Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis includes financial information prepared in accordance with GAAP in the U.S., as well as certain non-GAAP financial measures such as adjusted earnings and adjusted EPS discussed below. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with GAAP. Non-GAAP measures as presented herein may not be comparable to similarly titled measures used by other companies.

The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy Corporation and its subsidiaries. Duke Energy Carolinas, LLC, Progress Energy, Inc., Duke Energy Progress, LLC, Duke Energy Florida, LLC, Duke Energy Ohio, Inc., Duke Energy Indiana, LLC and Piedmont Natural Gas Company, Inc. However, none of the registrants make any representation as to information related solely to Duke Energy or the subsidiary registrants of Duke Energy other than itself.

Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and Notes for the years ended December 31, 2020, 2019 and 2018.

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020, for a discussion of variance drivers for the year ended December 31, 2019, as compared to December 31, 2018.

DUKE ENERGY

Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its wholly owned subsidiaries, Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio, Duke Energy Indiana and Piedmont. When discussing Duke Energy’s consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.

Executive Overview

At Duke Energy the fundamentals of our business are strong and allow us to deliver growth in earnings and dividends in a low-risk, predictable and transparent way. In 2020, we met our near-term financial commitments and continued to provide safe and reliable service while managing the impacts of the COVID-19 pandemic.

In early 2021, we continued to position the company for sustainable long-term growth, executing an important coal ash settlement agreement in North Carolina and announcing the $2 billion sale of a minority interest in Duke Energy Indiana, providing a source of efficient capital at an attractive valuation. We remain focused on a business portfolio that will deliver a reliable and growing dividend with 2020 representing the 94th consecutive year Duke Energy paid a cash dividend on its common stock. With these recent announcements, we also increased our long-term adjusted EPS growth rate to 5% to 7% through 2025. This growth is supported by our $59 billion capital plan from 2021 to 2025, clean energy investments that benefit our customers, timely cost-recovery mechanisms in most jurisdictions and our ability to effectively manage our cost structure.

Financial Results


MD&A			DUKE ENERGY

(a)See Results of Operations below for Duke Energy’s definition of adjusted earnings and adjusted EPS as well as a reconciliation of this non-GAAP financial measure to net income available to Duke Energy and net income available to Duke Energy per basic share.

Duke Energy's 2020 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) were impacted by: regulatory settlements related to coal ash cost recovery in Electric Utilities and Infrastructure; the cancellation of the ACP pipeline in Gas Utilities and Infrastructure; and growth in project investments in Commercial Renewables. See “Results of Operations” below for a detailed discussion of the consolidated results of operations and a detailed discussion of financial results for each of Duke Energy’s reportable business segments, as well as Other.

2020 Areas of Focus and Accomplishments

Clean Energy Transformation. Our industry has been undergoing an incredible transformation and 2020 was a milestone year for our company where we articulated a clear vision for the future and outlined investments to achieve a clean energy future for our customers. We continue to transform the customer experience by generating cleaner energy, modernizing the energy grid, and expanding natural gas infrastructure.

Generating Cleaner Energy

In October 2020, we held our first-ever Environmental, Social, and Governance (ESG) Day for investors, successfully outlining our climate strategy and highlighting our strong progress to date in reducing carbon (a greater than 40% reduction from 2005) and our commitment to do more (at least 50% reduction by 2030 and net-zero by 2050). In the Carolinas, we participated in extensive stakeholder processes focused on carbon reduction and regulatory reform and filed comprehensive IRP consistent with that strategy. Our planned coal retirements and transition to cleaner energy sources in the Carolinas are some of the largest in the industry. We also committed to an all-electric light-duty fleet and 50% of all medium- and heavy-duty vehicles by 2030 – a pledge that also leads our industry. Our commitment for 2030 includes retiring plants, operating our existing carbon-free resources and investing in renewables, our energy delivery system, and natural gas infrastructure. As we look beyond 2030, we will need additional tools to continue our progress. We will work actively to advocate for research and development of carbon-free, dispatchable resources. That includes longer-duration energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.

Modernizing the Power Grid

Our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding, helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for customers. In 2020, 98% of our jurisdictions were equipped with smart meters and we remain on track to be fully deployed across all regions by the end of this year. We continue to expand our self-optimizing grid capabilities, and in 2020, smart, self-healing technologies helped to avoid more than 800,000 extended customer outages across our six-state electric service area, saving customers more than 1.8 million hours of lost outage time. Duke Energy also has a demonstrated track record of driving efficiencies and productivity into the business and we continue to leverage new technology, digital tools and data analytics across the business in response to a transforming landscape.

Expanding Natural Gas Infrastructure

In July 2020, Duke Energy and Dominion announced the cancellation of the ACP pipeline. Litigation risks and delays presented too much uncertainty on our ability to economically complete the project on schedule to meet our customers’ needs. Additionally, Dominion reached a decision to exit their natural gas transmission business, further impeding our ability to consider ongoing investment in the project. The Company remains committed to pursuing natural gas infrastructure investments and continues to explore additional resources in eastern North Carolina for the Piedmont system and securing more transport capacity to support power generation. Construction is expected to be completed this year on a liquefied natural gas facility in Robeson County, North Carolina, on property Piedmont owns. This investment will help Piedmont provide a reliable gas supply to customers during peak usage periods and protect customers from price volatility when there is a higher-than-normal demand for natural gas. In the fall of 2020, recognizing the continued importance of natural gas to our plans, we announced a net-zero methane emission goal by 2030 related to our gas distribution business, as well as our commitment to lead on reduction of upstream methane emissions through work with our natural gas supply chain.

Constructive Regulatory and Legislative Outcomes. One of our long-term strategic goals is to achieve modernized regulatory constructs in our jurisdictions. Modernized constructs provide benefits, which include improved earnings and cash flows through more timely recovery of investments, as well as stable pricing for customers.

In 2020, we conducted the bulk of proceedings related to our North Carolina rate cases for both Duke Energy Carolinas and Duke Energy Progress and achieved a partial settlement with the North Carolina Public Staff and ten other intervening parties. In January 2021, Duke Energy Carolinas and Duke Energy Progress reached an important settlement agreement, which subject to NCUC approval, resolves historical coal ash prudence and cost recovery issues and provides clarity on coal ash cost recovery for the next decade. In 2020, we also achieved constructive rate case outcomes in Indiana (our first rate base request in 15 years) and Kentucky (electric). We have a multiyear rate plan in Florida and in January 2021 reached a constructive settlement agreement with key consumer groups, subject to FPSC approval, to bring additional certainty to rates through 2024, In addition, grid investment riders in the Midwest enable more timely cost recovery and earnings growth.

Customer Satisfaction**.** Duke Energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels. This data-driven approach allows us to identify the investments that are the most important to the customer experience. Our work has been recognized by our customers with external measures showing Duke Energy is improving customer satisfaction at a rate greater than the utility industry. Additionally, in 2020, we surpassed our internal target that measures customer satisfaction by approximately 14%.


MD&A			DUKE ENERGY

Operational Excellence, Safety and Reliability**.** The reliable and safe operation of our power plants, electric distribution system and natural gas infrastructure in our communities is foundational to our customers, our financial results and our credibility with stakeholders. Our regulated generation fleet and nuclear sites had strong performance throughout the year and our electric distribution system performed well. The safety of our workforce is a core value. Our employees delivered strong safety results in 2020, and we are at or near the top of our industry. Additionally, the 2020 Atlantic hurricane season was incredibly active and marked the fifth consecutive year of above-average damaging storms. Our ability to effectively handle all facets of the 2020 storm response efforts, including navigating COVID-19 protocols, is a testament to our team’s extensive preparation and coordination, applying lessons learned from previous storms, and to on-the-ground management throughout the restoration efforts.

Leading Through COVID-19**.** COVID-19 impacted all that we accomplished in 2020 and demonstrated our resiliency and agility:

As the pandemic spread, stay-at-home orders coupled with recessionary economic conditions caused overall retail electric sales to decline by approximately 2%. To offset this challenge, as well as mild weather and other COVID-related costs, we successfully achieved the high end of our goal of $400 million to $450 million of broad-based O&M reductions and other mitigating actions. The Company’s results were within its adjusted EPS guidance range and we expect to sustain approximately $200 million of the 2020 O&M cost mitigation into 2021 forward.
Duke Energy kept electricity and gas flowing while voluntarily making significant accommodations for our customers. We led the way in our sector nationally, suspending all nonpay disconnects in all jurisdictions and waiving late payment fees and other fees until the national state of emergency was lifted. In the fall, we began returning to normal business practices, ensuring diligent communication with our customers and providing flexible payment arrangements.
We ensured the physical safety of our workers and provided support for our employees. As cases spiked nationally, we deployed COVID-19 safety protocols for our front-line essential workers and moved 18,000 colleagues to remote work. Our COVID-19 Case Management Team managed exposures of our workforce and IT ensured our networks could handle the remote work while strengthening cyber protection. Under our COVID-19 protocols, our front-line employees completed 150 fossil and nuclear outages, executed large major projects, restored service from storms and hurricanes, and managed high-water events. Overall, our operations continued, and our team completed their work with excellence.

Duke Energy Objectives – 2021 and Beyond

Duke Energy will continue to deliver exceptional value to customers, be an integral part of the communities in which we do business and provide attractive returns to investors. We have an achievable, long-term strategy in place, and it is producing tangible results, yet the industry in which we operate is becoming more and more dynamic. We are adjusting, where necessary, and accelerating our focus in key areas to ensure the company is well positioned to be successful for many decades into the future. As we look ahead to 2021, our plans include:

Continuing to place the customer at the center of all that we do, which includes providing customized products and solutions
Strengthening our relationships with all our vast stakeholders in the communities in which we operate and invest
Generating cleaner energy and working to achieve net-zero carbon emissions by 2050 and net zero methane emissions by 2030
Modernizing and strengthening a green-enabled energy grid
Expanding our natural gas infrastructure
Maintaining the safety of our communities and employees
Deploying digital tools across our business

Matters Impacting Future Results

The matters discussed herein could materially impact the future operating results, financial condition and cash flows of the Duke Energy Registrants and Business Segments.

Regulatory Matters

Coal Ash Costs

As a result of the NCDEQ settlement on December 31, 2019, Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins in North Carolina with ash moved to on-site lined landfills. At the two remaining basins, uncapped basin ash will be excavated and moved to lined landfills. The majority of spend is expected to occur over the next 15-20 years. In January 2021, Duke Energy Carolinas and Duke Energy Progress reached a settlement agreement on recovery of coal ash costs as outlined in Note 3, "Regulatory Matters," which is subject to review and approval of the NCUC. The company agreed not to seek recovery of approximately $1 billion of deferred coal ash expenditures and Duke Energy Carolinas and Duke Energy Progress took a charge of approximately $500 million each.

In 2019, Duke Energy Carolinas and Duke Energy Progress received orders from the PSCSC denying recovery of certain coal ash costs. Duke Energy Carolinas and Duke Energy Progress have appealed these decisions to the South Carolina Supreme Court and those appeals are pending. An order from regulatory or judicial authorities that rejects our proposed settlement or disallows recovery of costs related to closure of these ash basins could have an adverse impact on future results.


MD&A			DUKE ENERGY

Duke Energy Indiana has interpreted the CCR rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. In 2020, the Hoosier Environmental Council filed a petition challenging the Indiana Department of Environmental Management's partial approval of Duke Energy Indiana’s ash pond closure plans. Interpretation of the requirements of the CCR rule is subject to further legal challenges and regulatory approvals, which could result in additional ash basin closure requirements, higher costs of compliance and greater AROs. Additionally, Duke Energy Indiana has retired facilities that are not subject to the CCR rule. Duke Energy Indiana may incur costs at these facilities to comply with environmental regulations or to mitigate risks associated with on-site storage of coal ash.

Storm Costs

Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida’s service territories were impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territories of Duke Energy Carolinas and Duke Energy Progress. Duke Energy Florida’s service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the Florida Panhandle in recorded history. In September 2019, Hurricane Dorian impacted Duke Energy Progress and Duke Energy Florida's service territories. In 2020, Duke Energy Carolinas and Duke Energy Progress reached partial settlements in the 2019 North Carolina rates cases by filing a petition to securitize deferred storm costs, which is subject to review and approval of the NCUC. In January 2021, Duke Energy Florida filed a settlement agreement with the FPSC, which if approved, allows recovery of the remaining storm cost balance for hurricanes Michael and Dorian. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact.

Grid Improvement Costs

Duke Energy Carolinas received an order from the NCUC in 2018, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs. Duke Energy Carolinas and Duke Energy Progress have petitioned for deferral of future grid improvement costs in their 2019 rate cases. Partial settlements filed with the NCUC in July 2020 included the allowance for deferral for certain grid projects placed in service from June 2020 through December 2022. There could be adverse impacts if grid improvement costs are not ultimately approved for recovery and/or deferral treatment.

Rate Cases

In 2019, Duke Energy Carolinas and Duke Energy Progress filed general rate cases with the NCUC. Several partial settlement agreements have been filed with the NCUC and are awaiting approval. The outcome of these rate cases could have a material impact.

MGP

The PUCO has issued an order authorizing recovery of MGP costs at certain sites in Ohio with a deadline to complete the MGP environmental investigation and remediation work prior to December 31, 2016. This deadline was subsequently extended to December 31, 2019. Duke Energy Ohio has filed for a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact.

For additional information, see Note 3 to the Consolidated Financial Statements, “Regulatory Matters.”

Sale of Minority Interest in Duke Energy Indiana

In January 2021, Duke Energy entered into a definitive agreement providing for the sale of a 19.9% minority interest in Duke Energy Indiana with an affiliate of GIC, Singapore's sovereign wealth fund. The sale is subject to the satisfaction of certain customary conditions described in the investment agreement, including receipt of the approval of the FERC and completion of review by the Committee on Foreign Investments in the United States. Failure to obtain related approvals or satisfy the conditions in the investment agreement could result in the termination of the transaction and could result in an adverse impact. For additional information, see Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

Commercial Renewables

Duke Energy continues to monitor recoverability of renewable merchant plants located in the Electric Reliability Council of Texas West market and PJM, due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas prices. Based on the most recent recoverability test, the carrying value approximated the aggregate estimated future undiscounted cash flows for the assets under review. A continued decline in energy market pricing would likely result in a future impairment. Impairment of these assets could result in adverse impacts. For additional information, see Note 10 to the Consolidated Financial Statements, "Property, Plant and Equipment."

In February 2021, a severe winter storm impacted certain Commercial Renewables assets in Texas. Extreme weather conditions limited the ability for these solar and wind facilities to generate and sell electricity into the Electric Reliability Council of Texas market. Both lost revenues and higher than expected purchased power costs are expected to negatively impact the operating results of these generating units. The estimated financial impact of the storm is expected to have a material impact on the Commercial Renewables segment's 2021 operating results. See Note 25 to the Consolidated Financial Statements, "Subsequent Events."


MD&A			DUKE ENERGY

COVID-19

Duke Energy cannot predict the extent to which the COVID-19 pandemic will impact its results of operations, financial position and cash flows in the future. Duke Energy will continue to actively monitor the impacts of COVID-19 including the economic slowdown caused by business closures or by reduced operations of businesses and governmental agencies. The pandemic and resultant economic slowdown continues to cause an increase in certain costs, such as bad debt, and a reduction in the demand for energy. Duke Energy has mitigation plans in place to partially offset these impacts, and the ability to execute these plans is critical to preserving future financial results.The Company is in the process of reviewing the long-term real estate strategy due to a potential change of in-office work policies after the COVID-19 pandemic. The plan may result in a reduction of physical work space which could create accounting impacts starting in 2021. Accounting impacts may include reassessments of lease terms and lease modifications which could result in termination penalties, as well as, asset impairments on property, plant and equipment. See Item 1A. Risk Factors for discussion of risks associated with COVID-19 and Liquidity and Capital Resources within this section for a discussion of liquidity impacts of COVID-19.

Within this Item 7, see Liquidity and Capital Resources for a discussion on risks associated with the Tax Act.

Results of Operations

Non-GAAP Measures

Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted EPS. These items represent income from continuing operations available to Duke Energy common stockholders in dollar and per-share amounts, adjusted for the dollar and per-share impact of special items. As discussed below, special items include certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance. Management believes the presentation of adjusted earnings and adjusted EPS provides useful information to investors, as it provides them with an additional relevant comparison of Duke Energy’s performance across periods.

Management uses these non-GAAP financial measures for planning and forecasting, and for reporting financial results to the Board of Directors, employees, stockholders, analysts and investors. Adjusted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted EPS are GAAP Reported Earnings and EPS Available to Duke Energy Corporation common stockholders (GAAP Reported EPS), respectively.

Special items included in the periods presented include the following, which management believes do not reflect ongoing costs:

Gas Pipeline Investments represents costs related to the cancellation of the ACP pipeline and additional exit costs related to Constitution.
Regulatory Settlements represents charges related to Duke Energy Carolinas' and Duke Energy Progress' CCR Settlement Agreement and the partial settlements in the 2019 North Carolina rate cases.
Severance represents the reversal of 2018 costs, which were deferred as a result of a partial settlement in the Duke Energy Carolinas and the Duke Energy Progress 2019 North Carolina rate cases.
Impairment Charges represents a reduction of a prior year impairment at Citrus County CC and an OTTI on the remaining investment in Constitution.

Duke Energy’s adjusted earnings and adjusted EPS may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner.

Reconciliation of GAAP Reported Amounts to Adjusted Amounts

The following table presents a reconciliation of adjusted earnings and adjusted EPS to the most directly comparable GAAP measures.


	Years Ended December 31,
	2020				2019
(in millions, except per share amounts)	Earnings		EPS		Earnings		EPS
GAAP Reported Earnings/EPS	$	1,270	$	1.72	$	3,707	$	5.06
Adjustments to Reported:
Gas Pipeline Investments(a)	1,711		2.32		—		—
Regulatory Settlements(b)	872		1.19		—		—
Severance(c)	(75)		(0.10)		—		—

Impairment Charges(d)	—		—		(8)		(0.01)

Discontinued Operations	(7)		(0.01)		7		0.01
Adjusted Earnings/Adjusted EPS	$	3,771	$	5.12	$	3,706	$	5.06

(a) Net of tax benefit of $399 million.

(b) Net of tax benefit of $263 million.

(d) Net of tax expense of $3 million.


MD&A			DUKE ENERGY

Year Ended December 31, 2020, as compared to 2019

GAAP Reported EPS was $1.72 for the year ended December 31, 2020, compared to $5.06 for the year ended December 31, 2019. The decrease in GAAP Reported Earnings/EPS was primarily due to the cancellation of the ACP pipeline and the CCR Settlement Agreement filed with the NCUC.

As discussed and shown in the table above, management also evaluates financial performance based on adjusted EPS. Duke Energy’s adjusted EPS was $5.12 for the year ended December 31, 2020, compared to $5.06 for the year ended December 31, 2019. The increase in Adjusted Earnings/Adjusted EPS was primarily due to positive rate case contributions, growth in wholesale, lower operations and maintenance expense in response to the pandemic and growth in Commercial Renewables, partially offset by higher depreciation expense from a growing asset base, impacts of the pandemic, mild weather and the loss of ACP earnings.

SEGMENT RESULTS

The remaining information presented in this discussion of results of operations is on a GAAP basis. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests and preferred stock dividends. Segment income includes intercompany revenues and expenses that are eliminated in the Consolidated Financial Statements.

Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables. The remainder of Duke Energy’s operations is presented as Other. See Note 2 to the Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.

Electric Utilities and Infrastructure


	Years Ended December 31,


(in millions)	2020		2019		Variance
Operating Revenues	$	21,720	$	22,831	$	(1,111)
Operating Expenses
Fuel used in electric generation and purchased power	6,128		6,904		(776)
Operations, maintenance and other	5,391		5,497		(106)
Depreciation and amortization	4,068		3,951		117
Property and other taxes	1,188		1,175		13
Impairment charges	971		(8)		979
Total operating expenses	17,746		17,519		227
Gains on Sales of Other Assets and Other, net	11		1		10
Operating Income	3,985		5,313		(1,328)
Other Income and Expenses, net	344		353		(9)
Interest Expense	1,320		1,345		(25)
Income Before Income Taxes	3,009		4,321		(1,312)
Income Tax Expense	340		785		(445)

Segment Income	$	2,669	$	3,536	$	(867)

Duke Energy Carolinas GWh sales	84,574		89,920		(5,346)
Duke Energy Progress GWh sales	65,240		68,356		(3,116)
Duke Energy Florida GWh sales	42,490		42,173		317
Duke Energy Ohio GWh sales	23,484		24,729		(1,245)
Duke Energy Indiana GWh sales	30,528		31,886		(1,358)
Total Electric Utilities and Infrastructure GWh sales	246,316		257,064		(10,748)
Net proportional MW capacity in operation	50,419		50,070		349

Year Ended December 31, 2020, as compared to 2019

Electric Utilities and Infrastructure’s variance is primarily due to impairment charges and revenue reductions related to the CCR settlement agreement filed with the NCUC to resolve coal ash cost recovery issues, unfavorable weather and lower volumes driven by impacts from the COVID-19 pandemic, partially offset by base rate adjustments in various jurisdictions. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was driven primarily by:

an $826 million decrease in fuel revenues driven by lower sales volumes as well as an accelerated refund of fuel costs at Duke Energy Florida in response to the COVID-19 pandemic;
a $237 million decrease in wholesale revenue primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021 and decreased volumes;


MD&A			SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE

a $207 million decrease in retail sales, net of fuel revenues, due to unfavorable weather;
a $130 million decrease in rider revenues from EE programs;
a $44 million decrease in nuclear cost recovery rider revenue due to recovery of the Crystal River 3 uprate regulatory asset in 2019 at Duke Energy Florida; and
a $17 million decrease in weather-normal retail sale volumes driven by lower nonresidential customer demand due to impacts from the COVID-19 pandemic.

Partially offset by:

a $214 million increase due to higher pricing from the Indiana retail rate case, net of rider revenues;
a $92 million increase in retail pricing due to Duke Energy Florida's base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment; and
a $32 million increase due to higher pricing from South Carolina retail rate cases, net of a return of EDIT to customers.

Operating Expenses. The variance was driven primarily by:

a $979 million increase in impairment charges primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021;
a $117 million increase in depreciation and amortization expense primarily due to additional plant in service and new depreciation rates from the Indiana retail rate cases; and
a $13 million increase in property and other taxes primarily due to prior year property tax reassessments.

Partially offset by:

a $776 million decrease in fuel used in electric generation and purchased power primarily due to lower generation demand and lower fuel and natural gas costs; and
a $106 million decrease in operation, maintenance and other expense primarily driven by cost mitigation efforts.

Interest Expense. The variance was primarily due to lower interest rates on outstanding debt.

Income Tax Expense. The ETRs for the years ended December 31, 2020, and 2019, were 11.3% and 18.2%, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes.


MD&A			SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE

Gas Utilities and Infrastructure


	Years Ended December 31,


(in millions)	2020		2019		Variance
Operating Revenues	$	1,748	$	1,866	$	(118)
Operating Expenses
Cost of natural gas	460		627		(167)
Operation, maintenance and other	430		446		(16)
Depreciation and amortization	258		256		2
Property and other taxes	112		106		6
Impairment charges	7		—		7
Total operating expenses	1,267		1,435		(168)

Operating Income	481		431		50
Other Income and Expenses
Equity in (losses) earnings of unconsolidated affiliates	(2,017)		114		(2,131)
Other Income and Expenses, net	56		26		30
Total other income and expenses	(1,961)		140		(2,101)
Interest Expense	135		117		18
(Loss) Income Before Income Taxes	(1,615)		454		(2,069)
Income Tax (Benefit) Expense	(349)		22		(371)

Segment (Loss) Income	$	(1,266)	$	432	$	(1,698)

Piedmont Local Distribution Company (LDC) throughput (Dth)	490,071,039		511,243,774		(21,172,735)
Duke Energy Midwest LDC throughput (MCF)	84,160,162		89,025,972		(4,865,810)

Year Ended December 31, 2020, as compared to 2019

Gas Utilities and Infrastructure’s results were impacted primarily by the cancellation of the ACP pipeline. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was driven primarily by:

a $167 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs; and
a $47 million decrease due to return of EDIT to customers.

Partially offset by:

an $87 million increase due to North Carolina base rate case increases.

Operating Expenses. The variance was driven primarily by:

a $167 million decrease in cost of natural gas due to lower natural gas prices, lower volumes and decreased off-system sales natural gas costs.

Equity in (losses) earnings of unconsolidated affiliates. The variance was driven primarily by the cancellation of the ACP pipeline.

Other Income and Expenses, net. The variance was driven primarily by AFUDC equity and other income related to Belews Creek and Marshall Power Generation contracts.

Income Tax (Benefit) Expense. The increase in tax benefit was primarily due to a decrease in pretax income driven by the impact of the cancellation of the ACP pipeline. The ETRs for the years ended December 31, 2020, and 2019, were 21.6% and 4.8%, respectively. The increase in the ETR was primarily due to an adjustment, recorded in the first quarter of 2019, related to the income tax recognition for equity method investments. The equity method investment adjustment was immaterial and relates to prior years.


MD&A			SEGMENT RESULTS - COMMERCIAL RENEWABLES

Commercial Renewables


	Years Ended December 31,


(in millions)	2020		2019		Variance
Operating Revenues	$	502	$	487	$	15
Operating Expenses
Operation, maintenance and other	285		297		(12)
Depreciation and amortization	199		168		31
Property and other taxes	27		23		4
Impairment charges	6		—		6
Total operating expenses	517		488		29
Losses on Sales of Other Assets and Other, net	(1)		(3)		2
Operating Loss	(16)		(4)		(12)
Other Income and Expenses, net	7		5		2
Interest Expense	66		95		(29)
Loss Before Income Taxes	(75)		(94)		19
Income Tax Benefit	(65)		(115)		50
Add: Loss Attributable to Noncontrolling Interests	296		177		119
Segment Income	$	286	$	198	$	88

Renewable plant production, GWh	10,204		8,574		1,630
Net proportional MW capacity in operation(a)	3,937		3,485		452

(a) Certain projects are included in tax-equity structures where investors have differing interests in the project's economic attributes. Amounts shown represent 100% of the tax-equity project's capacity.

Year Ended December 31, 2020, as compared to 2019

Commercial Renewables' results were favorable primarily due to growth of new project investments. Since December 31, 2019, Commercial Renewables has placed in service approximately 500 MW of capacity.

The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was primarily driven by a $39 million increase associated with the growth of new projects placed in service, partially offset by a $24 million decrease primarily within the distributed energy portfolios for lower engineering and construction activities related to delays from COVID-19.

Operating Expenses. The variance was primarily driven by a $52 million increase in operating expenses due to the growth of new projects placed in service. This was partially offset by a $24 million decrease in operating expenses within the distributed energy portfolios for lower engineering and construction costs related to delays from COVID-19.

Interest Expense. The decrease was primarily driven by non-qualifying hedge activity in the prior year, higher capitalized interest in the current year for solar and wind projects in development and lower outstanding debt balances.

Income Tax Benefit. The decrease in the tax benefit was primarily driven by an increase in taxes associated with tax equity investments and a decrease in PTCs generated.

Loss Attributable to Noncontrolling Interests. The increase was driven primarily by the growth of new projects financed by tax equity.


MD&A			SEGMENT RESULTS - OTHER

Other


	Years Ended December 31,


(in millions)	2020		2019		Variance
Operating Revenues	$	97	$	95	$	2






Operating Expenses	12		117		(105)
Losses on Sales of Other Assets and Other, net	—		(2)		2
Operating Income (Loss)	85		(24)		109
Other Income and Expenses, net	92		145		(53)
Interest Expense	657		705		(48)
Loss Before Income Taxes	(480)		(584)		104
Income Tax Benefit	(162)		(173)		11
Less: Net Income Attributable to Noncontrolling Interests	1		—		1
Less: Preferred Dividends	107		41		66
Net Loss	$	(426)	$	(452)	$	26

Year Ended December 31, 2020, as compared to 2019

The variance was primarily driven by a reversal of corporate allocated severance costs, obligations to the Duke Energy Foundation in 2019, and lower state income tax expense, partially offset by lower returns on investments, higher loss experience related to captive insurance claims, the declaration of preferred stock dividends, and lower earnings on the NMC investment. The following is a detailed discussion of the variance drivers by line item.

Operating Expenses. The decrease was primarily due to the deferral of 2018 corporate allocated severance costs due to the Duke Energy Carolinas and Duke Energy Progress partial settlements in the 2019 North Carolina retail rate case and obligations to the Duke Energy Foundation in 2019, partially offset by higher loss experience related to captive insurance claims and higher franchise tax expense.

Other Income and Expenses, net. The variance was primarily due to lower returns on investments that fund certain employee benefit obligations and lower earnings on the NMC investment primarily due to lower pricing.

Interest Expense. The variance was primarily due to lower outstanding short-term debt and lower interest rates.

Income Tax Benefit. The decrease in the tax benefit was primarily driven by a decrease in pretax losses, partially offset by an increase in state income tax benefits. The ETRs for the years ended December 31, 2020, and 2019, were 33.8% and 29.6%, respectively. The increase in the ETR was primarily due to an increase in state income tax benefits in 2020, in relation to pretax losses.

Preferred Dividends. The variance was driven by the declaration of preferred stock dividends on preferred stock issued in late 2019.


MD&A			DUKE ENERGY CAROLINAS

SUBSIDIARY REGISTRANTS

Basis of Presentation

The results of operations and variance discussion for the Subsidiary Registrants is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.

DUKE ENERGY CAROLINAS

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance
Operating Revenues	$	7,015	$	7,395	$	(380)
Operating Expenses
Fuel used in electric generation and purchased power	1,682		1,804		(122)
Operation, maintenance and other	1,743		1,868		(125)
Depreciation and amortization	1,462		1,388		74
Property and other taxes	299		292		7
Impairment charges	476		17		459
Total operating expenses	5,662		5,369		293
Gains on Sales of Other Assets and Other, net	1		—		1
Operating Income	1,354		2,026		(672)
Other Income and Expenses, net	177		151		26
Interest Expense	487		463		24
Income Before Income Taxes	1,044		1,714		(670)
Income Tax Expense	88		311		(223)
Net Income	$	956	$	1,403	$	(447)

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.


Increase (Decrease) over prior year	2020		2019
Residential sales	(3.1)	%	(2.9)	%
General service sales	(6.7)	%	(0.1)	%
Industrial sales	(8.0)	%	(1.9)	%
Wholesale power sales	(2.0)	%	(13.6)	%
Joint dispatch sales	(46.0)	%	4.7	%
Total sales	(5.9)	%	(2.6)	%
Average number of customers	1.9	%	2.1	%

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $151 million decrease in fuel revenues due to lower prices and retail sales volumes;
a $149 million decrease in retail sales due to unfavorable weather in the current year;
a $73 million decrease in rider revenues primarily due to EE programs; and
a $50 million decrease in wholesale revenue primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021.

Partially offset by:

a $25 million increase due to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers; and
a $22 million increase in weather-normal retail sales volumes.


MD&A			DUKE ENERGY CAROLINAS

Operating Expenses**.** The variance was driven primarily by:

a $459 million increase in impairment charges primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021; and
a $74 million increase in depreciation and amortization expense primarily due to additional plant in service and new depreciation rates associated with the South Carolina rate case.

Partially offset by:

a $125 million decrease in operation, maintenance and other expense primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Carolinas and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, and cost mitigation efforts, partially offset by higher storm restoration costs; and
a $122 million decrease in fuel used in electric generation and purchased power primarily due to lower retail sales volumes, net of a prior period true up.

Other Income and Expenses, net. The variance was primarily due to higher AFUDC equity in the current year.

Interest Expense. The variance was primarily due to higher debt outstanding in the current year.

Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of excess deferred taxes.

PROGRESS ENERGY

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance
Operating Revenues	$	10,627	$	11,202	$	(575)
Operating Expenses
Fuel used in electric generation and purchased power	3,479		4,024		(545)
Operation, maintenance and other	2,479		2,495		(16)
Depreciation and amortization	1,818		1,845		(27)
Property and other taxes	545		561		(16)
Impairment charges	495		(24)		519
Total operating expenses	8,816		8,901		(85)
Gains on Sales of Other Assets and Other, net	9		—		9
Operating Income	1,820		2,301		(481)
Other Income and Expenses, net	129		141		(12)
Interest Expense	790		862		(72)
Income Before Income Taxes	1,159		1,580		(421)
Income Tax Expense	113		253		(140)


Net Income	1,046		1,327		(281)
Less: Net Income Attributable to Noncontrolling Interests	1		—		1
Net Income Attributable to Parent	$	1,045	$	1,327	$	(282)

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $567 million decrease in fuel revenues driven by lower sales volumes as well as an accelerated refund of fuel costs in response to the COVID-19 pandemic at Duke Energy Florida and lower fuel prices, volumes and native load transfer sales in the current year at Duke Energy Progress;
a $169 million decrease in wholesale revenue primarily driven by the Duke Energy Progress' CCR Settlement Agreement filed with the NCUC in January 2021 and decreased volumes at Duke Energy Progress, partially offset by increased demand at Duke Energy Florida;
a $55 million decrease in rider revenues primarily due to the Crystal River 3 uprate regulatory asset being fully recovered in 2019 at Duke Energy Florida;
a $31 million decrease in retail sales, net of fuel revenues, due to unfavorable weather at Duke Energy Progress, partially offset by favorable weather in the current year at Duke Energy Florida; and
a $17 million decrease in weather-normal retail sales volumes.


MD&A			PROGRESS ENERGY

Partially offset by:

a $147 million increase in storm revenues due to Hurricane Dorian collections at Duke Energy Florida;
a $92 million increase in retail pricing due to base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment at Duke Energy Florida; and
a $16 million increase due to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers at Duke Energy Progress.

Operating Expenses. The variance was driven primarily by:

a $545 million decrease in fuel used in electric generation and purchased power primarily due to lower demand and changes in generation mix at Duke Energy Progress and lower demand and fuel costs at Duke Energy Florida;
a $27 million decrease in depreciation and amortization expense primarily driven by a decrease in coal ash amortization, partially offset by a higher depreciable base and impacts from North Carolina and the South Carolina rate cases at Duke Energy Progress;
a $16 million decrease in operation, maintenance and other expense at Duke Energy Progress primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Progress and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, reduced outage costs and other cost mitigation efforts, partially offset by storm cost amortizations at Duke Energy Florida; and
a $16 million decrease in property and other taxes driven primarily by lower gross receipts taxes due to decreased fuel revenues at Duke Energy Florida.

Partially offset by:

a $519 million increase in impairment charges primarily driven by the Duke Energy Progress' CCR Settlement Agreement filed with the NCUC in January 2021, and the prior year's impairment reduction related to Citrus County CC at Duke Energy Florida.

Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt at Duke Energy Progress.

Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of excess deferred taxes at Duke Energy Progress, partially offset by an increase in pretax income and a decrease in the amortization of excess deferred taxes at Duke Energy Florida.

DUKE ENERGY PROGRESS

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance
Operating Revenues	$	5,422	$	5,957	$	(535)
Operating Expenses
Fuel used in electric generation and purchased power	1,743		2,012		(269)
Operation, maintenance and other	1,332		1,446		(114)
Depreciation and amortization	1,116		1,143		(27)
Property and other taxes	167		176		(9)
Impairment charges	499		12		487
Total operating expenses	4,857		4,789		68
Gains on Sales of Other Assets and Other, net	8		—		8
Operating Income	573		1,168		(595)
Other Income and Expenses, net	75		100		(25)
Interest Expense	269		306		(37)
Income Before Income Taxes	379		962		(583)
Income Tax (Benefit) Expense	(36)		157		(193)
Net Income	$	415	$	805	$	(390)


MD&A			DUKE ENERGY PROGRESS

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Progress. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.


Increase (Decrease) over prior year	2020		2019
Residential sales	(3.2)	%	(4.0)	%
General service sales	(7.4)	%	(1.6)	%
Industrial sales	(3.9)	%	0.6	%
Wholesale power sales	(9.1)	%	(1.5)	%
Joint dispatch sales	9.9	%	(0.8)	%
Total sales	(4.6)	%	(1.4)	%
Average number of customers	1.8	%	1.3	%

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $272 million decrease in fuel cost recovery driven by lower fuel prices and volumes as well as less native load transfer sales in the current year;
a $180 million decrease in wholesale revenue primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021, and decreased volumes, partially offset by increased capacity rates;
a $77 million decrease in retail sales due to unfavorable weather; and
a $10 million decrease in weather-normal retail sales volumes.

Partially Offset by:

a $16 million increase due to higher pricing from the South Carolina retail rate case, net of a return of EDIT to customers.

Operating Expenses. The variance was driven primarily by:

a $487 million increase in impairment charges primarily driven by the CCR Settlement Agreement filed with the NCUC in January 2021.

Partially Offset by:

a $269 million decrease in fuel used in electric generation and purchased power primarily due to lower demand and changes in generation mix;
a $114 million decrease in operation, maintenance and other expense primarily driven by the deferral of 2018 severance costs due to the partial settlement agreement between Duke Energy Progress and the Public Staff of the NCUC related to the 2019 North Carolina retail rate case, reduced outage costs and other costs mitigation efforts; and
a $27 million decrease in depreciation and amortization expense primarily driven by a decrease in coal ash amortization, partially offset by a higher depreciable base and impacts from the South Carolina rate cases.

Other Income and Expenses, net**.** The variance was primarily due to lower AFUDC equity in the current year.

Interest Expense. The variance was driven primarily by lower interest rates on outstanding debt.

Income Tax (Benefit) Expense. The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of excess deferred taxes.


MD&A			DUKE ENERGY FLORIDA

DUKE ENERGY FLORIDA

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance
Operating Revenues	$	5,188	$	5,231	$	(43)
Operating Expenses
Fuel used in electric generation and purchased power	1,737		2,012		(275)
Operation, maintenance and other	1,131		1,034		97
Depreciation and amortization	702		702		—
Property and other taxes	381		392		(11)
Impairment charges	(4)		(36)		32
Total operating expenses	3,947		4,104		(157)
Gains on Sales of Other Assets and Other, net	1		—		1
Operating Income	1,242		1,127		115
Other Income and Expenses, net	53		48		5
Interest Expense	326		328		(2)
Income Before Income Taxes	969		847		122
Income Tax Expense	198		155		43
Net Income	$	771	$	692	$	79

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Florida. The below percentages for retail customer classes represent billed sales only. Wholesale power sales include both billed and unbilled sales. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.


Increase (Decrease) over prior year	2020		2019
Residential sales	3.3	%	0.7	%
General service sales	(5.3)	%	0.3	%
Industrial sales	6.2	%	(4.6)	%
Wholesale power sales	(1.7)	%	28.8	%
Total sales	0.8	%	1.5	%
Average number of customers	1.8	%	1.6	%

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $295 million decrease in fuel revenues driven by lower sales volumes as well as an accelerated refund of fuel costs to customers in response to the COVID-19 pandemic;
a $55 million decrease in rider revenues primarily due to full recovery of the Crystal River 3 uprate regulatory asset in 2019; and
a $7 million decrease in weather-normal retail sales volumes.

Partially offset by:

a $147 million increase in storm revenues due to recovery of Hurricane Dorian costs;
a $92 million increase in retail pricing due to base rate adjustments related to annual increases from the 2017 Settlement Agreement and the Solar Base Rate Adjustment;
a $46 million increase in retail sales, net of fuel revenues, due to favorable weather in the current year;
an $18 million increase in other revenues primarily due to increased transmission revenues and lighting equipment rentals, partially offset by lower late payment and service charge revenues due to a moratorium during the COVID-19 pandemic; and
an $11 million increase in wholesale power revenues, net of fuel, primarily due to increased capacity charges.

Operating Expenses. The variance was driven primarily by:

a $275 million decrease in fuel used in electric generation and purchased power primarily due to lower fuel costs; and
an $11 million decrease in property and other taxes driven by lower gross receipts taxes due to decreased fuel revenues.


MD&A			DUKE ENERGY FLORIDA

Partially offset by:

a $97 million increase in operation, maintenance and other expense primarily due to storm cost amortizations; and
a $32 million increase in impairment charges primarily due to the prior year's impairment reduction related to Citrus County CC.

Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of excess deferred taxes.

DUKE ENERGY OHIO

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance
Operating Revenues
Regulated electric	$	1,405	$	1,456	$	(51)
Regulated natural gas	453		484		(31)

Total operating revenues	1,858		1,940		(82)
Operating Expenses
Fuel used in electric generation and purchased power – regulated	339		388		(49)

Cost of natural gas	73		95		(22)
Operation, maintenance and other	463		520		(57)
Depreciation and amortization	278		265		13
Property and other taxes	324		308		16

Total operating expenses	1,477		1,576		(99)

Operating Income	381		364		17
Other Income and Expenses, net	16		24		(8)
Interest Expense	102		109		(7)
Income from Continuing Operations Before Income Taxes	295		279		16
Income Tax Expense from Continuing Operations	43		40		3
Income from Continuing Operations	252		239		13
Loss from Discontinued Operations, net of tax	—		(1)		1
Net Income	$	252	$	238	$	14

The following table shows the percent changes in GWh sales of electricity, MCF of natural gas delivered and average number of electric and natural gas customers for Duke Energy Ohio. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.


	Electric				Natural Gas
Increase (Decrease) over prior year	2020		2019		2020		2019
Residential sales	(1.9)	%	(3.9)	%	(5.7)	%	(3.7)	%
General service sales	(7.7)	%	(1.9)	%	(8.4)	%	(1.2)	%
Industrial sales	(6.6)	%	(2.1)	%	(4.1)	%	(0.4)	%
Wholesale electric power sales	(21.3)	%	(4.9)	%	n/a		n/a
Other natural gas sales	n/a		n/a		(2.2)	%	0.7	%
Total sales	(5.0)	%	(2.4)	%	(5.5)	%	(1.7)	%
Average number of customers	1.3	%	0.7	%	1.1	%	0.7	%

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $61 million decrease in fuel related revenues primarily due to lower prices and decreased volumes;
a $22 million decrease in retail revenue riders, primarily due to lower EE program revenues, volume impacts of the Distribution Decoupling rider, suspension of the MGP rider and higher taxes returned to customers via the Tax Cuts and Job Acts rider, partially offset by an increase in the Distribution Capital Investment rider due to increased capital investment;
a $15 million decrease in revenues due to unfavorable weather in the current year;
an $11 million decrease in other revenues due to lower OVEC sales into PJM;


MD&A			DUKE ENERGY OHIO

a $5 million decrease in bulk power marketing sales, and
a $4 million decrease in weather-normal sales volumes.

Partially offset by:

a $23 million increase in retail pricing primarily due to rate case impacts in Kentucky; and
an $18 million increase in PJM transmission revenues as a result of increased capital spend.

Operating Expenses. The variance was driven primarily by:

a $71 million decrease in fuel expense, primarily driven by lower fuel prices, decreased volumes and lower OVEC costs; and
a $57 million decrease in operations, maintenance and other expense primarily due to a new customer program and other deferrals, the timing of EE programs and outage costs, lower employee benefit expenses and lower vegetation and pole maintenance costs.

Partially offset by:

a $16 million increase in property and other taxes primarily due to higher property taxes due to increased plant in service, partially offset by lower franchise and other taxes; and
a $13 million increase in depreciation and amortization primarily driven by an increase in distribution plant, partially offset by lower amortization due to the suspension of the MGP rider in Ohio and environmental surcharge mechanism amortization of deferred coal ash pond ARO.

DUKE ENERGY INDIANA

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance
Operating Revenues	$	2,795	$	3,004	$	(209)
Operating Expenses
Fuel used in electric generation and purchased power	767		935		(168)
Operation, maintenance and other	762		790		(28)
Depreciation and amortization	569		525		44
Property and other taxes	81		69		12

Total operating expenses	2,179		2,319		(140)

Operating Income	616		685		(69)
Other Income and Expenses, net	37		41		(4)
Interest Expense	161		156		5
Income Before Income Taxes	492		570		(78)
Income Tax Expense	84		134		(50)
Net Income	$	408	$	436	$	(28)

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Indiana. The below percentages for retail customer classes represent billed sales only. Total sales includes billed and unbilled retail sales and wholesale sales to incorporated municipalities, public and private utilities and power marketers. Amounts are not weather-normalized.


Increase (Decrease) over prior year	2020		2019
Residential sales	(2.7)	%	(3.9)	%
General service sales	(7.0)	%	(2.2)	%
Industrial sales	(7.6)	%	(2.6)	%
Wholesale power sales	3.8	%	(27.7)	%
Total sales	(4.3)	%	(6.8)	%
Average number of customers	1.4	%	1.2	%

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $193 million decrease in rider revenues primarily due to lower sales volumes and credit adjustment rider refunds;
a $179 million decrease in fuel revenues primarily due to lower fuel cost recovery driven by customer demand and fuel prices;
a $20 million decrease in weather-normal retail sales volumes driven by lower nonresidential customer demand;


MD&A			DUKE ENERGY INDIANA

a $16 million decrease in retail sales due to unfavorable weather in the current year; and
a $10 million decrease in wholesale revenues primarily related to the true up of wholesale transmission revenues and lower rates in the current year.

Partially offset by:

a $214 million increase primarily due to higher pricing from the Indiana retail rate case, net of certain rider revenues.

Operating Expenses. The variance was driven primarily by:

a $168 million decrease in fuel used in electric generation and purchased power expense primarily due to lower purchased power expense, lower amortization of deferred fuel costs and lower coal and natural gas costs; and
a $28 million decrease in operation, maintenance and other primarily due to lower storm restoration costs, training costs, employee related costs and a new customer program deferral.

Partially offset by:

a $44 million increase in depreciation and amortization primarily due to a change in depreciation rates from the Indiana retail rate case and additional plant in service; and
a $12 million increase in property and other taxes primarily due to additional plant in service and property tax true ups for prior periods.

Income Tax Expense. The decrease in income tax expense was primarily due to an increase in the amortization of excess deferred taxes and a decrease in pretax income.

PIEDMONT

Results of Operations


	Years Ended December 31,
(in millions)	2020		2019		Variance



Operating Revenues	$	1,297	$	1,381	$	(84)
Operating Expenses
Cost of natural gas	386		532		(146)
Operation, maintenance and other	322		328		(6)
Depreciation and amortization	180		172		8
Property and other taxes	53		45		8
Impairment charges	7		—		7
Total operating expenses	948		1,077		(129)

Operating Income	349		304		45
Equity in earnings of unconsolidated affiliates	9		8		1

Other income and expenses, net	51		20		31
Total other income and expenses	60		28		32
Interest Expense	118		87		31
Income Before Income Taxes	291		245		46
Income Tax Expense	18		43		(25)
Net Income	$	273	$	202	$	71

The following table shows the percent changes in Dth delivered and average number of customers. The percentages for all throughput deliveries represent billed and unbilled sales. Amounts are not weather-normalized.


Increase (Decrease) over prior year	2020		2019
Residential deliveries	(3.5)	%	(8.0)	%
Commercial deliveries	(9.1)	%	(4.6)	%
Industrial deliveries	(2.9)	%	1.7	%
Power generation deliveries	(3.7)	%	(11.8)	%
For resale	(9.7)	%	4.8	%
Total throughput deliveries	(4.1)	%	(8.2)	%
Secondary market volumes	(9.1)	%	(0.5)	%
Average number of customers	2.3	%	1.4	%

The margin decoupling mechanism adjusts for variations in residential and commercial use per customer, including those due to weather and conservation. The weather normalization adjustment mechanisms mostly offset the impact of weather on bills rendered, but do not ensure full recovery of approved margin during periods when winter weather is significantly warmer or colder than normal.


MD&A			PIEDMONT

Year Ended December 31, 2020, as compared to 2019

Operating Revenues. The variance was driven primarily by:

a $146 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs;
a $47 million decrease due to return of EDIT to customers; and
a $7 million decrease due to NCUC approval related to tax reform accounting from fixed-rate contracts in the prior year.

Partially offset by:

an $87 million increase due to North Carolina base rate case increases;
a $20 million increase due to North Carolina IMR increases; and
an $18 million increase due to addition of Belews Creek and Marshall Power Generation capacity contracts.

Operating Expenses. The variance was driven primarily by:

a $146 million decrease in cost of natural gas due to lower natural gas prices, lower volumes, and decreased off-system sales natural gas costs.

Partially offset by:

an $8 million increase in depreciation and amortization due to additional plant in service and higher depreciation rates, partially offset by Belews Creek and Marshall Power Generation contracts and amortization of EDIT interest expense; and
an $8 million increase in property and other taxes due to prior year property tax true ups.

Other Income and Expenses, net. The variance was driven primarily by AFUDC equity and other income related to Belews Creek and Marshall Power Generation contracts.

Interest Expense. The variance was driven primarily by interest on tax reform related deferrals being returned to customers and higher debt outstanding in the current year.

Income Tax Expense. The decrease in income tax expense was primarily due to an increase in the amortization of excess deferred taxes and an increase in AFUDC Equity, partially offset by an increase in pretax income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations.

Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.

For further information, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."

Regulated Operations Accounting

Substantially all of Duke Energy’s regulated operations meet the criteria for application of regulated operations accounting treatment. As a result, Duke Energy is required to record assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities are recorded when it is probable that a regulator will require Duke Energy to make refunds to customers or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred.

Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as:

applicable regulatory environment changes;
historical regulatory treatment for similar costs in Duke Energy’s jurisdictions;
litigation of rate orders;
recent rate orders to other regulated entities;


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

levels of actual return on equity compared to approved rates of return on equity; and
the status of any pending or potential deregulation legislation.

If future recovery of costs ceases to be probable, asset write-offs would be recognized in operating income. Additionally, regulatory agencies can provide flexibility in the manner and timing of the depreciation of property, plant and equipment, recognition of asset retirement costs and amortization of regulatory assets, or may disallow recovery of all or a portion of certain assets.

As required by regulated operations accounting rules, significant judgment can be required to determine if an otherwise recognizable incurred cost qualifies to be deferred for future recovery as a regulatory asset. Significant judgment can also be required to determine if revenues previously recognized are for entity specific costs that are no longer expected to be incurred or have not yet been incurred and are therefore a regulatory liability.

Goodwill Impairment Assessments

Duke Energy performed its annual goodwill impairment tests for all reporting units as of August 31, 2020. Additionally, Duke Energy monitors all relevant events and circumstances during the year to determine if an interim impairment test is required. Such events and circumstances include an adverse regulatory outcome, declining financial performance and deterioration of industry or market conditions. As of August 31, 2020, all of the reporting units' estimated fair value of equity substantially exceeded the carrying value of equity. The fair values of the reporting units were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries.

Estimated future cash flows under the income approach are based on Duke Energy’s internal business plan. Significant assumptions used are growth rates, future rates of return expected to result from ongoing rate regulation and discount rates. Management determines the appropriate discount rate for each of its reporting units based on the WACC for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-year U.S. Treasury bonds. In the 2020 impairment tests, Duke Energy considered implied WACCs for certain peer companies in determining the appropriate WACC rates to use in its analysis. As each reporting unit has a different risk profile based on the nature of its operations, including factors such as regulation, the WACC for each reporting unit may differ. Accordingly, the WACCs were adjusted, as appropriate, to account for company specific risk premiums. The discount rates used for calculating the fair values as of August 31, 2020, for each of Duke Energy’s reporting units ranged from 5.2% to 5.7%. The underlying assumptions and estimates are made as of a point in time. Subsequent changes, particularly changes in the discount rates, authorized regulated rates of return or growth rates inherent in management’s estimates of future cash flows, could result in future impairment charges.

One of the most significant assumptions utilized in determining the fair value of reporting units under the market approach is implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of August 31.

Duke Energy primarily operates in environments that are rate-regulated. In such environments, revenue requirements are adjusted periodically by regulators based on factors including levels of costs, sales volumes and costs of capital. Accordingly, Duke Energy’s regulated utilities operate to some degree with a buffer from the direct effects, positive or negative, of significant swings in market or economic conditions. However, significant changes in discount rates over a prolonged period may have a material impact on the fair value of equity.

For further information, see Note 11 to the Consolidated Financial Statements, "Goodwill and Intangible Assets."

Asset Retirement Obligations

AROs are recognized for legal obligations associated with the retirement of property, plant and equipment at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made.

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.

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. During 2020, Duke Energy Florida, closed an agreement for the accelerated decommissioning of the Crystal River Unit 3 nuclear power station after receiving approval from the NRC and FPSC. The retirement obligations for the decommissioning of Crystal River Unit 3 nuclear power station are measured based on accelerated decommissioning from 2020 continuing through 2027. 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 yet to be built DOE facility.

Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans. During 2020, the Hoosier Environmental Council filed a Petition for Administrative Review with the Indiana Office of Environmental Adjudication challenging the Indiana Department of Environmental Management's partial approval of Duke Energy Indiana's ash pond closure plan. Due to these challenges, in 2020, Duke Energy Indiana remeasured and increased the closure estimates for certain coal ash impoundments.

For further information, see Notes 3, 4 and 9 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Long-Lived Asset Impairment Assessments, Excluding Regulated Operations, and Equity Method Investments

Duke Energy evaluates property, plant and equipment for impairment when events or changes in circumstances (such as a significant change in cash flow projections or the determination that it is more likely than not that an asset or asset group will be sold) indicate the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with their carrying value.

Performing an impairment evaluation involves a significant degree of estimation and judgment in areas such as identifying circumstances that indicate an impairment may exist, identifying and grouping affected assets and developing the undiscounted future cash flows. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value and recording a loss if the carrying value is greater than the fair value. Additionally, determining fair value requires probability weighting future cash flows to reflect expectations about possible variations in their amounts or timing and the selection of an appropriate discount rate. Although cash flow estimates are based on relevant information available at the time the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results.

When determining whether an asset or asset group has been impaired, management groups assets at the lowest level that has discrete cash flows. Investments in affiliates that are not controlled by Duke Energy, but over which it has significant influence, are accounted for using the equity method. Equity method investments are assessed for impairment when conditions exist that indicate that the fair value of the investment is less than book value. It the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment.

During 2020, Duke Energy evaluated recoverability of certain renewable merchant plants due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas prices, capital cost of new renewables and increase renewable penetration. It was determined the assets were all recoverable as the carrying value of the assets approximated or exceeded the aggregate estimated future cash flows.

For further information, see Notes 2, 10 and 12 to the Consolidated Financial Statements, "Business Segments," "Property, Plant and Equipment" and "Investments in Unconsolidated Affiliates."

Pension and Other Post-Retirement Benefits

The calculation of pension expense, other post-retirement benefit expense and net pension and other post-retirement assets or liabilities require the use of assumptions and election of permissible accounting alternatives. Changes in assumptions can result in different expense and reported asset or liability amounts and future actual experience can differ from the assumptions. Duke Energy believes the most critical assumptions for pension and other post-retirement benefits are the expected long-term rate of return on plan assets and the assumed discount rate applied to future projected benefit payments.

Duke Energy elects to amortize net actuarial gain or loss amounts that are in excess of 10% of the greater of the market-related value of plan assets or the plan's projected benefit obligation, into net pension or other post-retirement benefit expense over the average remaining service period of active participants expected to benefit under the plan. If all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants is used instead of average remaining service period. Prior service cost or credit, which represents an increase or decrease in a plan's pension benefit obligation resulting from plan amendment, is amortized on a straight-line basis over the average expected remaining service period of active participants expected to benefit under the plan. If all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants is used instead of average remaining service period.

As of December 31, 2020, Duke Energy assumes pension and other post-retirement plan assets will generate a long-term rate of return of 6.50%. The expected long-term rate of return was developed using a weighted average calculation of expected returns based primarily on future expected returns across asset classes considering the use of active asset managers, where applicable. The asset allocation targets were set after considering the investment objective and the risk profile. Equity securities are held for their higher expected returns. Debt securities are primarily held to hedge the qualified pension liability. Real assets, return-seeking fixed income, hedge funds and other global securities are held for diversification. Investments within asset classes are diversified to achieve broad market participation and reduce the impact of individual managers on investments.

Duke Energy discounted its future U.S. pension and other post-retirement obligations using a rate of 2.60% as of December 31, 2020. Discount rates used to measure benefit plan obligations for financial reporting purposes reflect rates at which pension benefits could be effectively settled. As of December 31, 2020, Duke Energy determined its discount rate for U.S. pension and other post-retirement obligations using a bond selection-settlement portfolio approach. This approach develops a discount rate by selecting a portfolio of high-quality corporate bonds that generate sufficient cash flow to provide for projected benefit payments of the plan. The selected bond portfolio is derived from a universe of non-callable corporate bonds rated Aa quality or higher. After the bond portfolio is selected, a single interest rate is determined that equates the present value of the plan’s projected benefit payments discounted at this rate with the market value of the bonds selected.


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Future changes in plan asset returns, assumed discount rates and various other factors related to the participants in Duke Energy’s pension and post-retirement plans will impact future pension expense and liabilities. Duke Energy cannot predict with certainty what these factors will be in the future. The following table presents the approximate effect on Duke Energy’s 2020 pretax pension expense, pretax other post-retirement expense, pension obligation and other post-retirement benefit obligation if a 0.25% change in rates were to occur.


	Qualified and Non-						Other Post-Retirement
	Qualified Pension Plans						Plans
(in millions)	0.25		%	(0.25)		%	0.25		%	(0.25)		%
Effect on 2020 pretax pension and other post-retirement expense:
Expected long-term rate of return	$	(21)		$	21		$	(1)		$	1
Discount rate	(9)			9			—			(1)
Effect on pension and other post-retirement benefit obligation at December 31, 2020:
Discount rate	(208)			213			(13)			14

Duke Energy’s other post-retirement plan uses a health care cost trend rate covering both pre- and post-age 65 retired plan participants, which is comprised of a medical care cost trend rate, which reflects the near- and long-term expectation of increases in medical costs, and a prescription drug cost trend rate, which reflects the near- and long-term expectation of increases in prescription drug costs. As of December 31, 2020, the health care cost trend rate was 6.25%, trending down to 4.75% by 2028. These plans are closed to new employees.

For further information, see Note 22 to the Consolidated Financial Statements, “Employee Benefit Plans.”

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Duke Energy relies primarily upon cash flows from operations, debt and equity issuances and its existing cash and cash equivalents to fund its liquidity and capital requirements. Duke Energy’s capital requirements arise primarily from capital and investment expenditures, repaying long-term debt and paying dividends to shareholders.

Among other provisions, the Tax Act lowered the corporate federal income tax rate from 35% to 21% and eliminated bonus depreciation for regulated utilities. For Duke Energy’s regulated operations, the reduction in federal income taxes will result in lower regulated customer rates. However, due to its existing NOL position and other tax credits, Duke Energy does not expect to be a significant federal cash taxpayer through at least 2029. As a result, any reduction in customer rates could cause a material reduction in consolidated cash flows from operations in the short term. Over time, the reduction in deferred tax liabilities resulting from the Tax Act will increase Duke Energy’s regulated rate base investments and customer rates. Impacts of the Tax Act to Duke Energy’s cash flows and credit metrics are subject to the regulatory actions of its state commissions and the FERC. See Note 3 to the Consolidated Financial Statements, “Regulatory Matters,” for additional information.

The Subsidiary Registrants generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Subsidiary Registrants, excluding Progress Energy, support their short-term borrowing needs through participation with Duke Energy and certain of its other subsidiaries in a money pool arrangement. The companies with short-term funds may provide short-term loans to affiliates participating under this arrangement. See Note 6 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional discussion of the money pool arrangement.

Duke Energy and the Subsidiary Registrants, excluding Progress Energy, may also use short-term debt, including commercial paper and the money pool, as a bridge to long-term debt financings. The levels of borrowing may vary significantly over the course of the year due to the timing of long-term debt financings and the impact of fluctuations in cash flows from operations. From time to time, Duke Energy’s current liabilities exceed current assets resulting from the use of short-term debt as a funding source to meet scheduled maturities of long-term debt, as well as cash needs, which can fluctuate due to the seasonality of its businesses.

During March 2020, in response to market volatility and the ongoing economic uncertainty related to COVID-19, Duke Energy took several actions to enhance the company's liquidity position including:

Duke Energy drew down the remaining $500 million of availability under the existing $1 billion Three-Year Revolving Credit Facility. That additional borrowing was subsequently repaid during the second quarter of 2020; and
Duke Energy entered into and borrowed the full amount under a $1.5 billion, 364-day Term Loan Credit Agreement. The Term Loan Credit Agreement contained a provision for additional borrowing capacity of $500 million. Duke Energy exercised the provision and borrowed an additional $188 million, for a total borrowing of approximately $1.7 billion. By November 2020, Duke Energy repaid the entire borrowing under the 364-day Term Loan.

Following March 2020, access to credit and equity markets has normalized. In addition to the March 2020 financings to address the company's liquidity position, for the year ended December 31, 2020, Duke Energy issued approximately $5.6 billion in debt and raised approximately $2.9 billion of common equity through equity forward agreements and the company's dividend reinvestment and ATM programs. A portion of the proceeds from the equity forward settlements will be used to fully repay Duke Energy's portion of the ACP construction loan of approximately $860 million. Despite the recovery in capital markets, Duke Energy continues to monitor access to credit and equity markets amid the ongoing economic uncertainty related to COVID-19.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

In addition to actions taken by the company, the CARES Act, enacted in March 2020, as an emergency economic stimulus package in response to the COVID-19 pandemic, included provisions providing relief to entities with remaining AMT credit refund allowances. Through the CARES Act, Duke Energy accelerated remaining AMT credit refund allowances and claimed a refund in full for any AMT credit carryforwards. As a result, in the third quarter of 2020, Duke Energy received $572 million related to AMT credit carryforwards and $19 million of interest income. See Note 23 to the Consolidated Financial Statements, "Income Taxes," for additional information.

As of December 31, 2020, Duke Energy had approximately $259 million of cash on hand, $5.6 billion available under its $8 billion Master Credit Facility and $500 million available under the $1 billion Three-Year Revolving Credit Facility. Duke Energy expects to have sufficient liquidity in the form of cash on hand, cash from operations and available credit capacity to support its funding needs. Refer to Notes 6 and 19 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Stockholders' Equity," respectively, for information regarding Duke Energy's debt and equity issuances, debt maturities and available credit facilities including the Master Credit Facility.

Credit Facilities and Registration Statements

See Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding credit facilities and shelf registration statements available to Duke Energy and the Duke Energy Registrants.

CAPITAL EXPENDITURES

Duke Energy continues to focus on reducing risk and positioning its business for future success and will invest principally in its strongest business sectors. Duke Energy’s projected capital and investment expenditures, including AFUDC debt and capitalized interest, for the next three fiscal years are included in the table below.


(in millions)	2021		2022		2023
New generation	$	60	$	20	$	85
Regulated renewables	665		710		755
Environmental	795		820		600
Nuclear fuel	425		400		380
Major nuclear	280		270		205
Customer additions	565		555		560
Grid modernization and other transmission and distribution projects	3,460		5,025		4,840
Maintenance and other	2,200		2,650		2,750
Total Electric Utilities and Infrastructure	8,450		10,450		10,175
Gas Utilities and Infrastructure	1,250		1,275		1,150
Commercial Renewables and Other	775		1,075		750


Total projected capital and investment expenditures	$	10,475	$	12,800	$	12,075

DEBT MATURITIES

See Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant components of Current Maturities of Long-Term Debt on the Consolidated Balance Sheets.

DIVIDEND PAYMENTS

In 2020, Duke Energy paid quarterly cash dividends for the 94th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors.

Duke Energy targets a dividend payout ratio of between 65% and 75%, based upon adjusted EPS, and expects this trend to continue through 2025. Duke Energy increased the dividend by approximately 2% annually in both 2020 and 2019, and the company remains committed to continued growth of the dividend.

Dividend and Other Funding Restrictions of Duke Energy Subsidiaries

As discussed in Note 3 to the Consolidated Financial Statements, “Regulatory Matters,” Duke Energy’s wholly owned public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy through dividends, advances or loans as a result of conditions imposed by various regulators in conjunction with merger transactions. Duke Energy Progress and Duke Energy Florida also have restrictions imposed by their first mortgage bond indentures and Articles of Incorporation, which in certain circumstances, limit their ability to make cash dividends or distributions on common stock. Additionally, certain other Duke Energy subsidiaries have other restrictions, such as minimum working capital and tangible net worth requirements pursuant to debt and other agreements that limit the amount of funds that can be transferred to Duke Energy. At December 31, 2020, the amount of restricted net assets of wholly owned subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend does not exceed a material amount of Duke Energy’s net assets. Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy’s ability to access cash to meet its payment of dividends on common stock and other future funding obligations.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM OPERATING ACTIVITIES

Cash flows from operations of Electric Utilities and Infrastructure and Gas Utilities and Infrastructure are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy’s operating cash flows. Weather conditions, working capital and commodity price fluctuations and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations.

As part of Duke Energy’s continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy established a supply chain finance program (the “program”) in 2020, under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier’s decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers’ decisions on which invoices are sold do not impact Duke Energy’s payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program.

Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, “Risk Factors,” for additional information).

DEBT ISSUANCES

Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs. Duke Energy Corporation primarily issues unsecured debt.

In 2021, Duke Energy anticipates issuing additional securities of $8 billion through debt capital markets. Additionally, Duke Energy may utilize other instruments, including equity-content securities, such as preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances in 2020.

Duke Energy’s capitalization is balanced between debt and equity as shown in the table below.


	Projected 2021		Actual 2020		Actual 2019
Equity	44	%	44	%	44	%
Debt	56	%	56	%	56	%

Restrictive Debt Covenants

Duke Energy’s debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. As of December 31, 2020, each of the Duke Energy Registrants was in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

Credit Ratings

Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. During January 2021, S&P downgraded the issuer credit rating for Duke Energy (Parent) and all of its subsidiaries senior unsecured debt, excluding Progress Energy, from A- to BBB+. Additionally, S&P downgraded the credit rating for Duke Energy (Parent) and Progress Energy senior unsecured debt from BBB+ to BBB. As part of the credit rating report, S&P affirmed their credit rating on senior secured debt for Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Ohio and Duke Energy Indiana, while also affirming the short-term and commercial paper credit ratings. These actions followed a December 2020, report by S&P to revise the credit rating outlook from stable to negative for Duke Energy and all its subsidiaries. As a result of the downgrade, credit rating outlooks returned to stable. Additionally, during October 2020, Moody's revised their credit rating outlook for Duke Energy (Parent), Duke Energy Carolinas and Duke Energy Progress from stable to negative and in February 2021, revised the credit rating outlook for these same registrants to review for downgrade. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2021.


	Moody's	S&P
Duke Energy Corporation	Review for Downgrade	Stable
Issuer Credit Rating	Baa1	BBB+
Senior Unsecured Debt	Baa1	BBB
Commercial Paper	P-2	A-2
Duke Energy Carolinas	Review for Downgrade	Stable
Senior Secured Debt	Aa2	A
Senior Unsecured Debt	A1	BBB+
Progress Energy	Stable	Stable
Senior Unsecured Debt	Baa1	BBB
Duke Energy Progress	Review for Downgrade	Stable
Senior Secured Debt	Aa3	A
Senior Unsecured Debt	A2	BBB+
Duke Energy Florida	Stable	Stable
Senior Secured Debt	A1	A
Senior Unsecured Debt	A3	BBB+
Duke Energy Ohio	Stable	Stable
Senior Secured Debt	A2	A
Senior Unsecured Debt	Baa1	BBB+
Duke Energy Indiana	Stable	Stable
Senior Secured Debt	Aa3	A
Senior Unsecured Debt	A2	BBB+
Duke Energy Kentucky	Stable	Stable
Senior Unsecured Debt	Baa1	BBB+
Piedmont Natural Gas	Stable	Stable
Senior Unsecured	A3	BBB+

Credit ratings are intended to provide credit lenders a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold. The Duke Energy Registrants’ credit ratings are dependent on the rating agencies’ assessments of their ability to meet their debt principal and interest obligations when they come due. If, as a result of market conditions or other factors, the Duke Energy Registrants are unable to maintain current balance sheet strength, or if earnings and cash flow outlook materially deteriorates, credit ratings could be negatively impacted.

Cash Flow Information

The following table summarizes Duke Energy’s cash flows for the two most recently completed fiscal years.


	Years Ended December 31,


(in millions)	2020		2019
Cash flows provided by (used in):
Operating activities	$	8,856	$	8,209
Investing activities	(10,604)		(11,957)
Financing activities	1,731		3,730

Net decrease in cash, cash equivalents and restricted cash	(17)		(18)
Cash, cash equivalents and restricted cash at beginning of period	573		591
Cash, cash equivalents and restricted cash at end of period	$	556	$	573


MD&A			LIQUIDITY AND CAPITAL RESOURCES

OPERATING CASH FLOWS

The following table summarizes key components of Duke Energy’s operating cash flows for the two most recently completed fiscal years.


	Years Ended December 31,


(in millions)	2020		2019		Variance
Net income	$	1,082	$	3,571	$	(2,489)
Non-cash adjustments to net income	8,343		5,737		2,606

Payments for AROs	(610)		(746)		136

Refund of AMT credit carryforwards	572		573		(1)
Working capital	(531)		(926)		395
Net cash provided by operating activities	$	8,856	$	8,209	$	647

The variance was driven primarily by:

a $117 million increase in net income after adjustment for non-cash items primarily due to increases in current year non-cash adjustments, partially offset by decreases in revenues due to lower sales volumes, accelerated refund of fuel costs at Duke Energy Florida in response to the COVID-19 pandemic and lower wholesale revenue driven by the CCR Settlement Agreement;
a $395 million decrease in cash outflows from working capital primarily due to fluctuations in inventory levels, accounts payable levels and lower income taxes paid in the current year; and
a $136 million decrease in payments for AROs.

INVESTING CASH FLOWS

The following table summarizes key components of Duke Energy’s investing cash flows for the two most recently completed fiscal years.


	Years Ended December 31,


(in millions)	2020		2019		Variance
Capital, investment and acquisition expenditures, net of return of investment capital	$	(10,144)	$	(11,435)	$	1,291
Debt and equity securities, net	(62)		(5)		(57)

Other investing items	(398)		(517)		119
Net cash used in investing activities	$	(10,604)	$	(11,957)	$	1,353

The primary use of cash related to investing activities is capital, investment and acquisition expenditures, net of return of investment capital detailed by reportable business segment in the following table. The decrease relates primarily to decreases in capital expenditures due to lower overall investments in the Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables segments.


	Years Ended December 31,


(in millions)	2020		2019		Variance
Electric Utilities and Infrastructure	$	7,629	$	8,258	$	(629)
Gas Utilities and Infrastructure	1,309		1,533		(224)
Commercial Renewables	1,075		1,423		(348)
Other	264		221		43
Total capital, investment and acquisition expenditures, net of return of investment capital	$	10,277	$	11,435	$	(1,158)

FINANCING CASH FLOWS

The following table summarizes key components of Duke Energy’s financing cash flows for the two most recently completed fiscal years.


	Years Ended December 31,


(in millions)	2020		2019		Variance
Issuance of common stock	$	2,745	$	384	$	2,361
Issuance of preferred stock	—		1,962		(1,962)
Issuances of long-term debt, net	1,824		3,615		(1,791)
Notes payable and commercial paper	(319)		(380)		61
Dividends paid	(2,812)		(2,668)		(144)
Contributions from noncontrolling interests	426		843		(417)
Other financing items	(133)		(26)		(107)
Net cash provided by financing activities	$	1,731	$	3,730	$	(1,999)


MD&A			LIQUIDITY AND CAPITAL RESOURCES

The variance was driven primarily by:

a $1,962 million decrease in proceeds from the issuance of preferred stock;
a $1,791 million net decrease in proceeds from issuances of long-term debt primarily due to timing of issuances and redemptions of long-term debt; and
a $417 million decrease in contributions from noncontrolling interests, primarily due to $415 million related to the sale of a noncontrolling interest in the Commercial Renewables segment in 2019.

Partially offset by:

a $2,361 million increase in proceeds from the issuance of common stock, primarily from the settlement of equity forwards.

Off-Balance Sheet Arrangements

Duke Energy and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include performance guarantees, standby letters of credit, debt guarantees, surety bonds and indemnifications.

Most of the guarantee arrangements entered into by Duke Energy enhance the credit standing of certain subsidiaries, non-consolidated entities or less than wholly owned entities, enabling them to conduct business. As such, these guarantee arrangements involve elements of performance and credit risk, which are not always included on the Consolidated Balance Sheets. The possibility of Duke Energy, either on its own or on behalf of Spectra Capital through indemnification agreements entered into as part of the January 2, 2007, spin-off of Spectra Energy Corp, having to honor its contingencies is largely dependent upon the future operations of the subsidiaries, investees and other third parties, or the occurrence of certain future events.

Duke Energy performs ongoing assessments of its respective guarantee obligations to determine whether any liabilities have been incurred as a result of potential increased nonperformance risk by third parties for which Duke Energy has issued guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy’s operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position.

Other than the guarantee arrangements discussed above and off-balance sheet debt related to non-consolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 17 to the Consolidated Financial Statements, "Variable Interest Entities."

Contractual Obligations

Duke Energy enters into contracts that require payment of cash at certain specified periods, based on certain specified minimum quantities and prices. The following table summarizes Duke Energy’s contractual cash obligations as of December 31, 2020.


	Payments Due By Period
									More than
			Less than		2-3 years		4-5 years		5 years
			1 year		(2022 &		(2024 &		(2026 &
(in millions)	Total		(2021)		2023)		2025)		beyond)
Long-term debt(a)	$	58,134	$	4,110	$	8,011	$	4,408	$	41,605
Interest payments on long-term debt(b)	33,858		2,099		3,898		3,577		24,284
Finance leases(c)	1,465		186		347		170		762
Operating leases(c)	1,861		229		414		348		870
Purchase obligations:(d)
Fuel and purchased power(e)(f)	16,591		3,489		4,248		2,998		5,856
Other purchase obligations(g)	9,916		8,850		974		52		40
Nuclear decommissioning trust annual funding(h)	363		20		40		40		263
Land easements(i)	400		12		24		24		340
Total contractual cash obligations(j)(k)	$	122,588	$	18,995	$	17,956	$	11,617	$	74,020

(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, 2020, interest rates and holding them constant for the life of the instruments.

(c)See Note 5 to the Consolidated Financial Statements, “Leases.” Amounts in the table above include the interest component of finance leases based on the interest rates stated in the lease agreements and exclude certain related executory costs. Amounts exclude contingent lease obligations.

(d)Current liabilities, except for current maturities of long-term debt, and purchase obligations reflected on the Consolidated Balance Sheets have been excluded from the above table.


MD&A			OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

(e)Includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as NPNS. For contracts where the price paid is based on an index, the amount is based on market prices at December 31, 2020, 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)Amounts exclude obligations under the OVEC PPA. See Note 17 to the Consolidated Financial Statements, "Variable Interest Entities," for additional information.

(g)Includes contracts for software, telephone, data and consulting or advisory services. Amount also includes contractual obligations for EPC costs for new generation plants, wind and solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand for which the timing of the purchase cannot be determined.

(h)Related to future annual funding obligations to NDTF through nuclear power stations' relicensing dates. See Note 9 to the Consolidated Financial Statements, "Asset Retirement Obligations."

(i)Related to Commercial Renewables wind facilities.

(j)Unrecognized tax benefits of $125 million are not reflected in this table as Duke Energy cannot predict when open income tax years will close with completed examinations. See Note 23 to the Consolidated Financial Statements, "Income Taxes."

(k)The table above excludes reserves for litigation, environmental remediation, asbestos-related injuries and damages claims and self-insurance claims (see Note 4 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 4 to the Consolidated Financial Statements, “Commitments and Contingencies”), funding of pension and other post-retirement benefit plans (see Note 22 to the Consolidated Financial Statements, "Employee Benefit Plans"), AROs, including ash management expenditures (see Note 9 to the Consolidated Financial Statements, "Asset Retirement Obligations") and regulatory liabilities (see Note 3 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 ITCs recorded on the Consolidated Balance Sheets since cash payments for income taxes are determined based primarily on taxable income for each discrete fiscal year.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management Policies

The Enterprise Risk Management policy framework at Duke Energy includes strategy, operational, project execution and financial or transaction related risks. Enterprise Risk Management includes market risk as part of the financial and transaction related risks in its framework.

Duke Energy is exposed to market risks associated with commodity prices, interest rates and equity prices. Duke Energy has established comprehensive risk management policies to monitor and manage these market risks. Duke Energy’s Chief Executive Officer and Chief Financial Officer 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 Officer and other members of management on market risk positions, corporate exposures and overall risk management activities. The Chief Risk Officer 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. See 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 fluctuations 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 fluctuations is primarily limited by the cost-based regulation of its regulated operations as these operations are typically allowed to recover substantially all of these costs through various cost-recovery clauses, including fuel clauses, formula-based contracts, or other cost-sharing mechanisms. While there may be a delay in timing between when these costs are incurred and when they are recovered through rates, changes from year to year generally do not have a material impact on operating results of these regulated operations. Within Duke Energy’s Commercial Renewables segment, the company has limited exposure to market price fluctuations in prices of energy-related products as a result of its ownership of renewable assets.

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 influenced by a number of factors, including contract size, length, market liquidity, market conditions, location and unique or specific contract terms. Duke Energy employs established policies and procedures to manage risks associated with these market fluctuations, 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.”

Hedging Strategies

Duke Energy closely monitors risks associated with commodity price changes on its future operations and, where appropriate, uses various commodity instruments such as electricity, coal and natural gas forward contracts and options to mitigate the effect of such fluctuations on operations. Duke Energy’s primary use of energy commodity derivatives is to hedge against exposure to the prices of power, fuel for generation and natural gas for customers. Additionally, Duke Energy’s Commercial Renewables business may enter into short-term or long-term hedge agreements to manage price risk associated with project output.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The majority of instruments used to manage Duke Energy’s commodity price exposure are either not designated as hedges or do not qualify for hedge accounting. These instruments are referred to as undesignated contracts. Mark-to-market changes for undesignated contracts entered into by regulated businesses are reflected as regulatory assets or liabilities on the Consolidated Balance Sheets. Undesignated contracts entered into by nonregulated businesses are marked-to-market each period, with changes in the fair value of the derivative instruments reflected in earnings.

Duke Energy may also enter into other contracts that qualify for the NPNS exception. When a contract meets the criteria to qualify as NPNS, Duke Energy applies such exception. Income recognition and realization related to NPNS contracts generally coincide with the physical delivery of the commodity. For contracts qualifying for the NPNS exception, no recognition of the contract’s fair value in the Consolidated Financial Statements is required until settlement of the contract as long as the transaction remains probable of occurring.

Generation Portfolio Risks

The Duke Energy Registrants optimize the value of their generation portfolios, which include generation assets, fuel and emission allowances. Modeled forecasts of future generation output and fuel requirements are based on forward power and fuel markets. The component pieces of the portfolio are bought and sold based on models and forecasts of generation in order to manage the economic value of the portfolio in accordance with the strategies of the business units.

For the Electric Utilities and Infrastructure segment, the generation portfolio not utilized to serve retail operations or committed load is subject to commodity price fluctuations. However, the impact on the Consolidated Statements of Operations is partially offset by mechanisms in these regulated jurisdictions that result in the sharing of net profits from these activities with retail customers.

Interest Rate Risk

Duke Energy is exposed to risk resulting from changes in interest rates as a result of its issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Duke Energy manages interest rate exposure by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. Duke Energy also enters into financial derivative instruments, which may include instruments such as, but not limited to, interest rate swaps, swaptions and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. See Notes 1, 6, 14 and 16 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”

Duke Energy had $7.6 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2020. The impact of a 100-basis point change in interest rates on pretax income is approximately $76 million at December 31, 2020. This amount was estimated by considering the impact of the hypothetical interest rates on variable-rate securities outstanding, adjusted for interest rate hedges as of December 31, 2020.

Certain Duke Energy Registrants have variable-rate debt and manage interest rate risk by entering into financial contracts including interest rate swaps. See Notes 6 and 14 to the Consolidated Financial Statements, "Debt and Credit Facilities" and "Derivatives and Hedging." Such financial arrangements generally are indexed based upon LIBOR, which is expected to be phased out by the end of 2021. The Secured Overnight Financing Rate (SOFR) has been identified by regulators and industry participants as the preferred successor rate for U.S. dollar-based LIBOR at that time. Impacted financial arrangements extending beyond 2021 may require contractual amendment or termination and renegotiation to fully adapt to a post-LIBOR environment, and there may be uncertainty regarding the effectiveness of any such alternative index methodologies. Alternative index provisions are being assessed and incorporated into new financial arrangements that extend beyond 2021. Additionally, the progress of the phaseout is being monitored, including proposed transition relief from the FASB.

Credit Risk

Credit risk represents the loss that the Duke Energy Registrants would incur if a counterparty fails to perform under its contractual obligations. Where exposed to credit risk, the Duke Energy Registrants analyze the counterparty's financial condition prior to entering into an agreement and monitor exposure on an ongoing basis. The Duke Energy Registrants establish credit limits where appropriate in the context of contractual arrangements and monitor such limits.

To reduce credit exposure, the Duke Energy Registrants seek to include netting provisions with counterparties, which permit the offset of receivables and payables with such counterparties. The Duke Energy Registrants also frequently use master agreements with credit support annexes to further mitigate certain credit exposures. The master agreements provide for a counterparty to post cash or letters of credit to the exposed party for exposure in excess of an established threshold. The threshold amount represents a negotiated unsecured credit limit for each party to the agreement, determined in accordance with the Duke Energy Registrants’ internal corporate credit practices and standards. Collateral agreements generally also provide that the failure to post collateral when required is sufficient cause to terminate transactions and liquidate all positions.

The Duke Energy Registrants also obtain cash, letters of credit, or surety bonds from certain counterparties to provide credit support outside of collateral agreements, where appropriate, based on a financial analysis of the counterparty and the regulatory or contractual terms and conditions applicable to each transaction. See Note 14 to the Consolidated Financial Statements, “Derivatives and Hedging,” for additional information regarding credit risk related to derivative instruments.

The Duke Energy Registrants’ principal counterparties for its electric and natural gas businesses are RTOs, distribution companies, municipalities, electric cooperatives and utilities located throughout the U.S. Exposure to these entities consists primarily of amounts due to Duke Energy Registrants for delivered electricity. Additionally, there may be potential risks associated with remarketing of energy and capacity in the event of default by wholesale power customers. The Duke Energy Registrants have concentrations of receivables from certain of such entities that may affect the Duke Energy Registrants’ credit risk.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Duke Energy Registrants are also subject to credit risk from transactions with their suppliers that involve prepayments or milestone payments in conjunction with outsourcing arrangements, major construction projects and certain commodity purchases. The Duke Energy Registrants’ credit exposure to such suppliers may take the form of increased costs or project delays in the event of nonperformance. The Duke Energy Registrants' frequently require guarantees or letters of credit from suppliers to mitigate this credit risk.

Credit risk associated with the Duke Energy Registrants’ service to residential, commercial and industrial customers is generally limited to outstanding accounts receivable. The Duke Energy Registrants mitigate this credit risk by requiring tariff customers to provide a cash deposit, letter of credit or surety bond until a satisfactory payment history is established, subject to the rules and regulations in effect in each retail jurisdiction at which time the deposit is typically refunded. Charge-offs for retail customers have historically been insignificant to the operations of the Duke Energy Registrants and are typically recovered through retail rates. Management continually monitors customer charge-offs, payment patterns and the impact of current economic conditions on customers' ability to pay their outstanding balance to ensure the adequacy of bad debt reserves.

In response to the COVID-19 pandemic, in March 2020, the Duke Energy Registrants announced a suspension of disconnections for nonpayment to be effective throughout the national emergency. While disconnections have resumed, the company continues to offer flexible options to customers struggling with the pandemic and the economic fallout, including extended payment arrangements to satisfy delinquent balances. In addition, the Duke Energy Registrants are monitoring the effects of the resultant economic slowdown on counterparties’ abilities to perform under their contractual obligations. The Duke Energy Registrants have observed a significant increase in utility account arrears, which were roughly double historical levels as of December 31, 2020. There is an expectation of an increase in charge-offs in the future. See Notes 1, 3 and 18 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies," "Regulatory Matters" and "Revenue," respectively, for more information. Duke Energy Ohio and Duke Energy Indiana sell certain of their accounts receivable and related collections through CRC, a Duke Energy consolidated VIE. Losses on collection are first absorbed by the equity of CRC and next by the subordinated retained interests held by Duke Energy Ohio, Duke Energy Kentucky and Duke Energy Indiana. See Note 17 to the Consolidated Financial Statements, “Variable Interest Entities.”

The Duke Energy Registrants provide certain non-tariff services, primarily to large commercial and industrial customers in which incurred costs, including invested capital, are intended to be recovered from the individual customer and therefore are not subject to rate recovery in the event of customer default. Customer creditworthiness is assessed prior to entering into these transactions. Credit concentration related to these transactions exists for certain of these customers.

Duke Energy’s Commercial Renewables segment enters into long-term agreements with certain creditworthy buyers that may not include the right to call for collateral in the event of a credit rating downgrade. Credit concentration exists to certain counterparties on these agreements, including entities that could be subject to wildfire liability. Additionally, Commercial Renewables may invest in projects for which buyers are below investment grade, although such buyers are required to post negotiated amounts of credit support. Also, power sales agreements and/or hedges of project output are generally for an initial term that does not cover the entire life of the asset. As a result, Commercial Renewables is exposed to market price risk and credit risk related to these agreements.

Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. See Note 4 to the Consolidated Financial Statements, "Commitments and Contingencies" for information on asbestos-related injuries and damages claims.

The Duke Energy Registrants also have credit risk exposure through issuance of performance and financial guarantees, letters of credit and surety bonds on behalf of less than wholly owned entities and third parties. Where the Duke Energy Registrants have issued these guarantees, it is possible that they could be required to perform under these guarantee obligations in the event the obligor under the guarantee fails to perform. Where the Duke Energy Registrants have issued guarantees related to assets or operations that have been disposed of via sale, they attempt to secure indemnification from the buyer against all future performance obligations under the guarantees. See Note 7 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants.

Based on the Duke Energy Registrants’ policies for managing credit risk, their exposures and their credit and other reserves, the Duke Energy Registrants do not currently anticipate a materially adverse effect on their consolidated financial position or results of operations as a result of nonperformance by any counterparty.

Marketable Securities Price Risk

As described further in Note 15 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” Duke Energy invests in debt and equity securities as part of various investment portfolios to fund certain obligations. The vast majority of investments in equity securities are within the NDTF and assets of the various pension and other post-retirement benefit plans.

Pension Plan Assets

Duke Energy maintains investments to facilitate funding the costs of providing non-contributory defined benefit retirement and other post-retirement benefit plans. These investments are exposed to price fluctuations in equity markets and changes in interest rates. The equity securities held in these pension plans are diversified to achieve broad market participation and reduce the impact of any single investment, sector or geographic region. Duke Energy has established asset allocation targets for its pension plan holdings, which take into consideration the investment objectives and the risk profile with respect to the trust in which the assets are held. See Note 22 to the Consolidated Financial Statements, “Employee Benefit Plans,” for additional information regarding investment strategy of pension plan assets.

A significant decline in the value of plan asset holdings could require Duke Energy to increase funding of its pension plans in future periods, which could adversely affect cash flows in those periods. Additionally, a decline in the fair value of plan assets, absent additional cash contributions to the plan, could increase the amount of pension cost required to be recorded in future periods, which could adversely affect Duke Energy’s results of operations in those periods.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Nuclear Decommissioning Trust Funds

As required by the NRC, NCUC, PSCSC and FPSC, subsidiaries of Duke Energy maintain trust funds to fund the costs of nuclear decommissioning. As of December 31, 2020, these funds were invested primarily in domestic and international equity securities, debt securities, cash and cash equivalents and short-term investments. Per the NRC, Internal Revenue Code, NCUC, PSCSC and FPSC requirements, these funds may be used only for activities related to nuclear decommissioning. These investments are exposed to price fluctuations in equity markets and changes in interest rates. Duke Energy actively monitors its portfolios by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes.

Accounting for nuclear decommissioning recognizes that costs are recovered through retail and wholesale rates; therefore, fluctuations in investment prices do not materially affect the Consolidated Statements of Operations, as changes in the fair value of these investments are primarily deferred as regulatory assets or regulatory liabilities pursuant to Orders by the NCUC, PSCSC, FPSC and FERC. Earnings or losses of the funds will ultimately impact the amount of costs recovered through retail and wholesale rates. See Note 9 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information regarding nuclear decommissioning costs. See Note 15 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” for additional information regarding NDTF assets.

OTHER MATTERS

Environmental Regulations

The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time and result in new obligations of the Duke Energy Registrants.

On May 14, 2020, the five-year probation period following the Dan River coal ash spill ended. The court-appointed monitor confirmed in U.S. District Court for the Eastern District of North Carolina that Duke Energy met or exceeded every obligation throughout the process. Separately, in a final report to the EPA, it was noted that the company made significant enhancements to its Ethics and Compliance Program and its environmental compliance programs.

The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 3 to the Consolidated Financial Statements, "Regulatory Matters," for further information regarding potential plant retirements and regulatory filings related to the Duke Energy Registrants.

Coal Combustion Residuals

In April 2015, EPA published a rule to regulate the disposal of CCR from electric utilities as solid waste. The federal regulation classifies CCR as nonhazardous waste and allows for beneficial use of CCR with some restrictions. The regulation applies to all new and existing landfills, new and existing surface impoundments receiving CCR and existing surface impoundments located at stations generating electricity (regardless of fuel source), which were no longer receiving CCR but contained liquids as of the effective date of the rule. The rule establishes requirements regarding landfill design, structural integrity design and assessment criteria for surface impoundments, groundwater monitoring, protection and remedial procedures and other operational and reporting procedures to ensure the safe disposal and management of CCR.

On July 17, 2018, EPA issued a final rule (Phase 1, Part 1) revising certain closure deadlines and groundwater protection standards in the CCR rule. The rule does not change the primary requirements for groundwater monitoring, corrective action, inspections and maintenance, and closure, and thus does not materially affect Duke Energy’s coal ash basin closure plans or compliance obligations under the CCR rule. On October 22, 2018, a coalition of environmental groups filed a petition for review in the U.S. Court of Appeals for the District of Columbia (D.C. Circuit Court) challenging EPA's final Phase 1, Part 1 revisions to the CCR rule. On March 13, 2019, the D.C. Circuit Court issued an order in the Phase 1, Part 1 litigation granting EPA’s motion to remand the rule without vacatur. To date, EPA has finalized two notice-and-comment rulemakings to implement the court’s decision on remand. The “Part A” rule, which was promulgated on August 28, 2020, establishes an April 11, 2021 deadline to cease placement of CCR and non-CCR waste streams into unlined ash basins and initiate closure, and the “Part B” rule, which was promulgated on November 12, 2020, establishes procedures to allow facilities to request approval to operate an existing CCR surface impoundment with an alternate liner. A future rulemaking is expected to address legacy impoundments. Duke Energy does not expect these rulemakings to have a material impact in light of its progress in closing CCR units across the enterprise.

In addition to the requirements of the federal CCR rule, CCR landfills and surface impoundments will continue to be regulated by the states. Cost recovery for future expenditures will be pursued through the normal ratemaking process with federal and state utility commissions and via wholesale contracts, which permit recovery of necessary and prudently incurred costs associated with Duke Energy’s regulated operations. For more information, see Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.

Coal Ash Management Act of 2014

AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2020, and December 31, 2019, include the legal obligation for closure of coal ash basins and the disposal of related ash as a result of the Coal Ash Act, the EPA CCR rule and other agreements. The Coal Ash Act includes a variance procedure for compliance deadlines and other issues surrounding the management of CCR and CCR surface impoundments and prohibits cost recovery in customer rates for unlawful discharge of ash impoundment waters occurring after January 1, 2014. The Coal Ash Act leaves the decision on cost recovery determinations related to closure of ash impoundments to the normal ratemaking processes before utility regulatory commissions.

Consistent with the requirements of the Coal Ash Act, Duke Energy previously submitted comprehensive site assessments and groundwater corrective plans to NCDEQ. In addition, on December 31, 2019, Duke Energy submitted updated groundwater corrective action plans and site-specific coal ash impoundment closure plans to NCDEQ.


MD&A			OTHER MATTERS

On April 1, 2019, NCDEQ issued a closure determination requiring Duke Energy Carolinas and Duke Energy Progress to excavate all remaining coal ash impoundments at the Allen, Belews Creek, Rogers, Marshall, Mayo and Roxboro facilities in North Carolina. On April 26, 2019, Duke Energy Carolinas and Duke Energy Progress filed Petitions for Contested Case Hearings in the Office of Administrative Hearings to challenge NCDEQ's April 1 Order. On December 31, 2019, Duke Energy Carolinas and Duke Energy Progress entered into a settlement agreement with NCDEQ and certain community groups under which Duke Energy Carolinas and Duke Energy Progress agreed to excavate seven of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Belews Creek, one at Mayo, one at Roxboro, and two at Rogers. At the two remaining basins at Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Marshall and Roxboro, which were previously filled with ash and on which permitted facilities were constructed, will not be disturbed and will be closed pursuant to other state regulations.

Following NCDEQ's April 1 Order, Duke Energy estimated the incremental undiscounted cost to close the nine remaining impoundments by excavation would be approximately $4 billion to $5 billion, potentially increasing the total estimated costs to permanently close all ash basins in North Carolina and South Carolina to $9.5 billion to $10.5 billion. The settlement lowers the estimated total undiscounted cost to close the nine remaining basins by excavation by approximately $1.5 billion as compared to Duke Energy’s original estimate that followed the order. As a result, the estimated total cost to permanently close all ash basins in North Carolina and South Carolina is approximately $8 billion to $9 billion of which approximately $2.8 billion has been spent through 2020. The majority of the remaining spend is expected to occur over the next 15 to 20 years.

Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River and Sutton plants

For further information on ash basins and recovery, see Notes 3 and 9 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.

Other Environmental Regulations

The Duke Energy Registrants are also subject to various federal, state and local laws regarding air and water quality, hazardous and solid waste disposal and other environmental matters, including the following:

CWA
Steam Effluent Limitation Guidelines
Cross-State Air Pollution Rule

Duke Energy continues to comply with enacted environmental statutes and regulations even as certain of these regulations are in various stages of clarification, revision or legal challenge. The Duke Energy Registrants cannot predict the outcome of these matters.

Section 126 Petitions

On November 16, 2016, the state of Maryland filed a petition with EPA under Section 126 of the Clean Air Act alleging that 19 power plants, including two plants (three units) that Duke Energy Registrants own and operate, contribute to violations of EPA’s National Ambient Air Quality Standards (NAAQS) for ozone in the state of Maryland. On March 12, 2018, the state of New York filed a petition with EPA, also under Section 126 of the Clean Air Act, alleging that over 60 power plants, including five that Duke Energy Registrants own and operate, contribute to violations of EPA’s ozone NAAQS in the state of New York. Both Maryland and New York sought EPA orders requiring the states in which the named power plants operate impose more stringent nitrogen oxide emission limitations on the plants. On October 5, 2018, EPA denied the Maryland petition. That same day, Maryland appealed EPA's denial. On October 18, 2019, EPA denied the New York petition, and New York appealed that decision on October 29, 2019. On May 19, 2020, the U.S. Court of Appeals for the D.C. Circuit issued its decision, finding, with one exception, that EPA reasonably denied the Maryland petition. The court remanded one issue to EPA regarding target sources lacking catalytic controls. All of the Duke Energy units targeted have selective catalytic reduction, so the decision is favorable for these units.

A different panel of the same court heard oral argument in New York’s appeal of EPA’s denial of its Section 126 Petition on May 7, 2020, and on July 14, 2020, the panel issued its decision remanding the Petition to EPA for further review. The Duke Energy Registrants cannot predict the outcome of this matter.

North Carolina Clean Energy Plan (NCCEP)

On October 29, 2018, Governor Roy Cooper signed an executive order calling for a 40% reduction in statewide greenhouse gas emissions by 2025. The order tasked the NCDEQ with developing a clean energy plan for North Carolina. In October 2019, the NCDEQ published its plan, which includes the reduction of electric power sector greenhouse gas emissions by 70% below 2005 levels by 2030 and attainment of carbon neutrality by 2050, fostering long-term energy affordability and price stability for North Carolina’s residents and businesses by modernizing regulatory and planning processes, and acceleration of clean energy innovation to create economic opportunities for both rural and urban areas. Duke Energy Carolinas and Duke Energy Progress are significant stakeholders in this process. The magnitude and timing of investment in response to the NCCEP will depend on the speed of adoption and consensus developed by other stakeholders on how best to successfully transition to this clean energy future while establishing a regulatory model that incentivizes business decisions that benefit both the utilities and the public. The Duke Energy Registrants cannot predict the outcome of this matter.

Global Climate Change

On September 17, 2019, Duke Energy announced an updated climate strategy with new goals of at least 50% reduction in carbon emissions from electric generation by 2030 and net-zero carbon emissions from electric generation by 2050. On October 9, 2020, Duke Energy announced a new goal to achieve net-zero methane emissions from its natural gas distribution system by 2030. Timelines and initiatives, as well as implementation of new technologies, will vary in each state in which the company operates and will involve collaboration with regulators, customers and other stakeholders.


MD&A			OTHER MATTERS

The Duke Energy Registrants’ GHG emissions consist primarily of CO2 and result primarily from operating a fleet of coal-fired and natural gas-fired power plants. Future levels of CO2 emissions will be influenced by variables that include economic conditions that affect electricity demand, fuel prices, market prices, compliance with new or existing regulations and the technologies deployed to generate the electricity necessary to meet customer demand.

The Duke Energy Registrants have taken actions that have resulted in a reduction of CO2 emissions over time. Actions have included the retirement of 51 coal-fired electric generating units with a combined generating capacity of 6,539 MW. Much of that capacity has been replaced with state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO2 emissions per unit of electricity generated. Duke Energy also has made investments to expand its portfolio of wind and solar projects, increase EE offerings and ensure continued operations of its zero-CO2 emissions hydropower and nuclear plants. These efforts have diversified its system and significantly reduced CO2 emissions. Between 2005 and 2020, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by more than 40%, which potentially lowers the exposure to any future mandatory CO2 emission reduction requirements or carbon tax, whether as a result of federal legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirement. Duke Energy will continue to explore the use of currently available and commercially demonstrated technology to reduce CO2 emissions, including EE, wind, solar, storage, carbon capture, utilization and sequestration, the use of hydrogen and other low-carbon fuels and advanced nuclear. Duke Energy will adjust to evolving and innovative technologies in a way that balances the reliability and affordability that meet regulatory requirements and customer demands. Under any future scenario involving mandatory CO2 limitations, the Duke Energy Registrants would plan to seek recovery of their compliance costs through appropriate regulatory mechanisms.

The Duke Energy Registrants recognize that scientists associate severe weather events with increasing levels of GHGs in the atmosphere and forecast the possibility these weather events could have a material impact on future results of operations should they occur more frequently and with greater severity. However, the uncertain nature of potential changes in extreme weather events (such as increased frequency, duration and severity), the long period of time over which any potential changes might take place and the inability to predict potential changes with any degree of accuracy, make estimating with any certainty any potential future financial risk to the Duke Energy Registrants’ operations difficult.

The Duke Energy Registrants annually, biennially or triennially prepare lengthy, forward-looking IRPs. These detailed, highly technical plans are based on the company’s thorough analysis of numerous factors that can impact the cost of producing and delivering electricity that influence long-term resource planning decisions. The IRP process helps to evaluate a range of options, taking into account stakeholder input as well as forecasts of future electricity demand, fuel prices, transmission improvements, new generating capacity, integration of renewables, energy storage, EE and demand response initiatives. The IRP process also helps evaluate potential environmental and regulatory scenarios to better mitigate policy and economic risks. The IRPs we file with regulators look out 10 to 20 years depending on the jurisdiction.

For a number of years, the Duke Energy Registrants have included a price on CO2 emissions in their IRP planning process to account for the potential regulation of CO2 emissions. Incorporating a price on CO2 emissions in the IRPs allows for the evaluation of existing and future resource needs against potential climate change policy risk in the absence of policy certainty. One of the challenges with using a CO2 price, especially in the absence of a clear and certain policy, is determining the appropriate price to use. To address this uncertainty and ensure the company remains agile, the Duke Energy Registrants typically use a range of potential CO2 prices to reflect a range of potential policy outcomes.

The Duke Energy Registrants routinely take steps to reduce the potential impact of severe weather events on their electric transmission and distribution systems and natural gas facilities. The steps include modernizing the electric grid through smart meters, storm hardening, self-healing and targeted undergrounding and applying lessons learned from previous storms to restoration efforts. The Duke Energy Registrants’ electric generating facilities and natural gas facilities are designed to withstand extreme weather events without significant damage. The Duke Energy Registrants maintain inventories of coal, oil and liquified natural gas to mitigate the effects of any potential short-term disruption in fuel supply so they can continue to provide customers with an uninterrupted supply of electricity and/or natural gas.

State Legislation

In 2017, the North Carolina General Assembly passed House Bill 589, and it was subsequently signed into law by the governor. The law includes, among other things, overall reform of the application of PURPA for new solar projects in the state, a requirement for the utility to procure renewable energy through a competitive bidding process administered by an independent third party and recovery of costs related to the competitive bidding process through a competitive procurement rider. The process used was approved by the NCUC to select projects that would deliver the lowest cost of renewable energy for customers.

In accordance with the provisions of House Bill 589, Duke Energy estimates the total competitive procurement will be approximately 1,185 to 1,385 MW. Duke Energy will own or purchase at least 1,185 MW of energy from renewable energy projects under the North Carolina’s CPRE program. Two tranches of the CPRE process have been completed with contracts executed for winning proposals. Five Duke Energy projects, totaling about 190 MW, were selected during the first tranche and none were selected during the second tranche. Two of the Duke Energy winning projects achieved commercial operation in December 2020 and the remaining three will be online by the third quarter 2021. The need for a third tranche of CPRE will be determined prior to November 2021.

In various states, legislation is being considered to allow third-party sales of electricity. Deregulation or restructuring in the electric industry may result in increased competition and unrecovered costs. The Duke Energy Registrants cannot predict the outcome of these initiatives.

New Accounting Standards

See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” for a discussion of the impact of new accounting standards.

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