke Energy Registrants’ ability to execute future borrowings.
The Duke Energy Registrants’ debt and credit agreements contain various financial and other covenants. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements.
Market performance and other changes may decrease the value of the NDTF investments of Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida, which then could require significant additional funding.
Ownership and operation of nuclear generation facilities also requires the maintenance of funded trusts that are intended to pay for the decommissioning costs of the respective nuclear power plants. The performance of the capital markets affects the values of the assets held in trust to satisfy these future obligations. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida have significant obligations in this area and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below projected rates of return. Although a number of factors impact funding requirements, a decline in the market value of the assets may increase the funding requirements of the obligations for decommissioning nuclear plants. If Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida are unable to successfully manage their NDTF assets or if the cost of decommissioning nuclear generation facilities exceeds the amount available in decommissioning funds and such costs cannot be recovered through insurance or regulatory mechanisms, their results of operations, financial position and cash flows could be negatively affected.30
RISK FACTORSPoor investment performance of the Duke Energy pension plan holdings and other factors impacting pension plan costs could unfavorably impact the Duke Energy Registrants’ liquidity and results of operations.
The costs of providing non-contributory defined benefit pension plans are dependent upon a number of factors, such as the rates of return on plan assets, discount rates, the level of interest rates used to measure the required minimum funding levels of the plans, future government regulation and required or voluntary contributions made to the plans. The Subsidiary Registrants are allocated their proportionate share of the cost and obligations related to these plans. Without sustained growth in the pension investments over time to increase the value of plan assets and, depending upon the other factors impacting costs as listed above, Duke Energy could be required to fund its plans with significant amounts of cash. Such cash funding obligations, and the Subsidiary Registrants’ proportionate share of such cash funding obligations, could have a material adverse impact on the Duke Energy Registrants’ results of operations, financial position and cash flows.
Duke Energy is a holding company and depends on the cash flows from its subsidiaries to meet its financial obligations.Because Duke Energy is a holding company with no operations or cash flows of its own, its ability to meet its financial obligations, including making interest and principal payments on outstanding indebtedness and to pay dividends on its common and preferred stock, is primarily dependent on the net income and cash flows of its subsidiaries and the ability of those subsidiaries to pay upstream dividends or to repay borrowed funds. Prior to funding Duke Energy, its subsidiaries have regulatory restrictions and financial obligations that must be satisfied. These subsidiaries are separate legal entities and have no obligation to provide Duke Energy with funds. In addition, Duke Energy may provide capital contributions or debt financing to its subsidiaries under certain circumstances, which would reduce the funds available to meet its financial obligations, including making interest and principal payments on outstanding indebtedness and to pay dividends on Duke Energy’s common and preferred stock.GENERAL RISKS
The failure of Duke Energy information technology systems, or the failure to enhance existing information technology systems and implement new technology, could adversely affect the Duke Energy Registrants’ businesses.Duke Energy’s operations are dependent upon the proper functioning of its internal systems, including the information technology systems that support our underlying business processes. Any significant failure or malfunction of such information technology systems may result in disruptions of our operations. In the ordinary course of business, we rely on information technology systems, including the internet and third-party hosted services, to support a variety of business processes and activities and to store sensitive data, including (i) intellectual property, (ii) proprietary business information, (iii) personally identifiable information of our customers, employees, retirees and shareholders and (iv) data with respect to invoicing and the collection of payments, accounting, procurement and supply chain activities. Our information technology systems are dependent upon global communications and cloud service providers, as well as their respective vendors, many of whom have at some point experienced significant system failures and outages in the past and may experience such failures and outages in the future. These providers’ systems are susceptible to cybersecurity and data breaches, outages from fire, floods, power loss, telecommunications failures, break-ins and similar events. Failure to prevent or mitigate data loss from system failures or outages could materially affect the results of operations, financial position and cash flows of the Duke Energy Registrants.
In addition to maintaining our current information technology systems, Duke Energy believes the digital transformation of its business is key to driving internal efficiencies as well as providing additional capabilities to customers. Duke Energy’s information technology systems are critical to cost-effective, reliable daily operations and our ability to effectively serve our customers. We expect our customers to continue to demand more sophisticated technology-driven solutions and we must enhance or replace our information technology systems in response. This involves significant development and implementation costs to keep pace with changing technologies, including artificial intelligence, and customer demand. If we fail to successfully implement critical technology, or if it does not provide the anticipated benefits or meet customer demands, such failure could materially adversely affect our business strategy as well as impact the results of operations, financial position and cash flows of the Duke Energy Registrants.Potential terrorist activities, or military or other actions, could adversely affect the Duke Energy Registrants’ businesses.
The continued threat of terrorism and the impact of retaliatory military and other action by the U.S. and its allies may lead to increased political, economic and financial market instability and volatility in prices for natural gas and oil, which may have material adverse effects in ways the Duke Energy Registrants cannot predict at this time. In addition, future acts of terrorism and possible reprisals as a consequence of action by the U.S. and its allies could be directed against companies operating in the U.S. Information technology systems, transportation systems for our fuel sources including natural gas pipelines, transmission and distribution and generation facilities such as nuclear plants could be potential targets of terrorist activities or harmful activities by individuals or groups that could have a material adverse effect on Duke Energy Registrants' businesses. In particular, the Duke Energy Registrants may experience increased capital and operating costs to implement increased security for their information technology systems, transmission and distribution and generation facilities, including nuclear power plants under the NRC’s design basis threat requirements. These increased costs could include additional physical plant security and security personnel or additional capability following a terrorist incident.
Failure to attract and retain an appropriately qualified workforce could unfavorably impact the Duke Energy Registrants’ results of operations.
Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge base and the lengthy time required for skill development. In this case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may increase. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or future availability and cost of contract labor may adversely affect the ability to manage and operate the business, especially considering the workforce needs associated with nuclear generation facilities and new skills required to operate a modernized, technology-enabled power grid. If the Duke Energy Registrants are unable to successfully attract and retain an appropriately qualified workforce, their results of operations, financial position and cash flows could be negatively affected.
Item 7 · Management's Discussion & Analysis
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FY 2023-12-31 (earlier)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis includes financial information prepared in accordance with GAAP in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted EPS discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation and its subsidiaries. Duke Energy Carolinas, LLC, Progress Energy, Inc., Duke Energy Progress, LLC, Duke Energy Florida, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC and Piedmont Natural Gas Company, Inc. However, none of the registrants make any representation as to information related solely to Duke Energy or the subsidiary registrants of Duke Energy other than itself.Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2023, 2022 and 2021.
See "Item 7. 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, 2022, filed with the SEC on February 27, 2023, for a discussion of variance drivers for the year ended December 31, 2022, as compared to December 31, 2021.DUKE ENERGY
Duke Energy, an energy company headquartered in Charlotte, North Carolina, operates in the U.S. primarily through its subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Executive OverviewAt Duke Energy, we remain focused on continuing to advance our clean energy transition while maintaining affordability and reliability for our customers and delivering on our commitments to our communities, employees, investors, and other stakeholders. The fundamentals of our business are strong and allow us to deliver growth in earnings and dividends in a low-risk, predictable and transparent way. In 2023, we continued to make progress, generating positive strategic and regulatory outcomes, navigating rising interest rates, lower volumes due to mild temperatures and other macroeconomic headwinds, while meeting our near-term financial commitments and continuing to provide the safe and reliable service that our communities depend on.
In 2023, we furthered our transition to a fully regulated utility by closing on the sale of our commercial utility-scale solar and wind group and our distributed generation operations. We advanced a variety of regulatory priorities resulting in positive outcomes and modern recovery mechanisms, and continued to engage with our customers and the communities in our jurisdictions. We also continue to make the investments necessary to support our ongoing clean energy transition and a business portfolio that delivers a reliable and growing dividend, with 2023 representing the 97th consecutive year Duke Energy paid a cash dividend on its common stock.
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Financial Results
(a) See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted EPS as well as a reconciliation of this non-GAAP financial measure to net income available to Duke Energy and net income available to Duke Energy per basic share.Duke Energy's 2023 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) was impacted by higher regulatory charges in the prior year. Additional drivers primarily include growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense. These items were partially offset by higher interest and depreciation expense, unfavorable weather and lower volumes. See “Results of Operations” below for a detailed discussion of the consolidated results of operations and a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other.
2023 Areas of Focus and Accomplishments
Clean Energy Transition . Our industry continues to experience an unprecedented level of change and 2023 was a dynamic year for our company as we navigated ongoing macroeconomic headwinds and continued to execute on our strategic priorities and deliver on our vision.
Generating Cleaner Energy
We are targeting energy generated from coal to represent less than 5% of total generation by 2030 and a full exit by 2035, subject to regulatory approvals, as part of the largest planned coal fleet retirement in the industry. We have made strong progress to date in reducing carbon emissions from electricity generation (a 48% reduction from 2005) and h ave established goals to do more (at least 50% reduction by 2030, 80% by 2040, and net zero by 2050). We are also working to reduce Scope 2 and certain Scope 3 emissions, including emissions from upstream purchased power and fossil fuel purchases, as well as downstream customer use of natural gas, by 50% by 2035, on the way to net zero by 2050.
Duke Energy was one of the first utilities to address the totality of its impact – approximately 95% of the Company's greenhouse gas emissions are tied to a measurable net zero goal. Over the next decade, we expect to deploy between approximately $170 and $180 billion of capital into our regulated businesses, driven by clean energy transition investments. These investments will drive substantial economic benefits for the communities we serve and reduce our customers' exposure to fuel volatility. We have filed and refined comprehensive IRPs consistent with this strategy in multiple jurisdictions, allowing us to make needed investments to increase grid resiliency and enable coal plant retirements, renewables and energy storage.
As we look beyond 2030, we will need additional tools to continue our progress. We will actively work to advocate for research and development and deployment of carbon-free, dispatchable resources. This includes longer-duration energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.
Sale of Commercial Renewables
In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables business, excluding the offshore wind contract for Carolina Long Bay. As we look forward to the remainder of this decade and beyond, we have line of sight to significant renewable, grid and other investment opportunities within our faster-growing regulated operations. We closed on the sales of the commercial utility-scale solar and wind group and the distributed generation group in October 2023, facilitating our transition to a fully regulated utility.41
MD&A DUKE ENERGYCarolinas Integrated Resource Plan
HB 951 was passed in 2021 reflecting North Carolina policy accelerating a clean energy transition for generation while continuing to prioritize affordability and reliability for our customers. The legislation established a framework overseen by the NCUC to advance state CO 2 emission reductions in North Carolina through the use of least cost planning, including stakeholder involvement, and also introduced modernized recovery mechanisms under PBR, which consists of MYRP, PIMS, and residential decoupling, and promotes more efficient recovery of investments and aligns incentives between the Company and the state’s energy policy objectives.
In May 2022, we filed a proposed Carbon Plan with the NCUC that outlined potential pathways toward achieving the HB 951 carbon reduction targets while balancing affordability and reliability for our customers and in December 2022, the NCUC issued an order adopting its initial Carbon Plan, which included a set of near-term actions to support meeting the state's carbon reduction goals. In August 2023, Duke Energy Carolinas and Duke Energy Progress filed an updated combined systemwide Carolinas IRP with the NCUC and the PSCSC, setting the course for the next 15 years of our clean energy transition. The plan outlined the diverse resources required to serve customers reliably and to achieve our clean energy transition in both states. In January 2024, we filed supplemental modeling and analysis with the NCUC and PSCSC due to substantially increased load forecasts resulting from continued economic development successes in the Carolinas occurring since the system-wide plan was prepared.Modernizing the Power Grid and Natural Gas InfrastructureWe are leveraging new technology, digital tools and data analytics across the business in response to a transforming landscape and our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding, helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for our customers. We continue to enhance our customers' experience with the Self-Optimizing Grid (SOG), our flagship grid improvement program spanning all of Duke Energy’s regulated utilities. In 2023, our SOG investments helped to avoid approximately 330,000 customer interruptions across our six-state electric service area, preventing customers from having more than 1.4 million hours of lost outage time during major events.
Investments in integrity management of our natural gas infrastructure continue to be of importance to ensure reliable, safe, and increasingly clean delivery of natural gas to our customers. Recognizing the importance of natural gas, we continue to work toward a net-zero methane emission goal by 2030 related to our natural gas distribution business. In our LDC business, we remain focused on reducing methane emissions, leveraging our partnerships, emissions platform, sensors and other technologies to find and fix leaks in near real time. We also use cross compression to avoid releasing natural gas into the atmosphere during certain operational activities.
In October, we announced plans to build and operate our first system capable of producing, storing and combusting 100% green hydrogen. The one-of-its-kind, end-to-end system will use solar energy at Duke Energy Florida's 74.5-MW DeBary solar plant to produce green hydrogen for an upgraded on-site CT designed to operate on a blend of natural gas and hydrogen or up to 100% hydrogen. We anticipate the system will be installed and fully functioning in 2024, providing access to on-demand, dispatchable, increasingly clean energy for our Duke Energy Florida customers.
Response to Macroeconomic Headwinds . While 2023 presented unique macroeconomic challenges, Duke Energy has a demonstrated track record of executing on our business plans while driving efficiencies and productivity in the business. Despite rising interest rates and near-record mild weather across all of our service territories, we achieved financial results within our adjusted EPS guidance and continued our cost-management journey with a focus on driving productivity, increasing flexibility and prioritizing spend based on risk and strategic value to our customers and investors. We executed on our Workload Reduction Initiative launched in late 2022 while building on our culture of continuous improvement to continue to identify ways to reduce operating costs. We remain focused on organization simplification, automation, reducing service levels provided to internal customers as appropriate, outsourcing, and continued operational excellence.
Volatile commodity prices led to rapid fuel cost increases in 2022, impacting the price of electricity in all of our jurisdictions. We actively worked to manage and maintain prices at lower levels than they otherwise would have been in light of increased commodity prices, working with our regulators to extend recovery periods in certain jurisdictions in a way that was manageable for our customers. In 2023, we made substantial progress, recovering $1.5 billion in deferred fuel costs this year. With these actions, lower fuel prices, and increased stability in these markets during 2023, we anticipate to be in line with our historical average balance of deferred fuel costs by the end of 2024.
While inflation has moderated to a degree, we continue to successfully navigate supply chain challenges including longer lead times and shortages of solar panels and other equipment. We execute longer supply agreements and proactively secure equipment in advance of hurricane season. Our procurement teams continue to execute on action plans to enhance planning, augment supply, amend operations and leverage our scale to continue to mitigate these risks to the extent possible.
Recent macroeconomic headwinds aside, the level of economic development success and growth experienced in our service territories is significantly above what we have experienced over the last two decades. In 2023, Site Selection magazine recognized Duke Energy as a “Top Utility in Economic Development," recognizing our critical role and successful efforts working with our state partners to win 67 projects this year alone, representing approximately $22 billion in new capital investment and 15,000 new jobs within our service territories. These projects include transformational electric vehicle and battery manufacturing facilities as well as data centers. Supporting the increasing generation load demands expected from projects like these in the coming years is an immense opportunity for our Company and the communities we proudly serve.
Constructive Regulatory and Legislative Outcomes . One of our long-term strategic goals is to achieve modernized regulatory constructs across all of our jurisdictions. Modernized constructs provide benefits, which include improved earnings and cash flows through more timely recovery of investments, as well as stable pricing for customers. Grid investment riders in the Midwest and Florida enable more timely cost recovery and earnings growth and we have a MYRP in Florida through 2024.
In North Carolina, as highlighted above, HB 951 authorizes the use of modernized regulatory constructs under the direction of the NCUC. In October 2022, Duke Energy Progress filed its first North Carolina rate case utilizing PBR and reached partial settlements on key matters in April and May 2023. In August 2023, the NCUC issued a constructive order approving these partial settlements and Duke Energy Progress' PBR Application with certain modifications, marking the first implementation of an MYRP under the performance-based regulations authorized by HB 951. Duke Energy Progress implemented revised Year 1 rates on October 1, 2023. In January 2023, we also filed a Duke Energy Carolinas rate case in North Carolina, which incorporated elements of PBR. In August 2023, we reached partial settlements on key matters with the Public Staff and received a constructive order from the NCUC in December 2023, with new rates effective January 2024. After more than a decade of work, these rate cases mark a significant milestone in securing regulatory approval of modern ratemaking structures in North Carolina.42
MD&A DUKE ENERGYIn addition to the Duke Energy Progress and Duke Energy Carolinas rate cases in North Carolina, we continued to move a variety of other regulatory initiatives forward during 2023. In February 2023, the PSCSC approved a constructive comprehensive settlement with all parties in the Duke Energy Progress South Carolina rate case and we implemented new customer rates effective April 1, 2023. In the Midwest, we received a constructive order on our Duke Energy Kentucky electric rate case in October 2023. As it relates to our natural gas businesses, in Duke Energy Ohio, we filed a stipulation on key matters in our base rate case with all parties except the OCC in April 2023. We received an order approving the stipulation in November 2023. In September 2023, the TPUC approved a settlement related to our Annual Review Mechanism in Tennessee, with adjusted rates effective October 1, 2023. Overall, this was a very active year as it relates to regulatory filings, which reflects the important investments and ongoing clean energy transition across all our service territories.
In 2022, storm securitization legislation was passed in South Carolina, providing the opportunity to securitize deferred storm costs and lower the bill impacts for our customers. In 2023, w e made progress on our South Carolina storm securitization filings. The PSCSC approved a comprehensive settlement in September 2023 and issued its financing order in October 2023. Also in South Carolina, we filed a Duke Energy Carolinas rate case with the PSCSC in January 2024.
W e also continued to evaluate the impacts of the Inflation Reduction Act, which is expected to have significant benefits to customers and lower the cost of the clean energy transition. In 2023, we worked to advocate successfully for the best interests of our customers, communities, and Company in important areas, including the preservation and application of nuclear PTCs in the regulated utility business model.
Customer Satisfaction . Duke Energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels. This data-driven approach allows us to identify the investments that are most important to the customer experience. While customer satisfaction across our industry continues to be impacted by the macroeconomic environment and the impacts of inflationary pressures including higher fuel prices on customer bills, our work continues to be recognized by our customers, with strong customer satisfaction scores in our jurisdictions including Piedmont, which was ranked number one in customer satisfaction by J.D. Power for residential natural gas service in the south for the second year in a row.
Operational Excellence, Safety and Reliability . The reliable and safe operation of our power plants, electric distribution system and natural gas infrastructure in our communities continues to be foundational to serving our customers, our financial results, and our credibility with stakeholders. Late 2022 presented unique challenges to the grid in our service territories, including attacks on two substations in Moore County, North Carolina, and extreme winter weather that forced us to take unprecedented measures to ensure the integrity of our systems in North Carolina.
Following the Moore County Substation attack, we reassessed the criticality of every substation, evaluated new security tools and technology, and conducted benchmarking with peer utilities. We created a plan to enhance physical security and resiliency at sites that are critical to the Bulk Electric System and those with the greatest impact to customers. We will work to implement these enhancements across all jurisdictions, representing an investment of approximately $500 million over the next three years. In North Carolina, recovery has been approved through the MYRP. Cost recovery requests in South Carolina, Florida and the Midwest are expected to be included in future rate cases.
In December 2022, high winds and extreme cold from Winter Storm Elliott, customer demand that was higher than forecasted, and the inability to import additional power from out of state, resulted in the need to temporarily interrupt service to about 500,000 customers to maintain overall grid reliability and prevent further potential disruptions in the Carolinas. In 2023, we established the Bulk Electric System Oversight Board to provide executive oversight of programs and policies designed to ensure energy adequacy for our customers. We practiced our forecasting, grid assessment, oversight, and governance processes throughout the summer, as hot weather challenged operations from time to time. We will continue to work to ensure that our grid and fleet can withstand the stress of extreme weather on our system, evaluate lessons learned and enhance our strategy and communications to effectively serve our customers now and in the future.
Despite these recent challenges, our regulated generation fleet and nuclear sites had strong performance throughout the year and our electric distribution system performed well. The safety of our workforce is a core value and we remain an industry leader in personal safety. In 2023, we achieved one of the best safety records in our company’s history with our TICR significantly above target. For the eighth consecutive year, we ranked first among North American combined gas and electric companies in Edison Electric Institute’s (EEI) annual safety survey, and our gas operations organization finished in the top 10% for the third year in a row, according to the American Gas Association. And, for the first time since our merger with Progress Energy in 2012, we finished the year with less than 100 Occupational Safety and Health Administration recordable incidents. In addition, we continued our strong environmental performance, with no reportable environmental events.
Our workforce and our contract partners worked hard to prepare for this year’s storm season, through drills, material planning, call center readiness, contingency planning, and customer communications. This summer, we experienced extreme weather across our regions, including a July 4 series of major storms in the Midwest, numerous storms in July and August in the Carolinas, and Hurricane Idalia in August, impacting Florida and the east coast of the Carolinas. We safely restored power to 95% of affected customers within 48 hours. Our preparation and robust communications to our customers and communities enhanced our reputation and built stakeholder loyalty and support.
Our ability to effectively handle all facets of the 2023 storm response efforts while making ongoing investments to enhance the reliability and physical security of the grid, mitigate ongoing macroeconomic challenges, and navigate supply chain constraints, is a testament to our team’s extensive preparation and coordination, applying lessons learned from previous storms, and to on-the-ground management throughout the restoration efforts. Duke Energy has received 20 Emergency Response Awards since EEI began recognizing storm response in 1998 (including 11 for assisting other utilities).
Duke Energy Objectives – 2024 and Beyond
At Duke Energy, our business strategy centers on delivering reliable, affordable and cleaner energy to our customers and communities, safely transforming and readying our system by investing in innovative technologies, modernizing our gas and electric infrastructure and expanding and integrating efficiency and demand management programs. As we transition our business to cleaner sources of energy, we are focused on delivering sustainable value for our customers and shareholders by leveraging business transformation to exceed customer expectations, optimizing investments to drive attractive shareholder returns, and by providing new product offerings and solutions that deliver growth and customer value. To achieve these major milestones, we are shaping the landscape by partnering with stakeholders, championing public policy that advances innovation, and advancing regulatory models that support carbon and methane emission reductions.
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MD&A DUKE ENERGYMatters Impacting Future Results
The matters discussed herein could materially impact the future operating results, financial condition and cash flows of the Duke Energy Registrants and Business Segments.
Regulatory Matters
Coal Ash CostsDuke Energy Carolinas and Duke Energy Progress have approximately $1.6 billion and $1.2 billion, respectively, in regulatory assets related to coal ash retirement obligations as of December 31, 2023. Future spending, including amounts recorded for depreciation and liability accretion, is expected to continue to be deferred and recovered in future rate cases or rider fil ings. The majority of spend is primarily expected to occur over the next 10 years.
Duke Energy Indiana has interprete d the CCR Rule to identif y the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and established methods of compliance. Interpretation of the requirements of the CCR Rule is subject to further legal challenges and regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR Rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal a sh. Duke Energy Indiana has approximately $408 million in regulatory assets related to coal ash asset retirement obligations as of December 31, 2023. See “Other Matters” and Note 4 to the Consolidated Financial Statements, "Regulatory Matters" for more information.
Fuel Cost Recovery
As a result of rapidly rising commodity costs during 2022, including natural gas, fuel and purchased power prices in excess of amounts included in fuel-related revenues led to an increase in the undercollection of fuel costs from customers in jurisdictions including Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. These amounts were deferred in regulatory assets and impacted the cash flows of the registrants, including increased borrowings to temporarily finance related expenditures until recovery. Natural gas costs stabilized in 2023 and the Duke Energy Registrants are making progress collecting deferred fuel balances. Regulatory filings have been made and approved for re covery of all remaining uncollected 2022 fuel costs. Across all jurisdictions, Duke Energy recovered $1.5 billion of deferred fuel costs in 2023, and expects deferred fuel cost balances to be back in line with historical norms by the end of 2024. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters" for more information.
Commercial Renewables
In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables Disposal Groups. The Commercial Renewables Disposal Groups were classified as held for sale and as discontinued operations in the fourth quarter of 2022. Duke Energy entered into purchase and sale agreements with affiliates of Brookfield in June 2023 for the sale of the utility-scale solar and wind group and with affiliates of ArcLight in July 2023 for the distributed generation group. Both transactions closed in October 2023 and proceeds from the sales were used for debt avoidance. Duke Energy expects to complete the disposition of the remaining assets in the first half of 2024. For more information, see Note 2 to the Consolidated Financial Statements, "Dispositions."
In February 2021, a severe winter storm impacted certain Commercial Renewables assets in Texas. Extreme weather conditions limited the ability for these solar and wind facilities to generate and sell electricity into the market. Originally, Duke Energy (Parent) was named in multiple lawsuits arising out of this winter storm, but the plaintiffs have dismissed Duke Energy (parent) from these lawsuits. The legal actions related to all but one of the project companies in this matter transferred to affiliates of Brookfield in conjunction with the transaction closing in October 2023. For more information, see Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies."Supply ChainIn 2023, Duke Energy has experienced modest improvement in the stability of the markets for key materials purchased and used by the Company. The Company continues to monitor developments, including proposed federal regulations, that could disrupt or impact the Company's supply chain and, as a result, may impact Duke Energy's execution of its capital plan, future financial results, or the achievement of its clean energy goals.GoodwillThe Duke Energy Registrants performed their annual goodwill impairment tests as of August 31, 2023, as described in Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets." As of August 31, 2023, all of Duke Energy Registrants' reporting units' estimated fair values materially exceeded the carrying values except for the GU&I reporting unit of Duke Energy Ohio. While no goodwill impairment charges were recorded in 2023, the potential for continued interest rate pressures, and the related impact on the weighted average cost of capital, without timely or adequate updates to the regulated allowed return on equity or deteriorating economic conditions impacting GU&I's future cash flows or equity valuations of peer companies could impact the estimated fair value of GU&I, and goodwill impairment charges could be recorded in the future. The carrying value of goodwill within GU&I for Duke Energy Ohio was approximately $324 million as of December 31, 2023.OtherDuke Energy continues to monitor general market conditions, including the potential for continued interest rate pressures on the Company's cost of capital, which may impact Duke Energy's execution of its capital plan, future financial results, or the achievement of its clean energy goals.
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Results of Operations
Non-GAAP Measures
Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted EPS. These items represent income from continuing operations available to Duke Energy common stockholders in dollar and per share amounts, adjusted for the dollar and per share impact of special items. As discussed below, special items include certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance. Management believes the presentation of adjusted earnings and adjusted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods.
Management uses these non-GAAP financial measures for planning and forecasting, and for reporting financial results to the Board of Directors, employees, stockholders, analysts and investors. Adjusted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted EPS are GAAP Reported Earnings and EPS Available to Duke Energy Corporation common stockholders (GAAP Reported EPS), respectively.
Special items included in the periods presented include the following, which management believes do not reflect ongoing costs:• Regulatory matters primarily represents net impairment charges related to Duke Energy Carolinas' and Duke Energy Progress' North Carolina rate case orders.
• Organizational optimization costs represent amounts associated with strategic repositioning to a fully regulated utility, and primarily consist of severance costs, consultant fees and impairment charges for certain nonregulated assets.
• Regulatory matters and litigation primarily represents the net impact of charges related to the Indiana court rulings on coal ash and other unrelated ongoing litigation.
• Workplace and workforce realignment represents costs attributable to business transformation, including long-term real estate strategy changes and workforce reduction.Discontinued operations primarily includes impairments on the sale of the Commercial Renewables business and results from Duke Energy's Commercial Renewables Disposal Groups.
Duke Energy’s adjusted earnings and adjusted EPS may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner.Reconciliation of GAAP Reported Amounts to Adjusted Amounts
The following table presents a reconciliation of adjusted earnings and adjusted EPS to the most directly comparable GAAP measures.
Years Ended December 31,2023 2022(in millions, except per share amounts) Earnings EPS Earnings EPSGAAP Reported Earnings/EPS $ 2,735 $ 3.54 $ 2,444 $ 3.17Adjustments to Reported:
Organizational Optimization (a)95 0.13 — —Regulatory Matters (b)64 0.08 — —
Regulatory Matters and Litigation (c)
— — 295 0.39
Workplace and Workforce Realignment (d)
— — 105 0.14
Discontinued Operations (e)
1,391 1.81 1,216 1.57
Adjusted Earnings/Adjusted EPS $ 4,285 $ 5.56 $ 4,060 $ 5.27(a) Net of tax benefit of $29 million. $110 million recorded within Operations, maintenance and other and $14 million within Impairment of assets and other charges.(b) Net of $20 million tax benefit. $68 million within Impairment of assets and other charges and $16 million within Operations, maintenance and other.
(c) Net of tax benefit of $128 million. $386 million recorded within Impairment of assets and other charges, $46 million within Regulated electric (Operating Revenues) and $34 million within Net (Income) Loss Attributable to Noncontrolling Interests. $25 million recorded within Operations, maintenance and other.
(d) Net of tax benefit of $31 million. $72 million recorded within Impairment of assets and other charges, $71 million recorded within Operations, maintenance and other and a $7 million gain recorded in Gains on sales of other assets and other.
(e) Recorded in Loss from Discontinued Operations, net of tax, and Net (Income) Loss Attributable to Noncontrolling Interests.
Year Ended December 31, 2023, as compared to 2022
GAAP Reported EPS was $3.54 for the year ended December 31, 2023, compared to $3.17 for the year ended December 31, 2022. In addition to the drivers below, the increase in GAAP Reported Earnings/EPS was also due to higher regulatory charges in the prior year.
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MD&A DUKE ENERGY
As discussed and shown in the table above, management also evaluates financial performance based on adjusted EPS. Duke Energy’s adjusted EPS was $5.56 for the year ended December 31, 2023, compared to $5.27 for the year ended December 31, 2022. The increase in Adjusted Earnings/Adjusted EPS was primarily due to growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense. These items were partially offset by higher interest and depreciation expense, unfavorable weather and lower volumes.SEGMENT RESULTSThe remaining information presented in this discussion of results of operations is on a GAAP basis. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends. Segment income includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements.Duke Energy's segment structure includes Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I). The remainder of Duke Energy’s operations is presented as Other. See Note 3 to the Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.Electric Utilities and Infrastructure
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 26,921 $ 26,024 $ 897Operating ExpensesFuel used in electric generation and purchased power 9,164 8,862 302
Operations, maintenance and other 5,309 5,354 (45)
Depreciation and amortization 4,684 4,550 134
Property and other taxes 1,320 1,315 5
Impairment of assets and other charges 75 374 (299)
Total operating expenses 20,552 20,455 97
Gains on Sales of Other Assets and Other, net 28 7 21
Operating Income 6,397 5,576 821
Other Income and Expenses, net 517 467 50
Interest Expense 1,850 1,565 285
Income Before Income Taxes 5,064 4,478 586
Income Tax Expense 742 536 206
Less: Income Attributable to Noncontrolling Interest 99 13 86
Segment Income $ 4,223 $ 3,929 $ 294
Duke Energy Carolinas GWh sales 87,635 90,915 (3,280)
Duke Energy Progress GWh sales 66,717 70,435 (3,718)
Duke Energy Florida GWh sales 43,384 46,214 (2,830)
Duke Energy Ohio GWh sales 23,307 24,269 (962)
Duke Energy Indiana GWh sales 30,219 31,979 (1,760)
Total Electric Utilities and Infrastructure GWh sales 251,262 263,812 (12,550)
Net proportional MW capacity in operation (a)
54,404 54,347 57
(a) Net proportional MW capacity in operation reflects winter/nameplate capacity as of December 31, 2023, and 2022. See Item 2, "Properties" for further details.
Year Ended December 31, 2023, as compared to 2022
EU&I’s higher segment income was due to higher revenues from rate cases across multiple jurisdictions and the prior year Indiana court rulings on recovery of certain coal ash costs, partially offset by unfavorable weather, lower weather-normal retail sales volumes and higher interest expense. The following is a detailed discussion of the variance drivers by line item.Operating Revenues. The variance was driven primarily by:• a $902 million increase in fuel revenues primarily due to higher fuel cost recovery in the current year;
• a $363 million increase in storm revenues at Duke Energy Florida due to hurricanes Ian and Nicole collections;
• a $276 million increase due to higher pricing at Duke Energy Progress from the South Carolina rate case and interim rates from the North Carolina rate case, the Duke Energy Ohio electric rate case, the Duke Energy Kentucky electric rate case and Ohio tax reform deferrals in prior year, and base rate adjustments related to annual increases from the 2021 Settlement Agreement at Duke Energy Florida;46
MD&A SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE• a $115 million increase in rider revenues primarily due to a decrease in the return of EDIT to customers compared to the prior year at Duke Energy Carolinas and increased Storm Protection Plan rider revenue at Duke Energy Florida; and
• a $67 million increase due to the provision for rate refund recognized in the prior year related to the Indiana Supreme Court ruling on recovery of certain coal ash costs.Partially offset by:• a $341 million decrease in retail sales due to unfavorable weather compared to prior year;
• a $323 million decrease in wholesale revenues primarily due to lower demand at Duke Energy Florida and lower prices at Duke Energy Indiana; and
• a $173 million decrease in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
• a $302 million increase in fuel used in electric generation and purchased power due to changes in the generation mix at Duke Energy Carolinas and recovery of fuel expense at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida; and
• a $134 million increase in depreciation and amortization primarily due to higher plant in service, partially offset by the amortization of the DOE settlement regulatory liability at Duke Energy Florida.
Partially offset by:
• a $299 million decrease in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs in the prior year, partially offset by rate case impacts at Duke Energy Carolinas and Duke Energy Progress in the current year; and
• a $45 million decrease in operation, maintenance and other expense primarily due to decrease in spend on outside services and lower project costs at Duke Energy Carolinas and Duke Energy Progress, partially offset by an increase in storm amortization at Duke Energy Florida.
Gains on Sales of Other Assets and Other, net. The increase was primarily due to the sale of the Mint Street parking deck.
Other Income and Expenses, net. The variance was primarily due to non-service pension expense.
Interest Expense. The variance was primarily driven by higher interest rates and outstanding debt balances.
Income Tax Expense. T he increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT. The ETRs for the years ended December 31, 2023, and 2022, were 14.7% and 12.0%, respectively. The increase in the ETR was primarily due to a decrease in the amortization of EDIT.
Income Attributable to Noncontrolling Interest. The increase was due to the second and final tranche of the GIC minority interest sale.
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MD&A SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTUREGas Utilities and Infrastructure
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 2,266 $ 2,840 $ (574)Operating ExpensesCost of natural gas 593 1,276 (683)
Operation, maintenance and other 455 532 (77)
Depreciation and amortization 349 327 22
Property and other taxes 129 138 (9)
Impairment of assets and other charges (4) (12) 8
Total operating expenses 1,522 2,261 (739)
Gains on Sales of Other Assets and Other, net — 1 (1)
Operating Income 744 580 164
Other income and expenses, net 106 78 28
Interest Expense 217 182 35
Income Before Income Taxes 633 476 157
Income Tax Expense 116 8 108
Add: Loss Attributable to Noncontrolling Interest
2 — 2
Segment Income $ 519 $ 468 $ 51
Piedmont Local Distribution Company (LDC) throughput (Dth) 569,752,712 628,035,471 (58,282,759)
Duke Energy Midwest LDC throughput (MCF) 80,252,769 90,010,669 (9,757,900)
Year Ended December 31, 2023, as compared to 2022
GU&I's results were impacted primarily by margin growth partially offset by higher interest expense. The following is a detailed discussion of the variance drivers by line item.Operating Revenues. The variance was driven primarily by:• a $683 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs.Partially offset by:• a $26 million increase due to customer growth;
• a $19 million increase due to North Carolina IMR;
• a $15 million increase due to the MGP Settlement in prior year;
• an $11 million increase due to Tennessee ARM revenue recognition;
• a $9 million increase due to due to secondary marketing sales;
• a $6 million increase in Ohio tax reform deferrals; and
• a $4 million increase due to rider revenues.Operating Expenses. The variance was driven primarily by:• a $683 million decrease in cost of natural gas due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs; and
• a $77 million decrease in operations, maintenance and other due to the MGP Settlement in prior year, lower labor costs, retirement of propane facilities and pipeline safety and integrity work.Partially offset by:• a $22 million increase in depreciation and amortization due to additional plant in service and lower CEP deferrals.
Other Income and Expenses, net. The variance was primarily due to revisions in estimated ACP ARO closure costs and higher AFUDC equity income.
Interest Expense. The variance was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense. The increase in tax expense was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year and an increase in pretax income. The ETRs for the years ended December 31, 2023, and 2022, were 18.3% and 1.7%, respectively. The increase in the ETR was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year.
48
MD&A SEGMENT RESULTS - OTHEROther
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 134 $ 122 $ 12
Operating Expenses 249 298 (49)Gains on Sales of Other Assets and Other, net24 14 10
Operating Loss (91) (162) 71
Other Income and Expenses, net 258 65 193
Interest Expense 1,097 778 319
Loss Before Income Taxes (930) (875) (55)
Income Tax Benefit (420) (244) (176)Less: Preferred Dividends 106 106 —Net Loss $ (616) $ (737) $ 121
Year Ended December 31, 2023, as compared to 2022
The lower net loss was driven by an increase in the tax benefit due to a favorable adjustment related to certain allowable tax deductions, a franchise tax benefit and higher returns on investments, partially offset by higher interest expense.
Operating Expenses . The decrease was primarily driven by franchise tax refunds in the current year and higher asset impairments in the prior year, partially offset by higher severance c osts associated with strategic repositioning as the Company transitions to a fully regulated utility.
Other Income and Expenses, net. The variance was primarily due to higher return on investments that fund certain employee benefit obligations and higher yields on captive insurance investments.
Interest Expense. The variance was primarily due to higher interest rates on long-term debt and commercial paper, and higher outstanding long-term debt balances.
Income Tax Benefit. The increase in the tax benefit was primarily due to benefits associated with ongoing tax efficiency efforts and an increase in pretax losses. The ETRs for the year ended December 31, 2023, and 2022, were 45.2% and 27.9%, respectively. The increase in the ETR was primarily due to benefits associated with ongoing tax efficiency efforts. In 2023, the Company evaluated the deductibility of certain items spanning periods currently open under federal statute, including items related to interest on company-owned life insurance. As a result of this analysis, the Company recorded a favorable adjustment of approximately $120 million.
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXYears Ended December 31,(in millions) 2023 2022 Variance
Loss From Discontinued Operations, net of tax $ (1,455) $ (1,323) $ (132)
Year Ended December 31, 2023, as compared to 2022
The variance was primarily driven by lower results from Duke Energy's Commercial Renewables Disposal Groups in the current year.49
MD&A DUKE ENERGY CAROLINAS
SUBSIDIARY REGISTRANTS
Basis of Presentation
The results of operations and variance discussion for the Subsidiary Registrants is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
DUKE ENERGY CAROLINAS
Results of Operations
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 8,288 $ 7,857 $ 431Operating ExpensesFuel used in electric generation and purchased power 2,524 2,015 509
Operation, maintenance and other 1,774 1,892 (118)
Depreciation and amortization 1,593 1,526 67
Property and other taxes 320 340 (20)
Impairment of assets and other charges 44 26 18Total operating expenses6,255 5,799 456
Gains on Sales of Other Assets and Other, net 26 4 22
Operating Income 2,059 2,062 (3)
Other Income and Expenses, net 238 221 17
Interest Expense 686 557 129
Income Before Income Taxes 1,611 1,726 (115)
Income Tax Expense 141 126 15
Net Income $ 1,470 $ 1,600 $ (130)The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.Increase (Decrease) over prior year 2023
Residential sales (3.5) %
General service sales 1.0 %
Industrial sales (5.2) %
Wholesale power sales 5.0 %
Joint dispatch sales (10.9) %
Total sales (3.6) %
Average number of customers 1.8 %
Year Ended December 31, 2023, as compared to 2022Operating Revenues. The variance was driven primarily by:• a $528 million increase in fuel revenues due to higher fuel cost recovery;
• a $71 million increase in rider revenues primarily due to the decrease in the return of EDIT to customers compared to the prior year;
• a $28 million increase in wholesale revenues primarily due to higher contractual demand and sales; and
• a $15 million increase in retail pricing due to interim rates from the North Carolina rate case.
Partially offset by:
• a $193 million decrease in retail sales due to unfavorable weather compared to prior year; and
• a $47 million decrease in weather-normal retail sales volumes.50
MD&A DUKE ENERGY CAROLINASOperating Expenses . The variance was driven primarily by:
• a $509 million increase in fuel used in electric generation and purchased power primarily due to changes in the generation mix and the recovery of fuel expenses, partially offset by lower JDA purchased volumes and prices;
• a $67 million increase in depreciation and amortization primarily due to a higher depreciable base, partially offset by a decrease due to lower coal ash amortization from the North Carolina rate case and higher Grid Improvement Plan deferrals in the current year; and
• an $18 million increase in impairment of assets and other charges primarily due to the order in the North Carolina rate case, partially offset by prior year adjustments to optimize the Company's real estate portfolio and the South Carolina Supreme Court decision on coal ash.Partially offset by:• a $118 million decrease in operation, maintenance and other primarily due to a decrease in spend on outside services and lower project costs ; and
• a $20 million decrease in property and other taxes primarily due to lower franchise taxes.
Gains on Sales of Other Assets and Other, net. The increase was primarily due to the sale of the Mint Street parking deck.
Other Income and Expenses . The variance was driven primarily by non-service pension expense and interest income.
Interest Expense. The variance was driven by higher interest rates and outstanding debt balances.
Income Tax Expense. The increase in tax expense was primarily due to a decrease in the amortization of EDIT, partially offset by a decrease in pretax income.PROGRESS ENERGY
Results of Operations
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 13,544 $ 13,125 $ 419Operating ExpensesFuel used in electric generation and purchased power 5,026 5,078 (52)
Operation, maintenance and other 2,636 2,458 178
Depreciation and amortization 2,151 2,142 9
Property and other taxes 644 607 37
Impairment of assets and other charges 28 12 16Total operating expenses10,485 10,297 188
Gains on Sales of Other Assets and Other, net 27 11 16
Operating Income 3,086 2,839 247
Other Income and Expenses, net 201 181 20
Interest Expense 954 844 110
Income Before Income Taxes 2,333 2,176 157
Income Tax Expense 377 348 29
Net Income 1,956 1,828 128
Year Ended December 31, 2023, as compared to 2022Operating Revenues. The variance was driven primarily by:• a $363 million increase in storm revenues at Duke Energy Florida due to hurricanes Ian and Nicole collections;
• a $254 million increase in fuel cost recovery from retail customers at Duke Energy Florida, partially offset by a decrease at Duke Energy Progress driven by lower JDA sales volumes at lower prices in the current year, partially offset by higher fuel cost recovery;
• a $144 million increase due to higher pricing from the North Carolina and the South Carolina rate cases at Duke Energy Progress, and retail pricing due to base rate adjustments related to annual increases from the 2021 Settlement Agreement at Duke Energy Florida;
• a $66 million increase in rider revenues at Duke Energy Florida primarily due to increased Storm Protection Plan rider and a decrease in the return of EDIT to customers compared to the prior year at Duke Energy Progress; and
• a $23 million increase in franchise tax revenue primarily due to increased revenues over prior year at Duke Energy Florida.51
MD&A PROGRESS ENERGYPartially offset by:• a $274 million decrease in wholesale revenues net of fuel due to decreased demand at Duke Energy Florida, partially offset by higher capacity rates net of lower volumes at Duke Energy Progress;
• a $99 million decrease in weather-normal retail sales volumes at Duke Energy Progress and Duke Energy Florida; and
• a $74 million decrease in retail sales due to unfavorable weather compared to prior year at Duke Energy Progress, partially offset by favorable weather in the current year at Duke Energy Florida.
Operating Expenses. The variance was driven primarily by:
• a $178 million increase in operation, maintenance and other primarily due to storm amortization costs at Duke Energy Florida, partially offset by lower storm costs, a decrease in spend on outside services and lower project costs at Duke Energy Progress;
• a $37 million increase in property and other taxes primarily due to higher franchise taxes and gross receipts taxes driven by higher revenues and higher property taxes due to property tax valuation adjustments at Duke Energy Florida, partially offset by lower franchise t axes at Duke Energy Progress ; and
• a $16 million increase in impairment of assets and other charges primarily due to rate case impacts, partially offset by prior year adjustments from the South Carolina Supreme Court decision on coal ash and optimization of the Company's real estate portfolio at Duke Energy Progress.
Partially offset by:
• a $52 million decrease in fuel used in electric generation and purchased power primarily due to lower volumes and prices at Duke Energy Progress, partially offset by the recovery of fuel expenses at Duke Energy Progress and Duke Energy Florida.
Gains on Sales of Other Assets and Other, net. The increase was primarily due to sales of cell tower leases.
Other Income and Expenses, net. The variance was driven primarily by non-service pension expense and interest income .
Interest Expense. The variance was driven primarily by higher outstanding debt balances and interest rates at Duke Energy Progress and Duke Energy Florida.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT, partially offset by an increase in PTCs.DUKE ENERGY PROGRESS
Results of Operations
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 6,488 $ 6,753 $ (265)Operating ExpensesFuel used in electric generation and purchased power 2,203 2,492 (289)
Operation, maintenance and other 1,379 1,475 (96)
Depreciation and amortization 1,266 1,187 79
Property and other taxes 164 190 (26)
Impairment of assets and other charges 29 7 22Total operating expenses5,041 5,351 (310)
Gains on Sales of Other Assets and Other, net 3 4 (1)
Operating Income 1,450 1,406 44
Other Income and Expenses, net 124 114 10
Interest Expense 427 354 73
Income Before Income Taxes 1,147 1,166 (19)
Income Tax Expense 149 158 (9)
Net Income $ 998 $ 1,008 $ (10)
52
MD&A DUKE ENERGY PROGRESSThe following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.Increase (Decrease) over prior year 2023
Residential sales (4.1) %
General service sales (4.0) %
Industrial sales (12.2) %
Wholesale power sales (3.7) %
Joint dispatch sales (1.1) %
Total sales (5.3) %
Average number of customers 1.7 %
Year Ended December 31, 2023, as compared to 2022Operating Revenues. The variance was driven primarily by:• a $259 million decrease in fuel revenues due to lower JDA sales volumes at lower prices in the current year, partially offset by higher fuel cost recovery;
• a $103 million decrease in retail sales due to unfavorable weather compared to prior year; and
• a $70 million decrease in weather-normal retail sales volumes.
Partially offset by:
• a $127 million increase due to higher pricing from the North Carolina and the South Carolina rate cases;
• a $21 million increase in rider revenues primarily due to the decrease in the return of EDIT to customers compared to the prior year; and
• a $17 million increase in wholesale revenues, net of fuel, due to higher capacity rates, partially offset by lower volumes.Operating Expenses . The variance was driven primarily by:• a $289 million decrease in fuel used in electric generation and purchased power primarily due to changes in the generation mix, partially offset by the recovery of fuel expenses;
• a $96 million decrease in operation, maintenance and other primarily due to lower storm costs, lower outside services and lower project costs; and
• a $26 million decrease in property and othe r taxes due to lower franchise taxes.Partially offset by:• a $79 million increase in depreciation and amortization due to higher depreciable base and rate case impacts; and
• a $22 million increase in impairment of assets and other charges primarily due to rate case impacts offset by prior year adjustments from the South Carolina Supreme Court decision on coal ash and the optimization of the Company's real estate portfolio.
Other Income and Expenses, net. The variance was driven primarily by interest income.
Interest Expense. The variance was driven primarily by higher interest rates and outstanding debt balances.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of EDIT.
53
MD&A DUKE ENERGY FLORIDADUKE ENERGY FLORIDA
Results of Operations
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 7,036 $ 6,353 $ 683Operating ExpensesFuel used in electric generation and purchased power 2,823 2,586 237
Operation, maintenance and other 1,239 967 272
Depreciation and amortization 885 955 (70)
Property and other taxes 480 421 59
Impairment of assets and other charges (1) 4 (5)Total operating expenses5,426 4,933 493
Gains on Sales of Other Assets and Other, net 2 2 —
Operating Income 1,612 1,422 190
Other Income and Expenses, net 78 74 4
Interest Expense 413 362 51
Income Before Income Taxes 1,277 1,134 143
Income Tax Expense 261 225 36
Net Income $ 1,016 $ 909 $ 107The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.Increase (Decrease) over prior year 2023
Residential sales 1.1 %
General service sales 1.2 %Industrial sales (3.2) %Wholesale power sales (49.3) %
Total sales (6.1) %
Average number of customers 1.8 %
Year Ended December 31, 2023, as compared to 2022Operating Revenues. The variance was driven primarily by:• a $513 million increase in fuel and capacity revenues primarily due to an increase in fuel and capacity rates billed to retail customers;
• a $363 million increase in storm revenues due to hurricanes Ian and Nicole collections;
• a $45 million increase in rider revenues primarily due to higher rates for the Storm Protection Plan rider;
• a $29 million increase in retail sales due to favorable weather in the current year;
• a $23 million increase in franchise taxes revenue primarily due to increased revenues over prior year; and
• a $17 million increase in retail pricing due to base rate adjustments related to annual increases from the 2021 Settlement Agreement.Partially offset by:• a $291 million decrease in wholesale power revenues, net of fuel, primarily due to decreased demand; and
• a $29 million decrease in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
• a $272 million increase in operation, maintenance and other primarily due to storm amortization;
• a $237 million increase in fuel used in electric generation and purchased power primarily due to the recovery of fuel expenses, partially offset by a decrease in purchased power costs due to lower natural gas prices; and
• a $59 million increase in property and other taxes primarily due to higher franchise taxes and gross receipts taxes driven by higher revenues and higher property taxes due to property tax valuation adjustments.
54MD&A DUKE ENERGY FLORIDAPartially offset by:• a $70 million decrease in depreciation and amortization primarily due to the amortization of the DOE settlement regulatory liability, partially offset by higher depreciable base.
Interest Expense. The variance was primarily due to higher interest rates and outstanding debt balances.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT, partially offset by an increase in PTCs.DUKE ENERGY OHIO
Results of Operations
Years Ended December 31,(in millions) 2023 2022 VarianceOperating RevenuesRegulated electric $ 1,868 $ 1,798 $ 70
Regulated natural gas 639 716 (77)
Total operating revenues 2,507 2,514 (7)Operating ExpensesFuel used in electric generation and purchased power 608 657 (49)
Cost of natural gas 163 261 (98)
Operation, maintenance and other 478 523 (45)
Depreciation and amortization 367 324 43
Property and other taxes 364 369 (5)
Impairment of assets and other charges 3 (10) 13Total operating expenses1,983 2,124 (141)Gains on Sales of Other Assets and Other, net 1 1 —Operating Income 525 391 134
Other Income and Expenses, net 41 19 22
Interest Expense 169 129 40
Income Before Income Taxes 397 281 116
Income Tax Expense (Benefit)
63 (21) 84
Net Income $ 334 $ 302 $ 32The following table shows the percent changes in GWh sales of electricity, MCF of natural gas delivered and average number of electric and natural gas customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Electric Natural GasIncrease (Decrease) over prior year 2023 2023
Residential sales (4.8) % (13.5) %
General service sales 1.5 % (19.7) %
Industrial sales 4.9 % 3.8 %
Wholesale electric power sales (19.3) % n/a
Other natural gas sales n/a (0.7) %
Total sales (4.0) % (10.8) %
Average number of customers 0.9 % 0.6 %
Year Ended December 31, 2023, as compared to 2022
Operating Revenues . The variance was driven primarily by:
• a $77 million decrease in fuel-related revenues primarily due to lower retail sales volumes and lower fuel cost recovery in the current year;
• a $59 million decrease in revenues related to lower OVEC rider collections and OVEC sales into PJM;
• a $35 million decrease due to unfavorable weather compared to prior year; and
• an $18 million decrease in retail revenue riders primarily due to the decrease in Distribution Capital Investment Rider, partially offset by increases in the Ohio CEP rider and Energy Efficiency Rider.
55MD&A DUKE ENERGY OHIOPartially offset by:• a $145 million increase in price due to the Duke Energy Ohio and Duke Energy Kentucky electric rate cases and Ohio tax reform deferrals in prior year;
• a $15 million increase due to the MGP Settlement in the prior year; and
• an $11 million increase in weather-normal retail sales volumes.Operating Expenses. The variance was driven primarily by:• a $147 million decrease in fuel expense primarily driven by lower retail prices for natural gas and purchased power and a decrease in purchased power volumes; and
• a $45 million decrease in operation, maintenance and other expense primarily due to the MGP Settlement in the prior year.Partially offset by:• a $43 million increase in depreciation and amortization primarily driven by an increase in distribution plant in service and depreciation rates resulting from the Duke Energy Ohio and Duke Energy Kentucky electric retail rate cases implemented in 2023; and
• a $13 million increase in impairment of assets and other charges primarily due to the reversal in the prior year of the impairment related to the propane caverns in Ohio.
Other Income and Expenses . The variance was primarily due to interest income.
Interest Expense. The variance was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense (Benefit). The increase in tax expense was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year and an increase in pretax income.DUKE ENERGY INDIANA
Results of Operations
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 3,399 $ 3,922 $ (523)Operating ExpensesFuel used in electric generation and purchased power 1,217 1,819 (602)
Operation, maintenance and other 713 729 (16)
Depreciation and amortization 666 645 21
Property and other taxes 59 75 (16)
Impairment of assets and other charges — 388 (388)Total operating expenses2,655 3,656 (1,001)
Operating Income 744 266 478
Other Income and Expenses, net 76 36 40
Interest Expense 213 189 24
Income Before Income Taxes 607 113 494
Income Tax Expense (Benefit)
110 (24) 134
Net Income $ 497 $ 137 $ 360
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year 2023
Residential sales (6.3) %
General service sales (3.6) %
Industrial sales 9.0 %
Wholesale power sales (1.9) %
Total sales (5.5) %
Average number of customers 1.2 %
56MD&A DUKE ENERGY INDIANAYear Ended December 31, 2023, as compared to 2022Operating Revenues. The variance was driven primarily by:• a $401 million decrease in retail fuel revenues primarily due to lower fuel cost recovery driven by lower retail sales volumes and fuel prices;
• a $75 million decrease in wholesale revenues, including fuel revenues, driven by lower fuel prices;
• a $51 million decrease in weather-normal retail sales volumes primarily due to lower customer demand; and
• a $44 million decrease in retail sales due to unfavorable weather compared to the prior year.
Partially offset by:
• a $67 million increase primarily due to the provision for rate refund related to the Indiana Supreme Court ruling on recovery of certain coal ash costs in the prior year.Operating Expenses. The variance was driven primarily by:• a $602 million decrease in fuel used in electric generation and purchased power primarily due to lower purchased power expense, natural gas and coal costs, partially offset by higher deferred fuel amortization;
• a $388 million decrease in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs in the prior year;
• a $16 million decrease in operation, maintenance and other primarily due to lower employee-related expenses and storm contingency costs; and
• a $16 million decrease in property and other taxes primarily due to property tax true-ups and lower franchise taxes.
Partially offset by:
• a $21 million increase in depreciation and amortization primarily due to higher depreciable base.
Other Income and Expenses, net. The variance was primarily due to coal ash insurance proceeds, non-service pension expense and interest income.
Interest Expense . The variance was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense (Benefit). The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT related to the coal ash impairment recorded in the prior year.PIEDMONT
Results of Operations
Years Ended December 31,(in millions) 2023 2022 Variance
Operating Revenues $ 1,628 $ 2,124 $ (496)Operating ExpensesCost of natural gas 430 1,015 (585)
Operation, maintenance and other 344 368 (24)
Depreciation and amortization 237 222 15
Property and other taxes 59 57 2
Impairment of assets and other charges (4) 18 (22)
Total operating expenses 1,066 1,680 (614)
Gains on Sales of Other Assets and Other, net — 4 (4)
Operating Income 562 448 114
Other Income and Expenses, net 66 54 12
Interest Expense 165 140 25
Income Before Income Taxes 463 362 101
Income Tax Expense 84 39 45
Net Income $ 379 $ 323 $ 56
57MD&A PIEDMONT
The following table shows the percent changes in Dth delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized.Increase (Decrease) over prior year 2023
Residential deliveries (14.3) %
Commercial deliveries (9.4) %
Industrial deliveries (2.4) %
Power generation deliveries (10.0) %
For resale (14.9) %
Total throughput deliveries (9.3) %
Secondary market volumes (26.6) %
Average number of customers 1.5 %
The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The weather normalization adjustment mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.
Year Ended December 31, 2023, as compared to 2022Operating Revenues. The variance was driven primarily by:• a $585 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs.Partially offset by:• a $26 million increase due to customer growth;
• a $19 million increase due to North Carolina IMR;
• an $11 million increase due to Tennessee ARM revenue recognition; and
• a $9 million increase due to secondary marketing sales.Operating Expenses. The variance was driven primarily by:• a $585 million decrease in the cost of natural gas due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs;
• a $24 million decrease in operations, maintenance and other primarily due to lower labor costs, gas pipeline and integrity work and a decrease in bad debt reserves; and
• a $22 million decrease in impairment of assets and other charges due to the optimization of the Company's real estate portfolio in the prior year.Partially offset by:• a $15 million increase in depreciation and amortization due to additional plant in service.
Other Income and Expenses, net. The increase was primarily due to higher AFUDC equity income.Interest Expense. The increase was primarily due to higher outstanding debt balances and interest rates.Income Tax Expense . The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT.CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations.
Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
For further information, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."58
MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATESRegulated Operations Accounting
Substantially all of Duke Energy’s regulated operations meet the criteria for application of regulated operations accounting treatment. As a result, Duke Energy is required to record assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities are recorded when it is probable that a regulator will require Duke Energy to make refunds to customers or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred.
Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as:
• applicable regulatory environment changes;
• historical regulatory treatment for similar costs in Duke Energy’s jurisdictions;• litigation of rate orders;
• recent rate orders to other regulated entities;
• levels of actual return on equity compared to approved rates of return on equity; and
• the status of any pending or potential deregulation legislation.
If future recovery of costs ceases to be probable, asset write-offs would be recognized in operating income. Additionally, regulatory agencies can provide flexibility in the manner and timing of the depreciation of property, plant and equipment, recognition of asset retirement costs and amortization of regulatory assets, or may disallow recovery of all or a portion of certain assets.
As required by regulated operations accounting rules, significant judgment can be required to determine if an otherwise recognizable incurred cost qualifies to be deferred for future recovery as a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity-specific costs that are no longer expected to be incurred or have not yet been incurred and are therefore a regulatory liability.
For further information, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."
Goodwill Impairment AssessmentsDuke Energy performed its annual goodwill impairment tests for all reporting units as of August 31, 2023. Additionally, Duke Energy monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include an adverse regulatory outcome, declining financial performance and deterioration of industry or market conditions. As of August 31, 2023, all of the reporting units' estimated fair value of equity exceeded the carrying value of equity. The fair values of the reporting units were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries.
Estimated future cash flows under the income approach are based on Duke Energy’s internal business plan. Significant assumptions used are growth rates, future rates of return expected to result from ongoing rate regulation and discount rates. Management determines the appropriate discount rate for each of its reporting units based on the Weighted Average Cost of Capital (WACC) for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2023 impairment tests, Duke Energy considered implied WACCs for certain peer companies in determining the appropriate WACC rates to use in its analysis. As each reporting unit has a different risk profile based on the nature of its operations, including factors such as regulation, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company-specific risk premiums. The discount rates used for calculating the fair values as of August 31, 2023, for each of Duke Energy’s reporting units ranged from 6.3% to 6.6%. The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges.
One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of August 31. The implied market multiples used for calculating the fair values as of August 31, 2023, for each of Duke Energy's reporting units ranged from 9.3 to 11.2.Duke Energy primarily operates in environments that are rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, significant changes in discount rates or implied market multiples over a prolonged period may have a material impact on the fair value of equity.Duke Energy has $19.3 billion in Goodwill at both December 31, 2023, and 2022. For further information, see Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets."Asset Retirement ObligationsAROs are recognized for legal obligations associated with the retirement of property, plant and equipment at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made. Duke Energy has $9.2 billion and $12.7 billion of AROs as of December 31, 2023, and 2022, respectively. See Note 10, "Asset Retirement Obligations," for further details including a rollforward of related liabilities.
59
MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding the amount and timing of future cash flows, regulatory, legal, and legislative decisions, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change.
Obligations for nuclear decommissioning are based on site-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. During 2020, Duke Energy Florida, closed an agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station after receiving approval from the NRC and FPSC. The retirement obligations for the decommissioning of Crystal River Unit 3 nuclear power station are measured based on accelerated decommissioning from 2020 continuing through 2027. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferred to a yet-to-be-built DOE facility.Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans.For further information, see Notes 4, 5 and 10 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."
Discontinued OperationsDuke Energy calculated an estimated impairment on the disposition of its Commercial Renewables Disposal Groups as of December 31, 2022. The impairment was recorded to write-down the carrying amount to fair value, less cost to sell. The fair value was primarily determined from the income approach using discounted cash flows, but also considered market information obtained through the bidding process. Estimated future cash flows under the income approach were based on Duke Energy's forecast, which was informed by existing power purchase agreements with offtakers and forward merchant curves. Significant assumptions used in the income approach include forward merchant curves and discount rates. The discount rates take into account both the after-tax cost of debt and cost of equity. Duke Energy continued to monitor the sales of the Commercial Renewables Disposal Groups throughout 2023 and recorded adjustments to the impairments as warranted by progression in the disposition process and changes in market information.
The actual loss for each of the Commercial Renewables Disposal Groups is being recorded based on final sales agreements and could differ from the estimated losses recorded as of December 31, 2023.
For further information, See Note 2 to the Consolidated Financial Statements, "Dispositions."LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of CashDuke Energy relies primarily upon cash flows from operations, debt and equity issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. Additionally, due to its existing tax attributes and projected tax credits to be generated relating to the IRA, Duke Energy does not expect to be a significant federal cash taxpa yer until around 2030. See Note 24 to the Consolidated Financial Statements, "Income Taxes," for more information.Capital Expenditures
Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business secto rs. Duke Energy’s projected capital and investment expenditures, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.(in millions) 2024 2025 2026Electric Generation (a)$ 3,200 $ 4,100 $ 5,225
Electric Transmission 2,325 2,550 2,625
Electric Distribution 4,625 5,150 4,825
Environmental and Other 725 875 700
Total EU&I 10,875 12,675 13,375GU&I1,150 1,150 1,125
Other 325 375 275
Total projected capital and investment expenditures $ 12,350 $ 14,200 $ 14,775
(a) Includes nuclear fuel of approximat ely $2.1 billion in 2024-2026.
Debt
Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Duke Energy Registrants. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for information regarding the Duke Energy Registrants' long-term debt at December 31, 2023, the weighted average interest rate applicable to each long-term debt category and a schedule of long-term debt maturities over the next five years. See Note 2 to the Consolidated Financial Statements, "Dispositions," for the timing and use of proceeds from the sale of certain Commercial Renewables assets to affiliates of Brookfield and ArcLight.
60MD&A LIQUIDITY AND CAPITAL RESOURCESFuel and Purchased PowerFuel and purchased power includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as NPNS. Duke Energy’s contractual cash obligations for fuel and purchased power as of December 31, 2023, are as follows:Payments Due by Period(in millions) Total Less than 1 year (2024)
2-3 years (2025 & 2026)
4-5 years (2027 & 2028)
More than 5 years (2029 & beyond)
Fuel and purchased power $ 19,726 $ 4,831 $ 6,116 $ 2,991 $ 5,788Other Purchase ObligationsOther purchase obligations includes contracts for software, telephone, data and consulting or advisory services, contractual obligations for Engineering, Procurement, and Construction agreement costs for new generation plants, solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand for which the timing of the purchase cannot be determined. Total cash commitments for related other purchase obligation expenditures are $12,286 million, with $11,744 million expected to be paid in the next 12 m onths.See Note 6 to the Consolidated Financial Statements, “Leases” for a schedule of both finance lease and operating lease payments over the next five years. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations” for information on nuclear decommissioning trust funding obligations and the closure of ash impoundments.
Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased nonperformance risk by third parties for which Duke Energy has issued guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position. Other than the guarantee arrangements discussed in Note 8 and off-balance sheet debt related to non-consolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 18 to the Consolidated Financial Statements, "Variable Interest Entities."
Cash and Liquidity
The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional information on the money pool arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its businesses.As of December 31, 2023, Duke Energy had approximately $253 million of cash on hand, $4.9 billion available under its $9 billion Master Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 7 and 20 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.Credit Facilities and Registration Statements
See Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding credit facilities and shelf registration statements available to Duke Energy and the Duke Energy Registrants.Dividend Payments
In 2023, Duke Energy paid quarterly cash dividends for the 97th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors.
Duke Energy targets a dividend payout ratio of between 60% and 70%, based upon adjusted EPS. Duke Energy increased the dividend by approximately 2% annually in both 2023 and 2022, and the Company remains committed to continued growth of the dividend.
61MD&A LIQUIDITY AND CAPITAL RESOURCESDividend and Other Funding Restrictions of Duke Energy SubsidiariesAs discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” Duke Energy’s public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy through dividends, advances or loans as a result of conditions imposed by various regulators in conjunction with merger transactions. Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation, which in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Additionally, certain other Duke Energy subsidiaries have other restrictions, such as minimum working ca pital and tangible net worth requirements pursuant to debt and other agreements that limit the amount of funds that can be transferred to Duke Energy. At December 31, 2023, the amount of restricted net assets of subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend does not exceed a material amount of Duke Energy’s net assets . Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy’s ability to access cash to meet its payment of dividends on common stock and other future funding obligations.Cash Flows From Operating Activities
Cash flows from operations of EU&I and GU&I are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations.
As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy has a voluntary supply chain finance program (the “program”) under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.
Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information).
Debt and Equity Issuances
Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs. Duke Energy Corporation primarily issues unsecured debt.In 2024, Duke Energy anticipates issuing additional securities of $6.9 billion through debt capital markets. In certain in stances, Duke Energy may utilize instruments other than senior notes, including equity-content securities such as subordinated debt or preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances. In addition, in order to fund incremental growth capital, Duke Energy plans to issue $500 million of common stock equity per year through 2028 through the dividend reinvestment and ATM programs.Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.Projected 2024Actual 2023Actual 2022
Equity 38 % 39 % 41 %
Debt 62 % 61 % 59 %
Restrictive Debt Covenants
Duke Energy’s debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto . The Duke Energy Registrants were in compliance with all other covenants related to their debt agreements as of December 31, 2023. I n addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.
62MD&A LIQUIDITY AND CAPITAL RESOURCESCredit RatingsMoody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2024.Moody's S&P
Duke Energy Corporation Stable Stable
Issuer Credit Rating Baa2 BBB+
Senior Unsecured Debt Baa2 BBBJunior Subordinated Debt/Preferred Stock Baa3 BBB-Commercial Paper P-2 A-2
Duke Energy Carolinas Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+
Progress Energy Stable Stable
Senior Unsecured Debt Baa1 BBB
Duke Energy Progress Stable Stable
Senior Secured Debt Aa3 A
Duke Energy Florida Stable Stable
Senior Secured Debt A1 A
Senior Unsecured Debt A3 BBB+
Duke Energy Ohio Stable Stable
Senior Secured Debt A2 A
Senior Unsecured Debt Baa1 BBB+
Duke Energy Indiana Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+Duke Energy Kentucky NegativeStable
Senior Unsecured Debt Baa1 BBB+
Piedmont Natural Gas Stable Stable
Senior Unsecured A3 BBB+
Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2023 2022Cash flows provided by (used in):Operating activities $ 9,878 $ 5,927
Investing activities (12,475) (11,973)
Financing activities 2,351 6,129
Net (decrease) increase in cash, cash equivalents and restricted cash
(246) 83
Cash, cash equivalents and restricted cash at beginning of period 603 520
Cash, cash equivalents and restricted cash at end of period $ 357 $ 603
63MD&A LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2023 2022 Variance
Net income $ 2,874 $ 2,455 $ 419
Non-cash adjustments to net income 7,486 7,362 124
Contributions to qualified pension plans (100) (58) (42)
Payments for AROs (632) (584) (48)
Working capital (1,248) (2,081) 833
Other assets and Other liabilities 1,498 (1,167) 2,665
Net cash provided by operating activities $ 9,878 $ 5,927 $ 3,951The variance was driven primarily by:• a $2,665 million increase in cash inflows from Other assets and Other liabilities and an $833 million decrease in cash outflows from Working capital, both of which are primarily due to the recovery of deferred fuel costs and the timing of accruals and payments in other working capital accounts; and
• a $543 million increase in net income, after adjustment for non-cash items, primarily due to growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense; partially offset by higher interest expense, unfavorable weather and lower volumes.INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2023 2022 Variance
Capital, investment and acquisition expenditures, net of return of investment capital $ (12,622) $ (11,419) $ (1,203)
Debt and equity securities, net 63 90 (27)Proceeds from the sales of Commercial Renewables Disposal Groups and other assets, net of cash divested883 83 800
Other investing items (799) (727) (72)
Net cash used in investing activities $ (12,475) $ (11,973) $ (502)
The variance relates primarily to an increase in capital expenditures due to higher investments in EU&I, partially offset by the net proceeds received from the sales of Commercial Renewable Disposal Groups and other assets. The primary use of cash related to investing activities is typically capital, investment and acquisition expenditures, net of return of investment capital, detailed by reportable business segment in the following table.Years Ended December 31,(in millions) 2023 2022 Variance
Electric Utilities and Infrastructure $ 10,135 $ 8,985 $ 1,150
Gas Utilities and Infrastructure 1,492 1,295 197
Other 995 1,139 (144)
Total capital, investment and acquisition expenditures, net of return of investment capital $ 12,622 $ 11,419 $ 1,203FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2023 2022 Variance
Issuances of long-term debt, net $ 5,291 $ 7,478 $ (2,187)
Notes payable and commercial paper 142 574 (432)
Dividends paid (3,244) (3,179) (65)
Contributions from noncontrolling interests 278 1,377 (1,099)
Other financing items (116) (121) 5
Net cash provided by financing activities $ 2,351 $ 6,129 $ (3,778)
64MD&A LIQUIDITY AND CAPITAL RESOURCES
The variance was driven primarily by:• a $2,187 million decrease in proceeds from net issuances of long-term debt, primarily due to timing of issuances and redemptions of long-term debt;
• a $1,099 million decrease in contributions from noncontrolling interests, primarily due to a $1.03 billion receipt from an affiliate of GIC in 2022 related to an additional indirect minority interest investment in Duke Energy Indiana; and
• a $432 million decrease in net borrowings of notes payable and commercial paper.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management Policies
The Enterprise Risk Management policy framework at Duke Energy includes strategic, operational, project execution and financial or transaction related risks. Enterprise Risk Management includes market risk as part of the financial and transaction related risks in its framework.
Duke Energy is exposed to market risks associated with commodity prices, interest rates and equity prices. Duke Energy has established comprehensive risk management policies to monitor and manage these market risks. Duke Energy’s Chief Executive Officer and Chief Financial Officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The Finance and Risk Management Committee of the Board of Directors receives periodic updates from the Chief Risk Officer and other members of management on market risk positions, corporate exposures and overall risk management activities. The Chief Risk Officer is responsible for the overall governance of managing commodity price risk, including monitoring exposure limits.
The following disclosures about market risk contain forward-looking statements that involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. See Item 1A, “Risk Factors,” and “Cautionary Statement Regarding Forward-Looking Information” for a discussion of the factors that may impact any such forward-looking statements made herein.
Commodity Price Risk
Price risk represents the potential risk of loss from adverse changes in the market price of electricity or other energy commodities. Duke Energy’s exposure to commodity price risk is influenced by a number of factors, including the effects of regulation, commodity contract size and length, market liquidity, market conditions, location and unique or specific contract terms. Duke Energy is exposed to the impact of market fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of energy-related assets.
Duke Energy’s exposure to these fluctuations through its regulated utility operations is limited since these operations are subject to cost-based regulation and are typically allowed to recover substantially all of these costs through various cost recovery clauses, including fuel clauses, formula-based contracts, or other cost-sharing mechanisms. While there may be a delay in timing between when these costs are incurred and when they are recovered through rates, changes from year to year generally do not have a material impact on operating results of these regulated operations.
Duke Energy employs established policies and procedures to manage risks associated with these market fluctuations, which may include using various commodity derivatives, such as swaps, futures, forwards and options. For additional information, see Note 15 to the Consolidated Financial Statements, “Derivatives and Hedging.”
Generation Portfolio Risks
For the EU&I segment, the generation portfolio not utilized to serve retail operations or committed load is subject to commodity price fluctuations. However, the impact on the Consolidated Statements of Operations is limited due to mechanisms in these regulated jurisdictions that result in the sharing of most of the net profits from these activities with retail customers.
Hedging Strategies
Duke Energy monitors risks associated with commodity price changes on its future operations and, where appropriate, uses various commodity instruments such as electricity, coal and natural gas hedging contracts and options to mitigate the effect of such fluctuations on operations. Duke Energy’s primary use of energy commodity derivatives is to hedge against exposure to the prices of power, fuel for generation and natural gas for customers.
Duke Energy also manages its exposure to basis risk through the use of congestion hedge products in RTOs such as financial transmission rights (PJM and MISO), which result in payments based on differentials in locational marginal prices. The majority of instruments used to manage Duke Energy’s commodity price exposure are either not designated as hedges or do not qualify for hedge accounting. These instruments are referred to as undesignated contracts. Mark-to-market changes for undesignated contracts entered into by regulated businesses are reflected as regulatory assets or liabilities on the Consolidated Balance Sheets.
Duke Energy may also enter into other contracts that qualify for the NPNS exception. When a contract meets the criteria to qualify as NPNS, Duke Energy applies such exception. Income recognition and realization related to NPNS contracts generally coincide with the physical delivery of the commodity. For contracts qualifying for the NPNS exception, no recognition of the contract’s fair value in the Consolidated Financial Statements is required until settlement of the contract as long as the transaction remains probable of occurring.65MD&A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Duke Energy is exposed to risk resulting from changes in interest rates as a result of its issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Duke Energy manages interest rate exposure by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. Duke Energy also enters into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps, swaptions and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. See Notes 1, 7, 15 and 17 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”Duke Energ y had $8.0 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2023. The impact of a 100-basis point change in interest rates on pretax income is approximately $80 million at December 31, 2023. This amount was estimated by considering the impact of the hypothetical interest rates on variable-rate securities outstanding, adjusted for interest rate hedges as of December 31, 2023.Foreign Currency Exchange Risk
Duke Energy is exposed to risk resulting from changes in the foreign currency exchange rates as a result of its issuances of long-term debt denominated in a foreign currency. Duke Energy manages foreign currency exchange risk exposure by entering into cross-currency swaps, a type of financial derivative instrument, which mitigate foreign currency exchange exposure. See Notes 7, 15 and 17 to the Consolidated Financial Statements, “Debt and Credit Facilities,” “Derivatives and Hedging” and “Fair Value Measurements," respectively.
Credit Risk
Credit risk represents the loss that the Duke Energy Registrants would incur if a counterparty fails to perform under its contractual obligations. Where exposed to credit risk, the Duke Energy Registrants analyze the counterparty's financial condition prior to entering into an agreement and monitor exposure on an ongoing basis. The Duke Energy Registrants establish credit limits where appropriate in the context of contractual arrangements and monitor such limits.
To reduce credit exposure, the Duke Energy Registrants seek to include netting provisions with counterparties, which permit the offset of receivables and payables with such counterparties. The Duke Energy Registrants also frequently use master agreements with credit support annexes to further mitigate certain credit exposures. The master agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents a negotiated unsecured credit limit for each party to the agreement, determined in accordance with the Duke Energy Registrants’ internal corporate credit practices and standards. Collateral agreements generally also provide that the failure to post collateral when required is sufficient cause to terminate transactions and liquidate all positions.
The Duke Energy Registrants also obtain cash, letters of credit, or surety bonds from certain counterparties to provide credit support outside of collateral agreements, where appropriate, based on a financial analysis of the counterparty and the regulatory or contractual terms and conditions applicable to each transaction. See Note 15 to the Consolidated Financial Statements, “Derivatives and Hedging,” for additional information regarding credit risk related to derivative instruments.
The Duke Energy Registrants’ principal counterparties for its electric and natural gas businesses are RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the event of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities that may affect the Duke Energy Registrants’ credit risk.
The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments in conjunction with outsourcing arrangements, major construction projects and certain commodity purchases. The Duke Energy Registrants’ credit exposure to such suppliers may take the form of increased costs or project delays in the event of nonperformance. The Duke Energy Registrants' frequently require guarantees or letters of credit from suppliers to mitigate this credit risk.
Credit risk associated with the Duke Energy Registrants’ service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring tariff customers to provide a cash deposit, letter of credit or surety bond until a satisfactory payment history is established, subject to the rules and regulations in effect in each retail jurisdiction at which time the deposit is typically refunded. Charge-offs for retail customers have historically been insignificant to the operations of the Duke Energy Registrants and are typically recovered through retail rates. Management continually monitors customer charge-offs, payment patterns and the impact of current economic conditions on customers' ability to pay their outstanding balance to ensure the adequacy of bad debt reserves.In response to the COVID-19 pandemic that began in March 2020, the Duke Energy Registrants announced a suspension of disconnections for nonpayment to assist customers during the national emergency. While disconnections have resumed, the Company continued to offer flexible options to customers struggling with the pandemic and the economic fallout, including extended payment arrangements to satisfy delinquent balances through June 2021. Since then, the Company has resumed standard payment arrangement options. As a result, the Duke Energy Registrants experienced higher charge-offs during 2023, but lower utility account balances in arrears as of December 31, 2023. There is an expectation for the higher levels of charge-offs to continue. The Duke Energy Registrants have reserved for these estimated losses in the allowance for doubtful account balance. See Notes 4 and 19 to the Consolidated Financial Statements, "Regulatory Matters" and "Revenue," respectively, for more information. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through CRC, a Duke Energy consolidated VIE. Losses on collection are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio, Duke Energy Kentucky and Duke Energy Indiana. See Note 18 to the Consolidated Financial Statements, “Variable Interest Entities.”The Duke Energy Registrants provide certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs, including invested capital, are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer creditworthiness is assessed prior to entering into these transactions. Credit concentration related to these transactions exists for certain of these customers.66
MD&A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDuke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. See Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies" for information on asbestos-related injuries and damages claims.
The Duke Energy Registrants also have credit risk exposure through issuance of performance and financial guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the Duke Energy Registrants have issued these guarantees, it is possible that they could be required to perform under these guarantee obligations in the event the obligor under the guarantee fails to perform. Where the Duke Energy Registrants have issued guarantees related to assets or operations that have been disposed of via sale, they attempt to secure indemnification from the buyer against all future performance obligations under the guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants.Duke Energy is subject to credit risk from transactions with counterparties to cross-currency swaps related to future interest and principal payments. The credit exposure to such counterparties may take the form of higher costs to meet Duke Energy's future euro-denominated interest and principal payments in the event of counterparty default. Duke Energy selects highly rated banks as counterparties and allocates the hedge for each debt issuance across multiple counterparties. The master agreements with the counterparties impose collateral requirements on the parties in certain circumstances indicative of material deterioration in a party's creditworthiness.
Based on the Duke Energy Registrants’ policies for managing credit risk, their exposures and their credit and other reserves, the Duke Energy Registrants do not currently anticipate a materially adverse effect on their consolidated financial position or results of operations as a result of nonperformance by any counterparty.
Marketable Securities Price Risk
As described further in Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” Duke Energy invests in debt and equity securities as part of various investment portfolios to fund certain obligations. The vast majority of investments in equity securities are within the NDTF and assets of the various pension and other post-retirement benefit plans.
Pension Plan Assets
Duke Energy maintains investments to facilitate funding the costs of providing non-contributory defined benefit retirement and other post-retirement benefit plans. These investments are exposed to price fluctuations in equity markets and changes in interest rates. The equity securities held in these pension plans are diversified to achieve broad market participation and reduce the impact of any single investment, sector or geographic region. Duke Energy has established asset allocation targets for its pension plan holdings, which take into consideration the investment objectives and the risk profile with respect to the trust in which the assets are held. See Note 23 to the Consolidated Financial Statements, “Employee Benefit Plans,” for additional information regarding investment strategy of pension plan assets.
A significant decline in the value of plan asset holdings could require Duke Energy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. Additionally, a decline in the fair value of plan assets, absent additional cash contributions to the plan, could increase the amount of pension cost required to be recorded in future periods, which could adversely affect Duke Energy’s results of operations in those periods.
Nuclear Decommissioning Trust FundsAs required by the NRC, NCUC, PSCSC and FPSC, subsidiaries of Duke Energy maintain trust funds to fund the costs of nuclear decommissioning. As of December 31, 2023, these funds were invested primarily in domestic and international equity securities, debt securities, cash and cash equivalents and short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC and FPSC requirements, these funds may be used only for activities related to nuclear decommissioning. These investments are exposed to price fluctuations in equity markets and changes in interest rates. Duke Energy actively monitors its portfolios by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes.Accounting for nuclear decommissioning recognizes that costs are recovered through retail and wholesale rates; therefore, fluctuations in investment prices do not materially affect the Consolidated Statements of Operations, as changes in the fair value of these investments are primarily deferred as regulatory assets or regulatory liabilities pursuant to Orders by the NCUC, PSCSC, FPSC and FERC. Earnings or losses of the funds will ultimately impact the amount of costs recovered through retail and wholesale rates. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information regarding nuclear decommissioning costs. See Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” for additional information regarding NDTF assets.
OTHER MATTERS
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.67MD&A OTHER MATTERSGreenhouse Gas Standards and Guidelines
On May 23, 2023, the EPA published in the Federal Register proposed new source performance standards under Clean Air Act (CAA) section 111(b) that would establish standards of performance for emissions of greenhouse gases (expressed as carbon dioxide (CO 2 )) for newly constructed, modified, and reconstructed fossil fuel-fired electric utility steam generating units and fossil fuel-fired stationary combustion turbines. On that same day, in a separate rulemaking under CAA section 111(d), the EPA published proposed emission guidelines for states to use in developing plans to limit CO 2 emissions from existing fossil fuel-fired electric generating units and certain large existing stationary combustion turbines. Duke Energy is reviewing the proposed rules and analyzing the potential impacts they could have on the Company, which could be material. A final rule is anticipated in the second quarter of 2024.Coal Combustion ResidualsIn April 2015, EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR.
On May 18, 2023, the EPA published in the Federal Register a proposed rule under the Resource Conservation and Recovery Act, which would establish regulatory requirements for inactive surface impoundments at inactive generating facilities (Legacy CCR Surface Impoundments) and establish groundwater monitoring, corrective action, closure and post-closure care requirements for all CCR management units at facilities otherwise subject to the CCR rule. Duke Energy is reviewing the proposed rule and analyzing the potential impacts it could have on the Company, which could be material. A final rule is anticipated in the second quarter of 2024.
In addition to the requirements of the federal CCR rule, CCR landfills and surface impoundments will continue to be regulated by the states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.Coal Ash ActAROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2023, and December 31, 2022, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, the EPA CCR rule and other agreements. The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments and prohibits cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions.
Consistent with the requirements of the Coal Ash Act, Duke Energy previously submitted comprehensive site assessments and groundwater corrective action plans to NCDEQ. On December 31, 2019, Duke Energy submitted updated groundwater corrective action plans for six sites in North Carolina and site-specific coal ash impoundment closure plans for all 14 North Carolina sites to NCDEQ. In addition, from 2020 through 2023, Duke Energy submitted updated comprehensive site assessments and groundwater corrective action plans for the remaining North Carolina sites.
On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, J.E. Rogers, Marshall, Mayo and Roxboro facilities in North Carolina. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate six of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Mayo, one at Roxboro, and two at Rogers. At the three remaining basins at Belews Creek, Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Belews Creek, Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will not be disturbed and will be closed pursuant to other state regulations.
The estimated total cost to permanently close all coal ash basins in North Carolina and South Carolina is estimated to be approximately $7 billion to $8 billion of which approximately $4 billion has been spent through 2023. The majority of the remaining spend is primarily expected to occur over the next 10 years. Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River, Asheville and Sutton plants.For further information on coal ash basins and recovery, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.North Carolina House Bill 951
On October 13, 2021, HB 951 was signed into law, establishing a framework overseen by the NCUC to advance state CO 2 emission reductions from electric generating facilities in the state through the use of least cost planning while providing for continued reliability and affordable rates for customers served by such generation. It also authorized the use of PBR in North Carolina. Among other things, HB 951 required the NCUC to:
• develop a carbon plan that would target a 70% interim reduction in CO 2 emissions from public utilities' electric generation in the state on the least cost path to carbon neutrality by 2050, considering all resource options and the latest technology;
• adopt rules to implement the requirements of the Legislation authorizing PBR that includes MYRP with a maximum three-year term, performance incentive mechanisms to track utility performance, and revenue decoupling for the residential customer class;
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MD&A OTHER MATTERS
• establish rules to securitize costs associated with the early retirement of subcritical coal-fired electric generating facilities necessary to achieve the authorized carbon reduction goals at 50% of remaining net book value, with the remaining net book value recovered through normal cost-of-service basis; and
• initiate a process for updating rates and terms of certain existing solar PPAs executed under PURPA.
In October 2022 and January 2023, Duke Energy Progress and Duke Energy Carolinas, respectively, filed applications with the NCUC, which proposed implementation of HB 951’s provisions around PBR, including MYRP, residential decoupling and performance incentive mechanisms. Additionally, on December 30, 2022, the NCUC issued an order adopting the first Carbon Plan as directed by the Legislation with the Carbon Plan to be updated every two years thereafter. Wi th this order, the NCUC recognized the value of an “all of the above” approach to achieving CO 2 emission reductions and established a set of near-term procurement and development activities needed to continue progress towards the targeted CO 2 reductions, along with the schedule for the future biennial updates to the Carbon Plan. The NCUC approved a near-term action plan including stakeholder engagement activities for onshore wind generation and certain procurement and development activities to strengthen the grid, improve resilience for customers and interconnect new generation and storage (in all cases, subject to any further applicable regulatory processes). The NCUC also approved early development activities for long lead-time resources, affirmed the ownership structure required in HB 951, and provided an orderly transition out of coal generation by 2035.
I n August 2023 and December 2023, the NCUC issued orders approving Duke Energy Progress' and Duke Energy Carolinas' PBR Applications, respectively, as modified by the partial settlements and the orders. See Note 4, "Regulatory Matters" to the Consolidated Financial Statements for more information.Other Environmental Regulations
The Duke Energy Registrants are also subject to various federal, state and local laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters. Duke Energy continues to comply with enacted environmental statutes and regulations even as certain of these regulations are in various stages of clarification, revision or legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.
Global Climate Change and Regulation of GHG EmissionsIn 2021, President Biden recommitted the United States to the Paris Agreement and announced a new target for the United States of 50% to 52% reduction in economywide net GHG emissions from 2005 levels by 2030. The U.S. submittal to support this Paris target includes a goal for 100% carbon-free electricity by 2035. These actions have been supplemented by a number of executive orders by President Biden and a number of proposed and final rules from federal regulatory agencies, including the EPA, that would impose additional regulations on CO 2 and methane emissions to which Duke Energy will be subject. The Duke Energy Registrants are monitoring these matters and cannot predict the outcome, however, there could be a material impact on our clean energy transition.EU&I CO 2 Emissions ReductionsThe Duke Energy Registrants’ direct GHG emissions consist primarily of CO 2 that results primarily from operating a fleet of coal-fired and natural gas-fired power plants to serve its customers reliably and affordably. In 2019, Duke Energy announced an updated climate strategy with new goals of at least a 50% reduction in carbon emissions from 2005 levels from electric generation by 2030 and net-zero carbon emissions from electric generation by 2050. In February 2022, we added Scope 2 and certain Scope 3 emissions, including emissions from upstream purchased power and fossil fuel purchases, as well as downstream customer use of natural gas, to our 2050 net-zero goal. In October 2022, we announced an additional interim target to reduce carbon emissions from electric generation by 80% from 2005 levels by 2040. Duke Energy also adopted an interim goal of reducing Scope 2 and Scope 3 emissions mentioned above by 50% below 2021 levels by 2035.
The Duke Energy Registrants have taken actions that have resulted in a reduction of CO 2 emissions over time . Between 2005 and 2023, the Duke Energy Registrants have collectively lowered the CO 2 emissions from their electricity generation by 48%. T imelines and initiatives, as well as implementation of new technologies, for future reductions of GHG emissions will vary in each state in which the Company operates and will involve collaboration with regulators, customers and other stakeholders. The goals announced in 2019, and updated in 2022, as well as the actions taken to reduce CO 2 emissions, potentially lower the exposure to any future mandatory CO 2 emission reduction requirements, whether as a result of federal legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirement.
Actions to reduce CO 2 emissions have included the retirement of 56 coal-fired electric generating units with a combined generating capacity of 7,500 MW, while investing in renewables and state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO 2 emissions per unit of electricity generated than coal. Duke Energy also has made investments to increase EE offerings and ensure continued operations of its zero-CO 2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO 2 emissions.
Duke Energy will continue to explore the use of currently available and commercially demonstrated technology to reduce CO 2 emissions, including EE, wind, solar and storage, as well as evolving technologies like carbon capture, utilization and storage, the use of hydrogen and other low-carbon fuels, long-duration energy storage and advanced nuclear, in its efforts to achieve its net-zero goal as well as to comply with any future regulations. Duke Energy plans to adjust to and incorporate evolving and innovative technologies in a way that balances the reliability and affordability of energy while meeting regulatory requirements and customer demands. Under any future scenario involving mandatory CO 2 limitations, the Duke Energy Registrants would plan to seek recovery of their compliance costs through appropriate regulatory mechanisms. Future levels of GHG emissions by the Duke Energy Registrants will be influenced by variables that include customer growth and capacity needs in the jurisdictions in which they operate, public policy, tax incentives, economic conditions that affect electricity demand, fuel prices, market prices, availability of resources and labor, compliance with new or existing regulations, the ability to make enhancements to transmission and distribution systems to support increased renewables, and the existence of new technologies that can be deployed to generate the electricity necessary to meet customer demand.Currently, the Duke Energy Registrants do not purchase carbon credits or offsets for use in connection with the Company's net-zero CO 2 emissions goals. Though they may purchase carbon credits or offsets for such uses in the future, the amount or cost of which is not expected to be material at this time.69MD&A OTHER MATTERSGeneration Mix Planning Process
The Duke Energy Registrants annually, biennially or triennially prepare lengthy, forward-looking IRPs. These detailed, highly technical plans are based on the Company’s thorough analysis of numerous factors that can impact the cost of producing and delivering electricity that influence long-term generation resource planning decisions. The IRP process helps to evaluate a range of options, taking into account stakeholder input as well as forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, EE and demand response initiatives. The IRP process also helps evaluate potential environmental and regulatory scenarios to better mitigate policy and economic risks. The IRPs we file with regulators look out 10 to 20 years depending on the jurisdiction.
For a number of years, the Duke Energy Registrants have included a price on CO 2 emissions in their IRP planning process to account for the potential regulation of CO 2 emissions. Incorporating a price on CO 2 emissions in the IRPs allows for the evaluation of existing and future resource needs against potential climate change policy risk in the absence of policy certainty. One of the challenges with using a CO 2 price, especially in the absence of a clear and certain policy, is determining the appropriate price to use. To address this uncertainty and ensure the Company remains agile, the Duke Energy Registrants typically use a range of potential CO 2 prices to reflect a range of potential policy outcomes.
In September 2020, Duke Energy Carolinas and Duke Energy Progress filed their IRPs in North Carolina and South Carolina, and, in December 2021, Duke Energy Indiana filed its IRP, outlining an accelerated energy transition, which aligns with the Company's 2030 CO 2 emissions goal. In December 2021, the PSCSC rejected Duke Energy Carolinas and Duke Energy Progress’ preferred accelerated coal retirements IRP scenario and instead found that the base case without a price on CO 2 emissions was the most reasonable IRP scenario.
In 2021, the state of North Carolina passed HB 951, which among other things, directed the NCUC to develop and approve a carbon reduction plan by the end of 2022 that would target a 70% reduction in CO 2 emissions from Duke Energy Progress' and Duke Energy Carolinas' electric generation in the state by 2030 and carbon neutrality by 2050, considering all resource options and the latest technology. In light of this legislation, in November 2021, the NCUC declined to make a determination on the portfolios presented in the 2020 IRP noting that the legislation may impact the schedule for coal plant retirements and new resources and limited its order to short-term actions for use on an interim basis pending preparation of the carbon plan. The NCUC approved its initial carbon reduction plan in December 2022, which considered feedback from extensive stakeholder engagement and was informed by Duke Energy's initial proposed carbon plan, filed with the NCUC on May 16, 2022, and built on the IRPs that were filed in 2020 by Duke Energy Carolinas and Duke Energy Progress.
In August 2023, Duke Energy Carolinas and Duke Energy Progress filed their 2023 systemwide Carolinas Resource Plan (the Plan) with the NCUC and PSCS C. T he Plan provided a range of generation options, including three core portfolios, reflecting an “all of the above” approach to powering the energy needs of our growing region. In the Plan, Duke Energy Carolinas and Duke Energy Progress recommended Portfolio 3 as the most prudent path forward to comply with applicable state laws, providing a reliable and orderly energy transition that was proposed as the most reasonable and lowest-cost plan for the Carolinas. Portfolio 3 proposes a diverse and reliable set of generation and energy storage solutions and shrinks the challenges of growth and the transition from coal by expanding industry-leading EE and demand response options, laying out a path to reliably exit coal by 2035. Portfolio 3 also makes the most of existing system resources by extending the lives of Duke Energy’s nuclear plants and extending the license and doubling the peak hourly capacity of the Bad Creek pumped-hydro storage facility. Near-term actions consistent with Portfolio 3 were also proposed that will be executed between now and 2026 to advance the orderly energy transition. In November 2023, Duke Energy Carolinas and Duke Energy Progress provided notice to the NCUC and PSCSC of a substantially increased load forecast resulting from increased economic development in the Carolinas occurring since the system-wide Plan was prepared. The companies filed supplemental modeling and analysis with the NCUC and PSCSC in January 2024, demonstrating the need for additional resources beyond the initial set of resources identified by the companies in their initial plan. The NCUC has scheduled an evidentiary hearing for July 2024, with an order expected by the end of 2024. The PSCSC will hold its hearing in September 2024 with a decision expected in late November 2024.GU&I CO 2 and Methane Emissions ReductionsIn addition to CO 2 emissions resulting primarily from our operations of coal-fired and natural gas-fired power plants, the Duke Energy Registrants are also responsible for certain methane emissions from the distribution of natural gas to customers. In October 2020, Duke Energy announced a new goal to achieve net-zero methane emissions from its natural gas distribution business by 2030. The Duke Energy Registrants have taken actions that have resulted in methane emission reductions, including the replacement of cast iron and bare steel pipelines and associated services with plastic or coated steel, advanced methane leak detection efforts, reducing time to repair nonhazardous leaks and operational releases of methane, and investment in renewable natural gas.
Timelines and initiatives, as well as implementation of new technologies, for future reductions of upstream methane emissions will vary in each state in which the Company’s natural gas distribution business operates and will involve collaboration with regulators, customers and other stakeholders. EPA has also proposed regulations that would require reduction of methane emissions upstream of the Duke Energy Registrants' natural gas distribution business. The impact of these regulations on natural gas fuel prices is not currently quantifiable.
In addition to possible EPA regulation of methane emissions, certain local governments, none within the jurisdictions in which the Duke Energy Registrants operate, have enacted or are considering initiatives to eliminate natural gas use in new buildings and focus on electrification. Enactment of similar regulations in the areas in which the Duke Energy Registrants' natural gas distribution operates could have a significant impact on the natural gas distribution business and its operations. At this time, such impacts are not able to be quantified; however, the net-zero methane goals announced in 2020 for the natural gas distribution business, as well as the actions taken to reduce these GHG emissions, potentially lowers the exposure to any future mandatory GHG emission reduction requirements. The Duke Energy Registrants would plan to seek recovery of their compliance costs with any new regulations through the regulatory process.
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MD&A OTHER MATTERSPhysical Impacts of Climate Change
The Duke Energy Registrants recognize that scientists associate severe weather events with increasing levels of GHGs in the atmosphere. It is possible that these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration and severity), the long period of time over which any potential changes might take place and the inability to predict potential changes with any degree of accuracy, make estimating with any certainty any potential future financial risk to the Duke Energy Registrants’ operations difficult. Additionally, the Duke Energy Registrants would plan to continue to seek recovery of storm costs through the appropriate regulatory mechanisms. For more information on storm securitization and storm cost recovery, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."The Duke Energy Registrants routinely take steps to reduce the potential impact of severe weather events on their electric transmission and distribution systems and natural gas facilities. The steps include modernizing the electric grid through smart meters, storm hardening, self-healing systems and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities and natural gas facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain inventories of coal, oil and liquified natural gas to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity and/or natural gas.New Accounting StandardsSee Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of new accounting standards.
FY 2024-12-31 (later)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis includes financial information prepared in accordance with GAAP in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted EPS discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.
The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation and its subsidiaries. Duke Energy Carolinas, LLC, Progress Energy, Inc., Duke Energy Progress, LLC, Duke Energy Florida, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC and Piedmont Natural Gas Company, Inc. However, none of the registrants make any representation as to information related solely to Duke Energy or the subsidiary registrants of Duke Energy other than itself.Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2024, 2023 and 2022.
See "Item 7. 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, 2023, filed with the SEC on February 23, 2024, for a discussion of variance drivers for the year ended December 31, 2023, as compared to December 31, 2022.DUKE ENERGY
Duke Energy, an energy company headquartered in Charlotte, North Carolina, operates in the U.S. primarily through its subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Executive OverviewThis is a dynamic and exciting time for our industry and our company in particular as we move further into the energy transition. While 2024 presented unprecedented challenges as it relates to a historic storm season, we are now in the early stages of the approval and planned construction of significant new generation investments and anticipate growing energy demands in the coming decades from continued migration into our attractive service territories, onshoring of domestic industries, electrification, and data centers and other investments from the expected artificial intelligence revolution. At Duke Energy, we remain focused on continuing to advance our energy transition, maintaining reliability and affordability for our customers while providing cleaner energy and delivering on our commitments to our communities, employees, investors, and other stakeholders. The fundamentals of our business remain strong, allowing us to deliver growth in earnings and dividends in a low-risk, predictable and transparent way.
In 2024, we responded to the most significant hurricane season in our company's history. While several historic, back-to-back hurricanes challenged our operations and required incremental financing costs, we met our near-term financial commitments and continued to make progress, generating positive regulatory and strategic outcomes, advancing key actions related to our energy transition and continuing to provide the safe and reliable service that our communities depend on. We continue to rebuild the most heavily damaged infrastructure impacted by storms in our service territories, engage with our customers and make critical investments to support our ongoing energy transition and a business portfolio that delivers a reliable and growing dividend, with 2024 representing the 98th consecutive year Duke Energy paid a cash dividend on its common stock.
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Financial Results
(a) See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted EPS as well as a reconciliation of this non-GAAP financial measure to net income available to Duke Energy and net income available to Duke Energy per basic share.Duke Energy's 2024 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) increased primarily due to higher impairments on the sale of the Commercial Renewables business in the prior year. Additional drivers primarily include growth from rate increases and riders, improved weather and higher sales volumes, partially offset by higher interest expense, depreciation on a growing asset base and storm costs, along with a higher effective tax rate. See “Results of Operations” below for a detailed discussion of the consolidated results of operations and a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other.
2024 Areas of Focus and Accomplishments
Hurricane Response and Operational Excellence . The reliable and safe operation of our power generating facilities, electric distribution system and natural gas infrastructure in our communities continues to be foundational to serving our customers, our financial results, and our credibility with stakeholders. Our workforce and contract partners work hard to prepare for storm season, through drills, material planning, call center readiness, contingency planning and customer communications. Additionally, operational excellence is especially critical to successfully navigate effective storm response and to efficiently provide the continuity of service our customers demand, regardless of weather or circumstance.
In 2024, with three consecutive major hurricanes Debby, Helene and Milton, this preparation was critical as we responded to several unprecedented and catastrophic weather events across our service territories. The historic nature of these storms required a new level of coordination and teamwork across every organization at our company. In August 2024, Hurricane Debby made landfall in Florida as a Category 1 storm, impacting the Duke Energy Florida territory as well as the Duke Energy Carolinas and Duke Energy Progress territories in North Carolina and South Carolina and causing approximately 700,000 customer outages. In late September 2024, Hurricane Helene made landfall in Florida as a Category 4 storm and subsequently impacted all of Duke Energy's service territories as the storm moved inland, with the most severe damage occurring in Florida and the Carolinas. Approximately 3.5 million customers were impacted by Hurricane Helene across Duke Energy's system, the largest number of companywide outages from a single event on our system ever reported. Then, in October 2024, Hurricane Milton made landfall in Florida as a Category 3 storm, causing severe damage across our Florida service territory as a result of high winds, rain and flooding and resulting in more than 1 million customer outages.
In such extreme circumstances, our immediate priority is, and always will be, executing the extensive storm preparation and response work to ensure the safe, timely, and efficient restoration of service to impacted customers as quickly as possible. Around-the-clock power restoration efforts continued following the historic damage inflicted by these storms with lineworkers, tree trimmers and removal experts, state department of transportation workers and countless others, working to repair and, in certain areas, completely rebuild, the critical electricity infrastructure that powers and supports the communities we serve. Our operations teams worked diligently, restoring power to approximately 5.5 million customers. We've also seen the benefits of ongoing grid hardening investments, leveraging self-healing technologies and remote restoration capabilities to automate the rerouting of power, more effectively deploy resources, and reduce the frequency or duration of outages for many of our customers during severe weather events.
Preparation, sound execution, and a comprehensive communication strategy helped us respond quickly and build stakeholder loyalty and support as we continue the important work of rebuilding our communities, including power infrastructure in the hardest-hit areas of our service territories. While these historic storms created incremental financing needs, we are working with our state commissions to appropriately track and recover storm costs under approved regulatory frameworks on a timely basis. We also remain focused on balancing the bill impacts on our customers, including seeking insurance recovery and the securitization of related costs in certain jurisdictions, as appropriate. For more information, see "Matters Impacting Future Results," "Liquidity and Capital Resources," and Notes 4 and 7 to the Consolidated Financial Statements, "Regulatory Matters" and "Debt and Credit Facilities."
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MD&A DUKE ENERGY
Despite the extreme weather and operational challenges with storm response, our generation fleet and nuclear sites delivered strong performance throughout the year and our electric distribution system performed well. In addition to unprecedented storm response, most of our service territories experienced above-average temperatures this summer, including the warmest July on record in Florida, new energy peaks in the Carolinas and weather alerts from PJM and MISO in the Midwest. In January 2025, due to 65 hours of freezing or below freezing temperatures, Duke Energy Carolinas and Duke Energy Progress achieved a new record combined peak usage. We prepared for the arrival of extreme weather and delivered on our customer commitments, identifying potential risks, effectively maintaining adequate short-term planning reserves, leveraging outage scheduling optimization, and controlling planned and emergent equipment issues. Effective operations and flexibility by our generation and transmission teams managed these tight margins in an efficient manner and ensured the integrity of the grid our customers rely upon. We will continue to practice our forecasting, grid assessment, oversight, and governance processes as extreme weather challenges operations from time to time, evaluate lessons learned and enhance our strategy and communications to effectively serve our customers now and in the future. Our ability to effectively handle all facets of the 2024 storm response efforts while making ongoing investments to enhance the reliability and physical security of the grid is a testament to our team’s extensive preparation and coordination, applying lessons learned from previous storms, and on-the-ground management throughout the restoration efforts. Duke Energy has received 20 Emergency Response Awards since EEI began recognizing storm response in 1998 (including 11 for assisting other utilities).
The safety and health of our workforce is a core value and we remain an industry leader in personal safety as measured by the Occupational Safety and Health Administration's (OSHA) Total Incident Case Rate (TICR). We closely tracked 2023's record-setting safety results with our 2024 TICR coming in below target and anticipate ranking first among North American combined gas and electric companies in an annual industry safety survey for the 10th consecutive year. We expect our gas operations organization to finish in the top 10% according to a gas industry survey for the fourth year in a row. Following on our historic success from 2023, we finished 2024 with less than 100 OSHA recordable injuries. In addition, we achieved significant year-over-year improvement in environmental performance as measured by internal metrics and had no significant environmental events.
Constructive Regulatory and Legislative Outcomes . Modernized regulatory constructs provide benefits, which include improved earnings and cash flows through more timely recovery of investments, as well as stable pricing for customers. One of our long-term strategic goals was to achieve modernized regulatory constructs across all of our jurisdictions. With PBR and MYRP in North Carolina, MYRP in Florida, and grid investment riders in the Midwest, 2024 marked a significant milestone for utilizing these structures across most of our service territories.
Overall, 2024 was a very active year as it relates to regulatory filings, which reflects the important investments and ongoing energy transition across all of our service territories. We continued to move a variety of regulatory initiatives forward this year, including the following:
• In January 2024, Duke Energy Carolinas filed a South Carolina rate case. In May 2024, we reached a constructive comprehensive settlement with certain parties and in July 2024, the PSCSC issued an order approving the settlement and revising recovery of certain environmental compliance costs. New rates were effective August 1, 2024.
• In April 2024, we filed formal requests for new base rates across several jurisdictions including Duke Energy Florida, Duke Energy Indiana and Piedmont.
◦ Duke Energy Florida filed a three-year rate plan to begin in January 2025. In August 2024, the FPSC approved our constructive comprehensive settlement with certain parties and new rates were effective January 1, 2025.
◦ Duke Energy Indiana filed a general rate case with the IURC and received a constructive order in January 2025. New rates are expected to be effective by March 2025.
◦ Piedmont filed a general rate case with the NCUC and reached a constructive comprehensive settlement with certain parties in September 2025. Revised interim rates were effective November 1, 2024, subject to refund and pending NCUC approval of the settlement and a final order, which was received in January 2025.
• Also, in April 2024, Duke Energy Progress issued $177 million of storm recovery bonds, our first issuance under South Carolina's 2022 securitization legislation, which provided the necessary framework for us to lower the bill impacts on our customers related to critical storm restoration activities. In December 2024, we initiated securitization filings in North Carolina related to the unprecedented back-to-back hurricanes of 2024 and are also pursuing timely recovery of storm costs under existing regulatory mechanisms in Florida.
• In December 2024, Duke Energy Kentucky filed an electric base rate case and new rates are anticipated to go into effect in July 2025.
In 2024, w e also began to sell nuclear PTCs as allowed under the Inflation Reduction Act. These proceeds are expected to have significant benefits to customers and lower the cost of the energy transition as the sales proceeds, net of associated costs, are flowed back to customers through lower rates under regulatory mechanisms in applicable jurisdictions.
Energy Transition . Faced with anticipated long-term growth not seen for decades, our industry continues to experience an unprecedented level of change and 2024 was a dynamic year for our company as we navigated storm response and continued to execute on our strategic priorities.
Generating Reliable, Affordable and Cleaner Energy
We continue to balance reliability and affordability in light of expected increases in long-term demand for electricity in our service territories in the coming decades. While we continue to target a transition out of coal by 2035, subject to regulatory approvals, our focus remains on meeting the growing and evolving energy needs of our customers through a long-range, enterprise strategy that involves modernizing our assets with reliability and affordability top of mind. Although our path will not be linear as we retire coal and bring new generation resources online, we have made strong progress to date in reducing carbon emissions from electricity generation (a 44% reduction from 2005) and have established goals to do more (50% reduction by 2030, 80% by 2040, and net zero by 2050). We are also working to reduce Scope 2 and certain Scope 3 emissions, including emissions from upstream purchased power and fossil fuel purchases, as well as downstream customer use of natural gas, by 50% by 2035, on the way to net zero by 2050.41
MD&A DUKE ENERGYOver the next decade, we expect to deploy between approximately $190 billion and $200 billion of capital into our regulated businesses, driven by energy transition investments designed to ensure reliable, affordable, and cleaner energy while meeting expected growth in energy demand in the coming decades. These investments will maintain reliability and affordability, drive economic benefits for the communities we serve, deliver cleaner energy and reduce our customers' exposure to fuel volatility. We have filed and refined comprehensive IRPs consistent with this strategy in multiple jurisdictions, allowing us to make needed investments to increase grid resiliency and enable coal plant retirements, renewables and energy storage.
As we look beyond 2030, we will need additional tools to continue our progress. We will actively work to advocate for research and development and deployment of carbon-free, dispatchable resources. This includes longer-duration energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.
Carolinas Resource Plan
Our energy transition strategy continues to focus on delivering a path to cleaner energy in a manner that protects grid reliability and affordability, all while meeting the energy demands of the growing and economically vibrant communities that we serve. In January 2024, we filed supplemental modeling and analysis with the NCUC and PSCSC related to our combined systemwide Carolinas Resource Plan filed in 2023. These updates were necessary due to substantially increased load forecasts resulting from continued economic development successes in the Carolinas occurring since the systemwide integrated resource plan was prepared. In March 2024, we filed CPCNs for new natural gas generation facilities in North Carolina and made a similar filing in South Carolina for a new solar facility. In 2024, these generation facility filings were approved along with receiving broader approval and direction on the Carolinas Resource Plan from both the NCUC and PSCSC.Modernizing the Power Grid and Natural Gas InfrastructureWe are leveraging new technology, digital tools and data analytics across the business in response to a transforming landscape and our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding, helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for our customers. We continue to enhance our customers' experience with the Self-Optimizing Grid (SOG), our flagship grid improvement program spanning all of Duke Energy’s regulated utilities. In 2024, our SOG investments helped to avoid approximately 925,000 customer interruptions across our six-state electric service area, preventing customers from having more than 8.6 million hours of lost outage time during major events.
Investments in integrity management of our natural gas infrastructure continue to be of importance to ensure reliable, safe, and increasingly clean delivery of natural gas to our customers. In our LDC business, we remain focused on reducing methane emissions, leveraging our partnerships, emissions platform, sensors and other technologies to find and fix leaks in near real time. We also use cross compression to avoid releasing natural gas into the atmosphere during certain operational activities.
Macroeconomic Environment . Duke Energy has a demonstrated track record of executing on our business plans while driving efficiencies and productivity in the business. Despite higher interest rates and navigating the operational and financial impacts of unprecedented hurricanes across our service territories, we achieved financial results within our adjusted EPS guidance and continued our cost-management journey with a focus on driving productivity, increasing flexibility and prioritizing spend based on risk and strategic value to our customers and investors. We've built a culture of continuous improvement and continue to identify ways to reduce operating costs, remaining focused on organization simplification, automation, outsourcing and continued operational excellence.
Volatile commodity prices led to rapid fuel cost increases in 2022, impacting the price of electricity in all of our jurisdictions. We actively worked to manage and maintain prices at lower levels than they otherwise would have been in light of increased commodity prices, working with our regulators to extend recovery periods in certain jurisdictions in a way that was manageable for our customers. We've experienced increased stability in these markets and have now fully recovered these deferred fuel costs, with remaining balances back in line with our historical average as of December 31, 2024. Additionally, while interest rates and inflation have moderated to a degree, we continued to successfully navigate supply chain challenges for major equipment components for new generation and the grid. For solar panels, we've executed longer supply agreements and we continue to proactively secure equipment in advance of hurricane season. Our procurement teams also continue to execute on action plans to enhance planning, augment supply, amend operations and leverage our scale to continue to mitigate these risks to the extent possible.
Recent macroeconomic headwinds aside, the level of economic development success and growth experienced in our service territories is significantly above what we have experienced over the last two decades. We successfully worked with our state partners to win 78 economic development projects in 2024 alone, representing approximately $26 billion in new capital investment and over 16,000 new jobs within our service territories. These projects include transformational life sciences, automotive, and semiconductors facilities as well as data centers. Supporting the increasing generation load demands expected from projects like these in the coming years is an immense opportunity for our Company and the communities we proudly serve.
Customer Satisfaction . Duke Energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels. This data-driven approach allows us to identify the investments that are most important to the customer experience. While customer satisfaction across our industry continues to be impacted by the macroeconomic environment and the impacts of inflationary pressures including higher fuel prices and interest rates on customer bills, our work continues to be recognized by our customers, with strong customer satisfaction scores in our jurisdictions including Piedmont, which was ranked No. 1 in customer satisfaction by J.D. Power for residential natural gas service in the south for the third year in a row.42
MD&A DUKE ENERGYDuke Energy Objectives – 2025 and Beyond
At Duke Energy, our business strategy centers on meeting growing energy needs and powering the modern economy, while delivering reliable, affordable and cleaner energy to our customers and communities. To meet these goals, we are safely transforming and readying our system by investing in secure and innovative technologies, modernizing our gas and electric infrastructure and integrating efficiency and demand management programs. As we transition our business to meet anticipated increased long-term demand while delivering more efficient sources of energy, we are focused on creating sustainable value for our customers and shareholders by leveraging business transformation to exceed customer expectations, optimizing investments to drive attractive shareholder returns and providing new product offerings and solutions that deliver growth and customer value. To achieve these objectives, we are partnering with stakeholders, championing public policy that advances innovation and continuing to leverage regulatory models that support the delivery of reliable energy, timely cost recovery and affordable customer rates.Matters Impacting Future Results
The matters discussed herein could materially impact the future operating results, financial condition and cash flows of the Duke Energy Registrants and Business Segments.
Regulatory Matters
Coal Ash CostsIn April 2024, the EPA issued the 2024 CCR Rule, which significantly expands the scope of the 2015 CCR Rule by establishing regulatory requirements for inactive surface impoundments at retired generating facilities and previously unregulated coal ash sources at regulated facilities. Duke Energy is participating in legal challenges to the 2024 CCR Rule. Cost recovery for future expenditures is anticipated and will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of reasonable and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see “Other Matters” and Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations."
Storm Cost Recovery
From August through October 2024, a series of major storm events occurred that resulted in significant damage to utility infrastructure within our service territories and primarily impacted Duke Energy Carolinas', Duke Energy Progress' and Duke Energy Florida's electric utility operations. Hurricanes Debby, Helene and Milton caused widespread outages and included unprecedented damage to certain assets, including the hardest-hit areas on the western coast of Florida and certain regions in western North Carolina and upstate South Carolina. Appropriate storm cost recovery mechanisms are in place to track and recover incremental costs from such events. Funding restoration activities and, in some cases, the complete rebuild of critical infrastructure, for a series of sequential events of this magnitude has resulted in incremental financing needs until cost recovery occurs and may impact the near-term results of operations, financial position, or cash flows of the impacted registrants. For more information related to storm cost estimates, regulatory asset deferrals, and financing activities, see "Liquidity and Capital Resources" and Notes 4 and 7 to the Consolidated Financial Statements, "Regulatory Matters" and "Debt and Credit Facilities."
EPA Regulations of GHG Emissions
In April 2024, the EPA issued final rules under section 111 of the Clean Air Act (EPA Rule 111) regulating GHG emissions from existing coal-fired and new natural gas-fired power plants. Duke Energy is analyzing the potential impacts the rules could have on the Company, which could be material and may influence the timing, nature, and magnitude of future generation investments in our service territories. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions, which permit recovery of reasonable and prudently incurred costs associated with Duke Energy’s regulated operations. Duke Energy is participating in legal challenges to the final rules. For more information, see "Other Matters."Supply ChainThe Company continues to monitor the ongoing stability of markets for key materials and public policy outcomes, including the potential impacts from possible new tariffs or other actions from the new presidential administration that could disrupt or impact Duke Energy's supply chain, future financial results, capital plan execution or the achievement of its energy transition.GoodwillThe Duke Energy Registrants performed their annual goodwill impairment tests as of August 31, 2024, as described in Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets." As of this date, all of the Duke Energy Registrants' reporting units' estimated fair values materially exceeded the carrying values except for the GU&I reporting unit of Duke Energy Ohio. While no goodwill impairment charges have been recorded in the accompanying Consolidated Statements of Operations, the potential for deteriorating economic conditions impacting GU&I's future cash flows or equity valuations of peer companies could impact the estimated fair value of GU&I, and goodwill impairment charges could be recorded in the future.OtherDuke Energy continues to monitor general market conditions, including the potential for interest rate pressures on the Company's cost of capital, which may impact Duke Energy's execution of its capital plan, future financial results, or the achievement of its energy transition.
43MD&A DUKE ENERGY
Results of Operations
Non-GAAP Measures
Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted EPS. These items represent income from continuing operations available to Duke Energy common stockholders in dollar and per share amounts, adjusted for the dollar and per share impact of special items. As discussed below, special items include certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance. Management believes the presentation of adjusted earnings and adjusted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods.
Management uses these non-GAAP financial measures for planning and forecasting, and for reporting financial results to the Board of Directors, employees, stockholders, analysts and investors. Adjusted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted EPS are GAAP Reported Earnings and EPS Available to Duke Energy Corporation common stockholders (GAAP Reported EPS), respectively.
Special items included in the periods presented include the following, which management believes do not reflect ongoing costs:• Organizational Optimization repres ents costs associated with strategic repositioning to a fully regulated utility.
• Regulatory Matters primarily represents net impairment charges related to Duke Energy Carolinas' and Duke Energy Progress' North Carolina and South Carolina rate case orders and Duke Energy Carolinas' North Carolina rate case settlement, and charges related to Duke Energy Indiana post-retirement benefits.
• System Post-Implementation Costs represents the net impact of charges related to nonrecurring customer billing adjustments as a result of implementation of a new customer system.
• Preferred Redemption Costs represents charges related to the redemption of Series B Preferred Stock.
• Noncore Asset Sales and Net Impairments primarily represents charges related to certain joint venture electric transmission projects and certain renewable natural gas investments.
• Captive Storm Deductible represents charges related to an insurance deductible for Hurricane Helene property losses.Discontinued operations primarily includes impairments on the sale of the Commercial Renewables business and results from Duke Energy's Commercial Renewables Disposal Groups.
Duke Energy’s adjusted earnings and adjusted EPS may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner.44
MD&A DUKE ENERGYReconciliation of GAAP Reported Amounts to Adjusted Amounts
The following table presents a reconciliation of adjusted earnings and adjusted EPS to the most directly comparable GAAP measures.
Years Ended December 31,2024 2023(in millions, except per share amounts) Earnings EPS Earnings EPSGAAP Reported Earnings/EPS $ 4,402 $ 5.71 $ 2,735 $ 3.54Adjustments to Reported:
Organizational Optimization (a)— — 95 0.13Regulatory Matters (b)43 0.06 64 0.08
System Post-Implementation Costs (c)
16 0.02 — —
Preferred Redemption Costs (d)
16 0.02 — —
Noncore Asset Sales and Net Impairments (e)
54 0.07 — —
Captive Storm Deductible (f)
18 0.02 — —
Discontinued Operations (g)
(7) (0.01) 1,391 1.81
Adjusted Earnings/Adjusted EPS $ 4,542 $ 5.90 $ 4,285 $ 5.56
Note: Total EPS may not foot due to rounding.(a) Net of tax benefit of $29 million. $110 million recorded within Operations, maintenance and other and $14 million within Impairment of assets and other charges.(b) Net of tax benefits of $15 million and $20 million for the years ended December 31, 2024 and 2023, respectively. $42 million recorded within Impairment of assets and other charges, $29 million recorded within Operating revenues, $2 million within Operations, maintenance and other, $11 million reduction recorded within Interest Expense, and a $4 million reduction within NCI for the year ended December 31, 2024. $68 million within Impairment of assets and other charges and $16 million within Operations, maintenance and other for the year ended December 31, 2023.
(c) Net of tax benefit of $5 million. $17 million recorded within Operating Revenues, $1 million recorded within Operations, maintenance and other, and $3 million recorded within Other income and expenses.
(d) Recorded within Preferred Redemption Costs.
(e) Net of $11 million tax benefit. $69 million recorded within Equity in (losses) earnings of unconsolidated affiliates and $4 million recorded within Gains on sales of other assets and other, net.
(f) Net of $5 million tax benefit. $23 million recorded within Operations, maintenance and other.
(g) Recorded in Income (Loss) from Discontinued Operations, net of tax, and Net Income (Loss) Attributable to NCI.
Year Ended December 31, 2024, as compared to 2023
GAAP Reported EPS was $5.71 for the year ended December 31, 2024, compared to $3.54 for the year ended December 31, 2023. In addition to the drivers below, the increase in GAAP Reported Earnings/EPS was also due to higher impairments on the sale of the Commercial Renewables business in the prior year.
As discussed and shown in the table above, management also evaluates financial performance based on adjusted EPS. Duke Energy’s adjusted EPS was $5.90 for the year ended December 31, 2024, compared to $5.56 for the year ended December 31, 2023. The increase in Adjusted Earnings/Adjusted EPS was primarily due t o growth from rate increases and riders, improved weather and higher sales volumes, partially offset by higher interest expense, depreciation on a growing asset base and storm costs, along with a higher effective tax rate.SEGMENT RESULTSThe remaining information presented in this discussion of results of operations is on a GAAP basis. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to NCI and preferred stock dividends. Segment income includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements.Duke Energy's segment structure includes Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I). The remainder of Duke Energy’s operations is presented as Other. See Note 3 to the Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.45
MD&A SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTUREElectric Utilities and Infrastructure
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 28,093 $ 26,921 $ 1,172Operating ExpensesFuel used in electric generation and purchased power 9,285 9,164 121
Operations, maintenance and other 5,185 5,309 (124)
Depreciation and amortization 5,128 4,684 444
Property and other taxes 1,305 1,320 (15)
Impairment of assets and other charges 37 75 (38)
Total operating expenses 20,940 20,552 388
Gains on Sales of Other Assets and Other, net 3 28 (25)
Operating Income 7,156 6,397 759
Other Income and Expenses, net 528 517 11
Interest Expense 2,006 1,850 156
Income Before Income Taxes 5,678 5,064 614
Income Tax Expense 820 742 78
Less: Income Attributable to Noncontrolling Interest 88 99 (11)
Segment Income $ 4,770 $ 4,223 $ 547
Duke Energy Carolinas GWh sales 91,096 87,635 3,461
Duke Energy Progress GWh sales 69,017 66,717 2,300
Duke Energy Florida GWh sales 43,846 43,384 462
Duke Energy Ohio GWh sales 23,982 23,307 675
Duke Energy Indiana GWh sales 30,685 30,219 466
Total Electric Utilities and Infrastructure GWh sales 258,626 251,262 7,364
Net proportional MW capacity in operation
55,139 54,404 735
Year Ended December 31, 2024, as compared to 2023
EU&I’s results were driven by higher revenues from rate cases across multiple jurisdictions, improved weather, and higher weather-normal retail sales volumes, partially offset by higher depreciation . The following is a detailed discussion of the variance drivers by line item.Operating Revenues. The variance was driven primarily by:• a $684 million increase due to higher pricing from jurisdictional rate cases primarily at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Kentucky and the 2021 Settlement at Duke Energy Florida;
• a $286 million increase in retail sales due to improved weather compared to prior year, including the impacts of decoupling;
• a $204 million increase in weather-normal retail sales volumes;
• a $120 million increase in fuel revenues primarily due to net higher fuel cost recovery in the current year;
• a $103 million increase in rider revenues primarily for the SPP at Duke Energy Florida and the Distribution Capital Investment Rider at Duke Energy Ohio; and
• a $92 million increase in other revenues for customer programs at Duke Energy Florida.
Partially offset by:
• a $190 million decrease in storm revenues at Duke Energy Florida;
• a $30 million decrease in wholesale revenues, including fuel, primarily due to the expiration of a wholesale customer contract at Duke Energy Indiana;
• a $29 million decrease in retail revenues due to an increase of a regulatory liability associated with certain employee post-retirement benefits at Duke Energy Indiana; and
• a $29 million decrease in franchise tax revenue primarily due to decreased revenues over prior year at Duke Energy Florida.46
MD&A SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTUREOperating Expenses . The variance was driven primarily by:
• a $444 million increase in depreciation and amortization primarily due to lower amortization of the DOE settlement regulatory liability and higher depreciable base at Duke Energy Florida and higher depreciable base and higher net amortizations driven by the North Carolina rate cases at Duke Energy Carolinas and Duke Energy Progress; and
• a $121 million increase in fuel used in electric generation and purchased power due to higher recovery of fuel expense at Duke Energy Carolinas and Duke Energy Progress, partially offset by lower deferred fuel amortization and lower fuel prices and volumes at Duke Energy Indiana, Duke Energy Florida and Duke Energy Ohio.Partially offset by:• a $124 million decrease in operation, maintenance and other primarily driven by lower storm amortization at Duke Energy Florida, partially offset by higher storm costs and service company allocations; and
• a $38 million decrease in impairment of assets and other charges primarily related to the prior year North Carolina rate case impacts at Duke Energy Carolinas and Duke Energy Progress.
Gains on Sales of Other Assets and Other, net. The decrease was primarily due to the sale of property in the prior year at Duke Energy Carolinas.
Interest Expense. The increase was primarily driven by higher outstanding debt balances and interest rates.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income, partially offset by an increase in the amortization of EDIT and PTCs. The ETRs for the years ended December 31, 2024, and 2023, were 14.4% and 14.7%, respectively.Gas Utilities and Infrastructure
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 2,390 $ 2,266 $ 124Operating ExpensesCost of natural gas 565 593 (28)
Operation, maintenance and other 478 455 23
Depreciation and amortization 400 349 51
Property and other taxes 149 129 20
Impairment of assets and other charges — (4) 4
Total operating expenses 1,592 1,522 70
Operating Income 798 744 54
Other income and expenses, net 10 106 (96)
Interest Expense 256 217 39
Income Before Income Taxes 552 633 (81)
Income Tax Expense 99 116 (17)
Less: Loss Attributable to Noncontrolling Interest
(1) (2) 1
Segment Income $ 454 $ 519 $ (65)
Piedmont Local Distribution Company (LDC) throughput (Dth) 616,724,667 569,752,712 46,971,955
Duke Energy Midwest LDC throughput (MCF) 77,923,033 79,548,620 (1,625,587)
Year Ended December 31, 2024, as compared to 2023
GU&I’s results were impacted primarily by higher depreciation and amortization, impairments for investments in SustainRNG projects, higher interest expense and higher property and other taxes, partially offset by higher margin growth. The following is a detailed discussion of the variance drivers by line item.
47
MD&A SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTUREOperating Revenues. The variance was driven primarily by:• a $50 million increase due to North Carolina base rate increases;
• a $38 million increase due to higher base rates, primarily from the Duke Energy Ohio rate case, partially offset by lower rider revenue at Duke Energy Ohio;
• a $26 million increase due to Tennessee ARM revenue;
• a $21 million increase due to unregulated RNG revenue;
• a $14 million increase due to rate stabilization mechanisms in South Carolina; and
• a $10 million increase due to customer growth.Partially offset by:• a $40 million decrease due to lower natural gas costs passed through to customers, partially offset by higher rates, higher volumes and lower secondary marketing sales.Operating Expenses. The variance was driven primarily by:• a $51 million increase in depreciation and amortization primarily due to higher depreciable base and higher depreciation for certain unregulated RNG projects;
• a $23 million increase in operations, maintenance and other primarily due to higher operating costs for unregulated RNG projects, higher pipeline safety and integrity work and higher information technology project costs; and
• a $20 million increase in property and other taxes due to a higher base upon which property taxes are levied.Partially offset by:• a $28 million decrease in cost of natural gas due to lower natural gas costs passed through to customers, partially offset by higher rates, higher volumes and lower secondary marketing.
Other Income and Expenses, net. The d ecrease was primarily due to impairments for investments in SustainRNG projects, lower revenue at SustainRNG and the revision in the prior year related to ACP ARO closure cost.
Interest Expense. The increase was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income. The ETRs for the years ended December 31, 2024, and 2023, were 17.9% and 18.3%, respectively.Other
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 157 $ 134 $ 23
Operating Expenses 227 249 (22)Gains on Sales of Other Assets and Other, net22 24 (2)
Operating Loss (48) (91) 43
Other Income and Expenses, net 257 258 (1)
Interest Expense 1,245 1,097 148
Loss Before Income Taxes (1,036) (930) (106)
Income Tax Benefit (329) (420) 91Less: Preferred Dividends 106 106 —Less: Preferred Redemption Costs
16 — 16
Net Loss $ (829) $ (616) $ (213)
Year Ended December 31, 2024, as compared to 2023
Other's results were impacted by higher interest expense and lower income tax and franchise tax benefits, partially offset by lower severance costs in the current year.
Operating Revenues. The increase was driven by favorable premiums related to captive insurance.
Operating Expenses. The decrease was driven by lower severance costs and lo wer franchise tax benefits, partially offset by higher contributions to the Duke Energy Foundation.
Interest Expense. The variance was primarily due to higher outstanding long-term debt balances and interest rates.
Income Tax Benefit. The decrease in the tax benefit was primarily due to the benefits associated with tax efficiency efforts in the prior year, partially offset by an increase in pretax losses. The ETRs for the years ended December 31, 2024, and 2023, were 31.8% and 45.2%,
48
MD&A SEGMENT RESULTS - OTHER
respectively. The decrease in the ETR was primarily due to benefits associated with tax efficiency efforts in the prior year. In 2023, the Company evaluated the deductibility of certain items spanning periods open under federal statute, including items related to interest on company-owned life insurance. As a result of this analysis, the Company recorded a favorable adjustment in the prior year of approximately $120 million.
Preferred Redemption Costs. The increase was due to the redemption of the Company’s Series B Preferred Stock.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXYears Ended December 31,(in millions) 2024 2023 Variance
Income (Loss) From Discontinued Operations, net of tax
$ 10 $ (1,455) $ 1,465
Year Ended December 31, 2024, as compared to 2023
The variance was primarily driven by higher impairments on the sale of the Commercial Renewables business in the prior year.49
MD&A DUKE ENERGY CAROLINAS
SUBSIDIARY REGISTRANTS
Basis of Presentation
The results of operations and variance discussion for the Subsidiary Registrants is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
DUKE ENERGY CAROLINAS
Results of Operations
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 9,718 $ 8,288 $ 1,430Operating ExpensesFuel used in electric generation and purchased power 3,251 2,524 727
Operation, maintenance and other 1,740 1,774 (34)
Depreciation and amortization 1,768 1,593 175
Property and other taxes 346 320 26
Impairment of assets and other charges 31 44 (13)Total operating expenses7,136 6,255 881
Gains on Sales of Other Assets and Other, net 2 26 (24)
Operating Income 2,584 2,059 525
Other Income and Expenses, net 247 238 9
Interest Expense 722 686 36
Income Before Income Taxes 2,109 1,611 498
Income Tax Expense 226 141 85
Net Income $ 1,883 $ 1,470 $ 413The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.Increase (Decrease) over prior year 2024
Residential sales 4.6 %
Commercial sales
2.1 %
Industrial sales 0.5 %
Wholesale power sales 14.0 %
Joint dispatch sales (3.2) %
Total sales 3.9 %
Average number of customers 2.2 %
Year Ended December 31, 2024, as compared to 2023Operating Revenues. The variance was driven primarily by:• a $692 million increase in fuel revenues due to higher fuel rates and volumes;
• a $454 million increase due to higher pricing from the North Carolina and South Carolina rate cases;
• a $151 million increase in retail sales due to improved weather compared to prior yea r, including the impacts of decoupling;
• an $80 million increase in weather-normal retail sales volumes; and
• a $26 million increase in wholesale power revenues primarily due to higher contractual demand and sales.
Operating Expenses . The variance was driven primarily by:
• a $727 million increase in fuel used in electric generation and purchased power primarily due to the recovery of fuel expense and higher volumes, partially offset by lower natural gas prices;
• a $175 million increase in depreciation and amortization primarily due to higher depreciable base and higher net amortizations driven by the North Carolina rate case; and
• a $26 million increase in property and other taxes primarily due to higher franchise taxes.50
MD&A DUKE ENERGY CAROLINASPartially offset by:• a $34 million decrease in operation, maintenance and other primarily due to lower outage costs and lower customer charge-offs, partially offset by higher storm costs; and
• a $13 million decrease in impairment of assets and other charges primarily related to the prior year North Carolina rate case order and the current year South Carolina rate case order.
Gains on Sales of Other Assets and Other, net. The decrease was primarily due to the sale of property in the prior year.
Interest Expense. The increase was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income, partially offset by an increase in the amortization of EDIT.PROGRESS ENERGY
Results of Operations
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 13,633 $ 13,544 $ 89Operating ExpensesFuel used in electric generation and purchased power 4,755 5,026 (271)
Operation, maintenance and other 2,463 2,636 (173)
Depreciation and amortization 2,393 2,151 242
Property and other taxes 617 644 (27)
Impairment of assets and other charges 6 28 (22)Total operating expenses10,234 10,485 (251)
Gains on Sales of Other Assets and Other, net 27 27 —
Operating Income 3,426 3,086 340
Other Income and Expenses, net 235 201 34
Interest Expense 1,064 954 110
Income Before Income Taxes 2,597 2,333 264
Income Tax Expense 426 377 49
Net Income $ 2,171 $ 1,956 $ 215
Year Ended December 31, 2024, as compared to 2023Operating Revenues. The variance was driven primarily by:• a $198 million increase due to higher pricing from the North Carolina and South Carolina rate cases at Duke Energy Progress and the 2021 Settlement at Duke Energy Florida;
• a $111 million increase in weather-normal retail sales volumes at Duke Energy Progress;
• a $95 million increase in retail sales due to improved weather compared to prior year, including the impacts of decoupling, at D uke Energy Progress and Duke Energy Florida;
• a $92 million increase in higher transmission revenues, higher Clean Energy Connection subscription revenues and higher residential fixed bill program revenues at Duke Energy Florida; and
• a $56 million increase in rider revenues primarily due to higher rates for the SPP, Energy Conservation Cost Recovery and Environmental Cost Recovery at Duke Energy Florida.
Partially offset by:
• a $223 million decrease in fuel and capacity revenues primarily due to lower fuel and capacity rates billed to retail customers at Duke Energy Florida, partially offset by an increase in fuel rates and volumes at Duke Energy Progress;
• a $190 million decrease in storm revenues at Duke Energy Florida; and
• a $29 million decrease in franchise tax revenue primarily due to decreased revenues over prior year at Duke Energy Florida.
Operating Expenses. The variance was driven primarily by:
• a $271 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel costs driven by lower natural gas prices and fuel cost recovery, and lower purchased power costs driven by the expiration of contracts in the current year at Duke Energy Florida, partially offset by recovery of fuel expenses and higher volumes at Duke Energy Progress;51
MD&A PROGRESS ENERGY• a $173 million decrease in operation, maintenance and other primarily due to lower storm amortization at Duke Energy Florida;
• a $27 million decrease in property and other taxes primarily due to lower property taxes and lower franchise and gross receipts tax driven by lower revenues at Duke Energy Florida; and
• a $22 million decrease in impairment of assets and other charges due to prior year rate case impacts at Duke Energy Progress.Partially offset by:• a $242 million increase in depreciation and amortization due to lower amortization of the DOE settlement regulatory liability and higher depreciable base at Duke Energy Florida and higher depreciation rates driven by the North Carolina rate case and higher depreciable base at Duke Energy Progress.
Other Income and Expenses, net. The increase was primarily driven by miscellaneous income and AFUDC equity due to higher AFUDC base compared to the prior year at Duke Energy Progress.
Interest Expense. The increase was primarily due to higher outstanding debt balances and interest rates at Duke Energy Progress and Duke Energy Florida.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income, partially offset by an increase in PTCs.DUKE ENERGY PROGRESS
Results of Operations
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 7,017 $ 6,488 $ 529Operating ExpensesFuel used in electric generation and purchased power 2,409 2,203 206
Operation, maintenance and other 1,388 1,379 9
Depreciation and amortization 1,336 1,266 70
Property and other taxes 177 164 13
Impairment of assets and other charges 6 29 (23)Total operating expenses5,316 5,041 275
Gains on Sales of Other Assets and Other, net 2 3 (1)
Operating Income 1,703 1,450 253
Other Income and Expenses, net 143 124 19
Interest Expense 493 427 66
Income Before Income Taxes 1,353 1,147 206
Income Tax Expense 189 149 40
Net Income $ 1,164 $ 998 $ 166The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.Increase (Decrease) over prior year 2024
Residential sales 3.9 %
Commercial sales
3.5 %
Industrial sales (3.3) %
Wholesale power sales 3.8 %
Joint dispatch sales 3.4 %
Total sales 3.4 %
Average number of customers 2.1 %
Year Ended December 31, 2024, as compared to 2023Operating Revenues. The variance was driven primarily by:• a $256 million increase in fuel revenues due to higher fuel rates and volumes;
• a $127 million increase due to higher pricing from the North Carolina and South Carolina rate cases;
• a $111 million increase in weather-normal retail sales volumes; and
• a $72 million increase in retail sales due to improved weather compared to prior year, including the impacts of decoupling.
52
MD&A DUKE ENERGY PROGRESSOperating Expenses . The variance was driven primarily by:• a $206 million increase in fuel used in electric generation and purchased power primarily due to the recovery of fuel expenses and higher volumes, partially offset by lower natural gas prices; and
• a $70 million increase in depreciation and amortization primarily due to higher depreciation rates driven by the North Carolina rate case and higher depreciable base.Partially offset by:• a $23 million decrease in impairment of assets and other charges primarily due to prior year rate case impacts.
Other Income and Expenses, net. The increase was driven primarily by miscellaneous income and AFUDC equity due to higher AFUDC base compared to the prior year.
Interest Expense. The increase was driven primarily by higher outstanding debt balances and interest rates.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income.DUKE ENERGY FLORIDA
Results of Operations
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 6,595 $ 7,036 $ (441)Operating ExpensesFuel used in electric generation and purchased power 2,346 2,823 (477)
Operation, maintenance and other 1,055 1,239 (184)
Depreciation and amortization 1,057 885 172
Property and other taxes 440 480 (40)
Impairment of assets and other charges — (1) 1Total operating expenses4,898 5,426 (528)
Gains on Sales of Other Assets and Other, net 3 2 1
Operating Income 1,700 1,612 88
Other Income and Expenses, net 86 78 8
Interest Expense 457 413 44
Income Before Income Taxes 1,329 1,277 52
Income Tax Expense 268 261 7
Net Income $ 1,061 $ 1,016 $ 45The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.Increase (Decrease) over prior year 2024
Residential sales 1.3 %
Commercial sales
0.8 %Industrial sales (3.2) %Wholesale power sales 3.9 %
Total sales 1.1 %
Average number of customers 2.1 %
Year Ended December 31, 2024, as compared to 2023Operating Revenues. The variance was driven primarily by:• a $479 million decrease in fuel and capacity revenues primarily due to lower fuel and capacity rates;
• a $190 million decrease in storm revenues; and
• a $29 million decrease in franchise tax revenu e primarily due to decreased revenues over the prior year.Partially offset by:• a $92 million increase in higher transmission revenues, higher Clean Energy Connection subscription revenues and higher residential fixed bill program revenues;
53MD&A DUKE ENERGY FLORIDA• a $71 million increase due to higher pricing from the 2021 Settlement;
• a $56 million increase in rider revenues primarily due to higher rates for the SPP, En ergy Conservation Cost Recovery and Environmental Cost Recovery; and
• a $23 million increase in retail sales due to improved weather compared to the prior year.
Operating Expenses. The variance was driven primarily by:
• a $477 million decrease in fuel used in electric generation and purchased power primarily due lower fuel costs driven by lower natural gas prices and fuel cost recovery and lower purchased power costs driven by the expiration of contracts in the current year;
• a $184 million decrease in operation, maintenance and other primarily due to lower storm amortization; and
• a $40 million decrease in property and other taxes primarily due to lower franchise and gross receipts tax driven by lower revenues.Partially offset by:• a $172 million increase in depreciation and amortization primarily due to lower amortization of the DOE settlement regulatory liability and higher depreciable base.
Interest Expense. The increase was primarily driven by lower interest credits on recovery clauses due to lower deferred balances, higher outstanding debt balances and interest rates, partially offset by lower intercompany interest expense .DUKE ENERGY OHIO
Results of Operations
Years Ended December 31,(in millions) 2024 2023 VarianceOperating RevenuesRegulated electric $ 1,905 $ 1,868 $ 37
Regulated natural gas 640 639 1
Total operating revenues 2,545 2,507 38Operating ExpensesFuel used in electric generation and purchased power 538 608 (70)
Cost of natural gas 142 163 (21)
Operation, maintenance and other 485 478 7
Depreciation and amortization 403 367 36
Property and other taxes 400 364 36
Impairment of assets and other charges — 3 (3)Total operating expenses1,968 1,983 (15)Gains on Sales of Other Assets and Other, net 1 1 —Operating Income 578 525 53
Other Income and Expenses, net 19 41 (22)
Interest Expense 192 169 23
Income Before Income Taxes 405 397 8
Income Tax Expense
64 63 1
Net Income $ 341 $ 334 $ 7The following table shows the percent changes in GWh sales of electricity, MCF of natural gas delivered and average number of electric and natural gas customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Electric Natural GasIncrease (Decrease) over prior year 2024 2024
Residential sales 4.5 % (6.0) %
Commercial sales
4.1 % (4.0) %
Industrial sales (3.8) % 20.2 %
Wholesale electric power sales 16.6 % n/a
Other natural gas sales n/a (1.1) %
Total sales 2.9 % (2.0) %
Average number of customers 1.1 % 0.8 %
54MD&A DUKE ENERGY OHIOYear Ended December 31, 2024, as compared to 2023
Operating Revenues . The variance was driven primarily by:
• a $62 million increase in retail revenue riders primarily due to the Distribution Capital Investment Rider, Distribution Storm Rider and Uncollectible Expense Rider, partially offset by a decrease in the Energy Efficiency Rider;
• a $42 million increase in revenues related to higher Ohio Valley Electric Corporation (OVEC) rider collections and OVEC sales into PJM Interconnection, LLC;
• a $34 million increase due to higher pricing from the Duke Energy Ohio natural gas rate case, net of decreases in the Ohio CEP rider and Accelerated Main Replacement Program Rider;
• a $32 million increase due to higher pricing from the Duke Energy Kentucky electric rate case;
• an $18 million increase in transmission revenue; and
• a $16 million increase due to improved weather compared to prior year.Partially offset by:• a $177 million decrease in fuel-related revenues primarily due to lower full-service retail sales volumes, as well as decreased natural gas costs.Operating Expenses. The variance was driven primarily by:• a $91 million decrease in fuel expense primarily driven by lower retail prices for natural gas and purchased power and a decrease in purchased power volumes.Partially offset by:• a $36 million increase in depreciation and amortization primarily driven by an increase in distribution plant in service and depreciation rates resulting from the Duke Energy Kentucky electric rate case implemented in 2023 and CEP deferrals in 2024; and
• a $36 million increase in property and other taxes primarily due to a higher base upon which property taxes are levied, partially offset by lower franchise taxes.
Other Income and Expenses, net. T he decrease was primarily driven by lower intercompany inte rest income.
Interest Expense. The increase was primarily driven by higher outstanding debt balances and interest rates.DUKE ENERGY INDIANA
Results of Operations
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 3,040 $ 3,399 $ (359)Operating ExpensesFuel used in electric generation and purchased power 964 1,217 (253)
Operation, maintenance and other 671 713 (42)
Depreciation and amortization 676 666 10
Property and other taxes 50 59 (9)Total operating expenses2,361 2,655 (294)
Operating Income 679 744 (65)
Other Income and Expenses, net 62 76 (14)
Interest Expense 229 213 16
Income Before Income Taxes 512 607 (95)
Income Tax Expense
71 110 (39)
Net Income $ 441 $ 497 $ (56)
55MD&A DUKE ENERGY INDIANAThe following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year 2024
Residential sales 4.4 %
Commercial sales
4.6 %
Industrial sales (0.2) %
Wholesale power sales (7.7) %
Total sales 1.5 %
Average number of customers 1.7 %
Year Ended December 31, 2024, as compared to 2023Operating Revenues. The variance was driven primarily by:• a $238 million decrease in retail fuel revenues primarily due to lower fuel rates;
• a $55 million decrease in wholesale revenues, including fuel, primarily due to the expiration of wholesale customer contracts;
• a $29 million decrease in retail revenues due to an increase of a regulatory liability associated with certain employee post-retirement benefits; and
• a $15 million decrease in revenues primarily due to the provision for rate refund related to the Load Control Adjustment rider.Operating Expenses. The variance was driven primarily by:• a $253 million decrease in fuel used in electric generation and purchased power primarily due to lower deferred fuel amortization and lower purchased power expense, partially offset by higher coal and natural gas costs; and
• a $42 million decrease in operation, maintenance and other primarily due to lower outage costs and lower customer charge-offs.
Other Income and Expenses, net. The decrease is primarily due to lower intercompany interest income.
Interest Expense. The increase is primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of EDIT.PIEDMONT
Results of Operations
Years Ended December 31,(in millions) 2024 2023 Variance
Operating Revenues $ 1,729 $ 1,628 $ 101Operating ExpensesCost of natural gas 423 430 (7)
Operation, maintenance and other 359 344 15
Depreciation and amortization 261 237 24
Property and other taxes 55 59 (4)
Impairment of assets and other charges — (4) 4
Total operating expenses 1,098 1,066 32
Operating Income 631 562 69
Other Income and Expenses, net 62 66 (4)
Interest Expense 185 165 20
Income Before Income Taxes 508 463 45
Income Tax Expense 95 84 11
Net Income $ 413 $ 379 $ 34
56MD&A PIEDMONT
The following table shows the percent changes in Dth delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized.Increase (Decrease) over prior year 2024
Residential deliveries 10.1 %
Commercial deliveries 6.9 %
Industrial deliveries (0.3) %
Power generation deliveries 10.5 %
For resale (0.6) %
Total throughput deliveries 8.2 %
Secondary market volumes (4.4) %
Average number of customers 1.6 %
Year Ended December 31, 2024, as compared to 2023Operating Revenues. The variance was driven primarily by:• a $50 million increase due to North Carolina base rate increases;
• a $26 million increase due to Tennessee ARM revenue;
• a $14 million increase due to rate stabilization mechanisms in South Carolina;
• a $10 million increase due to customer growth; and
• a $9 million increase due to North Carolina IMR.Partially offset by:• a $15 million decrease due to secondary marketing sales.Operating Expenses. The variance was driven primarily by:• a $24 million increase in depreciation and amortization due to higher depreciable base; and
• a $15 million increase in operations, maintenance and other primarily due to higher outside services, information technology project costs and service company costs.Partially offset by:• a $7 million decrease in the cost of natural gas due to lower natural gas costs passed through to customers, partially offset by higher volumes, higher rates, and lower secondary marketing.Interest Expense. The increase was primarily due to higher outstanding debt balances and interest rates.Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income.CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations.
Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
For further information, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."Regulated Operations Accounting
Substantially all of Duke Energy’s regulated operations meet the criteria for application of regulated operations accounting treatment. As a result, Duke Energy is required to record assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities are recorded when it is probable that a regulator will require Duke Energy to make refunds to customers or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred.
Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as:
• applicable regulatory environment changes;
• historical regulatory treatment for similar costs in Duke Energy’s jurisdictions;57
MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATES• litigation of rate orders;
• recent rate orders to other regulated entities;
• levels of actual return on equity compared to approved rates of return on equity; and
• the status of any pending or potential deregulation legislation.
If future recovery of costs ceases to be probable, asset write-offs would be recognized in operating income. Additionally, regulatory agencies can provide flexibility in the manner and timing of the depreciation of property, plant and equipment, recognition of asset retirement costs and amortization of regulatory assets, or may disallow recovery of all or a portion of certain assets.
As required by regulated operations accounting rules, significant judgment can be required to determine if an otherwise recognizable incurred cost qualifies to be deferred for future recovery as a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity-specific costs that are no longer expected to be incurred or have not yet been incurred and are therefore a regulatory liability.
For further information, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."
Goodwill Impairment AssessmentsDuke Energy performed its annual goodwill impairment tests for all reporting units as of August 31, 2024. Additionally, Duke Energy monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include an adverse regulatory outcome, declining financial performance and deterioration of industry or market conditions. As of August 31, 2024, all of the reporting units' estimated fair value of equity exceeded the carrying value of equity. The fair values of the reporting units were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries.
Estimated future cash flows under the income approach are based on Duke Energy’s internal business plan. Significant assumptions used are growth rates, future rates of return expected to result from ongoing rate regulation and discount rates. Management determines the appropriate discount rate for each of its reporting units based on the Weighted Average Cost of Capital (WACC) for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2024 impairment tests, Duke Energy considered implied WACCs for certain peer companies in determining the appropriate WACC rates to use in its analysis. As each reporting unit has a different risk profile based on the nature of its operations, including factors such as regulation, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company-specific risk premiums. The discount rates used for calculating the fair values as of August 31, 2024, for each of Duke Energy’s reporting units ranged from 6.3% to 6.5%. The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges.
One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of August 31. The implied market multiples used for calculating the fair values as of August 31, 2024, for each of Duke Energy's reporting units ranged from 9.1 to 11.7.Duke Energy primarily operates in environments that are rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, significant changes in discount rates or implied market multiples over a prolonged period may have a material impact on the fair value of equity.Duke Energy has $19.3 billion in Goodwill at both December 31, 2024, and 2023. For further information, see Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets."Asset Retirement ObligationsAROs are recognized for legal obligations associated with the retirement of property, plant and equipment at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made. Duke Energy has $10.0 billion and $9.2 billion of AROs as of December 31, 2024, and 2023, respectively. See Note 10, "Asset Retirement Obligations," for further details including a rollforward of related liabilities.The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding the amount and timing of future cash flows, regulatory, legal, and legislative decisions, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change.
Obligations for nuclear decommissioning are based on site-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. During 2020, Duke Energy Florida, closed an agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station after receiving approval from the NRC and FPSC. The retirement obligations for the decommissioning of Crystal River Unit 3 nuclear power station are measured based on accelerated decommissioning from 2020 continuing through 2027. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferred to a yet-to-be-built DOE facility.58
MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans. In April 2024, the EPA issued the 2024 CCR Rule, which significantly expands the scope of the 2015 CCR Rule by establishing regulatory requirements for inactive surface impoundments at retired generating facilities and previously unregulated coal ash sources at regulated facilities. AROs recorded on the Duke Energy Registrants' Consolidated Balance Sheets include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of these regulations and agreements.For further information, see Notes 4, 5 and 10 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."
Discontinued OperationsDuke Energy calculated an estimated impairment on the disposition of its Commercial Renewables Disposal Groups as of December 31, 2022. The impairment was recorded to write-down the carrying amount to fair value, less cost to sell. The fair value was primarily determined from the income approach using discounted cash flows, but also considered market information obtained through the bidding process. Estimated future cash flows under the income approach were based on Duke Energy's forecast, which was informed by existing power purchase agreements with offtakers and forward merchant curves. Significant assumptions used in the income approach include forward merchant curves and discount rates. The discount rates considered both the after-tax cost of debt and cost of equity. Duke Energy monitored the sales of the Commercial Renewables Disposal Groups and recorded adjustments to the impairments as warranted by progression in the disposition process and changes in market information.
The actual losses for the Commercial Renewables Disposal Groups could differ from the estimated losses recorded as of December 31, 2024, as the disposition process is finalized, but any differences are not expected to be material.
For further information, see Note 2 to the Consolidated Financial Statements, "Dispositions."LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of CashDuke Energy relies primarily upon cash flows from operations, debt and equity issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. Additionally, due to its existing tax attributes and projected tax credits to be generated relating to the IRA, Duke Energy does not expect to be a significant federal cash taxpayer until around 2030. In 2024, Duke Energy Carolinas and Duke Energy Progress began recording nuclear PTC deferred tax assets related to the IRA and began monetizing the PTCs in the transferability markets established by the IRA beginning in October 2024. Duke Energy Carolinas and Duke Energy Progress are working with the state utility commissions on the appropriate regulatory process to pass the net realizable value back to customers over time. See Note 24 to the Consolidated Financial Statements, "Income Taxes," for more information.
From August through October 2024, a series of major storm events occurred that resulted in significant damage to utility infrastructure within our service territories and primarily impacted Duke Energy Carolinas', Duke Energy Progress' and Duke Energy Florida's electric utility operations. As discussed in Note 4 , to the Consolidated Financial Statements, "Regulatory Matters," hurricanes Debby, Helene and Milton caused widespread outages and included unprecedented damage to certain assets, including the hardest-hit areas on the western coast of Florida and certain regions in western North Carolina and upstate South Carolina. Funding restoration activities and, in some cases, the complete rebuild of critical infrastructure, for a series of sequential events of this magnitude has resulted in incremental financing needs until cost recovery occurs. See "Matters Impacting Future Results" for further details and Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for information regarding term loans executed in response to these major storm events.
See Note 2 to the Consolidated Financial Statements, "Dispositions," for the timing and use of proceeds from the sale of certain Commercial Renewables assets to affiliates of Brookfield and ArcLight.Capital Expenditures
Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business secto rs. Duke Energy’s projected capital and investment expenditures, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.(in millions) 2025 2026 2027Electric Generation (a)$ 4,500 $ 5,900 $ 7,700
Electric Transmission 2,675 2,450 2,575
Electric Distribution 5,375 4,575 4,325
Environmental and Other 775 825 575
Total EU&I 13,325 13,750 15,175GU&I1,175 1,100 1,050
Other 350 350 375
Total projected capital and investment expenditures $ 14,850 $ 15,200 $ 16,600
(a) Includes nuclear fuel of approximat e ly $2.1 billion in 2025-2027.
59MD&A LIQUIDITY AND CAPITAL RESOURCESDebt
Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Duke Energy Registrants. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for information regarding the Duke Energy Registrants' long-term debt at December 31, 2024, the weighted average interest rate applicable to each long-term debt category and a schedule of long-term debt maturities over the next five years.
As discussed in Note 18 to the Consolidated Financial Statements, "Variable Interest Entities," Duke Energy terminated and repaid CRC in March 2024, Duke Energy Florida terminated and repaid DEFR in April 2024 and Duke Energy Carolinas terminated and repaid DERF in January 2025. As a result of these repayments, CRC, DEFR and DERF have ceased operations and no longer acquire the receivables of Duke Energy’s subsidiaries. Duke Energy Progress continues to evaluate financing opportunities and anticipates termination and repayment of the borrowing facility of DEPR prior to its scheduled termination date in April 2025.Fuel and Purchased PowerFuel and purchased power includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as NPNS. Duke Energy’s contractual cash obligations for fuel and purchased power as of December 31, 2024, are as follows:Payments Due by Period(in millions) Total Less than 1 year (2025)
2-3 years (2026 & 2027)
4-5 years (2028 & 2029)
More than 5 years (2030 & beyond)
Fuel and purchased power $ 21,695 $ 5,080 $ 6,706 $ 3,062 $ 6,847Other Purchase ObligationsOther purchase obligations includes contracts for software, telephone, data and consulting or advisory services, contractual obligations for Engineering, Procurement, and Construction agreement costs for new generation plants, solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand for which the timing of the purchase cannot be determined. Total cash commitments for related other purchase obligation expenditures ar e $13,336 million, with $13,015 million exp ected to be paid in the next 12 m onths.See Note 6 to the Consolidated Financial Statements, “Leases” for a schedule of both finance lease and operating lease payments over the next five years. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations” for information on nuclear decommissioning trust funding obligations and the closure of ash impoundments.
Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased nonperformance risk by third parties for which Duke Energy has issued guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position. Other than the guarantee arrangements discussed in Note 8 and off-balance sheet debt related to non-consolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 18 to the Consolidated Financial Statements, "Variable Interest Entities."
Cash and Liquidity
The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional information on the money pool arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its businesses.As of December 31, 2024, Duke Energy had approximate ly $314 million of cash on hand, $5.8 billion available u nder its $9 billion Master Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 7 and 20 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.Credit Facilities and Registration Statements
See Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding credit facilities and shelf registration statements available to Duke Energy and the Duke Energy Registrants.60MD&A LIQUIDITY AND CAPITAL RESOURCESDividend Payments
In 2024, Duke Energy paid quarterly cash dividends for the 98th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors.
Duke Energy targets a dividend payout ratio of between 60% and 70%, based upon adjusted EPS. Duke Energy increased the dividend by approximately 2% annually in both 2024 and 2023, and the Company remains committed to continued growth of the dividend.Dividend and Other Funding Restrictions of Duke Energy SubsidiariesAs discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” Duke Energy’s public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy through dividends, advances or loans as a result of conditions imposed by various regulators in conjunction with merger transactions. Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation, which in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Additionally, certain other Duke Energy subsidiaries have other restrictions, such as minimum working ca pital and tangible net worth requirements pursuant to debt and other agreements that limit the amount of funds that can be transferred to Duke Energy. At December 31, 2024, the amount of restricted net assets of subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend does not exceed a material amount of Duke Energy’s net assets . Other than a prohibition from declaring common stock dividends should dividend payments be deferred on the Series A Preferred Stock, Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy’s ability to access cash to meet its payment of dividends on common stock and other future funding obligations.Cash Flows From Operating Activities
Cash flows from operations of EU&I and GU&I are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations.
As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy has a voluntary supply chain finance program (the “program”) under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.
Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information).
Debt and Equity Issuances
Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs. Duke Energy Corporation primarily issues unsecured debt.In 2025, Duke Energy anticipates issuing additional securities of $12.2 billion through debt capital markets. In certain instances, Duke Energy may utilize instruments other than senior notes, including equity-content securities such as subordinated debt or preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances. In addition, in order to fund incremental growth capital, Duke Energy plans to issue $6.5 billion of common stock equity from 2025-2029, including $1 billion in 2025, through the dividend reinvestment and ATM programs. See Note 20 to the Consolidated Financial Statements, “Stockholders’ Equity” for further details.Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.Projected 2025
Actual 2024Actual 2023Equity 38 % 38 % 39 %
Debt 62 % 62 % 61 %
61MD&A LIQUIDITY AND CAPITAL RESOURCESRestrictive Debt Covenants
Duke Energy’s debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. The Duke Energy Registrants were in compliance with all other covenants related to their debt agreements as of December 31, 2024. I n addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.Credit RatingsMoody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2025.Moody's S&P
Duke Energy Corporation Stable Stable
Issuer Credit Rating Baa2 BBB+
Senior Unsecured Debt Baa2 BBBJunior Subordinated Debt/Preferred Stock Baa3/Ba1
BBB-Commercial Paper P-2 A-2
Duke Energy Carolinas Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+
Progress Energy Stable Stable
Senior Unsecured Debt Baa1 BBB
Duke Energy Progress Stable Stable
Senior Secured Debt Aa3 A
Duke Energy Florida Stable Stable
Senior Secured Debt A1 A
Senior Unsecured Debt A3 BBB+
Duke Energy Ohio Stable Stable
Senior Secured Debt A2 A
Senior Unsecured Debt Baa1 BBB+
Duke Energy Indiana Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+Duke Energy Kentucky StableStable
Senior Unsecured Debt Baa1 BBB+
Piedmont Natural Gas Stable Stable
Senior Unsecured A3 BBB+
Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2024 2023Cash flows provided by (used in):Operating activities $ 12,328 $ 9,878
Investing activities (13,123) (12,475)
Financing activities 859 2,351
Net increase (decrease) in cash, cash equivalents and restricted cash
64 (246)
Cash, cash equivalents and restricted cash at beginning of period 357 603
Cash, cash equivalents and restricted cash at end of period $ 421 $ 357
62MD&A LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2024 2023 Variance
Net income $ 4,614 $ 2,874 $ 1,740
Non-cash adjustments to net income 7,181 7,486 (305)
Contributions to qualified pension plans (100) (100) —
Payments for AROs (545) (632) 87
Working capital 1,897 (1,248) 3,145
Other assets and Other liabilities (719) 1,498 (2,217)
Net cash provided by operating activities $ 12,328 $ 9,878 $ 2,450The variance was driven primarily by:• a $1,435 million increase in net income, after adjustment for non-cash items, primarily due to growth from rate increases and riders, improved weather, higher sales volumes, and net proceeds from the sales of transferable tax credits, partially offset by higher interest expense and storm costs, along with a higher effective tax rate; and
• an $928 million increase in net working capital and changes in other assets and liabilities amounts, primarily due to higher recovery of deferred fuel costs and the timing of accruals and payments, partially offset by higher deferred storm costs.INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2024 2023 Variance
Capital, investment and acquisition expenditures, net of return of investment capital $ (12,263) $ (12,622) $ 359
Debt and equity securities, net 100 63 37Proceeds from the sales of Commercial Renewables Disposal Groups and other assets, net of cash divested49 883 (834)
Other investing items (1,009) (799) (210)
Net cash used in investing activities $ (13,123) $ (12,475) $ (648)
The variance relates primarily to the disposal of the Commercial Renewables business, with higher sales proceeds received in the prior year, partially offset by lower capital expenditures in the current year.
The primary use of cash related to investing activities is typically capital, investment and acquisition expenditures, net of return of investment capital, detailed by reportable business segment in the following table.Years Ended December 31,(in millions) 2024 2023 Variance
Electric Utilities and Infrastructure $ 10,689 $ 10,135 $ 554
Gas Utilities and Infrastructure 1,313 1,492 (179)
Other 261 995 (734)
Total capital, investment and acquisition expenditures, net of return of investment capital $ 12,263 $ 12,622 $ (359)FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.
Years Ended December 31,(in millions) 2024 2023 Variance
Issuances of long-term debt, net $ 5,599 $ 5,291 $ 308
Issuances of common stock
405 8 397
Redemption of preferred stock
(1,000) — (1,000)
Notes payable and commercial paper (927) 142 (1,069)
Dividends paid (3,213) (3,244) 31
Contributions from noncontrolling interests 47 278 (231)
Other financing items (52) (124) 72
Net cash provided by financing activities $ 859 $ 2,351 $ (1,492)
63MD&A LIQUIDITY AND CAPITAL RESOURCES
The variance was driven primarily by:• a $1,069 million decrease in net borrowings from notes payable and commercial paper;
• a $1,000 million decrease due to the redemption of Series B preferred stock in the current year; and
• a $231 million decrease in contributions from NCI, primarily due to the prior year sale of the Commercial Renewables business.
Partially offset by:
• a $397 million increase in proceeds from issuances of common stock in the current year; and
• a $308 million increase in proceeds from net issuances of long-term debt, primarily due to timing of issuances and redemptions of long-term debt.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management Policies
The Enterprise Risk Management policy framework at Duke Energy includes strategic, operational, project execution and financial or transaction related risks. Enterprise Risk Management includes market risk as part of the financial and transaction related risks in its framework.
Duke Energy is exposed to market risks associated with commodity prices, interest rates and equity prices. Duke Energy has established comprehensive risk management policies to monitor and manage these market risks. Duke Energy’s Chief Executive Officer and Chief Financial Officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The Finance and Risk Management Committee of the Board of Directors receives periodic updates from the Chief Risk Officer and other members of management on market risk positions, corporate exposures and overall risk management activities. The Chief Risk Officer is responsible for the overall governance of managing commodity price risk, including monitoring exposure limits.
The following disclosures about market risk contain forward-looking statements that involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. See Item 1A, “Risk Factors,” and “Cautionary Statement Regarding Forward-Looking Information” for a discussion of the factors that may impact any such forward-looking statements made herein.
Commodity Price Risk
Price risk represents the potential risk of loss from adverse changes in the market price of electricity or other energy commodities. Duke Energy’s exposure to commodity price risk is influenced by a number of factors, including the effects of regulation, commodity contract size and length, market liquidity, market conditions, location and unique or specific contract terms. Duke Energy is exposed to the impact of market fluctuations in the prices of electricity, coal, natural gas and other energy-related products marketed and purchased as a result of its ownership of energy-related assets.
Duke Energy’s exposure to these fluctuations through its regulated utility operations is limited since these operations are subject to cost-based regulation and are typically allowed to recover substantially all of these costs through various cost recovery clauses, including fuel clauses, formula-based contracts, or other cost-sharing mechanisms. While there may be a delay in timing between when these costs are incurred and when they are recovered through rates, changes from year to year generally do not have a material impact on operating results of these regulated operations.
Duke Energy employs established policies and procedures to manage risks associated with these market fluctuations, which may include using various commodity derivatives, such as swaps, futures, forwards and options. For additional information, see Note 15 to the Consolidated Financial Statements, “Derivatives and Hedging.”
Generation Portfolio Risks
For the EU&I segment, the generation portfolio not utilized to serve retail operations or committed load is subject to commodity price fluctuations. However, the impact on the Consolidated Statements of Operations is limited due to mechanisms in these regulated jurisdictions that result in the sharing of most of the net profits from these activities with retail customers.
Hedging Strategies
Duke Energy monitors risks associated with commodity price changes on its future operations and, where appropriate, uses various commodity instruments such as electricity, coal and natural gas hedging contracts and options to mitigate the effect of such fluctuations on operations. Duke Energy’s primary use of energy commodity derivatives is to hedge against exposure to the prices of power, fuel for generation and natural gas for customers.
Duke Energy also manages its exposure to basis risk through the use of congestion hedge products in RTOs such as financial transmission rights (PJM and MISO), which result in payments based on differentials in locational marginal prices. The majority of instruments used to manage Duke Energy’s commodity price exposure are either not designated as hedges or do not qualify for hedge accounting. These instruments are referred to as undesignated contracts. Mark-to-market changes for undesignated contracts entered into by regulated businesses are reflected as regulatory assets or liabilities on the Consolidated Balance Sheets.
Duke Energy may also enter into other contracts that qualify for the NPNS exception. When a contract meets the criteria to qualify as NPNS, Duke Energy applies such exception. Income recognition and realization related to NPNS contracts generally coincide with the physical delivery of the commodity. For contracts qualifying for the NPNS exception, no recognition of the contract’s fair value in the Consolidated Financial Statements is required until settlement of the contract as long as the transaction remains probable of occurring.64MD&A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Duke Energy is exposed to risk resulting from changes in interest rates as a result of its issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Duke Energy manages interest rate exposure by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. Duke Energy also enters into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps, swaptions and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. See Notes 1, 7, 15 and 17 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”Duke Energ y ha d $6.6 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2024. The impact of a 100-basis point change in interest rates on pretax income is approximately $70 million at December 31, 2024. This amount was estimated by considering the impact of the hypothetical interest rates on variable-rate securities outstanding, adjusted for interest rate hedges as of December 31, 2024.Foreign Currency Exchange Risk
Duke Energy is exposed to risk resulting from changes in the foreign currency exchange rates as a result of its issuances of long-term debt denominated in a foreign currency. Duke Energy manages foreign currency exchange risk exposure by entering into cross-currency swaps, a type of financial derivative instrument, which mitigate foreign currency exchange exposure. See Notes 7, 15 and 17 to the Consolidated Financial Statements, “Debt and Credit Facilities,” “Derivatives and Hedging” and “Fair Value Measurements," respectively.
Credit Risk
Credit risk represents the loss that the Duke Energy Registrants would incur if a counterparty fails to perform under its contractual obligations. Where exposed to credit risk, the Duke Energy Registrants analyze the counterparty's financial condition prior to entering into an agreement and monitor exposure on an ongoing basis. The Duke Energy Registrants establish credit limits where appropriate in the context of contractual arrangements and monitor such limits.
To reduce credit exposure, the Duke Energy Registrants seek to include netting provisions with counterparties, which permit the offset of receivables and payables with such counterparties. The Duke Energy Registrants also frequently use master agreements with credit support annexes to further mitigate certain credit exposures. The master agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents a negotiated unsecured credit limit for each party to the agreement, determined in accordance with the Duke Energy Registrants’ internal corporate credit practices and standards. Collateral agreements generally also provide that the failure to post collateral when required is sufficient cause to terminate transactions and liquidate all positions.
The Duke Energy Registrants also obtain cash, letters of credit, or surety bonds from certain counterparties to provide credit support outside of collateral agreements, where appropriate, based on a financial analysis of the counterparty and the regulatory or contractual terms and conditions applicable to each transaction. See Note 15 to the Consolidated Financial Statements, “Derivatives and Hedging,” for additional information regarding credit risk related to derivative instruments.
The Duke Energy Registrants’ principal counterparties for its electric and natural gas businesses are RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the event of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities that may affect the Duke Energy Registrants’ credit risk.
The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments in conjunction with outsourcing arrangements, major construction projects and certain commodity purchases. The Duke Energy Registrants’ credit exposure to such suppliers may take the form of increased costs or project delays in the event of nonperformance. The Duke Energy Registrants' frequently require guarantees or letters of credit from suppliers to mitigate this credit risk.
Credit risk associated with the Duke Energy Registrants’ service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring tariff customers to provide a cash deposit, letter of credit or surety bond until a satisfactory payment history is established, subject to the rules and regulations in effect in each retail jurisdiction at which time the deposit is typically refunded. Charge-offs for retail customers have historically been insignificant to the operations of the Duke Energy Registrants and are typically recovered through retail rates. Management continually monitors customer charge-offs, payment patterns and the impact of current economic conditions on customers' ability to pay their outstanding balance to ensure the adequacy of bad debt reserves.The Duke Energy Registrants provide certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs, including invested capital, are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer creditworthiness is assessed prior to entering into these transactions. Credit concentration related to these transactions exists for certain of these customers.Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. See Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies" for information on asbestos-related injuries and damages claims.
The Duke Energy Registrants also have credit risk exposure through issuance of performance and financial guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the Duke Energy Registrants have issued these guarantees, it is possible that they could be required to perform under these guarantee obligations in the event the obligor under the guarantee fails to perform. Where the Duke Energy Registrants have issued guarantees related to assets or operations that have been disposed of via sale, they attempt to secure indemnification from the buyer against all future performance obligations under the guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants.65
MD&A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDuke Energy is subject to credit risk from transactions with counterparties to cross-currency swaps related to future interest and principal payments. The credit exposure to such counterparties may take the form of higher costs to meet Duke Energy's future euro-denominated interest and principal payments in the event of counterparty default. Duke Energy selects highly rated banks as counterparties and allocates the hedge for each debt issuance across multiple counterparties. The master agreements with the counterparties impose collateral requirements on the parties in certain circumstances indicative of material deterioration in a party's creditworthiness.
Based on the Duke Energy Registrants’ policies for managing credit risk, their exposures and their credit and other reserves, the Duke Energy Registrants do not currently anticipate a materially adverse effect on their consolidated financial position or results of operations as a result of nonperformance by any counterparty.
Marketable Securities Price Risk
As described further in Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” Duke Energy invests in debt and equity securities as part of various investment portfolios to fund certain obligations. The vast majority of investments in equity securities are within the NDTF and assets of the various pension and other post-retirement benefit plans.
Pension Plan Assets
Duke Energy maintains investments to facilitate funding the costs of providing non-contributory defined benefit retirement and other post-retirement benefit plans. These investments are exposed to price fluctuations in equity markets and changes in interest rates. The equity securities held in these pension plans are diversified to achieve broad market participation and reduce the impact of any single investment, sector or geographic region. Duke Energy has established asset allocation targets for its pension plan holdings, which take into consideration the investment objectives and the risk profile with respect to the trust in which the assets are held. See Note 23 to the Consolidated Financial Statements, “Employee Benefit Plans,” for additional information regarding investment strategy of pension plan assets.
A significant decline in the value of plan asset holdings could require Duke Energy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. Additionally, a decline in the fair value of plan assets, absent additional cash contributions to the plan, could increase the amount of pension cost required to be recorded in future periods, which could adversely affect Duke Energy’s results of operations in those periods.
Nuclear Decommissioning Trust FundsAs required by the NRC, NCUC, PSCSC and FPSC, subsidiaries of Duke Energy maintain trust funds to fund the costs of nuclear decommissioning. As of December 31, 2024, these funds were invested primarily in domestic and international equity securities, debt securities, cash and cash equivalents and short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC and FPSC requirements, these funds may be used only for activities related to nuclear decommissioning. These investments are exposed to price fluctuations in equity markets and changes in interest rates. Duke Energy actively monitors its portfolios by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes.Accounting for nuclear decommissioning recognizes that costs are recovered through retail and wholesale rates; therefore, fluctuations in investment prices do not materially affect the Consolidated Statements of Operations, as changes in the fair value of these investments are primarily deferred as regulatory assets or regulatory liabilities pursuant to Orders by the NCUC, PSCSC, FPSC and FERC. Earnings or losses of the funds will ultimately impact the amount of costs recovered through retail and wholesale rates. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information regarding nuclear decommissioning costs. See Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” for additional information regarding NDTF assets.
OTHER MATTERS
Environmental Regulations
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.
The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 4 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.GHG Standards and Guidelines
In April 2024, the EPA issued final rules under section 111 of the Clean Air Act (EPA Rule 111) regulating GHG emissions from existing coal-fired and new natural gas-fired power plants, referred to as electric generating units (EGUs). EPA Rule 111 requires existing coal-fired power plants expected to operate in 2039 and beyond to reduce GHG emissions by 90% through the use of carbon capture and sequestration starting in 2032, subject to certain modifications for coal plants that retire sooner and co-fire natural gas. EPA Rule 111 also establishes GHG emissions reduction standards for new natural gas-fired EGUs, subject to carve-outs for smaller peaking units that fill gaps that cannot be met with renewables or storage. The EPA did not finalize emission guidelines for GHG emissions from existing fossil fuel-fired stationary combustion turbines and signaled, before the 2024 election, that it intended to address these in a future rulemaking. Duke Energy is analyzing the potential impacts the rules could have on the Company, which could be material and may influence the timing, nature, and magnitude of future generation investments in our service territories. Duke Energy is participating in legal challenges to EPA Rule 111 as a member of Electric Generators for a Sensible Transition, a coalition of similarly affected utilities, and as a member of a utility trade group. The litigation is currently pending in the U.S. Court of Appeals for the District of Columbia Circuit (the Court). On February 5, 2025, the EPA requested the Court to withhold issuing an opinion and place the case in a 60-day abeyance to allow time for new EPA leadership to review the issues and EPA Rule 111 and determine how they wish to proceed. On February 19, 2025, the Court granted EPA’s request.
66MD&A OTHER MATTERSCoal Combustion ResidualsIn April 2015, EPA published the 2015 CCR Rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. The rule established requirements regarding design and operating criteria, groundwater monitoring and corrective action, closure requirements and post-closure care, and recordkeeping, notifications, and internet posting requirements to ensure the safe disposal and management of CCR.
In April 2024, the EPA issued the 2024 CCR Rule which significantly expands the scope of the 2015 CCR Rule by establishing regulatory requirements for inactive surface impoundments at retired generating facilities (Legacy CCR Surface Impoundments). The final rule also imposes a subset of the 2015 CCR Rule’s requirements, including groundwater monitoring, corrective action (where necessary), and in certain cases, closure, and post-closure care requirements, on previously unregulated coal ash sources at regulated facilities (CCR Management Units). CCR Management Units may include surface impoundments and landfills that closed prior to the effectiv e date of the 2015 CCR Rule, inactive CCR landfills, and other areas where CCR is managed directly on the land at Duke Energy facilitie s. Duke Energy, as part of a group of similarly affected electric utilities, filed a petition to challenge the 2024 CCR Rule in the U.S. Court of Appeals for the District of Columbia Circuit (the Court) on August 6, 2024. On February 13, 2025, the EPA requested the Court to withhold issuing an opinion and place the case in a 120-day abeyance to allow time for new EPA leadership to review the issues and the 2024 CCR Rule and determine how they wish to proceed. On that same day, the Court granted EPA’s motion to hold the case in abeyance pending further order of the Court.
In addition to the requirements of the federal CCR rules, CCR landfills and surface impoundments will continue to be regulated by the states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of reasonable and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.Coal Ash ActAROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2024, and December 31, 2023, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, the federal CCR rules and other agreements. The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments and prohibits cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions.
On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate six of the nine remaining coal ash basins with ash moved to on-site lined landfills, including two at Allen, one at Mayo, one at Roxboro, and two at Rogers. At the three remaining basins at Belews Creek, Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Belews Creek, Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will be addressed as required under the 2024 CCR Rule and state regulations.
The estimated total cost to permanently close all coal ash basins in North Carolina and South Carolina is estimated to be approximately $8 billion to $9 billion of which approximately $4.4 billion has been spent through 2024. The majority of the remaining spend is primarily expected to occur over the next 10 years. Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River, Asheville and Sutton plants.For further information on coal ash basins and recovery, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.Other Environmental Regulations
The Duke Energy Registrants are also subject to various federal, state and local laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters. Duke Energy continues to comply with enacted environmental statutes and regulations even as certain of these regulations are in various stages of clarification, revision or legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.
Global Climate Change and Regulation of GHG EmissionsOn January 20, 2025, the new presidential administration signed an executive order directing the United States to again withdraw from the Paris Agreement and signed a letter to the United Nations notifying the world body of the planned withdrawal from the Paris Agreement. The withdrawal from the Paris Agreement will become official one year after the submission of the letter. In 2021, the previous presidential administration had recommitted to the Paris Agreement and announced a target of 50% to 52% reduction in economywide net GHG emissions from 2005 levels by 2030. The U.S. submittal to support this Paris target included a goal for 100% carbon-free electricity by 2035. These actions were supplemented by a number of executive orders and a number of proposed and final rules from federal regulatory agencies, including the EPA, that would have imposed additional regulations on CO 2 and methane emissions which could impact Duke Energy. The Duke Energy Registrants are monitoring these matters and any potential changes in commitments, regulations or additional executive actions as a result of the new presidential administration and cannot predict the outcome, however, there could be a material impact on our energy transition.EU&I CO 2 Emissions ReductionsThe Duke Energy Registrants’ direct GHG emissions consist primarily of CO 2 that results primarily from operating a fleet of coal-fired and natural gas-fired power plants to serve its customers reliably and affordably. Duke Energy is targeting at least a 50% reduction in carbon emissions from 2005 levels from electric generation by 2030, an 80% reduction by 2040, and net-zero carbon emissions by 2050. In February 2022, Scope 2 and certain Scope 3 emissions, including emissions from upstream purchased power and fossil fuel purchases, as well as downstream customer use of natural gas, were added to our 20 50 net-zero goal with an interim goal of reducing these emissions by 50% below 2021 levels by 2035.
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MD&A OTHER MATTERS
The Duke Energy Registrants have taken actions that have resulted in a reduction of CO 2 emissions over time . Between 2005 and 2024, the Duke Energy Registrants have collectively lowered the CO 2 emissions from their electricity generation by 44%. Tim elines and initiatives, as well as implementation of new technologies, for future GHG emission reductions will vary in each state in which the Company operates and will involve collaboration with regulators, customers and other stakeholders. Duke Energy's goals and actions taken to reduce CO 2 emissions potentially lower the exposure to any future mandatory CO 2 emission reduction requirements, whether as a result of federal legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirements.
Actions to reduce CO 2 emissions have included the retirement of 58 coal-fired electric generating units with a combined generating capacity of over 8,000 MW, whil e investing in renewables and energy storage and state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO 2 emissions per unit of electricity generated than coal. Duke Energy also has made investments to increase EE offerings and ensure continued operations of its zero-CO 2 emissions hydropower and nuclear plants. These efforts have diversified our electric generating system and significantly reduced CO 2 emissions.
Duke Energy will continue to explore the use of currently available and commercially demonstrated technology, as well as developing technologies, to meet customer demand reliably and affordably while reducing CO 2 emissions to achieve its net-zero goal as well as to comply with any future regulations. These technologies include EE, wind, solar and storage, as well as evolving technologies like carbon capture, utilization and storage, the use of hydrogen and other low-carbon fuels, long-duration energy storage and advanced nuclear. Duke Energy plans to adjust to and incorporate these evolving and innovative technologies in a way that balances the reliability and affordability of energy while meeting regulatory requirements and customer demands. Under any future scenario involving mandatory CO 2 limitations, the Duke Energy Registrants would plan to seek recovery of their compliance costs through appropriate regulatory mechanisms. Future levels of CO 2 emissions by the Duke Energy Registrants will be influenced by variables that include customer growth and capacity needs in the jurisdictions in which they operate, public policy, tax incentives, economic conditions that affect electricity demand, weather conditions, fuel prices, market prices, availability of resources and labor, compliance with new or existing regulations, the ability to make enhancements to transmission and distribution systems to support increased deployment of renewables and behind-the-meter technologies and the existence of new technologies that can be deployed to generate the electricity necessary to meet customer demand.Currently, the Duke Energy Registrants do not purchase carbon credits or offsets for use in connection with the Company's net-zero CO 2 emissions goals. Though they may purchase carbon credits or offsets for such uses in the future, the amount or cost of which is not expected to be material at this time.Generation Portfolio Planning Process
The Duke Energy Registrants annually, biennially or triennially prepare lengthy, forward-looking IRPs. These detailed, highly technical plans are based on the Company’s thorough analysis of numerous factors that can impact the demand for electricity as well as the cost of producing and delivering electricity that influence long-term generation resource planning decisions. The IRP process helps to evaluate a range of options, taking into account stakeholder input as well as forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, EE and demand response initiatives. The IRP process also helps evaluate potential environmental and regulatory scenarios to better mitigate policy and economic risks. The IRPs we file with regulators look out 10 to 20 years depending on the jurisdiction.
In 2021, the state of North Carolina passed HB 951, which among other things, directed the NCUC to develop and approve a carbon reduction plan that would target a 70% reduction in CO 2 emissions from Duke Energy Progress' and Duke Energy Carolinas' electric generation in the state by 2030 and carbon neutrality by 2050, considering all resource options and the latest technology. In December 2022, the NCUC issued an order adopting the first Carbon Plan as directed by HB 951 with the Carbon Plan to be updated every two years thereafter.
In August 2023, Duke Energy Carolinas and Duke Energy Progress filed their 2023 systemwide Carolinas Resource Plan (the Plan) with the NCUC and PSCS C. T he Plan provided a range of generation options, including three core portfolios, reflecting an “all of the above” approach to powering the energy needs of our growing region. In the Plan, Duke Energy Carolinas and Duke Energy Progress recommended one of the three core portfolios presented, Portfolio 3, as the most prudent path forward to comply with applicable state laws, providing a reliable and orderly energy transition that was proposed as the most reasonable and lowest-cost plan for the Carolinas. In November 2023, Duke Energy Carolinas and Duke Energy Progress provided notice to the NCUC and PSCSC of a substantially increased load forecast resulting from increased economic development in the Carolinas occurring since the Plan was prepared. The companies filed supplemental modeling and analysis with the NCUC and PSCSC in January 2024, demonstrating the need for additional resources beyond the initial set of resources identified by the companies in their initial plan.
In July 2024, Duke Energy Carolinas and Duke Energy Progress reached a broad settlement in the NCUC proceeding with the Public Staff, Walmart, and the Carolinas Clean Energy Business Association on the Plan, agreeing it is reasonable to use Portfolio 3 as the reference portfolio for planning purposes. Among other things, the settlement confirms a set of near-term activities, including development and procurement activities for solar, battery storage, onshore wind, and certain natural gas generation assets, as well as certain limited actions exploring initial development activities related to advanced nuclear, offshore wind, and to advance the potential for 1,834 MW of pumped storage hydro at the Bad Creek II facility by 2034. The NCUC conducted evidentiary hearings in July and August 2024 and issued an order accepting the settlement and providing further direction in November 2024. The order continues to emphasize the critical importance of reliability and maintaining affordability, while taking balanced actions to meet forecasted load growth. Additionally, the NCUC directed the Company to continue to pursue the merger of Duke Energy Carolinas and Duke Energy Progress. As a condition of the NCUC approval of the Duke Energy and Progress Energy merger in 2012, the NCUC instructed the Company to consider a merger between Duke Energy Carolinas and Duke Energy Progress. Since that time, the Company has analyzed, and continues to analyze, the possibility of such a combination, and the Company anticipates beginning merger-related filings with the NCUC, PSCSC and FERC in the second half of 2025. The Company is currently targeting a completion date for the merger of January 1, 2027. There is no assurance that the Company will be able to obtain the approval of the NCUC or PSCSC, or other required regulatory approvals, for the potential merger.
The PSCSC held its hearings in September 2024 and in November 2024 issued an order approving the Plan and directed Duke Energy Carolinas and Duke Energy Progress to work with the South Carolina Office of Regulatory Staff to provide alternative modeling around EPA Rule 111 compliance in a subsequent Carolinas Resource Plan filing.
68MD&A OTHER MATTERSIn November 2024, Duke Energy Indiana submitted its updated IRP, which balances reliability and affordability while meeting customer and economic development growth.GU&I CO 2 and Methane Emissions ReductionsIn addition to CO 2 emissions resulting primarily from our operations of coal-fired and natural gas-fired power plants, the Duke Energy Registrants are also responsible for certain methane emissions from the distribution of natural gas to customers. Duke Energy has a goal to achieve net-zero methane emissions from its natural gas distribution business by 2030. The Duke Energy Registrants have taken actions that have resulted in methane emission reductions, including the replacement of cast iron and bare steel pipelines and associated services with plastic or coated steel, advanced methane leak detection efforts, reducing time to repair nonhazardous leaks and operational releases of methane, and investment in renewable natural gas.
Timelines and initiatives, as well as implementation of new technologies, for future reductions of upstream methane emissions will vary in each state in which the Company’s natural gas distribution business operates and will involve collaboration with regulators, customers and other stakeholders. EPA has issued regulations that would require reduction of methane emissions upstream of the Duke Energy Registrants' natural gas distribution business. The impact of these regulations on natural gas fuel prices is not currently quantifiable.
Certain local governments, none within the jurisdictions in which the Duke Energy Registrants operate, have enacted or are considering initiatives to eliminate natural gas use in new buildings and focus on electrification. Enactment of similar regulations in the areas in which the Duke Energy Registrants' natural gas distribution operates could have a significant impact on the natural gas distribution business and its operations. At this time, such impacts are not able to be quantified; however, our net-zero methane goals for the natural gas distribution business, as well as the actions taken to reduce these GHG emissions, potentially lowers the exposure to any future mandatory GHG emission reduction requirements. The Duke Energy Registrants would plan to seek recovery of their compliance costs with any new regulations through the regulatory process.Physical Impacts of Climate Change
The Duke Energy Registrants recognize that scientists associate severe weather events with increasing levels of GHGs in the atmosphere. It is possible that these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration and severity), the long period of time over which any potential changes might take place and the inability to predict potential changes with any degree of accuracy, make estimating with any certainty any potential future financial risk to the Duke Energy Registrants’ operations difficult. Additionally, the Duke Energy Registrants would plan to continue to seek recovery of storm costs through the appropriate regulatory mechanisms. For more information on storm securitization and storm cost recovery, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."The Duke Energy Registrants routinely take steps to assess and reduce the potential impact of severe weather events on their electric transmission and distribution systems and natural gas facilities. The steps include modernizing the electric grid through smart meters, storm hardening, self-healing systems and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities and natural gas facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain inventories of coal, oil and liquified natural gas to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity and/or natural gas.New Accounting StandardsSee Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of any new accounting standards adopted by the Duke Energy Registrants.