Duke Energy 2014 Annual Report Download - page 49

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PART II
DISPOSITION OF THE NONREGULATED MIDWEST GENERATION BUSINESS
On August 21, 2014, Duke Energy entered into a purchase sale agreement
(PSA) to sell its nonregulated Midwest generation business and Duke Energy
Retail Sales LLC (Disposal Group) to Dynegy Inc. (Dynegy) for approximately $2.8
billion in cash subject to adjustments at closing for changes in working capital
and capital expenditures. The completion of the transaction, conditioned on
approval by Federal Energy Regulatory Commissions (FERC), is expected by the
end of the second quarter of 2015.
For additional information on the details of this transaction including
regulatory conditions and accounting implications, see Note 2 to the
Consolidated Financial Statements, “Acquisitions, Dispositions and Sales of
Other Assets.”
2014 FINANCIAL RESULTS
The following table summarizes adjusted earnings and net income
attributable to Duke Energy.
Years Ended December 31,
2014 2013 2012
(in millions,
except per
share amounts) Amount
Per
diluted
share Amount
Per
diluted
share Amount
Per
diluted
share
Adjusted
earnings(a) $ 3,218 $ 4.55 $ 3,080 $ 4.36 $ 2,489 $ 4.33
Net income
attributable to
Duke Energy $ 1,883 $ 2.66 $ 2,665 $ 3.76 $ 1,768 $ 3.07
(a) See Results of Operations below for Duke Energy’s defi nition of adjusted earnings and adjusted earnings
per diluted share as well as a reconciliation of this non-GAAP fi nancial measure to net income attributable
to Duke Energy and net income attributable to Duke Energy per diluted share.
Adjusted earnings increased from 2013 to 2014 primarily due to the
impact of the revised rates and favorable weather, partially offset by higher
depreciation and amortization expense. Adjusted earnings increased from
2012 to 2013 primarily due to the inclusion of a full year of Progress Energy
results in 2013, the impact of the revised rates, net of higher depreciation and
amortization expense and lower allowance for funds used during construction
(AFUDC).
See “Results of Operations” below for a detailed discussion of the
consolidated results of operations, as well as a detailed discussion of fi nancial
results for each of Duke Energy’s reportable business segments, as well as
Other.
2014 AREAS OF FOCUS AND ACCOMPLISHMENTS
In 2014, Duke Energy focused on achieving fi nancial objectives, completing
important strategic initiatives, including the agreement to sell the nonregulated
Midwest Generation business and completion of a strategic review of the
international business, advancing a platform of growth initiatives, operational
excellence, and the strengthening of coal ash management practices and plans
to accelerate basin closure strategies resulting from the Dan River coal ash spill.
Sale of the Midwest Generation Business. In 2014, Duke Energy
entered into a PSA to sell the Disposal Group to Dynegy for approximately
$2.8 billion. This decision supports Duke Energy’s strategy to focus investments
on businesses with more predictable and less volatile earnings.
International Energy Operations. Duke Energy completed the strategic
review of the international operations. As a result of the review, 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 in the international operations. In addition, Duke Energy 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 of cash held and
expected to be generated by International Energy over a period of up to eight
years. The cash will help support the dividend and growth in the investment
portfolio of the domestic businesses.
Growth Initiatives. In 2014, Duke Energy announced new growth
initiatives representing a total investment of approximately $8 billion. These
initiatives include:
• Duke Energy Indiana proposed transmission and distribution
infrastructure improvement totaling $1.9 billion.
• Duke Energy Florida proposed approximately $1.8 billion investment
in three new generation projects, a combined-cycle plant in Citrus
County, an uprate plan at the Hines Energy Complex (Hines) facility and
acquisition of the Osprey plant from Calpine Corporation (Calpine).
• Duke Energy Progress proposed the acquisition of North Carolina Eastern
Municipal Power Agency’s (NCEMPA) ownership interest in some of
Duke Energy Progress’s existing nuclear and coal generation and the
acquisition of solar projects in eastern North Carolinas for a total
amount of approximately $1.2 billion.
• Duke Energy Carolinas proposed construction of a combined-cycle
natural gas plant at the William States Lee generation facility at a cost
of approximately $600 million.
• Commercial Power proposed construction of the Atlantic Coast Pipeline
for a total investment of approximately $2 billion.
Operational Excellence of the Nuclear Fleet. Duke Energy’s nuclear
fl eet set a company record for total electricity production and demonstrated a
combined capacity factor at approximately 93 percent, the 16th consecutive year
above 90 percent on this plant reliability measure.
Deliver Merger Benefi ts. Duke Energy continues to focus on realizing
benefi ts of the merger with Progress Energy. Duke Energy is on-track to achieve
the $687 million of guaranteed savings for customers in the Carolinas over
fi ve years. After two and a half years, Duke Energy Carolinas and Duke Energy
Progress have generated over 60 percent of the guaranteed fuel and joint
dispatch savings. In total 85 percent of the guaranteed benefi t has been locked-
in or delivered to Duke Energy’s customers in the Carolinas.
Dan River Coal Ash Spill and Other Coal Ash Management. Duke
Energy has improved coal ash practices and accelerated plans to close its
ash basins. Comprehensive engineering reviews were completed at each of
the ash basins, and a central internal organization was formed to manage
all coal combustion products. Duke Energy also established an independent
national Coal Ash Management Advisory Board to help guide company strategy.
Excavation plans have been fi led for four high priority sites identifi ed in
connection with North Carolina coal ash management enacted in 2014 — Dan
River, Asheville, Riverbend and L.V. Sutton combined cycle facility (Sutton).
Excavation plans have also been fi led for the W.S. Lee site in South Carolina, and
work is progressing on closure plans for the other ten North Carolina sites.
On February 20, 2015, Duke Energy Carolinas, Duke Energy Progress and
Duke Energy Business Services LLC (DEBS), a wholly owned subsidiary of Duke
Energy, each entered into a Memorandum of Plea Agreement (Plea Agreements)
in connection with an investigation initiated by the USDOJ. The Plea Agreements
are subject to the approval of the United States District Court for the Eastern
District of North Carolina and, if approved, will end the grand jury investigation
related to the Dan River ash basin release and the management of coal ash
basins at 14 plants in North Carolina with coal ash basins.