Duke Energy 2011 Annual Report Download - page 39

PART I
GENERAL
Duke Energy Subsidiary Registrant Overview.
Duke Energy Carolinas.
Duke Energy Carolinas generates, transmits, distributes and sells
electricity in central and western North Carolina and western South
Carolina. Duke Energy Carolinas is subject to the regulatory provisions
oftheNCUC,thePSCSC,theNRCandFERC.DukeEnergyCarolinas
operates one reportable business segment, Franchised Electric, which
generates, transmits, distributes and sells electricity. Substantially all
of Franchised Electric operations are regulated and qualify for
regulatory accounting treatment. For additional information regarding
this business segment, including financial information, see Note 3 to
the Consolidated Financial Statements, “Business Segments.”
Duke Energy Carolinas’ service area covers 24,000 square
miles with an estimated population of 6.8 million and supplies
electric service to 2.4 million residential, commercial and industrial
customers. See Item 2. “Properties” for further discussion of Duke
Energy Carolinas’ generating facilities, transmission and distribution.
The remainder of Duke Energy Carolinas’ operations is
presented as Other. Although it is not considered a business segment,
Other primarily consists of certain governance costs allocated by its
parent, Duke Energy.
Duke Energy Ohio.
Duke Energy Ohio is a wholly-owned subsidiary of Cinergy,
which is a wholly-owned subsidiary of Duke Energy. Duke Energy
Ohio is a combination electric and gas public utility that provides
service in southwestern Ohio and northern Kentucky through its
wholly-owned subsidiary Duke Energy Kentucky, as well as electric
generation in parts of Ohio, Illinois, Indiana and Pennsylvania. Duke
Energy Ohio’s principal lines of business include generation,
transmission and distribution of electricity, the sale of and/or
transportation of natural gas, and energy marketing. Duke Energy
Kentucky’s principal lines of business include generation,
transmission and distribution of electricity, as well as the sale of and/
or transportation of natural gas. References herein to Duke Energy
Ohio include Duke Energy Ohio and its subsidiaries. Duke Energy
Ohio is subject to the regulatory provisions of the PUCO, the KPSC
and FERC.
Duke Energy Ohio Business Segments. At December 31,
2011, Duke Energy Ohio operated two business segments, both of
which are considered reportable segments under the applicable
accounting rules: Franchised Electric and Gas and Commercial
Power. For additional information on each of these business
segments, including financial information, see Note 3 to the
Consolidated Financial Statements, “Business Segments.”
The following is a brief description of the nature of operations of
each of Duke Energy Ohio’s reportable business segments, as well as
Other:
Franchised Electric and Gas. Franchised Electric and Gas
consists of Duke Energy Ohio’s regulated electric and gas
transmission and distribution systems located in Ohio and Kentucky,
including its regulated electric generation in Kentucky. Franchised
Electric and Gas plans, constructs, operates and maintains Duke
Energy Ohio’s transmission and distribution systems, which generate,
transmit and distribute electric energy to consumers in southwestern
Ohio and northern Kentucky. Franchised Electric and Gas also
transports and sells natural gas in southwestern Ohio and northern
Kentucky. Substantially all of Franchised Electric and Gas’ operations
are regulated and, accordingly, these operations qualify for regulatory
accounting treatment.
Duke Energy Ohio’s Franchised Electric and Gas service area
covers 3,000 square miles with an estimated population of
2.1 million and supplies electric service to 830,000 residential,
commercial and industrial customers and provides regulated
transmission and distribution services for natural gas to 500,000
customers. See Item 2. “Properties” for further discussion of Duke
Energy Ohio’s Franchised Electric and Gas generating facilities.
Commercial Power. 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’s generation operations consists of primarily coal-fired
generation assets located in Ohio which were dedicated under the
Duke Energy Ohio ESP through December 31, 2011 and are
dispatched into wholesale markets effective January 1, 2012 and
gas-fired non-regulated generation assets which are dispatched into
wholesale markets. These assets are comprised of 7,550 net MW of
power generation primarily located in the Midwestern U.S. The asset
portfolio has a diversified fuel mix with base-load and mid-merit coal-
fired units as well as combined cycle and peaking natural gas-fired
units. Duke Energy Ohio’s Commercial Power reportable operating
segment does not include the operations of DEGS or Duke Energy
Retail, which is included in the Commercial Power reportable
operating segment at Duke Energy. See Item 2. “Properties” for
further discussion of Duke Energy Ohio’s Commercial Power
generating facilities.
The PUCO approved Duke Energy Ohio’s new ESP in November
2011. The ESP includes competitive auctions for electricity supply for
a term of January 1, 2012 through May 31, 2015. The ESP also
includes a provision for a non-bypassable stability charge of $110
million per year to be collected from 2012-2014 and requires Duke
Energy Ohio to transfer its generation assets to a non-regulated
affiliate on or before December 31, 2014. The FE&G portion of Duke
Energy Ohio’s business successfully conducted initial auctions in
December 2011 to serve SSO customers effective January 2012.
New rates for Duke Energy Ohio went into effect for SSO customers
in January 2012.
See Note 4 to the Consolidated Financial Statements,
“Regulatory Matters,” for further discussion related to the ESP.
Through December 31, 2011, Duke Energy Ohio’s primarily
coal-fired assets, as excess capacity allows, also generate revenues
through sales outside the ESP load customer base, and such revenue
is termed wholesale. In 2011 and 2010 Duke Energy Ohio earned
approximately 24% and 13%, respectively, of its consolidated
operating revenues from PJM. These revenues relate to the sale of
capacity and electricity from the gas-fired non-regulated generation
assets. In 2009 no single counterparty contributed 10% or more of
consolidated operating revenue.
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