Duke Energy 2012 Annual Report Download - page 143

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PART II
Combined Notes to Consolidated Financial Statements – (Continued)
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • CAROLINA POWER & LIGHT COMPANY d/b/a PROGRESS ENERGY
CAROLINAS, INC. • FLORIDA POWER CORPORATION d/b/a PROGRESS ENERY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
of Duke Energy Ohio, completed the sale of its 75% undivided ownership
interest in the Vermillion Generating Station (Vermillion) to Duke Energy
Indiana and Wabash Valley Power Association (WVPA). Upon the closing of
the sale, Duke Energy Indiana and WVPA held 62.5% and 37.5% interests in
Vermillion, respectively. Duke Energy Ohio received net proceeds of $82 million,
consisting of $68 million a nd $14 million from Duke Energy Indiana and WVPA,
respectively. Following the transaction, Duke Energy Indiana retired Gallagher
Units 1 and 3 effective February 1, 2012.
As Duke Energy Indiana is an affi liate of Duke Energy Vermillion the
transaction has been accounted for as a transfer between entities under common
control with no gain or loss recorded and did not have a signifi cant impact to
Duke Energy Ohio or Duke Energy Indiana’s results of operations. The proceeds
received from Duke Energy Indiana are included in Net proceeds from the sales
of other assets on Duke Energy Ohio’s Consolidated Statements of Cash Flows.
The cash paid to Duke Energy Ohio is included in Capital expenditures on Duke
Energy Indiana’s Consolidated Statements of Cash Flows. Duke Energy Ohio
and Duke Energy Indiana recognized non-cash equity transfers of $28 million
and $26 million, respectively, in their Consolidated Statements of Common
Stockholder’s Equity on the transaction representing the difference between cash
exchanged and the net book value of Vermillion. These amounts are not refl ected
in Duke Energy’s Consolidated Statements of Cash Flows or Consolidated
Statements of Equity as the transaction is eliminated in consolidation.
The proceeds from WVPA are included in Net proceeds from the sales of
other assets, and sale of and collections on notes receivable on Duke Energy
and Duke Energy Ohio’s Consolidated Statements of Cash Flows. In the second
quarter of 2011, Duke Energy Ohio recorded a pre-tax impairment charge of
$9 million to adjust the carrying value of the proportionate share of Vermillion
to be sold to WVPA to the proceeds to be received from WVPA less costs to sell.
The sale of the proportionate share of Vermillion to WVPA did not result in a
signifi cant additional gain or loss upon close of the transaction.
Wind Projects Joint Venture
In April 2012, Duke Energy executed a joint venture agreement with
Sumitomo Corporation of America (SCOA). Under the terms of the agreement,
Duke Energy and SCOA each own a 50% interest in the joint venture
(DS Cornerstone, LLC), which owns two wind generation projects. The facilities
began commercial operations in June 2012 and August 2012. Duke Energy and
SCOA also negotiated a $330 million, Construction and 12-year amortizing
Term Loan Facility, on behalf of the borrower, a wholly owned subsidiary of the
joint venture. The loan agreement is non-recourse to Duke Energy. Duke Energy
received proceeds of $319 million upon execution of the loan agreement. This
amount represents reimbursement of a signifi cant portion of Duke Energy’s
construction costs incurred as of the date of the agreement. See Note 18 for
further information.
Sales of Other Assets
The following table summarizes net cash proceeds related to the sales of
Other assets not discussed above.
(in millions) Duke Energy
Duke Energy
Carolinas
Duke Energy
Ohio
Duke Energy
Indiana
Year Ended December 31,
2012(a) $187 $1 $ 6 $—
2011 12271
2010 160 8 13 —
(a) Duke Energy amount relates to proceeds from the disposition of non-core business assets within the
Commercial Power segment for which no material gain or loss was recognized.
Discontinued Operations
Included in Income From Discontinued Operations, net of tax on the
Consolidated Statements of Operations are amounts related to adjustments
for prior sales of diversifi ed businesses. These adjustments are generally due
to indemnifi cations provided for certain legal, tax and environmental matters.
See Note 7 for further discussion of indemnifi cations. The ultimate resolution of
these matters could result in additional adjustments in future periods.
For the year ended December 31, 2012, Duke Energy’s and Progress
Energy’s Income From Discontinued Operations, net of tax was primarily related
to resolution of litigation associated with Progress Energy’s former synthetic
fuel operations and reversal of certain environmental indemnifi cation liabilities
for which the indemnifi cation period expired during 2012. See Note 5 for more
information regarding these operations.
3. BUSINESS SEGMENTS
E ffective with the fi rst quarter of 2012, management began evaluating
segment performance based on Segment Income. Segment Income is defi ned as
income from continuing operations net of income attributable to noncontrolling
interests. Segment Income, as discussed below, includes intercompany revenues
and expenses that are eliminated in the Consolidated Financial Statements.
In conjunction with management’s use of the new reporting measure, certain
governance costs that were previously unallocated have now been allocated to
each of the segments. In addition, direct interest expense and income taxes are
included in Segment Income. Prior year segment profi tability information has
been recast to conform to the current year presentation. None of these changes
impacts the reportable operating segments’ or the Duke Energy Registrants’
previously reported consolidated revenues, net income or earnings per share.
Operating segments for each of the Duke Energy Registrants are
determined based on information used by the chief operating decision maker in
deciding how to allocate resources and evaluate the performance at each of the
Duke Energy Registrants.
Products and services are sold between the affi liate companies and
between the reportable segments of Duke Energy at cost. Segment assets as
presented in the tables that follow exclude all intercompany assets.
Duke Energy
Duke Energy has the following reportable operating segments: U.S. Franchised
Electric and Gas (USFE&G), Commercial Power and International Energy.
USFE&G generates, transmits, distributes and sells electricity in
North Carolina, South Carolina, west central Florida, central, north central
and southern Indiana, and northern Kentucky. USFE&G also transmits and
distributes electricity in southwestern Ohio. Additionally, USFE&G transports
and sells natural gas in southwestern Ohio and northern Kentucky. It conducts
operations primarily through Duke Energy Carolinas, Progress Energy Carolinas,
Progress Energy Florida, certain regulated portions of Duke Energy Ohio, and
Duke Energy Indiana. Segment information for USFE&G for the year ended
December 31, 2012, includes the results of the regulated operations of Progress
Energy from July 2, 2012 forward.
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 also has a retail sales subsidiary, Duke Energy
Retail Sales, LLC (Duke Energy Retail), which is certifi ed by the PUCO as a
Competitive Retail Electric Service provider in Ohio. Through Duke Energy