Duke Energy 2012 Annual Report Download - page 53

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PART II
Immediately preceding the merger, Duke Energy completed a one-for-three
reverse stock split with respect to the issued and outstanding shares of Duke
Energy common stock. The shareholders of Duke Energy approved the reverse
stock split at Duke Energy’s special meeting of shareholders held on August 23,
2011. All share and per share amounts presented herein refl ect the impact of
the one-for-three reverse stock split.
Progress Energy’s shareholders received 0.87083 shares of Duke Energy
common stock in exchange for each share of Progress Energy common stock
outstanding as of July 2, 2012. Generally, all outstanding Progress Energy
equity-based compensation awards were converted into Duke Energy equity-
based compensation awards using the same ratio. The merger was structured
as a tax-free exchange of shares.
For additional information on the details of this transaction including
regulatory conditions and accounting implications, see Note 2 to the
Consolidated Financial Statements, “Acquisitions and Dispositions of
Businesses and Sales of Other Assets.”
2012 Financial Results
The following table summarizes adjusted earnings and net income
attributable to Duke Energy for the years ended December 31, 2012, 2011
and 2010.
Years Ended December 31,
2012 2011 2010
(in millions,
except per
share amounts) Amount
Per
diluted
share Amount
Per
diluted
share Amount
Per
diluted
share
Adjusted
earnings(a) $2,483 $4.32 $1,943 $4.38 $1,882 $4.29
Net income
attributable to
Duke Energy $1,768 $3.07 $1,706 $3.83 $1,320 $3.00
(a) See Results of Operations below for Duke Energy’s defi nition of adjusted earnings as well as a
reconciliation of this non-GAAP fi nancial measure to net income attributable to Duke Energy.
Adjusted earnings increased from 2011 to 2012 primarily due to the
inclusion of Progress Energy results beginning in July 2012, and the impact of
the 2011 Duke Energy Carolinas rate cases. Adjusted earnings increased from
2010 to 2011 primarily due to earnings attributable to Duke Energy’s ongoing
modernization program and increased results at International Energy net of less
favorable weather and higher operating expenses.
Net income for the year ended December 31, 2012 includes pretax
impairment and other charges of $628 million related to the Edwardsport
integrated gasifi cation combined cycle (IGCC) project and costs to achieve
the Progress Energy merger of $636 million. Net income for the year ended
December 31, 2011 includes pretax impairment charges of $222 million
related to the Edwardsport IGCC project and $79 million to write down the
carrying value of excess emission allowances held by Commercial Power to
fair value. Net income for the year ended December 31, 2010 was impacted
by goodwill and other impairment charges of $660 million, primarily related
to the nonregulated generation operations in the Midwest and gains on the
sale of assets of $248 million related to the sale of Q-Comm and the sale of
a 50 percent interest in DukeNet.
See “Results of Operations” below for a detailed discussion of the
consolidated results of operations, as well as a detailed discussion of fi nancial
results for each of Duke Energy’s reportable business segments, as well as Other.
2012 Areas of Focus and Accomplishments
In 2012, Duke Energy was focused on managing regulatory approvals
related to the merger with Progress Energy, completing its remaining major
capital projects and obtaining constructive regulatory outcomes.
Regulatory Approvals Related to the Merger with Progress Energy.
In June 2012, the FERC and NCUC conditionally approved Duke Energy’s
merger with Progress Energy. On July 2, 2012, Duke Energy successfully closed
the merger with Progress Energy. See Note 2 to the Consolidated Financial
Statements, “Acquisitions and Dispositions of Businesses and Sales of Other
Assets” for further discussion related to the merger with Progress Energy.
Completion and Placing in Service of Major Capital Projects. In
2012, U.S. Franchised Electric and Gas (USFE&G) made signifi cant progress
toward advancing its fl eet modernization program. Duke Energy Carolinas has
invested approximately $3.5 billion through 2012 in three key generation fl eet
modernization projects with approximately 2,065 megawatts (MW) of capacity.
In 2012, Duke Energy Carolinas placed its 620 MW Dan River combined cycle
natural gas-fi red generation facility and its 825 MW coal-fi red Cliffside Unit 6
in service, completing its portion of the fl eet modernization program.
Progress Energy Carolinas has invested approximately $1.7 billion through
2012 in three key generation fl eet modernization projects with approximately
2,140 megawatts (MW) of capacity. In 2012, Progress Energy Carolinas placed
in service the second of these projects, the 920 MW Lee combined cycle natural
gas-fi red generation facility, and continued to construct the 625 MW combined cycle
natural gas-fi red generation Sutton facility, which is 64% complete at December 31,
2012. The Sutton project is scheduled to be placed in service in 2013.
Duke Energy Indiana has invested approximately $3.4 billion through
2012 in its generation fl eet modernization project, the 618 MW Edwardsport
IGCC plant, which is 99% complete at December 31, 2012. In 2012, Duke
Energy Indiana experienced cost pressures and regulatory scrutiny related
to the Edwardsport IGCC project. As a result, Duke Energy Indiana recorded
additional pre-tax impairment and other charges of approximately $628 million.
This project is scheduled to be placed in service during 2013. See Note 4 to the
Consolidated Financial Statements, “Regulatory Matters” for further discussion
of the Edwardsport IGCC project.
In 2012, Commercial Power completed fi ve new wind farms and three
solar farms, totaling approximately 800 MW, of which 150 MW were contributed
to a joint venture with Sumitomo Corporation of America.
Obtaining Constructive Regulatory Outcomes. In 2012, Duke Energy
successfully fi led three rate cases in North Carolina and Ohio, including
Progress Energy Carolinas’ fi rst request for a base rate increase in 25 years.
In the fourth quarter of 2012, Duke Energy reached a settlement
agreement with the NCUC, the North Carolina Public Staff and the North
Carolina Department of Justice (NCDOJ) regarding the NCUC’s and NCDOJ’s
investigations into the post-merger CEO change. The settlement agreements
resolve all matters related to the NCUC and NCDOJ investigations.
On December 27, 2012, the Indiana Utility Regulatory Commission (IURC)
approved a settlement agreement fi nalized in April 2012, between Duke Energy
Indiana, the OUCC, the Duke Energy Indiana Industrial Group and Nucor Steel-
Indiana, on the cost increase for the construction of the project. The settlement
agreement, as approved, caps costs to be refl ected in customer rates at
$2.595 billion, including estimated fi nancing costs through June 30, 2012.
2013 Objectives
Duke Energy will focus on obtaining constructive regulatory outcomes
related to its pending and planned rate cases, achieving intended savings and
effi ciencies from its merger with Progress Energy, successfully managing the
Crystal River Unit 3 retirement and related regulatory proceedings, completing
the remaining major capital projects in its fl eet modernization program and
optimizing nuclear fl eet performance.
Obtaining Constructive Regulatory Outcomes. The signifi cant majority
of Duke Energy’s future earnings are anticipated to be contributed from USFE&G,
which consists of Duke Energy’s regulated businesses. Duke Energy has several
ongoing rate cases and other regulatory proceedings in North Carolina, Ohio and
Indiana. Later in 2013, Duke Energy Carolinas and Progress Energy Carolinas
will fi le additional rate cases in South Carolina. Duke Energy expects resolution
of these cases in 2013 or early 2014. These planned rates cases are needed