Duke Energy 2011 Annual Report Download - page 74

PART II
RESULTS OF OPERATIONS
Results of Operations and Variances
Summary of Results
Years Ended December 31,
(in millions) 2011 2010
Increase
(Decrease)
Operating revenues $2,622 $2,520 $ 102
Operating expenses 2,340 2,012 328
Losses on sales of other assets and other, net —(2) 2
Operating income 282 506 (224)
Other income and expenses, net 97 70 27
Interest expense 137 135 2
Income before income taxes 242 441 (199)
Income tax expense 74 156 (82)
Net income $ 168 $ 285 $(117)
Net Income
The $117 million decrease in Duke Energy Indiana’s net
income for the year ended December 31, 2011 compared to
December 31, 2010 was primarily due to the following factors:
Operating Revenues.
The increase was primarily due to:
• An $80 million increase in fuel revenues (including the rider
for emission allowances) primarily due to an increase in fuel
rates as a result of higher fuel and purchased power costs;
• A $32 million net increase in rate riders primarily related to
the Edwardsport IGCC plant that is currently under
construction and higher recoveries of demand side
management (DSM) costs, partially offset by lower recoveries
under the clean coal technology (CCT) rider; and
• A $13 million increase in rate pricing due to the positive
impact on overall average prices of lower sales volumes;
Partially offsetting these increases was:
• A $27 million decrease in retail revenues related to less
favorable weather conditions in 2011 compared to 2010.
Operating Expenses.
The increase was primarily due to:
• A $178 million increase due to an additional impairment
charge related to the Edwardsport IGCC plant that is currently
under construction. See Note 4 to the Consolidated Financial
Statements, “Regulatory Matters,” for additional information;
• A $74 million increase in fuel costs primarily due to an
increase in fuel rates as a result of higher fuel and purchased
power costs;
• A $36 million increase in operation and maintenance costs
primarily due to higher storm related costs, higher generation
outage costs, and increased legal and corporate allocations,
partially offset by decreased costs associated with the 2010
voluntary severance plan and the consolidation of certain
corporate office functions from the Midwest to Charlotte, North
Carolina;
• A $16 million increase in depreciation and amortization
expense primarily due to higher amortization of DSM
regulatory assets and increase in production plant base,
partially offset by lower amortization of deferred clean coal
costs; and
• A $12 million increase in general taxes primarily due to
certain property tax true-ups, higher property tax rates in
2011, and increases in gross receipts and payroll taxes.
Other Income and Expenses, net.
The increase in 2011 compared to 2010 was primarily
attributable to increased AFUDC in 2011 for additional capital
spending related to the Edwardsport IGCC plant that is currently
under construction.
Income Tax Expense.
Income tax expense for 2011 decreased compared to 2010
primarily due to a decrease in pre-tax income and the effective tax
rate. The effective tax rate for 2011 and 2010 was 30.6% and
35.5% respectively. This decrease in the effective tax rate is primarily
duetoanincreaseinAFUDCequity.
Matters Impacting Future Duke Energy Indiana Results
See Note 4 to the Consolidated Financial Statements,
“Regulatory Matters,” for a discussion of the significant increase in the
estimated cost of the 618 MW IGCC plant at Duke Energy Indiana’s
Edwardsport Generating Station. Additional updates to the cost
estimate could occur through the completion of the plant in 2012.
Phase I and Phase II hearings concluded on January 24, 2012.
Final orders from the IURC on Phase I and Phase II of the subdocket
54