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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MD&A SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE
•a $115 million increase in rider revenues primarily due to a decrease in the return of EDIT to customers compared to the prior year at Duke Energy Carolinas and increased Storm Protection Plan rider revenue at Duke Energy Florida; and
•a $67 million increase due to the provision for rate refund recognized in the prior year related to the Indiana Supreme Court ruling on recovery of certain coal ash costs.
Partially offset by:
•a $341 million decrease in retail sales due to unfavorable weather compared to prior year;
•a $323 million decrease in wholesale revenues primarily due to lower demand at Duke Energy Florida and lower prices at Duke Energy Indiana; and
•a $173 million decrease in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
•a $302 million increase in fuel used in electric generation and purchased power due to changes in the generation mix at Duke Energy Carolinas and recovery of fuel expense at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida; and
•a $134 million increase in depreciation and amortization primarily due to higher plant in service, partially offset by the amortization of the DOE settlement regulatory liability at Duke Energy Florida.
Partially offset by:
•a $299 million decrease in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs in the prior year, partially offset by rate case impacts at Duke Energy Carolinas and Duke Energy Progress in the current year; and
•a $45 million decrease in operation, maintenance and other expense primarily due to decrease in spend on outside services and lower project costs at Duke Energy Carolinas and Duke Energy Progress, partially offset by an increase in storm amortization at Duke Energy Florida.
Gains on Sales of Other Assets and Other, net. 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.
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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 %
Year Ended December 31, 2023, as compared to 2022
Operating Revenues. The variance was driven primarily by:
•a $259 million decrease in fuel revenues due to lower JDA sales volumes at lower prices in the current year, partially offset by higher fuel cost recovery;
•a $103 million decrease in retail sales due to unfavorable weather compared to prior year; and
•a $70 million decrease in weather-normal retail sales volumes.
Partially offset by:
•a $127 million increase due to higher pricing from the North Carolina and the South Carolina rate cases;
•a $21 million increase in rider revenues primarily due to the decrease in the return of EDIT to customers compared to the prior year; and
•a $17 million increase in wholesale revenues, net of fuel, due to higher capacity rates, partially offset by lower volumes.
Operating Expenses. The variance was driven primarily by:
•a $289 million decrease in fuel used in electric generation and purchased power primarily due to changes in the generation mix, partially offset by the recovery of fuel expenses;
•a $96 million decrease in operation, maintenance and other primarily due to lower storm costs, lower outside services and lower project costs; and
•a $26 million decrease in property and other taxes due to lower franchise taxes.
Partially offset by:
•a $79 million increase in depreciation and amortization due to higher depreciable base and rate case impacts; and
•a $22 million increase in impairment of assets and other charges primarily due to rate case impacts offset by prior year adjustments from the South Carolina Supreme Court decision on coal ash and the optimization of the Company's real estate portfolio.
Other Income and Expenses, net. The variance was driven primarily by interest income.
Interest Expense. The variance was driven primarily by higher interest rates and outstanding debt balances.
Income Tax Expense.The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of EDIT.
53
MD&A DUKE ENERGY FLORIDA
DUKE ENERGY FLORIDA
Results of Operations
Years Ended December 31,
Operating Expenses
Fuel used in electric generation and purchased power 2,823 2,586 237
Depreciation and amortization 885 955 (70)
Impairment of assets and other charges (1) 4 (5)
Gains on Sales of Other Assets and Other, net 2 2 —
Other Income and Expenses, net 78 74 4
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year 2023
Residential sales 1.1 %
General service sales 1.2 %
Industrial sales (3.2) %
Wholesale power sales (49.3) %
Total sales (6.1) %
Average number of customers 1.8 %
Year Ended December 31, 2023, as compared to 2022
Operating Revenues. The variance was driven primarily by:
•a $513 million increase in fuel and capacity revenues primarily due to an increase in fuel and capacity rates billed to retail customers;
•a $363 million increase in storm revenues due to hurricanes Ian and Nicole collections;
•a $45 million increase in rider revenues primarily due to higher rates for the Storm Protection Plan rider;
•a $29 million increase in retail sales due to favorable weather in the current year;
•a $23 million increase in franchise taxes revenue primarily due to increased revenues over prior year; and
•a $17 million increase in retail pricing due to base rate adjustments related to annual increases from the 2021 Settlement Agreement.
Partially offset by:
•a $291 million decrease in wholesale power revenues, net of fuel, primarily due to decreased demand; and
•a $29 million decrease in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
•a $272 million increase in operation, maintenance and other primarily due to storm amortization;
•a $237 million increase in fuel used in electric generation and purchased power primarily due to the recovery of fuel expenses, partially offset by a decrease in purchased power costs due to lower natural gas prices; and
•a $59 million increase in property and other taxes primarily due to higher franchise taxes and gross receipts taxes driven by higher revenues and higher property taxes due to property tax valuation adjustments.
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MD&A DUKE ENERGY FLORIDA
Partially offset by:
•a $70 million decrease in depreciation and amortization primarily due to the amortization of the DOE settlement regulatory liability, partially offset by higher depreciable base.
Interest Expense. The variance was primarily due to higher interest rates and outstanding debt balances.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT, partially offset by an increase in PTCs.
DUKE ENERGY OHIO
Results of Operations
Years Ended December 31,
Operating Revenues
Operating Expenses
Fuel used in electric generation and purchased power 608 657 (49)
Operation, maintenance and other 478 523 (45)
Property and other taxes 364 369 (5)
Impairment of assets and other charges 3 (10) 13
Gains on Sales of Other Assets and Other, net 1 1 —
Other Income and Expenses, net 41 19 22
Income Tax Expense (Benefit) 63 (21) 84
The following table shows the percent changes in GWh sales of electricity, MCF of natural gas delivered and average number of electric and natural gas customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Electric Natural Gas
Increase (Decrease) over prior year 2023 2023
Residential sales (4.8) % (13.5) %
General service sales 1.5 % (19.7) %
Industrial sales 4.9 % 3.8 %
Wholesale electric power sales (19.3) % n/a
Other natural gas sales n/a (0.7) %
Total sales (4.0) % (10.8) %
Average number of customers 0.9 % 0.6 %
Year Ended December 31, 2023, as compared to 2022
Operating Revenues. The variance was driven primarily by:
•a $77 million decrease in fuel-related revenues primarily due to lower retail sales volumes and lower fuel cost recovery in the current year;
•a $59 million decrease in revenues related to lower OVEC rider collections and OVEC sales into PJM;
•a $35 million decrease due to unfavorable weather compared to prior year; and
•an $18 million decrease in retail revenue riders primarily due to the decrease in Distribution Capital Investment Rider, partially offset by increases in the Ohio CEP rider and Energy Efficiency Rider.
55
MD&A DUKE ENERGY OHIO
Partially offset by:
•a $145 million increase in price due to the Duke Energy Ohio and Duke Energy Kentucky electric rate cases and Ohio tax reform deferrals in prior year;
•a $15 million increase due to the MGP Settlement in the prior year; and
•an $11 million increase in weather-normal retail sales volumes.
Operating Expenses. The variance was driven primarily by:
•a $147 million decrease in fuel expense primarily driven by lower retail prices for natural gas and purchased power and a decrease in purchased power volumes; and
•a $45 million decrease in operation, maintenance and other expense primarily due to the MGP Settlement in the prior year.
Partially offset by:
•a $43 million increase in depreciation and amortization primarily driven by an increase in distribution plant in service and depreciation rates resulting from the Duke Energy Ohio and Duke Energy Kentucky electric retail rate cases implemented in 2023; and
•a $13 million increase in impairment of assets and other charges primarily due to the reversal in the prior year of the impairment related to the propane caverns in Ohio.
Other Income and Expenses. The variance was primarily due to interest income.
Interest Expense. The variance was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense (Benefit). The increase in tax expense was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year and an increase in pretax income.
DUKE ENERGY INDIANA
Results of Operations
Years Ended December 31,
Operating Expenses
Fuel used in electric generation and purchased power 1,217 1,819 (602)
Operation, maintenance and other 713 729 (16)
Property and other taxes 59 75 (16)
Impairment of assets and other charges — 388 (388)
Other Income and Expenses, net 76 36 40
Income Tax Expense (Benefit) 110 (24) 134
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.
Increase (Decrease) over prior year 2023
Residential sales (6.3) %
General service sales (3.6) %
Industrial sales 9.0 %
Wholesale power sales (1.9) %
Total sales (5.5) %
Average number of customers 1.2 %
56
MD&A DUKE ENERGY INDIANA
Year Ended December 31, 2023, as compared to 2022
Operating Revenues. The variance was driven primarily by:
•a $401 million decrease in retail fuel revenues primarily due to lower fuel cost recovery driven by lower retail sales volumes and fuel prices;
•a $75 million decrease in wholesale revenues, including fuel revenues, driven by lower fuel prices;
•a $51 million decrease in weather-normal retail sales volumes primarily due to lower customer demand; and
•a $44 million decrease in retail sales due to unfavorable weather compared to the prior year.
Partially offset by:
•a $67 million increase primarily due to the provision for rate refund related to the Indiana Supreme Court ruling on recovery of certain coal ash costs in the prior year.
Operating Expenses. The variance was driven primarily by:
•a $602 million decrease in fuel used in electric generation and purchased power primarily due to lower purchased power expense, natural gas and coal costs, partially offset by higher deferred fuel amortization;
•a $388 million decrease in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs in the prior year;
•a $16 million decrease in operation, maintenance and other primarily due to lower employee-related expenses and storm contingency costs; and
•a $16 million decrease in property and other taxes primarily due to property tax true-ups and lower franchise taxes.
Partially offset by:
•a $21 million increase in depreciation and amortization primarily due to higher depreciable base.
Other Income and Expenses, net. The variance was primarily due to coal ash insurance proceeds, non-service pension expense and interest income.
Interest Expense. The variance was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense (Benefit). The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT related to the coal ash impairment recorded in the prior year.
PIEDMONT
Results of Operations
Years Ended December 31,
Operating Expenses
Operation, maintenance and other 344 368 (24)
Property and other taxes 59 57 2
Impairment of assets and other charges (4) 18 (22)
Gains on Sales of Other Assets and Other, net — 4 (4)
Other Income and Expenses, net 66 54 12
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MD&A PIEDMONT
The following table shows the percent changes in Dth delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized.
Increase (Decrease) over prior year 2023
Residential deliveries (14.3) %
Commercial deliveries (9.4) %
Industrial deliveries (2.4) %
Power generation deliveries (10.0) %
For resale (14.9) %
Total throughput deliveries (9.3) %
Secondary market volumes (26.6) %
Average number of customers 1.5 %
The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The weather normalization adjustment mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.
Year Ended December 31, 2023, as compared to 2022
Operating Revenues.The variance was driven primarily by:
•a $585 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs.
Partially offset by:
•a $26 million increase due to customer growth;
•a $19 million increase due to North Carolina IMR;
•an $11 million increase due to Tennessee ARM revenue recognition; and
•a $9 million increase due to secondary marketing sales.
Operating Expenses.The variance was driven primarily by:
•a $585 million decrease in the cost of natural gas due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs;
•a $24 million decrease in operations, maintenance and other primarily due to lower labor costs, gas pipeline and integrity work and a decrease in bad debt reserves; and
•a $22 million decrease in impairment of assets and other charges due to the optimization of the Company's real estate portfolio in the prior year.
Partially offset by:
•a $15 million increase in depreciation and amortization due to additional plant in service.
Other Income and Expenses, net. The increase was primarily due to higher AFUDC equity income.
Interest Expense. The increase was primarily due to higher outstanding debt balances and interest rates.
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations.
Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
For further information, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."
58
MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Regulated Operations Accounting
Substantially all of Duke Energy’s regulated operations meet the criteria for application of regulated operations accounting treatment. As a result, Duke Energy is required to record assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities are recorded when it is probable that a regulator will require Duke Energy to make refunds to customers or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred.
Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as:
•applicable regulatory environment changes;
•historical regulatory treatment for similar costs in Duke Energy’s jurisdictions;
•litigation of rate orders;
•recent rate orders to other regulated entities;
•levels of actual return on equity compared to approved rates of return on equity; and
•the status of any pending or potential deregulation legislation.
If future recovery of costs ceases to be probable, asset write-offs would be recognized in operating income. Additionally, regulatory agencies can provide flexibility in the manner and timing of the depreciation of property, plant and equipment, recognition of asset retirement costs and amortization of regulatory assets, or may disallow recovery of all or a portion of certain assets.
As required by regulated operations accounting rules, significant judgment can be required to determine if an otherwise recognizable incurred cost qualifies to be deferred for future recovery as a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity-specific costs that are no longer expected to be incurred or have not yet been incurred and are therefore a regulatory liability.
For further information, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."
Goodwill Impairment Assessments
Duke Energy performed its annual goodwill impairment tests for all reporting units as of August 31, 2023. Additionally, Duke Energy monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include an adverse regulatory outcome, declining financial performance and deterioration of industry or market conditions. As of August 31, 2023, all of the reporting units' estimated fair value of equity exceeded the carrying value of equity. The fair values of the reporting units were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries.
Estimated future cash flows under the income approach are based on Duke Energy’s internal business plan. Significant assumptions used are growth rates, future rates of return expected to result from ongoing rate regulation and discount rates. Management determines the appropriate discount rate for each of its reporting units based on the Weighted Average Cost of Capital (WACC) for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2023 impairment tests, Duke Energy considered implied WACCs for certain peer companies in determining the appropriate WACC rates to use in its analysis. As each reporting unit has a different risk profile based on the nature of its operations, including factors such as regulation, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company-specific risk premiums. The discount rates used for calculating the fair values as of August 31, 2023, for each of Duke Energy’s reporting units ranged from 6.3% to 6.6%. The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges.
One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of August 31. The implied market multiples used for calculating the fair values as of August 31, 2023, for each of Duke Energy's reporting units ranged from 9.3 to 11.2.
Duke Energy primarily operates in environments that are rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, significant changes in discount rates or implied market multiples over a prolonged period may have a material impact on the fair value of equity.
Duke Energy has $19.3 billion in Goodwill at both December 31, 2023, and 2022. For further information, see Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets."
Asset Retirement Obligations
AROs are recognized for legal obligations associated with the retirement of property, plant and equipment at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made. Duke Energy has $9.2 billion and $12.7 billion of AROs as of December 31, 2023, and 2022, respectively. See Note 10, "Asset Retirement Obligations," for further details including a rollforward of related liabilities.
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MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding the amount and timing of future cash flows, regulatory, legal, and legislative decisions, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change.
Obligations for nuclear decommissioning are based on site-specific cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt dismantlement of the nuclear facilities after operations are ceased. During 2020, Duke Energy Florida, closed an agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station after receiving approval from the NRC and FPSC. The retirement obligations for the decommissioning of Crystal River Unit 3 nuclear power station are measured based on accelerated decommissioning from 2020 continuing through 2027. Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida also assume that spent fuel will be stored on-site until such time that it can be transferred to a yet-to-be-built DOE facility.
Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans.
For further information, see Notes 4, 5 and 10 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."
Discontinued Operations
Duke Energy calculated an estimated impairment on the disposition of its Commercial Renewables Disposal Groups as of December 31, 2022. The impairment was recorded to write-down the carrying amount to fair value, less cost to sell. The fair value was primarily determined from the income approach using discounted cash flows, but also considered market information obtained through the bidding process. Estimated future cash flows under the income approach were based on Duke Energy's forecast, which was informed by existing power purchase agreements with offtakers and forward merchant curves. Significant assumptions used in the income approach include forward merchant curves and discount rates. The discount rates take into account both the after-tax cost of debt and cost of equity. Duke Energy continued to monitor the sales of the Commercial Renewables Disposal Groups throughout 2023 and recorded adjustments to the impairments as warranted by progression in the disposition process and changes in market information.
The actual loss for each of the Commercial Renewables Disposal Groups is being recorded based on final sales agreements and could differ from the estimated losses recorded as of December 31, 2023.
For further information, See Note 2 to the Consolidated Financial Statements, "Dispositions."
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt and equity issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders. Additionally, due to its existing tax attributes and projected tax credits to be generated relating to the IRA, Duke Energy does not expect to be a significant federal cash taxpayer until around 2030. See Note 24 to the Consolidated Financial Statements, "Income Taxes," for more information.
Capital Expenditures
Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business sectors. Duke Energy’s projected capital and investment expenditures, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.
Total projected capital and investment expenditures $ 12,350 $ 14,200 $ 14,775
(a) Includes nuclear fuel of approximately $2.1 billion in 2024-2026.
Debt
Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Duke Energy Registrants. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for information regarding the Duke Energy Registrants' long-term debt at December 31, 2023, the weighted average interest rate applicable to each long-term debt category and a schedule of long-term debt maturities over the next five years. See Note 2 to the Consolidated Financial Statements, "Dispositions," for the timing and use of proceeds from the sale of certain Commercial Renewables assets to affiliates of Brookfield and ArcLight.
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Fuel and Purchased Power
Fuel and purchased power includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as NPNS. Duke Energy’s contractual cash obligations for fuel and purchased power as of December 31, 2023, are as follows:
Payments Due by Period
Other Purchase Obligations
Other purchase obligations includes contracts for software, telephone, data and consulting or advisory services, contractual obligations for Engineering, Procurement, and Construction agreement costs for new generation plants, solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand for which the timing of the purchase cannot be determined. Total cash commitments for related other purchase obligation expenditures are $12,286 million, with $11,744 million expected to be paid in the next 12 months.
See Note 6 to the Consolidated Financial Statements, “Leases” for a schedule of both finance lease and operating lease payments over the next five years. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations” for information on nuclear decommissioning trust funding obligations and the closure of ash impoundments.
Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased nonperformance risk by third parties for which Duke Energy has issued guarantees. See Note 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position. Other than the guarantee arrangements discussed in Note 8 and off-balance sheet debt related to non-consolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 18 to the Consolidated Financial Statements, "Variable Interest Entities."
Cash and Liquidity
The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional information on the money pool arrangement.
Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its businesses.
As of December 31, 2023, Duke Energy had approximately $253 million of cash on hand, $4.9 billion available under its $9 billion Master Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 7 and 20 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.
Credit Facilities and Registration Statements
See Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding credit facilities and shelf registration statements available to Duke Energy and the Duke Energy Registrants.
Dividend Payments
In 2023, Duke Energy paid quarterly cash dividends for the 97th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors.
Duke Energy targets a dividend payout ratio of between 60% and 70%, based upon adjusted EPS. Duke Energy increased the dividend by approximately 2% annually in both 2023 and 2022, and the Company remains committed to continued growth of the dividend.
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Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” Duke Energy’s public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy through dividends, advances or loans as a result of conditions imposed by various regulators in conjunction with merger transactions. Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation, which in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Additionally, certain other Duke Energy subsidiaries have other restrictions, such as minimum working capital and tangible net worth requirements pursuant to debt and other agreements that limit the amount of funds that can be transferred to Duke Energy. At December 31, 2023, the amount of restricted net assets of subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend does not exceed a material amount of Duke Energy’s net assets. Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy’s ability to access cash to meet its payment of dividends on common stock and other future funding obligations.
Cash Flows From Operating Activities
Cash flows from operations of EU&I and GU&I are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations.
As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy has a voluntary supply chain finance program (the “program”) under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.
Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information).
Debt and Equity Issuances
Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs. Duke Energy Corporation primarily issues unsecured debt.
In 2024, Duke Energy anticipates issuing additional securities of $6.9 billion through debt capital markets. In certain instances, Duke Energy may utilize instruments other than senior notes, including equity-content securities such as subordinated debt or preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances. In addition, in order to fund incremental growth capital, Duke Energy plans to issue $500 million of common stock equity per year through 2028 through the dividend reinvestment and ATM programs.
Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.
Restrictive Debt Covenants
Duke Energy’s debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. The Duke Energy Registrants were in compliance with all other covenants related to their debt agreements as of December 31, 2023. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.
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Credit Ratings
Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2024.
Moody's S&P
Duke Energy Corporation Stable Stable
Issuer Credit Rating Baa2 BBB+
Senior Unsecured Debt Baa2 BBB
Junior Subordinated Debt/Preferred Stock Baa3 BBB-
Commercial Paper P-2 A-2
Duke Energy Carolinas Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+
Progress Energy Stable Stable
Senior Unsecured Debt Baa1 BBB
Duke Energy Progress Stable Stable
Senior Secured Debt Aa3 A
Duke Energy Florida Stable Stable
Senior Secured Debt A1 A
Senior Unsecured Debt A3 BBB+
Duke Energy Ohio Stable Stable
Senior Secured Debt A2 A
Senior Unsecured Debt Baa1 BBB+
Duke Energy Indiana Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+
Duke Energy Kentucky Negative Stable
Senior Unsecured Debt Baa1 BBB+
Piedmont Natural Gas Stable Stable
Senior Unsecured A3 BBB+
Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted.
Cash Flow Information
The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.
Years Ended December 31,
Cash flows provided by (used in):
Net (decrease) increase in cash, cash equivalents and restricted cash (246) 83
Cash, cash equivalents and restricted cash at beginning of period 603 520
Cash, cash equivalents and restricted cash at end of period $ 357 $ 603
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OPERATING CASH FLOWS
The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.
Years Ended December 31,
Contributions to qualified pension plans (100) (58) (42)
Net cash provided by operating activities $ 9,878 $ 5,927 $ 3,951
The variance was driven primarily by:
•a $2,665 million increase in cash inflows from Other assets and Other liabilities and an $833 million decrease in cash outflows from Working capital, both of which are primarily due to the recovery of deferred fuel costs and the timing of accruals and payments in other working capital accounts; and
•a $543 million increase in net income, after adjustment for non-cash items, primarily due to growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense; partially offset by higher interest expense, unfavorable weather and lower volumes.
INVESTING CASH FLOWS
The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.
Years Ended December 31,
Debt and equity securities, net 63 90 (27)
Net cash used in investing activities $ (12,475) $ (11,973) $ (502)
The variance relates primarily to an increase in capital expenditures due to higher investments in EU&I, partially offset by the net proceeds received from the sales of Commercial Renewable Disposal Groups and other assets. The primary use of cash related to investing activities is typically capital, investment and acquisition expenditures, net of return of investment capital, detailed by reportable business segment in the following table.
Years Ended December 31,
FINANCING CASH FLOWS
The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.
Years Ended December 31,
Notes payable and commercial paper 142 574 (432)