Duke Energy 2011 Annual Report Download - page 211

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
The discount rate used to determine the current year pension
obligation and following year’s pension expense is based on a bond
selection-settlement portfolio approach. This approach develops a
discount rate by selecting a portfolio of high quality corporate bonds
that generate sufficient cash flow to provide for the projected benefit
payments of the plan. The selected bond portfolio is derived from a
universe of non-callable corporate bonds rated Aa quality or higher.
After the bond portfolio is selected, a single interest rate is determined
that equates the present value of the plan’s projected benefit
payments discounted at this rate with the market value of the bonds
selected.
Other Post-Retirement Benefit Plans
Duke Energy and most of its subsidiaries provide some health
care and life insurance benefits for retired employees on a
contributory and non-contributory basis. Employees are eligible for
these benefits if they have met age and service requirements at
retirement, as defined in the plans.
Duke Energy did not make any pre-funding contributions to its
other post-retirement benefit plans during the years ended
December 31, 2011, 2010 or 2009.
These benefit costs are accrued over an employee’s active
service period to the date of full benefits eligibility. The net
unrecognized transition obligation is amortized over 20 years.
Actuarial gains and losses are amortized over the average remaining
service period of the active employees. The average remaining service
period of the active employees covered by the plan is 11 years.
Components of Net Periodic Other Post-Retirement Benefit Costs
For the Years Ended
December 31,
(in millions) 2011(a) 2010(a) 2009(a)
Service cost $7 $7 $7
Interest cost on accumulated post-
retirement benefit obligation 35 38 46
Expected return on plan assets (15) (15) (16)
Amortization of prior service credit (8) (8) (8)
Amortization of net transition liability 10 11 10
Amortization of actuarial gain (3) (5) (5)
Net periodic other post-retirement benefit
costs $26 $28 $34
(a) These amounts exclude $8 million, $9 million and $9 million for the years ended
December 31, 2011, 2010 and 2009, respectively, of regulatory asset amortization
resulting from purchase accounting adjustments associated with Duke Energy’s merger
with Cinergy in April 2006.
The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Modernization Act) introduced a
prescription drug benefit under Medicare (Medicare Part D) as well as
a federal subsidy to sponsors of retiree health care benefit plans.
Accounting guidance issued and adopted by Duke Energy in 2004
prescribes the appropriate accounting for the federal subsidy. The
after-tax effect on net periodic post-retirement benefit cost was a
decrease of $3 million in 2011, $4 million in 2010 and $3 million
in 2009. Duke Energy recognized a $1 million subsidy receivable as
of December 31, 2011 and 2010, which is included in Receivables
on the Consolidated Balance Sheets.
Other Changes in Plan Assets and Projected Benefit Obligations
Recognized in Accumulated Other Comprehensive Income,
Regulatory Assets and Regulatory Liabilities: Other Post-
Retirement Benefit Plans
For the Years Ended
December 31,
(in millions) 2011 2010
Regulatory assets, net decrease $(22) $(14)
Regulatory liabilities, net increase (decrease) 21 (5)
Accumulated other comprehensive (income) loss
Deferred income tax liability 11
Actuarial (gain) loss arising during the year —(3)
Amortization of prior year actuarial gains 11
Reclassification of actuarial losses to regulatory
liabilities —(8)
Amortization of prior year prior service credit —2
Reclassification of prior service credit to
regulatory liabilities —9
Amortization of prior year net transition liability —(2)
Reclassification of net transition liability to
regulatory liabilities —(2)
Net amount recognized in accumulated other
comprehensive (income) loss $2 $(2)
Reconciliation of Funded Status to Accrued Other Post-Retirement
Benefit Costs
As of and for the Years
Ended
December 31,
(in millions) 2011 2010
Change in Benefit Obligation
Accumulated post-retirement benefit obligation at
prior measurement date $723 $728
Service cost 77
Interest cost 35 38
Plan participants’ contributions 32 35
Actuarial gain (55) (12)
Benefits paid (83) (79)
Early retiree reinsurance program subsidy 3—
Accrued retiree drug subsidy 56
Accumulated post-retirement benefit obligation at
measurement date $667 $723
Change in Fair Value of Plan Assets
Plan assets at prior measurement date $186 $169
Actualreturnonplanassets 419
Benefits paid (83) (79)
Employer contributions 42 42
Plan participants’ contributions 32 35
Plan assets at measurement date $181 $186
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