Duke Energy 2011 Annual Report Download - page 134

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
Vermillion Generating Station.
In May 2011, Duke Energy Vermillion II, LLC (Duke Energy
Vermillion), an indirect wholly-owned subsidiary of Duke Energy
Ohio, entered into an agreement to sell its 75% undivided ownership
interest in the Vermillion Generating Station (Vermillion) to Duke
Energy Indiana and Wabash Valley Power Association (WVPA). After
receiving approvals from the FERC and the IURC on August 12,
2011 and December 28, 2011, respectively, the sale was completed
on January 12, 2012. Upon the closing of the sale, Duke Energy
Indiana and WVPA held 62.5% and 37.5% interests in Vermillion,
respectively. Duke Energy Ohio received proceeds of $68 million and
$14 million from Duke Energy Indiana and WVPA, respectively. As
Duke Energy Indiana is an affiliate of Duke Energy Vermillion the
transaction has been accounted for as a transfer between entities
under common control with no gain or loss recorded and did not
have a significant impact to Duke Energy Ohio or Duke Energy
Indiana’s results of operations. The sale of the proportionate share of
Vermillion to WVPA did not result in a significant gain or loss. In the
second quarter of 2011, Duke Energy Ohio recorded an impairment
charge of $9 million to reduce the carrying value of the proportionate
share of Vermillion to be sold to WVPA to its estimated fair value. The
estimated fair value was determined based on the expected proceeds
to be received from WVPA less costs to sell. This amount is presented
in Goodwill and other impairment charges in Duke Energy and Duke
Energy Ohio’s consolidated statements of operations. See Note 5 for
further discussion of the Vermillion transaction.
3. BUSINESS SEGMENTS
Management evaluates segment performance based on
earnings before interest and taxes from continuing operations
(excluding certain allocated corporate governance costs), after
deducting expenses attributable to noncontrolling interests related to
those profits (EBIT). On a segment basis, EBIT excludes discontinued
operations, represents all profits from continuing operations (both
operating and non-operating) before deducting interest and taxes, and
is net of amounts attributable to noncontrolling interests related to
those profits. Segment EBIT includes transactions between reportable
segments. Cash, cash equivalents and short-term investments are
managed centrally by Duke Energy, so the associated interest and
dividend income and realized and unrealized gains and losses from
foreign currency transactions on those balances are excluded from
segment EBIT.
Operating segments for each of the Duke Energy Registrants are
determined based on information used by the chief operating decision
maker in deciding how to allocate resources and evaluate the
performance at each of the Duke Energy Registrants. There is no
aggregation within reportable operating segments at any of the Duke
Energy Registrants. Beginning in 2012, the chief operating decision
maker began evaluating segment financial performance and
allocation of resources on a net income basis. In addition, previously
unallocated corporate costs will be reflected in each segment. The
information presented in the tables below has not been restated to
reflect this change as management used EBIT to evaluate the results
through December 31, 2011.
Duke Energy
Duke Energy has the following reportable operating segments:
U.S. Franchised Electric and Gas (USFE&G), Commercial Power and
International Energy.
USFE&G generates, transmits, distributes and sells electricity in
central and western North Carolina, western South Carolina, central,
north central and southern Indiana, and northern Kentucky. USFE&G
also transmits, distributes, and sells electricity in southwestern Ohio.
Additionally, USFE&G transports and sells natural gas in
southwestern Ohio and northern Kentucky. It conducts operations
primarily through Duke Energy Carolinas, certain regulated portions of
Duke Energy Ohio including Duke Energy Kentucky and Duke Energy
Indiana.
Commercial Power owns, operates and manages power plants
and engages in the wholesale marketing and procurement of electric
power, fuel and emission allowances related to these plants, as well
as other contractual positions. Commercial Power also has a retail
sales subsidiary, Duke Energy Retail Sales, LLC (Duke Energy Retail),
which is certified by the PUCO as a Competitive Retail Electric
Supplier (CRES) provider in Ohio. Through Duke Energy Generation
Services,Inc.anditsaffiliates(DEGS),CommercialPowerdevelops,
owns and operates electric generation for large energy consumers,
municipalities, utilities and industrial facilities. In addition, DEGS
engages in the development, construction and operation of renewable
energy projects and is also developing transmission projects.
International Energy principally operates and manages power
generation facilities and engages in sales and marketing of electric
power and natural gas outside the U.S. It conducts operations
primarily through Duke Energy International, LLC and its affiliates and
its activities principally target power generation in Latin America.
Additionally, International Energy owns a 25% interest in National
Methanol Company (NMC), located in Saudi Arabia, which is a large
regional producer of methanol and methyl tertiary butyl ether (MTBE).
Through December 31, 2009, International Energy had a 25%
ownership interest in Attiki Gas Supply S.A. (Attiki), which is a
natural gas distributor located in Athens, Greece. See Note 13 for
additional information related to the investment in Attiki.
The remainder of Duke Energy’s operations is presented as
Other. While it is not an operating segment, Other primarily includes
certain unallocated corporate costs, which include certain costs not
allocable to Duke Energy’s reportable business segments, primarily
governance, costs to achieve mergers and divestitures, and costs
associated with certain corporate severance programs. It also
includes, Bison Insurance Company Limited (Bison), Duke Energy’s
wholly-owned, captive insurance subsidiary, Duke Energy’s 50%
interest in DukeNet and related telecommunications businesses, and
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