Duke Energy 2013 Annual Report Download - page 173

155
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)
15. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Duke Energy Registrants classify their investments in debt and equity
securities as either trading or available-for-sale.
TRADING SECURITIES
Investments in debt and equity securities held in grantor trusts associated
with certain deferred compensation plans and certain other investments
are classified as trading securities. The fair value of these investments was
$18 million as of December 31, 2013 and $33 million as of December 31, 2012.
AVAILABLE-FOR-SALE SECURITIES
All other investments in debt and equity securities are classified as
available-for-sale securities.
Duke Energy’s available-for-sale securities are primarily comprised
of investments held in (i) the NDTF at Duke Energy Carolinas, Duke Energy
Progress and Duke Energy Florida, (ii) grantor trusts at Duke Energy Progress,
Duke Energy Florida and Duke Energy Indiana related to OPEB plans, (iii) Duke
Energy’s captive insurance investment portfolio, and (iv) Duke Energy’s foreign
operations investment portfolio.
Duke Energy holds corporate debt securities that were purchased using
excess cash from its foreign operations. These investments are classified as
Short-term investments on the Consolidated Balance Sheets and are available
for current operations of Duke Energy’s foreign business. The fair value of these
investments was $44 million as of December 31, 2013 and $333 million as of
December 31, 2012.
Duke Energy classifies all other investments in debt and equity securities
as non-current, unless otherwise noted.
NDTF and Grantor Trust
The investments within the NDTF at Duke Energy Carolinas, Duke
Energy Progress and Duke Energy Florida and the Duke Energy Progress, Duke
Energy Florida and Duke Energy Indiana grantor trusts (Investment Trusts) are
managed by independent investment managers with discretion to buy, sell, and
invest pursuant to the objectives set forth by the trust agreements. The Duke
Energy Registrants have limited oversight of day-to-day management of these
investments. As a result, the ability to hold investments in unrealized loss
positions is outside the control of the Duke Energy Registrants. Accordingly, all
unrealized gains and losses associated with debt and equity securities within
the Investment Trusts are considered other-than-temporary impairments and
are recognized immediately. Pursuant to regulatory accounting, substantially all
realized and unrealized gains and losses associated with investments within
the Investment Trusts are deferred as a regulatory asset or liability. As a result,
there is no immediate impact on earnings of the Duke Energy Registrants.
Other Available for Sale Securities
Unrealized gains and losses on all other available-for-sale securities are
included in other comprehensive income until realized, unless it is determined
the carrying value of an investment is other-than-temporarily impaired. If an
other-than-temporary impairment exists, the unrealized loss may be included in
earnings based on the criteria discussed below.
The Duke Energy Registrants analyze all investment holdings each
reporting period to determine whether a decline in fair value should be
considered other-than-temporary. Criteria used to evaluate whether an
impairment associated with equity securities is other-than-temporary includes,
but is not limited to, (i) the length of time over which the market value has
been lower than the cost basis of the investment, (ii) the percentage decline
compared to the cost of the investment, and (iii) management’s intent and
ability to retain its investment for a period of time sufficient to allow for any
anticipated recovery in market value. If a decline in fair value is determined
to be other-than-temporary, the investment is written down to its fair value
through a charge to earnings.
If the entity does not have an intent to sell a debt security and it is not
more likely than not management will be required to sell the debt security
before the recovery of its cost basis, the impairment write-down to fair value
would be recorded as a component of other comprehensive income, except
for when it is determined a credit loss exists. In determining whether a credit
loss exists, management considers, among other things, (i) the length of time
and the extent to which the fair value has been less than the amortized cost
basis, (ii) changes in the financial condition of the issuer of the security, or in
the case of an asset backed security, the financial condition of the underlying
loan obligors, (iii) consideration of underlying collateral and guarantees of
amounts by government entities, (iv) ability of the issuer of the security to make
scheduled interest or principal payments, and (v) any changes to the rating of
the security by rating agencies. If a credit loss exists, the amount of impairment
write-down to fair value is split between credit loss and other factors. The
amount related to credit loss is recognized in earnings. The amount related to
other factors is recognized in other comprehensive income. There were no credit
losses as of December 31, 2013 and 2012. There were no other-than-temporary
impairments for debt or equity securities as of December 31, 2013 and 2012.
Other available-for-sale securities were reflected as a component of other
comprehensive income in 2013 and 2012.