Duke Energy 2013 Annual Report Download - page 56

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PART II
DUKE ENERGY CAROLINAS
Introduction
Management’s Discussion and Analysis should be read in conjunction with
the accompanying Consolidated Financial Statements and Notes for the years
ended December 31, 2013, 2012, and 2011.
Basis of Presentation
The results of operations and variance discussion for Duke Energy
Carolinas is presented in a reduced disclosure format in accordance with
General Instruction (I)(2)(a) of Form 10-K.
Results of Operations
Years Ended December 31,
(in millions) 2013 2012 Variance
Operating Revenues $6,954 $6,665 $ 289
Operating Expenses 5,145 5,160 (15)
Gains on Sales of Other Assets and Other, net — 12 (12)
Operating Income 1,809 1,517 292
Other Income and Expense, net 120 185 (65)
Interest Expense 359 384 (25)
Income Before Income Taxes 1,570 1,318 252
Income Tax Expense 594 453 141
Net Income $ 976 $ 865 $ 111
The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail
customer classes represent billed sales only. Total sales includes billed and unbilled retail sales, and wholesale sales to incorporated municipalities and to public and
private utilities and power marketers. Amounts are not weather normalized.
Increase (decrease) over prior year 2013 2012
Residential sales 2.3 % (7.2)%
General service sales 1.0 % (0.4)%
Industrial sales 0.4 % 0.9 %
Wholesale power sales 62.1 % 4.0 %
Total sales 5.4 % (0.9)%
Average number of customers 0.7 % 0.6 %
Year Ended December 31, 2013 as Compared to 2012
Operating Revenues. The variance was primarily due to:
• A $104 million increase in fuel revenues driven primarily by higher
natural gas prices and increased sales volumes. Fuel revenues
represent sales to retail and wholesale customers;
• A $98 million increase in retail rates in North Carolina and South
Carolina;
• A $44 million increase in weather-normal sales volumes to retail
customers primarily due to higher demand; and
• A $32 million increase in wholesale power revenues, net of sharing,
primarily due to a new customer in 2013, increased capacity charges,
and additional volumes for customers served under long-term contracts.
Operating Expenses. The variance was primarily due to:
• A $111 million decrease in operations and maintenance expenses
primarily due to lower costs associated with the Progress Energy merger,
decreased corporate costs, lower outage and non-outage costs at
generation plants and the levelization of nuclear outage costs, partially
offset by the establishment of regulatory assets in the first quarter
of 2012, pursuant to regulatory orders for future recovery of certain
employee severance costs related to the 2010 voluntary severance plan
and other costs; and
• A $31 million decrease in impairment charges related to the merger with
Progress Energy. These charges relate to planned transmission project
costs for which recovery is not expected, and certain costs associated
with mitigation sales pursuant to merger settlement agreements with
the FERC.
Partially offset by:
• A $118 million increase in fuel expense (including purchased power)
primarily related to higher sales volumes and increased prices of natural
gas used in electric generation, net of change in fuel mix, partially offset
by decreased purchased power due to additional generating capacity
placed in service late 2012.
Gains on Sales of Other Assets and Other, net. The variance is due to
recognition of gains on the sale of emissions allowances in 2012.
Other Income and Expense, net. The variance is primarily due to lower
earnings from AFUDC equity, resulting from major projects placed into service in
late 2012, partially offset by higher deferred returns on completed projects prior
to their inclusion in customer rates.
Interest Expense. The variance is primarily due to deferrals of debt costs
on completed projects prior to their inclusion in customer rates in September
2013, partially offset by lower AFUDC debt due primarily to certain major projects
that were placed into service in late 2012.