Duke Energy 2011 Annual Report Download - page 157

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
addresses asbestos tort actions, Duke Energy Ohio estimates that the
range of reasonably possible exposure in existing and future suits over
the foreseeable future is not material. This estimated range of
exposure may change as additional settlements occur and claims are
made and more case law is established.
Duke Energy Indiana
Prosperity Mine, LLC.
On October 12, 2009, Prosperity Mine, LLC (Prosperity) filed
for arbitration under an Agreement for the Sale and Purchase of Coal
dated October 30, 2008. The Agreement provided for sale by
Prosperity and purchase by Duke Energy Indiana of 500,000 tons of
coal per year, commencing on January 1, 2009 and continuing until
December 31, 2014, unless sooner terminated under the terms of
the Agreement. Duke Energy Indiana could terminate the Agreement
if a force majeure event lasted more than three months. Prosperity
declared a force majeure event on February 13, 2010 and, when
Prosperity did not notify Duke Energy Indiana that the force majeure
had ended; Duke Energy Indiana sent written notice of termination
on May 14, 2010. Prosperity contends that the termination was
improper and that it is owed damages, quantified at $88 million, for
the full contractual volumes through 2014. On November 17, 2010,
the arbitrators issued their decision, ruling in favor of Duke Energy
Indiana on all counts. On January 7, 2011, Prosperity filed a lawsuit
in Indiana state court alleging that the arbitrators exceeded their
power and acted without authority and asking that the arbitrators’
award be vacated. The parties reached a commercial arrangement
pursuant to which Prosperity agreed to dismiss the lawsuit.
Other Litigation and Legal Proceedings
The Duke Energy Registrants are involved in other legal, tax and
regulatory proceedings arising in the ordinary course of business,
some of which involve substantial amounts. Management believes
that the final disposition of these proceedings will not have a material
effect on its consolidated results of operations, cash flows or financial
position.
The Duke Energy Registrants have exposure to certain legal
matters that are described herein. Duke Energy has recorded
reserves, including reserves related to the aforementioned asbestos-
related injuries and damages claims, of $810 million and $900
million as of December 31, 2011 and December 31, 2010,
respectively, for these proceedings and exposures (the total of which
is primarily related to Duke Energy Carolinas). These reserves
represent management’s best estimate of probable loss as defined in
the accounting guidance for contingencies. Duke Energy has
insurance coverage for certain of these losses incurred. As of
December 31, 2011 and December 31, 2010, Duke Energy
recognized $813 and $850 million, respectively, of probable
insurance recoveries related to these losses (the total of which is
related to Duke Energy Carolinas).
The Duke Energy Registrants expense legal costs related to the
defense of loss contingencies as incurred.
Other Commitments and Contingencies
General.
As part of its normal business, the Duke Energy Registrants are
a party to various financial guarantees, performance guarantees and
other contractual commitments to extend guarantees of credit and
other assistance to various subsidiaries, investees and other third
parties. To varying degrees, these guarantees involve elements of
performance and credit risk, which are not included on the respective
Consolidated Balance Sheets. The possibility of any of the Duke
Energy Registrants having to honor their contingencies is largely
dependent upon future operations of various subsidiaries, investees
and other third parties, or the occurrence of certain future events.
In addition, the Duke Energy Registrants enter into various fixed-
price, non-cancelable commitments to purchase or sell power (tolling
arrangements or power purchase contracts), take-or-pay
arrangements, transportation or throughput agreements and other
contracts that may or may not be recognized on the respective
Consolidated Balance Sheets. Some of these arrangements may be
recognized at fair value on the respective Consolidated Balance
Sheets if such contracts meet the definition of a derivative and the
NPNS exception does not apply.
Operating and Capital Lease Commitments
The Duke Energy Registrants lease assets in several areas of
their operations. Consolidated capitalized lease obligations are
classified as debt on the Consolidated Balance Sheets (see Note 6).
Amortization of assets recorded under capital leases is included in
Depreciation and Amortization on the Consolidated Statements of
Operations.
The following table includes rental expense for operating leases.
These amounts are included in Operation, Maintenance and Other on
the Consolidated Statements of Operations.
For the years ended December 31,
(in millions) 2011 2010 2009
Duke Energy $104 $122 $129
Duke Energy Carolinas 43 60 56
Duke Energy Ohio 19 19 22
Duke Energy Indiana 24 24 26
137