Duke Energy 2014 Annual Report Download - page 32

PART I
12
INTERNATIONAL ENERGY
International Energy principally operates and manages power generation
facilities and engages in sales and marketing of electric power, natural gas,
and natural gas liquids outside the U.S. Its activities principally target power
generation in Latin America. Additionally, International Energy owns a 25 percent
interest in National Methanol Company (NMC), a large regional producer of
methanol and methyl tertiary butyl ether (MTBE) located in Saudi Arabia.
International Energy’s economic ownership interest will decrease to 17.5 percent
upon successful startup of NMC’s polyacetal production facility, which is
expected to occur after June 2016. International Energy will retain 25 percent of
the board representation and voting rights of NMC. The investment in NMC is
accounted for under the equity method of accounting.
International Energy’s customers include retail distributors, electric utilities,
independent power producers, marketers, and industrial and commercial companies.
International Energy’s current strategy is focused on optimizing the value of its current
Latin American portfolio and expanding the portfolio through investment in generation
opportunities in Latin America.
During 2014, Duke Energy performed a strategic review of International Energy
to evaluate a wide range of options and opportunities for growth of the business,
including strategies for utilization of off-shore cash. Duke Energy determined it is in the
shareholders’ best interest, at the present time, to continue to own, operate and create
value through portfolio optimization and effi ciency of International Energy operations.
Duke Energy also declared a taxable dividend of historical foreign earnings in the
form of notes payable that will result in the repatriation of approximately $2.7 billion in
cash held and expected to be generated by International Energy over a period of up to
eight years. Duke Energy’s intention is to indefi nitely reinvest prospective undistributed
foreign earnings generated by International Energy. For additional information see Note
22 to the Consolidated Financial Statements, “Income Taxes.”
Competition and Regulation
International Energy’s sales and marketing of electric power and natural
gas competes directly with other generators and marketers serving its market
areas. Competitors are country- and region-specifi c but include government-
owned electric generating companies, local distribution companies with
self-generation capability and other privately owned electric generating and
marketing companies. The principal elements of competition are price and
availability, terms of service, fl exibility and reliability of service.
A high percentage of International Energy’s portfolio consists of baseload
hydroelectric generation facilities, which compete with other forms of electric
generation available to International Energy’s customers and end-users,
including natural gas and fuel oils. Economic activity, conservation, legislation,
governmental regulations, weather, including rainfall, additional generation
capacities and other factors affect the supply and demand for electricity in the
regions served by International Energy.
International Energy’s operations are subject to both country-specifi c and
international laws and regulations. See “Environmental Matters” in this section.
COMMERCIAL POWER
Commercial Power builds, develops, and operates wind and solar
renewable generation and energy transmission projects throughout the
continental U.S. Long-term contracts are generally executed with load-serving
entities, which, in most instances, have obligations under state-mandated
renewable energy portfolio standards or similar state or local renewable energy
goals. Energy and renewable energy credits generated by wind and solar projects
are generally sold at contractual prices. Commercial Power also builds, develops
and operates high voltage power and natural gas transmission projects. These
projects are designed to increase reliability, integrate renewables generation and
relieve grid congestion.
Duke Energy, Dominion Resources (Dominion), Piedmont Natural Gas
and AGL Resources announced the formation of a joint venture, Atlantic Coast
Pipeline, LLC, to build and own the proposed Atlantic Coast Pipeline (ACP), a
550-mile interstate natural gas pipeline. The ACP is designed to meet the needs
identifi ed in requests for proposals by Duke Energy Carolinas, Duke Energy
Progress and Piedmont Natural Gas. Dominion will build and operate the ACP
and will own 45 percent. Duke Energy, will own 40 percent ownership of the
pipeline through its Commercial Power segment. The remaining share will be
owned by Piedmont Natural Gas and AGL Resources. Duke Energy Carolinas and
Duke Energy Progress will be customers of the pipeline and enter into 20-year
transportation contracts with ACP, subject to state regulatory approval. The
project will require FERC approval, which the joint venture will seek to secure
by summer 2016. The estimated in-service date of the pipeline is late 2018.
For additional information on the ACP, see Note 4 to the Consolidated Financial
Statements, “Regulatory Matters.”
Commercial Power has three wind projects totaling approximately 510 MW
under various stages of construction in Starr County, Texas. A 200 MW project
is expected to commence operation in the second quarter of 2015, a 110 MW
project is expected to commence commercial operations by the end of 2015 and
a third 200 MW project is expected to commence operation in the third quarter of
2016. All three projects have entered into long-term power purchase agreements
with third parties.
For additional information on Commercial Power’s generation facilities, see
Item 2, “Properties.”
Other Matters
Commercial Power is subject to regulation at the federal level, primarily
from the FERC. Regulations of the FERC govern access to regulated electric
customer and other data by nonregulated entities, services provided between
regulated and nonregulated energy affi liates, and Commercial Power’s
investments in transmission projects. These regulations affect the activities of
Commercial Power.
For more information on rate matters, see Note 4 to the Consolidated
Financial Statements, “Regulatory Matters – Rate Related Information.”
Market Environment and Competition
The market price of commodities and services, along with the quality
and reliability of services provided, drive competition in the wholesale energy
business. Commercial Power’s main competitors include other nonregulated
generators and wholesale power providers.
Sources of Electricity
Commercial Power relies on wind and solar resources for its generation of
electric energy.
OTHER
The remainder of Duke Energy’s operations is presented as Other. While
it is not an operating segment, Other primarily includes unallocated corporate
interest expense, certain unallocated corporate costs, Bison Insurance Company
Limited (Bison), Duke Energy’s wholly owned, captive insurance subsidiary,
contributions to the Duke Energy Foundation, and other investments in
businesses the Company is in various stages of exiting or winding down. On
December 31, 2013, Duke Energy sold its interest in DukeNet Communications
Holdings, LLC (DukeNet) to Time Warner Cable, Inc. Following the repayment
of existing DukeNet indebtedness at closing, transaction expenses and
other purchase price adjustments, Duke Energy received cash proceeds of
approximately $215 million.