Duke Energy 2014 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)
On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and
DEBS, a wholly owned subsidiary of Duke Energy, each entered into the Plea
Agreements in connection with the investigation initiated by the USDOJ. Under
the terms of the Plea Agreements, Duke Energy Carolinas and Duke Energy
Progress are required to each maintain $250 million of available capacity
under the Master Credit Facility as security to meet their obligations under the
Plea Agreements, in addition to certain other conditions set out in the Plea
Agreements. The Plea Agreements are subject to court approval. See Note 5 for
further details.
OTHER DEBT MATTERS
In September 2013, Duke Energy fi led a registration statement (Form S-3)
with the Securities and Exchange Commission (SEC). Under this Form S-3, which
is uncapped, the Duke Energy Registrants, excluding Progress Energy, may issue
debt and other securities in the future at amounts, prices and with terms to be
determined at the time of future offerings. The registration statement also allows
for the issuance of common stock by Duke Energy.
Duke Energy has an effective Form S-3 with the SEC to sell up to $3 billion
of variable denomination fl oating-rate demand notes, called PremierNotes.
The Form S-3 states that no more than $1.5 billion of the notes will be
outstanding at any particular time. The notes are offered on a continuous basis
and bear interest at a fl oating rate per annum determined by the Duke Energy
PremierNotes Committee, or its designee, on a weekly basis. The interest rate
payable on notes held by an investor may vary based on the principal amount
of the investment. The notes have no stated maturity date, are non-transferable
and may be redeemed in whole or in part by Duke Energy or at the investor’s
option at any time. The balance as of December 31, 2014 and 2013 was $968
million and $836 million, respectively. The notes are short-term debt obligations
of Duke Energy and are refl ected as Notes payable and commercial paper on
Duke Energy’s Consolidated Balance Sheets.
At December 31, 2014 and 2013, $767 million and $811 million, respectively,
of debt issued by Duke Energy Carolinas was guaranteed by Duke Energy.
Money Pool
The Subsidiary Registrants, excluding Progress Energy receive support for
their short-term borrowing needs through participation with Duke Energy and
certain of its subsidiaries in a money pool arrangement. Under this arrangement,
those companies with short-term funds may provide short-term loans to
affi liates participating in this arrangement. The money pool is structured such
that the Subsidiary Registrants, excluding Progress Energy, separately manage
their cash needs and working capital requirements. Accordingly, there is no net
settlement of receivables and payables between money pool participants. Duke
Energy (Parent), may loan funds to its participating subsidiaries, but may not
borrow funds through the money pool. Accordingly, as the money pool activity
is between Duke Energy and its wholly owned subsidiaries, all money pool
balances are eliminated within Duke Energy’s Consolidated Balance Sheets.
Money pool receivable balances are refl ected within Notes receivable
from affi liated companies on the Subsidiary Registrants’ Consolidated Balance
Sheets. Money pool payable balances are refl ected within either Notes payable
to affi liated companies or Long-Term Debt Payable to Affi liated Companies on
the Subsidiary Registrants’ Consolidated Balance Sheets.
Restrictive Debt Covenants
The Duke Energy Registrants’ debt and credit agreements contain various
fi nancial and other covenants. The Master Credit Facility contains a covenant
requiring the debt-to-total capitalization ratio not exceed 65 percent for each
borrower. Failure to meet those covenants beyond applicable grace periods
could result in accelerated due dates and/or termination of the agreements. As
of December 31, 2014, each of the Duke Energy Registrants were in compliance
with all covenants related to their signifi cant debt agreements. In addition,
some credit agreements may allow for acceleration of payments or termination
of the agreements due to nonpayment, or acceleration of other signifi cant
indebtedness of the borrower or some of its subsidiaries. None of the signifi cant
debt or credit agreements contain material adverse change clauses.
Other Loans
During 2014 and 2013, Duke Energy and Duke Energy Progress had loans
outstanding against the cash surrender value of life insurance policies it owns
on the lives of its executives. The amounts outstanding were $603 million,
including $44 million at Duke Energy Progress and $571 million, including
$48 million at Duke Energy Progress as of December 31, 2014 and 2013,
respectively. The amounts outstanding were carried as a reduction of the related
cash surrender value that is included in Other within Investments and Other
Assets on the Consolidated Balance Sheets.
7. GUARANTEES AND INDEMNIFICATIONS
Duke Energy and Progress Energy have various fi nancial and performance
guarantees and indemnifi cations, which are issued in the normal course of
business. As discussed below, these contracts include performance guarantees,
stand-by letters of credit, debt guarantees, surety bonds and indemnifi cations.
Duke Energy and Progress Energy enter into these arrangements to facilitate
commercial transactions with third parties by enhancing the value of the
transaction to the third party. At December 31, 2014, Duke Energy and Progress
Energy do not believe conditions are likely for signifi cant performance under
these guarantees. To the extent liabilities are incurred as a result of the activities
covered by the guarantees, such liabilities are included on the accompanying
Consolidated Balance Sheets.
On January 2, 2007, Duke Energy completed the spin-off of its natural gas
businesses to shareholders. Guarantees issued by Duke Energy or its affi liates,
or assigned to Duke Energy prior to the spin-off, remained with Duke Energy
subsequent to the spin-off. Guarantees issued by Spectra Energy Capital,
LLC, formerly known as Duke Capital LLC, (Spectra Capital) or its affi liates
prior to the spin-off remained with Spectra Capital subsequent to the spin-off,
except for guarantees that were later assigned to Duke Energy. Duke Energy
has indemnifi ed Spectra Capital against any losses incurred under certain of
the guarantee obligations that remain with Spectra Capital. At December 31,
2014, the maximum potential amount of future payments associated with these
guarantees was $205 million, the majority of which expires by 2028.
Duke Energy has issued performance guarantees to customers and other
third parties that guarantee the payment and performance of other parties,
including certain non-wholly owned entities, as well as guarantees of debt of
certain non-consolidated entities and less than wholly owned consolidated
entities. If such entities were to default on payments or performance, Duke
Energy would be required under the guarantees to make payments on the
obligations of the less than wholly owned entity. The maximum potential amount
of future payments required under these guarantees as of December 31, 2014,
was $267 million. Of this amount, $15 million relates to guarantees issued
on behalf of less than wholly owned consolidated entities, with the remainder
related to guarantees issued on behalf of third parties and unconsolidated
affi liates of Duke Energy. Of the guarantees noted above, $120 million of the