Duke Energy 2015 Annual Report Download - page 130

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PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, LLC. • DUKE ENERGY FLORIDA, LLC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
Years Ended December 31,
2015 2014 2013
Duke Energy 2.9% 2.8% 2.8%
Duke Energy Carolinas 2.8% 2.7% 2.8%
Progress Energy 2.6% 2.5% 2.5%
Duke Energy Progress 2.6% 2.5% 2.5%
Duke Energy Florida 2.7% 2.7% 2.4%
Duke Energy Ohio 2.7% 2.3% 3.3%
Duke Energy Indiana 3.0% 3.0% 2.8%
In general, when the Duke Energy Registrants retire regulated property,
plant and equipment, original cost plus the cost of retirement, less salvage
value, is charged to accumulated depreciation. However, when it becomes
probable a regulated asset will be retired substantially in advance of its original
expected useful life or is abandoned, the cost of the asset and the corresponding
accumulated depreciation is recognized as a separate asset. If the asset is still
in operation, the net amount is classified as Generation facilities to be retired,
net on the Consolidated Balance Sheets. If the asset is no longer operating,
the net amount is classified in Regulatory Assets on the Consolidated Balance
Sheets. The carrying value of the asset is based on historical cost if the Duke
Energy Registrants are allowed to recover the remaining net book value and a
return equal to at least the incremental borrowing rate. If not, an impairment
is recognized to the extent the net book value of the asset exceeds the present
value of future revenues discounted at the incremental borrowing rate.
When the Duke Energy Registrants sell entire regulated operating units,
or retire or sell nonregulated properties, the original cost and accumulated
depreciation and amortization balances are removed from Property, Plant and
Equipment on the Consolidated Balance Sheets. Any gain or loss is recorded in
earnings, unless otherwise required by the applicable regulatory body.
See Note 10 for further information.
Nuclear Fuel
Nuclear fuel is classified as Property, Plant and Equipment on the
Consolidated Balance Sheets, except for Duke Energy Florida. Refer to
Note 4, “Regulatory Matters,” for additional information on Crystal River Unit 3
investments, including nuclear fuel.
Nuclear fuel in the front-end fuel processing phase is considered work
in progress and not amortized until placed in service. Amortization of nuclear
fuel is included within Fuel used in electric generation and purchased power
– regulated in the Consolidated Statements of Operations. Amortization is
recorded using the units-of-production method.
Allowance for Funds Used During Construction and Interest Capitalized
For regulated operations, the debt and equity costs of financing the
construction of property, plant and equipment are reflected as AFUDC and
capitalized as a component of the cost of property, plant and equipment. AFUDC
equity is reported on the Consolidated Statements of Operations as non-cash
income in Other income and expenses, net. AFUDC debt is reported as a non-
cash offset to Interest Expense. After construction is completed, the Duke Energy
Registrants are permitted to recover these costs through their inclusion in rate
base and the corresponding subsequent depreciation or amortization of those
regulated assets.
AFUDC equity, a permanent difference for income taxes, reduces the
effective tax rate when capitalized and increases the effective tax rate when
depreciated or amortized. See Note 22 for additional information.
For nonregulated operations, interest is capitalized during the
construction phase with an offsetting non-cash credit to Interest Expense on the
Consolidated Statements of Operations.
Asset Retirement Obligations
Asset retirement obligations are recognized for legal obligations
associated with the retirement of property, plant and equipment. Substantially
all asset retirement obligations are related to regulated operations. When
recording an asset retirement obligation, the present value of the projected
liability is recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made. The liability is accreted over time. For
operating plants, the present value of the liability is added to the cost of the
associated asset and depreciated over the remaining life of the asset. For retired
plants, the present value of the liability is recorded as a regulatory asset.
The present value of the initial obligation and subsequent updates are
based on discounted cash flows, which include estimates regarding timing of
future cash flows, selection of discount rates and cost escalation rates, among
other factors. These estimates are subject to change. Depreciation expense is
adjusted prospectively for any changes to the carrying amount of the associated
asset. The Duke Energy Registrants receive amounts to fund the cost of the
asset retirement obligation for regulated operations through a combination of
regulated revenues and earnings on the NDTF. As a result, amounts recovered in
regulated revenues, earnings on the NDTF, accretion expense and depreciation of
the associated asset are all deferred as a regulatory asset or liability.
Obligations for nuclear decommissioning are based on-site-specific
cost studies. Duke Energy Carolinas and Duke Energy Progress assume prompt
dismantlement of the nuclear facilities after operations are ceased. Duke
Energy Florida assumes Crystal River Unit 3 will be placed into a safe storage
configuration until eventual dismantlement is completed by 2074. Duke Energy
Carolinas, Duke Energy Progress and Duke Energy Florida also assume that
spent fuel will be stored on-site until such time that it can be transferred to a
U.S. Department of Energy (DOE) facility.
Obligations for closure of ash basins are based upon discounted cash
flows of estimated costs for site specific plans, if known, or probability
weightings of the potential closure methods if the closure plans are under
development and multiple closure options are being considered and evaluated
on a site-by-site basis. See Note 9 for additional information.
Revenue Recognition and Unbilled Revenue
Revenues on sales of electricity and gas are recognized when service
is provided or the product is delivered. Unbilled revenues are recognized by
applying customer billing rates to the estimated volumes of energy delivered but
not yet billed. Unbilled revenues can vary significantly from period to period as a
result of seasonality, weather, customer usage patterns, customer mix, average
price in effect for customer classes, timing of rendering customer bills and
meter reading schedules.
Unbilled revenues are included within Receivables and Restricted
receivables of variable interest entities on the Consolidated Balance Sheets as
shown in the following table. This table excludes amounts included in assets
held for sale (AHFS) at December 31, 2014.