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.
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RISK FACTORS
BUSINESS STRATEGY RISKS
Duke 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.
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RISK FACTORS
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 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 CO2 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.
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RISK FACTORS
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 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.
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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.
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RISK FACTORS
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, 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.
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RISK FACTORS
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 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.
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RISK FACTORS
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.
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.
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RISK FACTORS
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.
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.
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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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management
Ensuring the security of Duke Energy’s assets, information and teammates is vital for delivering the essential service on which Duke Energy’s customers and communities depend. In light of the ever-evolving threat landscape and increasing sophistication of threat actor tactics, techniques and procedures, steadfast and sophisticated cybersecurity and security operations are integral parts of Duke Energy’s enterprise risk management framework. Duke Energy's enterprise risk management framework is used across the enterprise by subject matter experts to identify, assess, monitor and communicate enterprise level risks to the Chief Risk Officer. Duke Energy’s technology and cybersecurity risk management program is integrated into the Company’s overall Enterprise Risk Management program and is composed of three primary lines of defense: (1) the Cybersecurity Incident Response Team (CIRT); (2) the Duke Energy Enterprise Security Team (EST); and (3) internal and external cybersecurity audits.
Duke Energy’s first line of defense is the CIRT under the Office of the Chief Information Officer. The CIRT reports up to leaders in the Chief Security and Information Security Office, including the Chief Security and Information Security Officer (CSISO), Managing Director of Cybersecurity and Network Defense, and Director of Cybersecurity Operations, whose cybersecurity backgrounds include many years serving in operational cyber roles, leading incident response, participating in industry engagement, collaborating with federal and local cyber programs, and time analyzing security breaches across the industry. The CIRT oversees an enterprisewide process that identifies, assesses, responds to and resolves cyber incidents, both internal and those associated with the Company’s use of third-party service providers, by defining roles, responsibilities and the process for problem source identification, mitigation, and eradication triggered by a suspected cyber incident. Duke Energy manages cybersecurity threats through its 24/7 Duke Energy Cybersecurity Operations Center (CSOC), which serves as the Company’s central command center for monitoring and coordinating responses to cyberthreats. The CSOC engages in daily information sharing within the utilities industry and with government partners and monitors incoming intelligence and cyber incident impacts. The CSOC assesses the relevant information by assigning a CIRT Heat Map score, which results in CIRT activation if a certain threat level is met. It also results in the assignment of additional roles and responsibilities to enable the cybersecurity leadership and technical teams to collectively and regularly review incident information, score the impact, communicate to leadership, and respond appropriately. Another key component of Duke Energy’s first line of defense against cybersecurity threats is its Third-Party Risk Management (TPRM) process, whereby third parties providing services that meet certain criteria such as storing or transmitting Duke Energy data, hosting an application, or connecting to the Duke Energy network are required to undergo a cybersecurity assessment primarily to ascertain the risk of a third party’s proposed services to Duke Energy.
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CYBERSECURITY
Duke Energy’s second line of defense against cybersecurity threats is the EST, which is led by the CSISO, and actively evaluates, anticipates and tests Duke Energy’s cybersecurity risk level and preventive and risk mitigation controls relative to the enterprisewide risk level and controls. The EST is responsible for infrastructure defense and security controls, performing vulnerability assessments and third-party information security assessments, employee awareness and training programs and security incident management, including oversight of the remediation of cybersecurity incidents. The EST monitors cyber activity and also reports on the status of the Company’s cybersecurity performance and any ongoing remediation efforts to the Company’s Chief Information Officer (CIO) and CSISO. The CIO and CSISO report these cybersecurity metrics, which use a vulnerability management scoring system and closely align with the National Institute of Standards and Technology Cybersecurity Framework, to the Audit Committee at each regularly scheduled Audit Committee meeting. The EST also employs tools and oversees and challenges Duke Energy’s cybersecurity and technology metrics under its Enterprise Security Risk Register to track, identify and manage risk. To this end, the EST engages outside expert firms to perform a comprehensive external penetration test each year, performs system and application penetration testing several times throughout the year, and conducts annual exercises simulating the tactics, techniques, and procedures of advanced threat actor groups to test the Company’s ability to prevent penetration, detect suspicious activity and respond to these threats in a timely manner. Lessons learned inform the ongoing improvement of security preventive and mitigating controls and procedures and the results of such testing and threat actor simulations are shared with senior management and the Board of Directors. Duke Energy also has a senior management committee, the Executive Cybersecurity Oversight Governance Committee (ECOG), which governs enterprise-level cybersecurity risk tolerance.
Internal and external cybersecurity audits provide a third line of defense and independently provide assurance on how effectively the Company, as a whole, manages cybersecurity risk. Each year, Duke Energy Corporate Audit Services (CAS) performs various audits of key Duke Energy security systems and functions, such as third-party risk management programs, to assess whether appropriate security controls are in place and operating effectively. In addition to these internal audits, the Company is subject to a variety of external audits, performed periodically as required by the auditing entity, including external audits performed by the North American Electric Reliability Corporation under the Critical Infrastructure Protection framework (NERC CIP), Transportation & Security Administration Pipeline Security Directive and Federal Energy Regulatory Commission Dam Security.
Duke Energy is not currently aware of any potential cybersecurity threats, including as a result of any previous cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition, however, Duke Energy cannot provide assurance that it will not be materially affected in the future by cybersecurity risks or any future material incidents.
Governance
The Audit Committee has primary oversight of management’s efforts to mitigate cybersecurity and technology risk and respond to cyber incidents. The Audit Committee receives updates throughout the year from the CIO and CSISO on cybersecurity and grid security issues, including compliance with regulations, employee training, and drills, at every regularly scheduled Audit Committee meeting, and engages in discussions throughout the year with management on the effectiveness of Duke Energy’s overall cybersecurity program and progress for addressing any identified risks. In 2023, the Audit Committee received four updates on cybersecurity. The Audit Committee also receives periodic updates on Duke Energy’s digital transformation and the operation of, and enhancements to, the Company’s financial systems and business and operational technical systems. The reviews presented to the Audit Committee are followed with an update to the full Board of Directors by the Chair of the Audit Committee.
In addition, the Operations and Nuclear Oversight Committee (ONOC) of the Board of Directors provides oversight of the nuclear safety and cybersecurity of Duke Energy’s nuclear power program, which is integrated with the companywide cyber protocols, and the Chair of the ONOC reports out to the Board of Directors on such oversight activities. Duke Energy’s nuclear cybersecurity program and associated cybersecurity plan (CSP) were fully implemented in 2017 in accordance with NRC regulation 10 CFR 73.54, “Protection of digital computer and communication systems and networks” and leverage monitoring, testing, drills, audits, assessments, and NRC inspections to continue to validate the effectiveness of the program to protect plant assets from cybersecurity threats.
Moreover, Duke Energy’s processes ensure that the Board of Directors receive contemporaneous reporting on potentially significant cyber events including response, legal obligations, and outreach and notification to regulators and customers when needed, as well as an opportunity to provide guidance to management as appropriate.
In addition, the Company’s Executive Cybersecurity Oversight Governance Committee (ECOG), comprised of the Company's Chair, President, and Chief Executive Officer (CEO), Executive Vice President (EVP) and Chief Financial Officer, EVP and Chief Commercial Officer, EVP Customer Experience, Solutions and Services, and EVP, Chief Generation Officer and Enterprise Operational Excellence, receives monthly updates from the CIO and CSISO and provides senior management throughout the Company informational technology and operational technology perspectives, oversight and governance on investments and priorities for the broader cybersecurity organization, in addition to providing final decision oversight on recommendations and response to the ever challenging cybersecurity threat landscape. The ECOG also is leveraged to supply information and bring transparency to senior management throughout the company on the increasing threat landscape and the actions, response and road map to combat the threats.
The relevant cybersecurity risk expertise of Duke Energy’s management who serve on the ECOG and/or senior management who lead the CIRT and EST is described below.
•The CEO of Duke Energy has over 20 years of experience in the utilities industry, and has gained cybersecurity experience as CEO of one of America’s largest utility companies, and through service on the board of the Edison Electric Institute, the Institute of Nuclear Power Operations, the World Association of Nuclear Operators, and past service on the Department of Homeland Security Advisory Council.
•The EVP and Chief Financial Officer of Duke Energy (CFO) previously served as the Company’s Chief Transformation and Administrative Officer and led the Company’s business transformation through digital innovation, new ways of working and process redesign. In this role, the CFO gained an in-depth understanding of the Company's cybersecurity procedures and key threats, and was responsible for the enterprise business services and technology team, including the information and technology organization.
•The EVP, Chief Generation Officer and Enterprise Operational Excellence of Duke Energy has gained cybersecurity experience through being responsible for the safe, efficient and reliable operation of Duke Energy's fleet of nuclear, natural gas, hydro, solar and coal units.
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CYBERSECURITY
•The EVP, Customer Experience, Solutions and Services of Duke Energy has gained cybersecurity experience through focusing on transmission and the development of long-term grid strategies and solutions and through a prior role as Chief Distribution Officer, overseeing the safe, reliable, and efficient operation of Duke Energy’s electric distribution systems, and through serving on the board of the Association of Edison Illuminating Companies.
•The EVP and Chief Commercial Officer of Duke Energy has cybersecurity experience gained through responsibility for enterprise technology and security, among other areas.
•The CSISO of Duke Energy has over 25 years of experience building and leading security teams within multiple industries. The CSISO holds a Secret Security clearance and is committed to strengthening U.S. critical infrastructure through active collaboration with federal partners at the Federal Bureau of Investigation, Department of Energy, Department of Homeland Security, and state partners including the national guard, law enforcement and universities.
•The CIO of Duke Energy has over 25 years of experience in delivering secure information technology solutions across multiple industries, leading technology delivery for all core business functions. The CIO holds a Secret Security clearance and has active interactions and partnership with the Federal Bureau of Investigation, Edison Electric Institute and State Fusion Centers in the jurisdictions that Duke Energy serves.
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PROPERTIES
ITEM 2. PROPERTIES
ELECTRIC UTILITIES AND INFRASTRUCTURE
The following table provides information related to the EU&I's generation stations as of December 31, 2023. The MW displayed in the table below are based on winter capacity for Fossil, Nuclear and Hydro generation stations, and nameplate capacity for Renewable generation stations. Ownership interest in all facilities is 100% unless otherwise indicated.
Prior to December 31, 2023, summer capacity was displayed for all EU&I generation stations in the table below. Certain registrants' IRPs, including those filed in North Carolina and South Carolina in 2023, currently use winter capacity for Fossil, Nuclear and Hydro stations as winter capacity is generally a more accurate representation of that stations' ability to support peak capacity requirements due to a higher risk of reliability challenges during the winter months in those jurisdictions. Additionally, analysis of resource adequacy across all jurisdictions demonstrates that as solar adoption increases, there is a higher risk of reliability challenges in the winter. As such, most of Duke Energy's IRPs are expected to shift toward winter planning. See Item 7, "Other Matters" for additional information on IRPs. Nameplate capacity is generally viewed as a transparent representation of the Renewable stations since their output varies by day, month, and real-time weather conditions, particularly with solar facilities, which may or may not be paired with battery storage depending on the location. The Owned MW Capacity based on summer capacity as of December 31, 2023, is 50,302 MW for all of EU&I.
Owned MW
Facility Plant Type Primary Fuel Location Capacity
Duke Energy Carolinas
Oconee Nuclear Uranium SC 2,618
McGuire Nuclear Uranium NC 2,386
Catawba(a) Nuclear Uranium SC 588
Belews Creek Fossil Coal/Gas NC 2,220
Marshall Fossil Coal/Gas NC 2,078
Lincoln Combustion Turbine (CT) Fossil Gas/Oil NC 1,507
J.E. Rogers Fossil Coal/Gas NC 1,395
Rockingham CT Fossil Gas/Oil NC 895
Mill Creek CT Fossil Gas/Oil SC 751
Buck CC Fossil Gas NC 718
Dan River CC Fossil Gas NC 718
W.S. Lee Combined Cycle (CC)(b) Fossil Gas SC 706
Allen Fossil Coal NC 426
W.S. Lee CT Fossil Gas/Oil SC 96
Clemson CHP Fossil Gas SC 16
Bad Creek Hydro Water SC 1,600
Jocassee Hydro Water SC 780
Cowans Ford Hydro Water NC 324
Keowee Hydro Water SC 152
Other small facilities (18 plants) Hydro Water NC/SC 584
Distributed generation Renewable Solar NC 178
Total Duke Energy Carolinas 20,736
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PROPERTIES
Owned MW
Facility Plant Type Primary Fuel Location Capacity
Duke Energy Progress
Brunswick Nuclear Uranium NC 1,928
Harris Nuclear Uranium NC 1,009
Robinson Nuclear Uranium SC 793
Roxboro Fossil Coal NC 2,462
Smith CC Fossil Gas/Oil NC 1,250
H.F. Lee CC Fossil Gas/Oil NC 1,054
Wayne County CT Fossil Gas/Oil NC 975
Smith CT Fossil Gas/Oil NC 960
L.V. Sutton CC Fossil Gas/Oil NC 719
Mayo Fossil Coal NC 713
Asheville CC Fossil Gas/Oil NC 560
Asheville CT Fossil Gas/Oil NC 370
Darlington CT Fossil Gas/Oil SC 264
Weatherspoon CT Fossil Gas/Oil NC 164
L.V. Sutton CT Fossil Gas/Oil NC 97
Blewett CT Fossil Oil NC 68
Walters Hydro Water NC 112
Other small facilities (3 plants) Hydro Water NC 116
Distributed generation Renewable Solar NC 141
Asheville – Rock Hill Battery Renewable Storage NC 9
Hot Springs Microgrid Renewable Storage NC 6
Total Duke Energy Progress 13,770
Owned MW
Facility Plant Type Primary Fuel Location Capacity
Duke Energy Florida
Hines CC Fossil Gas/Oil FL 2,149
Citrus County CC Fossil Gas FL 1,854
Crystal River Fossil Coal FL 1,442
Bartow CC Fossil Gas/Oil FL 1,259
Intercession City CT Fossil Gas/Oil FL 1,146
Anclote Fossil Gas FL 1,035
DeBary CT Fossil Gas/Oil FL 661
Osprey CC Fossil Gas/Oil FL 611
Tiger Bay CC Fossil Gas/Oil FL 230
Bayboro CT Fossil Oil FL 226
Bartow CT Fossil Gas/Oil FL 212
Suwannee River CT Fossil Gas FL 194
University of Florida CoGen CT Fossil Gas FL 50
Lake Placid Battery (microgrid) Renewable Storage FL 17
Trenton Battery Renewable Storage FL 11
Micanopy Battery Renewable Storage FL 8
Jennings Battery Renewable Storage FL 6
Cape San Blas Battery Renewable Storage FL 6
Distributed generation Renewable Solar FL 1,186
Total Duke Energy Florida 12,303
Owned MW
Facility Plant Type Primary Fuel Location Capacity
Duke Energy Ohio
East Bend Fossil Coal KY 600
Woodsdale CT Fossil Gas/Propane OH 564
Distributed generation Renewable Solar KY 9
Total Duke Energy Ohio 1,173
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PROPERTIES
Owned MW
Facility Plant Type Primary Fuel Location Capacity
Duke Energy Indiana
Gibson(c) Fossil Coal IN 2,845
Cayuga(d) Fossil Coal/Oil IN 1,015
Madison CT Fossil Gas OH 704
Edwardsport Fossil Coal/Gas IN 578
Wheatland CT Fossil Gas IN 508
Vermillion CT(e) Fossil Gas IN 477
Noblesville CC Fossil Gas/Oil IN 310
Henry County CT(f) Fossil Gas/Oil IN 134
Cayuga CT Fossil Gas/Oil IN 105
Purdue CHP Fossil Gas IN 16
Markland Hydro Water IN 54
Distributed generation Renewable Solar IN 29
Camp Atterbury Battery Renewable Storage IN 5
Nabb Battery Renewable Storage IN 5
Crane Battery Renewable Storage IN 5
Total Duke Energy Indiana 6,790
Owned MW
Totals by Type Capacity
Total Electric Utilities 54,772
Totals by Plant Type
Total Electric Utilities 54,772
(a)Jointly owned with North Carolina Municipal Power Agency Number 1, NCEMC and PMPA. Duke Energy Carolinas' ownership is 19.25% of the facility.
(b)Jointly owned with NCEMC. Duke Energy Carolinas' ownership is 87.27% of the facility.
(c)Duke Energy Indiana owns and operates Gibson Station Units 1 through 4 and is a joint owner of unit 5 with WVPA and IMPA. Duke Energy Indiana operates unit 5 and owns 50.05%.
(d)Includes Cayuga Internal Combustion.
(e)Jointly owned with WVPA. Duke Energy Indiana's ownership is 62.5% of the facility.
(f)Includes 50 MW, which are contracted to WVPA.
The following table provides information related to EU&I's electric transmission and distribution properties as of December 31, 2023.
Duke Duke Duke Duke Duke
Duke Energy Energy Energy Energy Energy
Energy Carolinas Progress Florida Ohio Indiana
Electric Transmission Lines
Electric Distribution Lines
Substantially all of EU&I's electric plant in service is mortgaged under indentures relating to Duke Energy Carolinas’, Duke Energy Progress', Duke Energy Florida's, Duke Energy Ohio’s and Duke Energy Indiana’s various series of First Mortgage Bonds.
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PROPERTIES
GAS UTILITIES AND INFRASTRUCTURE
GU&I owns transmission pipelines and distribution mains that are generally underground, located near public streets and highways, or on property owned by others for which Duke Energy Ohio and Piedmont have obtained the necessary legal rights to place and operate facilities on such property located within the GU&I service territories. The following table provides information related to GU&I's natural gas distribution as of December 31, 2023.
Duke
Duke Energy
Energy Ohio Piedmont
Miles of natural gas distribution and transmission pipelines 35,700 7,700 28,000
OTHER
Duke Energy owns approximately 7.1 million square feet and leases approximately 2.5 million square feet of corporate, regional and district office space spread throughout its service territories. See Note 11, "Property, Plant and Equipment," for further information.
ITEM 3. LEGAL PROCEEDINGS
MTBE Litigation
On December 15, 2017, the state of Maryland filed suit in Baltimore City Circuit Court against Duke Energy Merchants and other defendants alleging contamination of state waters by MTBE leaking from gasoline storage tanks and is seeking an unspecified amount of monetary damages. MTBE is a gasoline additive intended to increase the oxygen levels in gasoline and make it burn cleaner. The case was removed from Baltimore City Circuit Court to federal District Court. Initial motions to dismiss filed by the defendants were denied by the court on September 4, 2019, and the matter is now in discovery. On December 18, 2020, the plaintiff and defendants selected 50 focus sites, none of which have any ties to Duke Energy Merchants. Discovery will be specific to those sites. At this time, Duke Energy Merchants has not engaged in settlement negotiations with the plaintiff and the plaintiff has not reached a settlement agreement with any defendant. Duke Energy cannot predict the outcome of this matter.
In addition, the Duke Energy Registrants are, from time to time, parties to various lawsuits and regulatory proceedings in the ordinary course of their business. For information regarding legal proceedings, including regulatory and environmental matters, see Note 4, “Regulatory Matters,” and Note 5, “Commitments and Contingencies,” to the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
This is not applicable for any of the Duke Energy Registrants.
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SECURITIES INFORMATION
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of Duke Energy is listed and traded on the NYSE (ticker symbol DUK). As of January 31, 2024, there were 121,476 Duke Energy common stockholders of record. For information on dividends, see the "Dividend Payments" section of Management's Discussion and Analysis.
There is no market for the common equity securities of the Subsidiary Registrants, all of which are directly or indirectly owned by Duke Energy. See Note 2, "Dispositions," to the Consolidated Financial Statements for information on the investment of a minority interest in Duke Energy Indiana.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III within this Annual Report for information regarding Securities Authorized for Issuance Under Equity Compensation Plans.
Issuer Purchases of Equity Securities for Fourth Quarter 2023
There were no repurchases of equity securities during the fourth quarter of 2023.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Stock Performance Graph
The following performance graph compares the cumulative TSR from Duke Energy Corporation common stock, as compared with the Standard & Poor's 500 Stock Index (S&P 500) and the Philadelphia Utility Index for the past five years. The graph assumes an initial investment of $100 on December 31, 2018, in Duke Energy common stock, in the S&P 500 and in the Philadelphia Utility Index and that all dividends were reinvested. The stockholder return shown below for the five-year historical period may not be indicative of future performance.
NYSE CEO Certification
Duke Energy has filed the certification of its Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
This is not applicable for any of the Duke Energy Registrants.
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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 Overview
At 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 have 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.
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Carolinas 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 CO2 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 Infrastructure
We 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.
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In 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, we 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.
We 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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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 Costs
Duke 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 filings. The majority of spend is primarily expected to occur over the next 10 years.
Duke Energy Indiana has interpreted the CCR Rule to identify 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 ash. 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 recovery 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 Chain
In 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.
Goodwill
The 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.
Other
Duke 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,
(in millions, except per share amounts) Earnings EPS Earnings EPS
Adjustments 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
(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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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 RESULTS
The 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,
Operating Expenses
Fuel used in electric generation and purchased power 9,164 8,862 302
Impairment of assets and other charges 75 374 (299)
Gains on Sales of Other Assets and Other, net 28 7 21
Other Income and Expenses, net 517 467 50
Less: Income Attributable to Noncontrolling Interest 99 13 86
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;
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•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. Theincrease 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. The 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.
47
MD&A SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE
Gas Utilities and Infrastructure
Years Ended December 31,
Operating Expenses
Operation, maintenance and other 455 532 (77)
Property and other taxes 129 138 (9)
Impairment of assets and other charges (4) (12) 8
Gains on Sales of Other Assets and Other, net — 1 (1)
Other income and expenses, net 106 78 28
Add: Loss Attributable to Noncontrolling Interest 2 — 2
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 - OTHER
Other
Years Ended December 31,
Gains on Sales of Other Assets and Other, net 24 14 10
Other Income and Expenses, net 258 65 193
Loss Before Income Taxes (930) (875) (55)
Less: Preferred Dividends 106 106 —
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 costs 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 TAX
Years Ended December 31,
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,
Operating Expenses
Fuel used in electric generation and purchased power 2,524 2,015 509
Impairment of assets and other charges 44 26 18
Gains on Sales of Other Assets and Other, net 26 4 22
Other Income and Expenses, net 238 221 17
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 2022
Operating 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 CAROLINAS
Operating 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. Theincrease 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,
Operating Expenses
Fuel used in electric generation and purchased power 5,026 5,078 (52)
Impairment of assets and other charges 28 12 16
Gains on Sales of Other Assets and Other, net 27 11 16
Other Income and Expenses, net 201 181 20
Year Ended December 31, 2023, as compared to 2022
Operating 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 ENERGY
Partially 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 taxes 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. Theincrease 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,
Operating Expenses
Fuel used in electric generation and purchased power 2,203 2,492 (289)
Impairment of assets and other charges 29 7 22
Gains on Sales of Other Assets and Other, net 3 4 (1)
Other Income and Expenses, net 124 114 10
52
MD&A DUKE ENERGY PROGRESS
The 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 %