Duke Energy 2011 Annual Report Download - page 167

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
retirement of specific assets and are recognized in the period in which
the liability is incurred, if a reasonable estimate of fair value can be
made. The present value of the liability is added to the carrying
amount of the associated asset in the period the liability is incurred
and this additional carrying amount is depreciated over the remaining
life of the asset. Subsequent to the initial recognition, the liability is
adjusted for any revisions to the estimated future cash flows
associated with the asset retirement obligation (with corresponding
adjustments to property, plant, and equipment), which can occur
due to a number of factors including, but not limited to, cost
escalation, changes in technology applicable to the assets to be
retired and changes in federal, state or local regulations, as well as for
accretion of the liability due to the passage of time until the obligation
is settled. Depreciation expense is adjusted prospectively for any
increases or decreases to the carrying amount of the associated asset.
The recognition of asset retirement obligations has no impact on the
earnings of Duke Energy’s regulated electric operations as the effects
of the recognition and subsequent accounting for an asset retirement
obligation are offset by the establishment of regulatory assets and
liabilities pursuant to regulatory accounting.
Asset retirement obligations recognized by Duke Energy relate
primarily to the decommissioning of nuclear power facilities, asbestos
removal, closure of landfills and removal of wind generation assets.
Asset retirement obligations recognized by Duke Energy Carolinas
relate primarily to the decommissioning of nuclear power facilities,
asbestos removal and closure of landfills at fossil generation facilities.
Asset retirement obligations at Duke Energy Ohio relate primarily to
the retirement of gas mains, asbestos abatement at certain generating
stations and closure and post-closure activities of landfills. Asset
retirement obligations at Duke Energy Indiana relate primarily to
obligations associated with future asbestos abatement at certain
generating stations. Certain of the Duke Energy Registrants’ assets
have an indeterminate life, such as transmission and distribution
facilities and thus the fair value of the retirement obligation is not
reasonably estimable. A liability for these asset retirement obligations
will be recorded when a fair value is determinable.
The following tables present the changes to the liability associated with asset retirement obligations for the Duke Energy Registrants during
the years ended December 31, 2011 and 2010:
December 31, 2011
(in millions) Duke Energy
Duke Energy
Carolinas
Duke Energy
Ohio
Duke Energy
Indiana
Balance as of January 1, $1,816 $1,728 $27 $46
Accretion expense(a) 111 105 2 2
Liabilities settled (3) (1) (2) —
Revisions in estimates of cash flows 19—(9)
Liabilities incurred in the current year 11 5 — 4
Balance as of December 31, $1,936 $1,846 $27 $43
(a) Substantially all of the accretion expense for the years ended December 31, 2011 relate to Duke Energy’s regulated electric operations and has been deferred in accordance with
regulatory accounting treatment, as discussed above.
December 31, 2010
(in millions) Duke Energy
Duke Energy
Carolinas
Duke Energy
Ohio
Duke Energy
Indiana
Balance as of January 1, $ 3,185 $3,098 $36 $42
Accretion expense(a) 97 9312
Correction of prior year error(b) (1,465) (1,465) — —
Liabilities settled (10) (7) — (3)
Revisions in estimates of cash flows (8) (1) (10) 4
Liabilities incurred in the current year 12 5— 1
Other 55——
Balance as of December 31, $ 1,816 $1,728 $27 $46
(a) Substantially all of the accretion expense for the years ended December 31, 2010 relate to Duke Energy’s regulated electric operations and has been deferred in accordance with
regulatory accounting treatment, as discussed above.
(b) In the second quarter of 2010, Duke Energy Carolinas recorded a $1.5 billion correction of an error to reduce the nuclear decommissioning asset retirement obligation liability, with
offsetting impacts to regulatory assets and property, plant and equipment. This correction had no impact on Duke Energy Carolinas’ equity, results of operations or cash flows.
Duke Energy’s regulated electric and regulated natural gas
operations accrue costs of removal for property that does not have an
associated legal retirement obligation based on regulatory orders from
the various state commissions. These costs of removal are recorded
as a regulatory liability in accordance with regulatory treatment. Duke
Energy does not accrue the estimated cost of removal for any
non-regulated assets (including Duke Energy Ohio’s generation
assets). See Note 4 for the estimated cost of removal for assets
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