Duke Energy 2013 Annual Report Download - page 162

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PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, INC. • DUKE ENERGY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
In addition to the amounts presented above, the Subsidiary Registrants
record the impact on net income of other affiliate transactions, including rental
of office space, participation in a money pool arrangement, other operational
transactions and their proportionate share of certain charged expenses. See
Note 6 for more information regarding money pool. The net impact of these
transactions was not material for the years ended December 31, 2013, 2012 and
2011 for the Subsidiary Registrants.
As discussed in Note 17, certain trade receivables have been sold by Duke
Energy Ohio and Duke Energy Indiana to CRC, an affiliate formed by a subsidiary
of Duke Energy. The proceeds obtained from the sales of receivables are largely
cash but do include a subordinated note from CRC for a portion of the purchase
price.
In January 2012, Duke Energy Ohio recorded a non-cash equity transfer of
$28 million related to the sale of Vermilion to Duke Energy Indiana. Duke Energy
Indiana recorded a non-cash after-tax equity transfer of $26 million for the
purchase of Vermillion from Duke Energy Ohio. See Note 2 for further discussion.
Duke Energy Commercial Asset Management (DECAM) is a nonregulated,
direct subsidiary of Duke Energy Ohio. DECAM conducts business activities
including the execution of commodity transactions, third-party vendor and supply
contracts, and service contracts for certain of Duke Energy’s nonregulated
entities. The commodity contracts DECAM enters are accounted for as
undesignated contracts or NPNS. Consequently, mark-to-market impacts of
intercompany contracts with, and sales of power to, nonregulated entities are
reflected in Duke Energy Ohio’s Consolidated Statements of Operations and
Comprehensive Income. These amounts totaled net expense of $6 million and
net revenue of $24 million and $18 million, respectively, for the years ended
December 31, 2013, 2012 and 2011. Because it is not a rated entity, DECAM
receives its credit support from Duke Energy or its nonregulated subsidiaries
and not the regulated utility operations of Duke Energy Ohio. DECAM meets its
funding needs through an intercompany loan agreement from a subsidiary of
Duke Energy. DECAM also has the ability to loan money to the subsidiary of Duke
Energy. DECAM had an outstanding intercompany loan payable of $43 million
and $79 million, respectively, as of December 31, 2013 and 2012. This amount
is recorded in Notes payable to affiliated companies on Duke Energy Ohio’s
Consolidated Balance Sheets.
14. DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts
to manage commodity price and interest rate risks. The primary use of energy
commodity derivatives is to hedge the generation portfolio against changes in
the prices of electricity and natural gas. Interest rate swaps are used to manage
interest rate risk associated with borrowings.
All derivative instruments not identified as NPNS are recorded at fair value
as assets or liabilities on the Consolidated Balance Sheets. Cash collateral
related to derivative instruments executed under master netting agreement is
offset against the collateralized derivatives on the balance sheet.
Changes in the fair value of derivative agreements that either do not
qualify for or have not been designated as hedges are reflected in current
earnings or as regulatory assets or liabilities.
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the
future prices of electricity, coal, and natural gas. Exposure to commodity price
risk is influenced by a number of factors including the term of contracts, the
liquidity of markets, and delivery locations.
Commodity Fair Value and Cash Flow Hedges
At December 31, 2013, there were no open commodity derivative
instruments designated as hedges.
Undesignated Contracts
Undesignated contracts may include contracts not designated as a hedge,
contracts that do not qualify for hedge accounting, derivatives that do not or
no longer qualify for the NPNS scope exception, and de-designated hedge
contracts. These contracts expire as late as 2018.
Duke Energy Carolinas and Duke Energy Progress have entered into firm
power sale agreements, which are accounted for as derivatives, as part of the
Interim FERC Mitigation in connection with Duke Energy’s merger with Progress
Energy. See Note 2 for further information. Duke Energy Carolinas’ undesignated
contracts are primarily associated with forward sales and purchases of
electricity. Duke Energy Progress’ and Duke Energy Florida’s undesignated
contracts are primarily associated with forward purchases of natural gas. Duke
Energy Ohio’s undesignated contracts are primarily associated with forward
sales and purchases of electricity, coal, and natural gas. Duke Energy Indiana’s
undesignated contracts are primarily associated with forward purchases and
sales of electricity and financial transmission rights.
Volumes
The tables show information relating to the volume of the outstanding
commodity derivatives. Amounts disclosed represent the notional volumes of
commodity contracts excluding NPNS. Amounts disclosed represent the absolute
value of notional amounts. The Duke Energy Registrants have netted contractual
amounts where offsetting purchase and sale contracts exist with identical delivery
locations and times of delivery. Where all commodity positions are perfectly offset,
no quantities are shown.
December 31, 2013
Duke
Energy
Duke
Energy
Carolinas
Progress
Energy
Duke
Energy
Progress
Duke
Energy
Florida
Duke
Energy
Ohio
Duke
Energy
Indiana
Electricity (Gigawatt-hours)(a) 71,466 1,205 925 925 — 69,362 203
Natural gas (millions of decatherms) 636 — 363 141 222 274 —