Duke Energy 2015 Annual Report Download - page 134

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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)
For Duke Energy, the revised accounting guidance is effective for interim
and annual periods beginning January 1, 2018, by recording a cumulative effect
to the balance sheet as of January 1, 2018. This guidance is expected to have
minimal impact on Duke Energy’s Statement of Comprehensive Income as
changes in the fair value of most of Duke Energy’s available-for-sale equity
securities are deferred as regulatory assets or liabilities.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
The Duke Energy Registrants consolidate assets and liabilities from
acquisitions as of the purchase date, and include earnings from acquisitions in
consolidated earnings after the purchase date.
Acquisition of Piedmont Natural Gas
On October 24, 2015, Duke Energy entered into an Agreement and
Plan of Merger (Merger Agreement) with Piedmont Natural Gas Company,
Inc. (Piedmont), a North Carolina corporation. Under the terms of the Merger
Agreement, Duke Energy will acquire Piedmont for $4.9 billion in cash. Upon
closing, Piedmont will become a wholly owned subsidiary of Duke Energy.
Pursuant to the Merger Agreement, upon the closing of the merger,
each share of Piedmont common stock issued and outstanding immediately
prior to the closing will be converted automatically into the right to receive
$60 in cash per share. In addition, Duke Energy will assume Piedmont’s
existing debt, which was approximately $1.9 billion at October 31, 2015, the
end of Piedmont’s most recent fiscal year. Duke Energy expects to finance
the transaction with a combination of debt, equity issuances and other cash
sources. As of December 31, 2015, Duke Energy entered into $900 million of
forward starting interest rate swaps to lock in components of interest rates
for the expected financing. The change in the fair value of the swaps from
inception to December 31, 2015, was not material. For additional information
on the forward-starting swaps, see Note 14.
In connection with the Merger Agreement with Piedmont, Duke Energy
entered into a $4.9 billion senior unsecured bridge financing facility (Bridge
Facility) with Barclays Capital, Inc. (Barclays). The Bridge Facility, if drawn
upon, may be used to (i) fund the cash consideration for the transaction
and (ii) pay certain fees and expenses in connection with the transaction.
In November 2015, Barclays syndicated its commitment under the Bridge
Facility to a broader group of lenders. Duke Energy does not expect to draw
upon the Bridge Facility.
The Federal Trade Commission (FTC) has granted early termination
of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust
Improvements Act of 1976. On January 22, 2016, shareholders of Piedmont
Natural Gas approved the company’s acquisition by Duke Energy. On
January 15, 2016, Duke Energy filed for approval of the transaction and
associated financing requests with the NCUC. On January 29, 2016, the
NCUC approved the financing requests. On January 15, 2016, Duke Energy
and Piedmont filed a joint request with the Tennessee Regulatory Authority for
approval of a change in control of Piedmont that will result from Duke Energy’s
acquisition of Piedmont. In that request, Duke Energy and Piedmont requested
that the Authority approve the change in control on or before April 30, 2016.
Subject to receipt of required regulatory approvals and meeting closing
conditions, Duke Energy and Piedmont target a closing by the end of 2016.
On December 11, 2015, Duke Energy Kentucky filed a declaratory
request with the KPSC seeking a finding that the transaction does not
constitute a change in control of Duke Energy Kentucky requiring KPSC
approval. Duke Energy also presented the transaction for information before
the PSCSC on January 13, 2016.
The Merger Agreement contains certain termination rights for both Duke
Energy and Piedmont, and provides that, upon termination of the Merger
Agreement under specified circumstances, Duke Energy would be required
to pay a termination fee of $250 million to Piedmont and Piedmont would be
required to pay Duke Energy a termination fee of $125 million.
See Note 4 for additional information regarding Duke Energy and
Piedmont’s joint investment in Atlantic Coast Pipeline, LLC (ACP).
Purchase of NCEMPA’s Generation
On July 31, 2015, Duke Energy Progress completed the purchase of North
Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in
certain generating assets, fuel and spare parts inventory jointly owned with
and operated by Duke Energy Progress for approximately $1.25 billion. This
purchase was accounted for as an asset acquisition. The purchase resulted in
the acquisition of a total of approximately 700 megawatts (MW) of generating
capacity at Brunswick Nuclear Plant, Shearon Harris Nuclear Plant, Mayo Steam
Plant and Roxboro Steam Plant. In connection with this transaction, Duke Energy
Progress and NCEMPA entered into a 30-year wholesale power agreement,
whereby Duke Energy Progress will sell power to NCEMPA to continue to meet
the needs of NCEMPA customers.
The purchase price exceeds the historical carrying value of the acquired
assets by $350 million, which was recognized as an acquisition adjustment,
recorded in property, plant and equipment. Duke Energy Progress received FERC
approval for inclusion of the acquisition adjustment in wholesale power formula
rates on December 9, 2014. On July 8, 2015, the NCUC adopted a new rule
that enables a rider mechanism for recovery of the costs to acquire, operate
and maintain interests in the assets purchased as allocated to Duke Energy
Progress’ North Carolina retail operations, including the acquisition adjustment.
Pursuant to the NCUC’s approval, Duke Energy Progress implemented a rider
to recover costs associated with the NCEMPA asset acquisition effective
December 1, 2015. Duke Energy Progress also received an order from the
PSCSC to defer the recovery of the South Carolina retail allocated costs of the
asset purchased until the Company’s next general rate case.
Assets Acquired
The ownership interests in generating assets acquired are subject to rate-
setting authority of the FERC, NCUC and PSCSC and accordingly, the assets are
recorded at historical cost. The assets acquired are presented in the following
table.
(in millions)
Inventory $ 56
Net property, plant and equipment 845
Total assets 901
Acquisition adjustment, recorded within property, plant and equipment 350
Total purchase price $ 1,251
In connection with the acquisition, Duke Energy Progress acquired
NCEMPA’s nuclear decommissioning trust fund assets of $287 million and
assumed asset retirement obligations of $204 million associated with NCEMPA’s
interest in the generation assets. The nuclear decommissioning trust fund and
the asset retirement obligation are subject to regulatory accounting treatment.