Duke Energy 2014 Annual Report Download - page 75

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PART II
Contractual Obligations
Duke Energy enters into contracts that require payment of cash at certain specifi ed periods, based on certain specifi ed minimum quantities and prices. The
following table summarizes Duke Energy’s contractual cash obligations as of December 31, 2014.
Payments Due By Period
(in millions) Total
Less than
1 year (2015)
2-3 years
(2016 & 2017)
4-5 years
(2018 & 2019)
More than 5 years
(2020 & beyond)
Long-term debt(a) $ 36,617 $ 2,691 $ 5,204 $ 5,761 $22,961
Interest payments on long-term debt(b) 24,064 1,603 2,926 2,614 16,921
Capital leases(c) 2,733 178 378 406 1,771
Operating leases(c) 1,818 205 370 305 938
Purchase obligations:(d)
Fuel and purchased power(e) 21,128 4,778 5,838 3,171 7,341
Other purchase obligations(f) 7,418 4,074 1,269 519 1,556
Nuclear decommissioning trust annual funding(g) 345 33 67 29 216
Total contractual cash obligations(h)(i) $ 94,123 $13,562 $16,052 $12,805 $51,704
(a) See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities.”
(b) Interest payments on variable rate debt instruments were calculated using December 31, 2014 interest rates and holding them constant for the life of the instruments.
(c) See Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies.” Amounts in the table above include the interest component of capital leases based on the interest rates stated in the lease
agreements and exclude certain related executory costs.
(d) Current liabilities, except for current maturities of long-term debt, and purchase obligations refl ected in the Consolidated Balance Sheets, have been excluded from the above table.
(e) Includes fi rm capacity payments that provide Duke Energy with uninterrupted fi rm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts
that qualify as normal purchase/normal sale (NPNS). For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2014, or the best projections of the index. For certain
of these amounts, Duke Energy may settle on a net cash basis since Duke Energy has entered into payment netting arrangements with counterparties that permit Duke Energy to offset receivables and payables with such
counterparties.
(f) Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for engineering, procurement and construction costs for new generation plants and nuclear
plant refurbishments, environmental projects on fossil facilities, major maintenance of certain nonregulated plants, maintenance and day-to-day contract work at certain wind facilities and commitments to buy wind and
combustion turbines. Amount excludes certain open purchase orders for services that are provided on demand, for which the timing of the purchase cannot be determined.
(g) Related to future annual funding obligations to nuclear decommissioning trust fund (NDTF) through nuclear power stations’ re-licensing dates. Amounts through 2017 include North Carolina jurisdictional amounts that
Duke Energy Progress retained internally and is transitioning to its external decommissioning funds per a 2008 NCUC order. The transition of the original $131 million must be complete by December 31, 2017, and at least
10 percent must be transitioned each year. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations.”
(h) Uncertain tax positions of $213 million are not refl ected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 22 to the Consolidated Financial Statements,
“Income Taxes.”
(i) The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 5 to the Consolidated Financial Statements, “Commitments
and Contingencies”) because Duke Energy is uncertain as to the timing and amount of cash payments that will be required. Additionally, the table above excludes annual insurance premiums that are necessary to operate the
business, including nuclear insurance (see Note 5 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefi t plans (see Note 21 to the Consolidated
Financial Statements, “Employee Benefi t Plans”), asset retirement obligations, including ash management expenditures (see Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations”) and regulatory
liabilities (see Note 4 to the Consolidated Financial Statements, “Regulatory Matters”) because the amount and timing of the cash payments are uncertain. Also excluded are Deferred Income Taxes and Investment Tax Credits
recorded on the Consolidated Balance Sheets since cash payments for income taxes are determined based primarily on taxable income for each discrete fi scal year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management Policies
Duke Energy is exposed to market risks associated with commodity
prices, interest rates, equity prices and foreign currency exchange rates. Duke
Energy has established comprehensive risk management policies to monitor
and manage these market risks. Duke Energy’s Chief Executive Offi cer and
Chief Financial Offi cer are responsible for the overall approval of market risk
management policies and the delegation of approval and authorization levels.
The Finance and Risk Management Committee of the Board of Directors receives
periodic updates from the Chief Risk Offi cer and other members of management
on market risk positions, corporate exposures, and overall risk management
activities. The Chief Risk Offi cer is responsible for the overall governance of
managing commodity price risk, including monitoring exposure limits.
The following disclosures about market risk contain forward-looking
statements that involve estimates, projections, goals, forecasts, assumptions,
risks and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Please
review Item 1A, “Risk Factors,” and “Cautionary Statement Regarding Forward-
Looking Information” for a discussion of the factors that may impact any such
forward-looking statements made herein.
Commodity Price Risk
Duke Energy is exposed to the impact of market fl uctuations in the prices
of electricity, coal, natural gas and other energy-related products marketed and
purchased as a result of its ownership of energy related assets. Duke Energy’s
exposure to these fl uctuations is limited by the cost-based regulation of its
operations in its Regulated Utilities segment as these operations are typically
allowed to recover substantially all of these costs through various cost-recovery
clauses, including fuel clauses. While there may be a delay in timing between
when these costs are incurred and when these costs are recovered through
rates, changes from year to year generally do not have a material impact on
operating results of these regulated operations.
Price risk represents the potential risk of loss from adverse changes in the
market price of electricity or other energy commodities. Duke Energy’s exposure
to commodity price risk is infl uenced by a number of factors, including contract
size, length, market liquidity, location and unique or specifi c contract terms.
Duke Energy employs established policies and procedures to manage risks
associated with these market fl uctuations, which may include using various
commodity derivatives, such as swaps, futures, forwards and options. For
additional information, see Note 14 to the Consolidated Financial Statements,
“Derivatives and Hedging.”