Duke Energy 2014 Annual Report Download - page 182

162
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 classifi ed as trading securities. The fair value of these investments was
$7 million as of December 31, 2014 and $18 million as of December 31, 2013.
AVAILABLE-FOR-SALE SECURITIES
All other investments in debt and equity securities are classifi ed 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 either classifi ed
as Cash and cash equivalents or Short-term investments on the Consolidated
Balance Sheets based on maturity date and are available for current operations
of Duke Energy’s foreign business. The fair value of these investments classifi ed
as Short-term investments was $44 million as of December 31, 2013.
Duke Energy classifi es all other investments in debt and equity securities
as long-term, unless otherwise noted.
Investment Trusts
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 the 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 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, 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 is 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 suffi cient 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 fi nancial condition of the issuer of the security, or in the case of an asset
backed security, the fi nancial 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,
2014 and 2013. There were no other-than-temporary impairments for debt or
equity securities as of December 31, 2014 and 2013.