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

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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, 2022, 2021 and 2020.

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, 2021, filed with the SEC on February 24, 2022, for a discussion of variance drivers for the year ended December 31, 2021, as compared to December 31, 2020.

DUKE ENERGY

Duke Energy is an energy company headquartered in Charlotte, North Carolina. Duke Energy operates in the U.S. primarily through its direct and indirect 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, we remain focused on continuing to advance our clean energy transition while maintaining affordability and reliability for our customers and delivering on our commitments to our communities, employees, investors, and other stakeholders. 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 2022, we continued to make progress, navigating rising interest rates, volatile commodity prices and other macroeconomic headwinds while meeting our near-term financial commitments, executing on our strategic priorities, responding to severe weather and external events, and continuing to provide the safe and reliable service that our communities depend on.

In 2022, we announced the sale of our commercial renewables business, filed the Carbon Plan with the NCUC, and continued to engage with the communities in our jurisdictions. We also continue to make the investments necessary to support our ongoing clean energy transition and a business portfolio that delivers a reliable and growing dividend, with 2022 representing the 96th consecutive year Duke Energy paid a cash dividend on its common stock.

Financial Results

(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.


MD&A			DUKE ENERGY

On February 9, 2023, Duke Energy announced 2022 full year reported earnings of $2,563 million, or $3.33 per share and adjusted earnings of $4,060 million, or $5.27 per share. On February 21, 2023, Duke Energy Indiana received an opinion from the Indiana Court of Appeals disallowing recovery of certain coal ash costs. As a result of this opinion, Duke Energy Indiana recognized a pretax charge of approximately $175 million to Impairment of assets and other charges for the year ended December 31, 2022. The 2022 full year reported earnings changed to $2,444 million, or $3.17 per share. There was no change to adjusted earnings or adjusted earnings per share.

Duke Energy's 2022 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) was impacted primarily by the estimated impairment on the sale of the Commercial Renewables business in the current year. 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.

2022 Areas of Focus and Accomplishments

Clean Energy Transition. Our industry continues to experience an unprecedented level of change and 2022 was a dynamic year for our company as we navigated macroeconomic headwinds and continued to execute on our strategic priorities and deliver on our vision.

Generating Cleaner Energy

We’re targeting energy generated from coal to represent less than 5% by 2030 and a full exit by 2035, subject to regulatory approvals. We’ve made strong progress to date in reducing carbon emissions from electricity generation (a 44% reduction from 2005) and have committed to do more (at least 50% reduction by 2030 and net-zero by 2050). In October 2022, we announced an additional interim target to reduce carbon emissions from electric generation by 80% by 2040. We also adopted a goal of reducing Scope 2 and certain Scope 3 emissions, including emissions from upstream purchased power and fossil fuel purchases, as well as downstream customer use of natural gas, by 50% by 2035, on the way to net-zero by 2050.

Duke Energy is one of the first utilities to address the totality of its impact – approximately 95% of the company's greenhouse gas emissions are now tied to a measurable net-zero goal. Over the next decade, we expect to deploy over $145 billion of capital into our regulated businesses, driven by clean energy transition investments. These investments will drive substantial economic benefits for the communities we serve and reduce our customer’s exposure to fuel volatility. We’ve filed and refined comprehensive IRPs consistent with this strategy in multiple jurisdictions, allowing us to accelerate coal plant retirements, make needed grid investments to enable renewables and energy storage, and increase resiliency. To partially fund this plan, in December 2022, we closed on the second and final tranche of the approximate $2 billion investment in Duke Energy Indiana by GIC.

In 2022, we were awarded one of two North Carolina offshore wind sites held by the Bureau of Ocean Energy Management. The approximately 55,000-acre site in the Atlantic Ocean east of Wilmington could support up to 1.6 gigawatts of potential offshore wind energy, enough to power nearly 375,000 homes. Securing this contract creates optionality for future offshore wind if the NCUC determines it's part of the least cost path to achieve North Carolina's interim and long-term carbon reduction goals.

As we look beyond 2030, we will need additional tools to continue our progress. We will actively work to advocate for research and development and deployment of carbon-free, dispatchable resources. This includes longer-duration energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.

Sale of Commercial Renewables

In November 2022, the Board approved pursuing the sale of our Commercial Renewables business, excluding the offshore wind contract for Carolina Long Bay. Since 2007, we have built a portfolio of approximately 5,000 megawatts of commercial wind, solar and battery projects across the U.S., and established a robust development pipeline. As we look forward to the remainder of this decade and beyond, we have line of sight to significant renewable, grid and other investment opportunities within our faster-growing regulated operations.

Carbon Plan

North Carolina House Bill 951 (HB 951) was passed in 2021 and reflects new state policy that accelerates a clean energy transition for generation serving customers in the Carolinas, including providing a framework for a goal of 70% carbon reduction in electric generation in the state from 2005 levels by 2030 and carbon neutrality by 2050 while continuing to prioritize affordability and reliability for our customers. The legislation established a framework overseen by the NCUC to advance state CO2 emission reductions through the use of least cost planning, including stakeholder involvement, and also introduced modernized recovery mechanisms, including multiyear rate plans (MYRP), that promote more efficient recovery of investments and performance-based regulation (PBR), that align incentives between the company and the state’s energy policy objectives.

In May 2022, we filed a proposed Carbon Plan with the NCUC that outlined potential pathways toward achieving the HB 951 carbon reduction targets while balancing affordability and reliability for our customers. We presented four “portfolios” – a base portfolio of what it would take to achieve 70% carbon reduction by 2030 and other portfolios demonstrating the impact of an extension to the 2030 compliance deadline to allow the introduction of new technologies at a more affordable price. In December 2022, the NCUC issued an order adopting its initial Carbon Plan, which included a set of near-term actions to support meeting the state's carbon reduction goals. This is a constructive outcome that advances our clean energy transition, supporting a diverse, all-of-the-above approach that is essential for long-term resource planning.

Modernizing the Power Grid and Natural Gas Infrastructure

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 continue 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. We continue to expand our self-optimizing grid capabilities, and in 2022, smart, self-healing technologies helped to avoid more than 1.4 million customer interruptions across our six-state electric service area, saving customers more than 443 million minutes of lost outage time.


MD&A			DUKE ENERGY

Duke Energy has a demonstrated track record of driving efficiencies and productivity in the business and we continue to leverage new technology, digital tools and data analytics across the business in response to a transforming landscape. In 2022, we filed for approval of a new demand response pilot program expected to launch in 2023 for customers in the Duke Energy Carolinas service area. Pilot incentives will reduce vehicle lease payments for program participants who lease an eligible electric vehicle, including Ford F-150 Lightning trucks. In exchange, customers will allow their electric vehicles to feed energy back to the grid – helping to balance it during peak demand. Also, in August 2022, Duke Energy Florida announced a research and development pilot program to test and evaluate the viability of the new Ford F-150 Lightning all-electric truck's high-capacity batteries as a grid edge resource.

Recognizing the importance of natural gas to our plans, we continue to work toward a net-zero methane emission goal by 2030 related to our natural gas distribution business. In our LDC business, we are making great progress reducing methane emissions through our partnership with Accenture, Microsoft and Avanade to use satellites and build an emissions platform, the addition of other sensors and technologies to find and fix leaks in near real time, and the use of cross compression to avoid releasing natural gas into the atmosphere during certain operational activities. Investments in integrity management of our natural gas infrastructure continue to be of importance to ensure reliable, safe, and increasingly clean delivery of natural gas to our customers.

Response to Macroeconomic Headwinds. In addition to achieving financial results in the upper half of our revised guidance, we continued our cost-management journey with a focus on driving productivity, increasing flexibility and prioritizing spend based on risk and strategic value to our customers and investors. In 2022, to address rising interest rates, increased commodity prices, labor and material inflation, and supply chain constraints, we launched the Workload Reduction Initiative, building on our culture of continuous improvement to identify more ways to reduce operating costs. Including cost reductions from supply chain, we identified approximately $300 million of savings opportunities focused on organization simplification, elimination of work, automation, reducing service levels provided to internal customers, and outsourcing.

Commodity prices have impacted the price of electricity in all of our jurisdictions. We actively worked to manage and maintain prices at lower levels than they otherwise would be in light of increased commodity prices, working with our regulators to extend recovery periods in certain jurisdictions in a way that is manageable for our customers. We also continued our work with our vulnerable customers through increased communications, securing state and federal funding, and providing access to philanthropic support. Additionally, we've created a specialized team that's partnered with agencies across our service territories and has helped connect customers to nearly $300 million in energy assistance funding since 2021.

We successfully navigated supply chain challenges including inflation, longer lead times, and shortages of solar panels and other equipment. We've executed longer supply agreements and proactively secured equipment in early 2022 for hurricane season while placing orders for key needs for our customer delivery organization for 2023. Our procurement teams continue to execute on action plans to enhance planning, augment supply, amend operations and leverage our scale to continue to mitigate these risks to the extent possible.

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. Grid investment riders in the Midwest and Florida enable more timely cost recovery and earnings growth and we have a MYRP in Florida through 2024. Additionally, as highlighted above, HB 951 provides the framework for many of the benefits of modernized regulatory constructs in North Carolina under the direction of the NCUC. Duke Energy Progress filed its first rate case utilizing these benefits, including both PBR and MYRP, in North Carolina in October 2022. In January 2023, we also filed a Duke Energy Carolinas rate case in North Carolina, which incorporates elements of PBR and MYRP.

In addition to the Duke Energy Progress and Duke Energy Carolinas rate cases in North Carolina, we continued to move a variety of other regulatory initiatives forward during 2022. Base rate cases were filed for both Duke Energy Progress and Piedmont in South Carolina, for Duke Energy Ohio's natural gas business, and for Duke Energy Kentucky's electric business. Constructive partial settlements were approved by the NCUC in January 2022 related to Piedmont's 2021 North Carolina rate case and by the PUCO in December 2022 related to Duke Energy Ohio's 2021 electric rate case. We also reached a constructive comprehensive settlement with all parties in the Duke Energy Progress South Carolina rate case in January 2023, which the PSCSC approved in February 2023. Duke Energy Indiana's TDSIC 2.0 was approved in June 2022 and Duke Energy Florida's 10 year storm protection plan was approved in October 2022, both of which provide for significant investments to improve the reliability and integrity of the grid in their respective jurisdictions. Overall, this was a very active year as it relates to regulatory filings, which reflects the important investments and ongoing clean energy transition across all our service territories.

In November 2022, the Southeast Energy Exchange Market (SEEM) announced it had initiated operations. The new SEEM platform facilitates sub-hourly, bilateral trading, allowing participants to buy and sell power close to the time the energy is consumed, utilizing available unreserved transmission and providing southeastern electricity customers cost, reliability and environmental benefits. Also in 2022, storm securitization legislation was passed in South Carolina, providing the opportunity to securitize deferred storm costs and lower the bill impacts for our customers. We also continue to evaluate the impacts of the Inflation Reduction Act, which is expected to have significant benefits to customers and lower the cost of the clean energy transition.

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 most important to the customer experience. In 2022, we successfully implemented the last of eight jurisdictional releases of Customer Connect, a new system that consolidates four legacy billing systems into one customer-service platform, allowing us to deliver the universal experience customers expect. While customer satisfaction across our industry continues to be impacted by the macroeconomic environment and the impacts of higher fuel prices on customer bills, our work continues to be recognized by our customers, with incremental improvements in customer satisfaction scores at certain jurisdictions including Piedmont, which was ranked number one in customer satisfaction by J.D. Power for residential natural gas service in the south.


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 continues to be foundational to serving our customers, our financial results, and our credibility with stakeholders. This year presented unique challenges to the grid in our service territories, including attacks on two substations in Moore County, North Carolina and extreme winter weather that forced us to take unprecedented measures to ensure the integrity of our systems in North Carolina. Despite these recent challenges, 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. While our TICR was slightly above target, our employees continued to deliver strong safety results in 2022 and we remain an industry leader in personal safety. In addition, we continued our strong environmental performance, with no reportable environmental events.

Storm activity was severe in our service territories in 2022. Hurricane Ian, the fifth-strongest hurricane on record, impacted our service territories in Florida and the Carolinas with heavy rainfall, strong winds, and life-threatening storm surge and flooding. Across our service territories, we assembled more than 20,000 power line technicians, damage assessors, and vegetation workers to prepare and begin to restore power as soon as it was safe to do so. In total, we experienced 2 million outages, and thanks to their efforts, more than 97% of our Florida customers were restored within three days of the storm moving out of our Florida territories, and over 99% of our Carolinas customers within two days of the storm exiting the Carolinas. In November, Hurricane Nicole made landfall in Florida as a Category 1 hurricane causing nearly 300,000 customer outages. Our crews were able to restore more than 98% of those outages within 12 hours.

In December, high winds and extreme cold from Winter Storm Elliott, customer demand that was higher than forecasted, and inability to import additional power from out of state, resulted in the need to temporarily interrupt service to about 500,000 customers to maintain overall grid reliability and prevent further potential disruptions in the Carolinas. We will continue to further evaluate lessons learned to improve our strategy and communications, and incorporate any identified improvements to address this matter to better serve our customers now and in the future.

Our ability to effectively handle all facets of the 2022 storm response efforts, including navigating ongoing macroeconomic challenges and supply chain constraints, 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. Duke Energy has received over 20 Emergency Response Awards since EEI began recognizing storm response in 1998 (including nine for assisting other utilities). We received EEI’s Emergency Assistance Award for our support to other electric companies following Hurricane Ian, as well as EEI’s Emergency Recovery Award for multiple events that include our own recovery from Hurricane Ian, Winter Storm Izzy, and the July storms in the Midwest.

Duke Energy Objectives – 2023 and Beyond

At Duke Energy, our climate strategy is our business strategy – to safely transform and ready our system by investing in new and existing carbon-free technology, modernizing our gas and electric infrastructure, and expanding and integrating efficiency and demand management programs. As we transition our business to cleaner sources of energy, we are focused on delivering sustainable value for our customers and shareholders by maintaining affordability and leveraging business transformation to exceed customer expectations, optimizing investments to drive attractive shareholder returns, and providing new product offerings and solutions that deliver growth and customer value. To achieve these major milestones, we are shaping the landscape by partnering with stakeholders, championing public policy that advances innovation, and advancing regulatory models that support carbon and methane emission reductions.

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

Duke Energy Carolinas and Duke Energy Progress both have approximately $1.4 billion, in regulatory assets related to coal ash retirement obligations as of December 31, 2022. Future spending, including amounts recorded for depreciation and liability accretion, is expected to continue to be deferred and recovered in future rate cases or rider filings. The majority of spend is expected to occur over the next 10 to 15 years.

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. 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. In January 2022, Duke Energy Indiana received a letter from the EPA regarding interpretation of the CCR rule. Duke Energy Indiana has approximately $385 million in regulatory assets related to coal ash asset retirement obligations as of December 31, 2022. See Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies" for more information.

Fuel Cost Recovery

As a result of rapidly rising commodity costs, including natural gas, fuel and purchased power prices in excess of amounts included in fuel-related revenues has led to an increase in the undercollection of fuel costs from customers at certain jurisdictions including Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. These amounts have been deferred in regulatory assets and have impacted the cash flows of the registrants, including increased borrowings to temporarily finance related expenditures until recovery. The Duke Energy Registrants are working with various state commissions on the timing of recovery of these amounts. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters" for more information.


MD&A			DUKE ENERGY

Commercial Renewables

In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables Disposal Groups. The bid process for the utility-scale solar and wind group is ongoing. Initial indicative bids were received for the distributed generation group in January 2023. Duke Energy expects to dispose of both groups in the second half of 2023. The Commercial Renewables Disposal Groups were classified as held for sale and as discontinued operations in the fourth quarter of 2022. Duke Energy recorded an impairment loss in the fourth quarter of 2022. If necessary, the loss on the sale of the assets will be updated based on market changes or the final sales price, after any adjustments at closing for working capital and capital expenditures and could be materially different than the estimated loss. Additionally, certain other costs resulting from the transactions may be recognized in the period incurred, including Duke Energy's share of debt extinguishment costs and costs incurred to modify or terminate PPAs. Proceeds from the sales are expected to be used for debt avoidance. For more information, see Note 2 to the Consolidated Financial Statements, "Dispositions."

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. Duke Energy has been named in multiple lawsuits arising out of this winter storm. The legal actions related to these lawsuits will remain with Duke Energy and any future activity related to the matters will be presented in discontinued operations. For more information, see Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies."

Supply Chain

Duke Energy is monitoring supply chain disruptions, which could impact the timing of in-service dates and may result in adverse impacts on operating results. The company is also monitoring the potential impacts on future financial results and clean energy goals due to supply chain challenges regarding the availability of transformers and renewable components like solar panels and batteries.

Other

Duke Energy is monitoring general market conditions, including rising interest rates, and evaluating the impact to its results of operations, financial position and cash flows in the future.

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:

Regulatory matters and litigation represents the net impact of charges related to the Indiana court rulings on coal ash and other unrelated ongoing litigation.
Workplace and workforce realignment represents costs attributable to business transformation, including long-term real estate strategy changes and workforce reduction.
Regulatory settlements represents an impairment charge related to the South Carolina Supreme Court decision on coal ash, insurance proceeds and Duke Energy Carolinas and Duke Energy Progress coal ash settlement.
Gas pipeline investments represents additional exit obligations related to ACP.

Discontinued operations primarily includes results from Duke Energy's Commercial Renewables Disposal Groups, including an estimated impairment on the sale of the business in 2022.

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.


MD&A			DUKE ENERGY

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,
	2022				2021
(in millions, except per share amounts)	Earnings		EPS		Earnings		EPS
GAAP Reported Earnings/EPS	$	2,444	$	3.17	$	3,802	$	4.94
Adjustments to Reported:
Regulatory Matters and Litigation(a)	295		0.39		—		—
Workplace and Workforce Realignment(b)	105		0.14		148		0.20
Regulatory Settlements(c)	—		—		69		0.09
Gas Pipeline Investments(d)	—		—		15		0.02

Discontinued Operations(e)	1,216		1.57		(197)		(0.26)
Adjusted Earnings/Adjusted EPS	$	4,060	$	5.27	$	3,837	$	4.99

(a) Net of tax benefit of $128 million. $386 million recorded within Impairment of assets and other charges, $46 million within Regulated electric (Operating Revenues) and $34 million within Net Loss Attributable to Noncontrolling Interests. $25 million recorded within Operations, maintenance and other.

(b) Net of tax benefit of $31 million and tax benefit of $44 million for the years ended December 31, 2022, and 2021, respectively. $72 million recorded within Impairment of assets and other charges, $71 million recorded within Operations, maintenance and other and a $7 million gain recorded in Gains on sales of other assets and other for the year ended December 31, 2022. $133 million recorded within Impairment of assets and other charges, $42 million within Operations, maintenance and other, and $17 million within Depreciation and amortization for the year ended December 31, 2021.

(c) Net of tax benefit of $21 million. $202 million of expense recorded within Impairment of assets and other charges, $111 million of income within Other income and expenses, $12 million of expense within Operations, maintenance and other, $28 million of income within Regulated electric operating revenues, $8 million of expense within Interest expense and $7 million of expense within Depreciation and amortization.

(d) Net of tax benefit of $5 million. $20 million loss recorded within Equity in earnings (losses) of unconsolidated affiliates.

(e) Recorded in Loss from Discontinued Operations, net of tax, and Net Loss Attributable to Noncontrolling Interests.

Year Ended December 31, 2022, as compared to 2021

GAAP Reported EPS was $3.17 for the year ended December 31, 2022, compared to $4.94 for the year ended December 31, 2021. The decrease in GAAP Reported Earnings/EPS was primarily due to the estimated impairment on the sale of the Commercial Renewables Disposal Groups in the current year.

As discussed and shown in the table above, management also evaluates financial performance based on adjusted EPS. Duke Energy’s adjusted EPS was $5.27 for the year ended December 31, 2022, compared to $4.99 for the year ended December 31, 2021. The increase in Adjusted Earnings/Adjusted EPS was primarily due to higher volumes, favorable weather and rate case contributions, partially offset by higher financing costs, higher depreciation and property taxes on a growing asset base, storm costs and unfavorable market impacts.

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 Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I). The remainder of Duke Energy’s operations is presented as Other. See Note 3 to the Consolidated Financial Statements, “Business Segments,” for additional information on Duke Energy’s segment structure.


MD&A			SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE

Electric Utilities and Infrastructure


	Years Ended December 31,


(in millions)	2022		2021		Variance
Operating Revenues	$	26,024	$	22,603	$	3,421
Operating Expenses
Fuel used in electric generation and purchased power	8,862		6,332		2,530
Operations, maintenance and other	5,354		5,340		14
Depreciation and amortization	4,550		4,251		299
Property and other taxes	1,315		1,233		82
Impairment of assets and other charges	374		204		170
Total operating expenses	20,455		17,360		3,095
Gains on Sales of Other Assets and Other, net	7		13		(6)
Operating Income	5,576		5,256		320
Other Income and Expenses, net	467		534		(67)
Interest Expense	1,565		1,432		133
Income Before Income Taxes	4,478		4,358		120
Income Tax Expense	536		494		42
Less: Income Attributable to Noncontrolling Interest	13		14		(1)
Segment Income	$	3,929	$	3,850	$	79

Duke Energy Carolinas GWh sales	90,915		87,796		3,119
Duke Energy Progress GWh sales	70,435		66,797		3,638
Duke Energy Florida GWh sales	46,214		42,422		3,792
Duke Energy Ohio GWh sales	24,269		24,129		140
Duke Energy Indiana GWh sales	31,979		31,388		591
Total Electric Utilities and Infrastructure GWh sales	263,812		252,532		11,280
Net proportional MW capacity in operation	49,539		49,871		(332)

Year Ended December 31, 2022, as compared to 2021

EU&I’s higher segment income is due to higher retail sales volumes and favorable weather, partially offset by higher depreciation and higher interest expense. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was driven primarily by:

a $2,332 million increase in fuel revenues primarily due to higher fuel prices and retail sales volumes;
a $456 million increase in weather-normal retail sales volumes;
a $293 million increase in retail base rate pricing due to general rate cases in North Carolina, net of rider impacts as well as multiyear rate adjustments in Florida;
a $145 million increase in retail sales due to favorable weather compared to prior year;
a $141 million increase in wholesale revenues primarily due to higher capacity volumes; and
a $137 million increase in rider revenues primarily due to higher sales volumes and storm securitization in North Carolina.

Partially offset by:

an $86 million decrease in capacity revenue primarily due to accelerated recovery of the retired coal units Crystal River 1 and 2 in 2021; and
a $67 million decrease due to the Indiana Supreme Court ruling on recovery of certain coal ash costs.

Operating Expenses. The variance was driven primarily by:

a $2,530 million increase in fuel used in electric generation and purchased power due to higher fuel prices and volumes from customer demand;
a $299 million increase in depreciation and amortization primarily due to higher plant in service and resolution of prior year rate cases, partially offset by lower depreciation related to the extension of the lives of nuclear facilities;
a $170 million increase in impairment of assets and other charges due to the Indiana court rulings on recovery of certain coal ash costs; and
an $82 million increase in property and other taxes primarily due to higher property taxes as well as higher revenue related taxes.


MD&A			SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE

Other Income and Expenses, net. The variance is primarily due to coal ash insurance litigation proceeds received in the prior year, partially offset by an increase in AFUDC equity due to higher capital expenditures.

Interest Expense. The variance was primarily driven by higher interest rates and outstanding debt balances.

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. The ETRs for the years ended December 31, 2022, and 2021, were 12.0% and 11.3%, respectively. The increase in the ETR was primarily due to a decrease in the amortization of excess deferred taxes.

Gas Utilities and Infrastructure


	Years Ended December 31,


(in millions)	2022		2021		Variance
Operating Revenues	$	2,840	$	2,112	$	728
Operating Expenses
Cost of natural gas	1,276		705		571
Operation, maintenance and other	532		442		90
Depreciation and amortization	327		303		24
Property and other taxes	138		120		18
Impairment of assets and other charges	(12)		19		(31)
Total operating expenses	2,261		1,589		672
Gains on Sales of Other Assets and Other, net	1		—		1
Operating Income	580		523		57



Other income and expenses, net	78		70		8
Interest Expense	182		142		40
Income Before Income Taxes	476		451		25
Income Tax Expense	8		55		(47)

Segment Income	$	468	$	396	$	72

Piedmont Local Distribution Company (LDC) throughput (Dth)	628,035,471		542,759,891		85,275,580
Duke Energy Midwest LDC throughput (MCF)	90,010,669		85,787,624		4,223,045

Year Ended December 31, 2022, as compared to 2021

GU&I’s results were impacted primarily by margin growth, partially offset by higher operation and maintenance costs and higher interest expense. The following is a detailed discussion of the variance drivers by line item.

Operating Revenues. The variance was driven primarily by:

a $383 million increase due to higher natural gas costs passed through to customers and higher volumes;
a $213 million increase due to increased secondary marketing activity including higher off-system sales natural gas costs;
a $64 million increase due to base rate increases;
a $48 million increase due to rider revenues related to Ohio Capital Expenditure Program (CEP); and
a $4 million increase due to customer growth.

Partially offset by:

a $15 million decrease due to the MGP Settlement.

Operating Expenses. The variance was driven primarily by:

a $383 million increase in cost of natural gas due to higher natural gas costs passed through to customers and higher volumes;
a $188 million increase in cost of natural gas due to increased secondary marketing activity including higher off-system sales natural gas costs;
a $90 million increase in operations, maintenance and other primarily due to the MGP settlement, higher spend on internal and contract labor costs, locates, fleet, and materials;
a $24 million increase in depreciation and amortization due to additional plant in service and lower CEP deferrals; and
an $18 million increase in property and other taxes due to lower CEP deferrals.

Partially offset by:

a $31 million decrease in impairment of assets and other charges due to an impairment of propane caverns in 2021, which was partially reversed in 2022.


MD&A			SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE

Interest Expense**.** The variance was primarily due to higher interest rates and outstanding debt balances and lower CEP Rider deferrals.

Income Tax Expense. The decrease in tax expense was primarily due to an increase in the amortization of excess deferred taxes related to the Ohio MGP Settlement, partially offset by an increase in pretax income. The ETRs for the years ended December 31, 2022, and 2021, were 1.7% and 12.2%, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes related to the Ohio MGP Settlement.

Other


	Years Ended December 31,


(in millions)	2022		2021		Variance
Operating Revenues	$	122	$	113	$	9






Operating Expenses	298		409		(111)
Gains (Losses) on Sales of Other Assets and Other, net	14		(1)		15
Operating Loss	(162)		(297)		135
Other Income and Expenses, net	65		125		(60)
Interest Expense	778		643		135
Loss Before Income Taxes	(875)		(815)		(60)
Income Tax Benefit	(244)		(281)		37
Less: Net Income Attributable to Noncontrolling Interests	—		1		(1)
Less: Preferred Dividends	106		106		—
Net Loss	$	(737)	$	(641)	$	(96)

Year Ended December 31, 2022, as compared to 2021

The higher net loss was driven by higher interest expense and lower return on investments, partially offset by higher equity earnings from the NMC investment and prior year obligations to the Duke Energy Foundation.

Operating Expenses. The decrease was primarily driven by prior year obligations to the Duke Energy Foundation, lower expense on certain employee benefit obligations and lower asset impairments to optimize the company's real estate portfolio and reduce office space.

Other Income and Expenses, net. The variance was primarily due to lower return on investments that fund certain employee benefit obligations, partially offset by higher equity earnings from the NMC investment.

Interest Expense. The variance was primarily due to higher interest rates and outstanding debt balances.

Income Tax Benefit. The decrease in the tax benefit was primarily due to a reduction of a valuation allowance relating to a capital loss carryforward in the prior year, partially offset by lower state tax benefit in the prior year. The ETRs for the years ended December 31, 2022, and 2021, were 27.9% and 34.5%, respectively. The decrease in the ETR was primarily due to a reduction of a valuation allowance relating to a capital loss carryforward in the prior year.

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX


	Years Ended December 31,
(in millions)	2022		2021		Variance
Loss From Discontinued Operations, net of tax	$	(1,323)	$	(144)	$	(1,179)

Year Ended December 31, 2022, as compared to December 31, 2021

The variance was primarily driven by the estimated impairment on the sale of the Commercial Renewables Disposal Groups in the current year.


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)	2022		2021		Variance
Operating Revenues	$	7,857	$	7,102	$	755
Operating Expenses
Fuel used in electric generation and purchased power	2,015		1,601		414
Operation, maintenance and other	1,892		1,833		59
Depreciation and amortization	1,526		1,468		58
Property and other taxes	340		320		20
Impairment of assets and other charges	26		227		(201)
Total operating expenses	5,799		5,449		350
Gains on Sales of Other Assets and Other, net	4		2		2
Operating Income	2,062		1,655		407
Other Income and Expenses, net	221		270		(49)
Interest Expense	557		538		19
Income Before Income Taxes	1,726		1,387		339
Income Tax Expense	126		51		75
Net Income	$	1,600	$	1,336	$	264

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	2022
Residential sales	0.5	%
General service sales	4.0	%
Industrial sales	1.0	%
Wholesale power sales	1.3	%
Joint dispatch sales	0.9	%
Total sales	3.6	%
Average number of customers	1.8	%

Year Ended December 31, 2022, as compared to 2021

Operating Revenues. The variance was driven primarily by:

a $396 million increase in fuel revenues driven by higher fuel prices and higher volumes;
a $156 million increase in weather-normal retail sales volumes;
a $78 million increase in retail sales due to favorable weather compared to prior year;
a $63 million increase due to higher pricing from the North Carolina retail rate case, net of a return of EDIT to customers; and
a $52 million increase in rider revenues primarily due to energy efficiency, storm securitization, and competitive procurement of renewable energy programs.

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

a $414 million increase in fuel used in electric generation and purchased power primarily due to higher coal and natural gas prices and changes in the generation mix, partially offset by the recovery of fuel expenses;
a $59 million increase in operation, maintenance and other expense primarily due to higher storm restoration costs, higher bad debt expense and higher nuclear outage and maintenance costs;
a $58 million increase in depreciation and amortization primarily due to new depreciation rates associated with the North Carolina rate case and a higher depreciable base, partially offset by lower depreciation related to the extension of the lives of nuclear facilities; and
a $20 million increase in property and other taxes due to higher franchise and property taxes and a prior year sales and use tax refund.


MD&A			DUKE ENERGY CAROLINAS

Partially offset by:

a $201 million decrease in impairment of assets and other charges primarily due to the prior year South Carolina Supreme Court decision on coal ash.

Other Income and Expenses. The variance was driven by the coal ash insurance litigation proceeds received in the prior year, partially offset by an increase in AFUDC equity due to higher capital expenditures.

Interest Expense. The variance was driven by higher interest rates and outstanding debt balances.

Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income.

PROGRESS ENERGY

Results of Operations


	Years Ended December 31,
(in millions)	2022		2021		Variance
Operating Revenues	$	13,125	$	11,057	$	2,068
Operating Expenses
Fuel used in electric generation and purchased power	5,078		3,584		1,494
Operation, maintenance and other	2,458		2,529		(71)
Depreciation and amortization	2,142		1,929		213
Property and other taxes	607		542		65
Impairment of assets and other charges	12		82		(70)
Total operating expenses	10,297		8,666		1,631
Gains on Sales of Other Assets and Other, net	11		14		(3)
Operating Income	2,839		2,405		434
Other Income and Expenses, net	181		215		(34)
Interest Expense	844		794		50
Income Before Income Taxes	2,176		1,826		350
Income Tax Expense	348		227		121


Net Income	1,828		1,599		229
Less: Net Income Attributable to Noncontrolling Interests	—		1		(1)
Net Income Attributable to Parent	$	1,828	$	1,598	$	230

Year Ended December 31, 2022, as compared to 2021

Operating Revenues. The variance was driven primarily by:

a $1,481 million increase in fuel revenues driven by higher fuel prices and higher volumes;
a $249 million increase in weather-normal retail sales volumes;
a $230 million increase in retail pricing due to the North Carolina rate case and base rate adjustments at Duke Energy Florida related to annual increases from the 2021 Settlement Agreement and the solar base rate adjustment;
an $85 million increase in rider revenues due to higher revenues from the Storm Protection Plan at Duke Energy Florida and storm securitization and energy efficiency riders at Duke Energy Progress;
a $53 million increase in wholesale revenues, net of fuel, due to higher capacity volumes; and
a $43 million increase in retail sales due to favorable weather.

Partially offset by:

an $86 million decrease in capacity revenue primarily due to accelerated recovery of retired Crystal River coal units in 2021.

Operating Expenses. The variance was driven primarily by:

a $1,494 million increase in fuel used in electric generation and purchased power primarily due to higher demand and higher natural gas prices;
a $213 million increase in depreciation and amortization primarily due to increased rates at Duke Energy Florida and higher amortization of deferred coal ash and storm costs at Duke Energy Progress, partially offset by the extension of the lives at nuclear facilities at Duke Energy Progress; and
a $65 million increase in property and other taxes primarily due to an increase in gross receipts taxes at Duke Energy Florida and higher franchise and property taxes at Duke Energy Progress.


MD&A			PROGRESS ENERGY

Partially offset by:

a $71 million decrease in operation, maintenance and other expense primarily due to reduced storm amortization at Duke Energy Florida; and
a $70 million decrease in impairment of assets and other charges due to the prior year South Carolina Supreme Court decision on coal ash and optimization of the company's real estate portfolio and reduction of office space.

Other Income and Expenses, net. The variance is primarily due to coal ash insurance litigation proceeds received in the prior year at Duke Energy Progress.

Interest Expense. The variance was driven primarily by higher interest expense and outstanding debt balances at Duke Energy Progress and Duke Energy Florida.

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 PROGRESS

Results of Operations


	Years Ended December 31,
(in millions)	2022		2021		Variance
Operating Revenues	$	6,753	$	5,780	$	973
Operating Expenses
Fuel used in electric generation and purchased power	2,492		1,778		714
Operation, maintenance and other	1,475		1,467		8
Depreciation and amortization	1,187		1,097		90
Property and other taxes	190		159		31
Impairment of assets and other charges	7		63		(56)
Total operating expenses	5,351		4,564		787
Gains on Sales of Other Assets and Other, net	4		13		(9)
Operating Income	1,406		1,229		177
Other Income and Expenses, net	114		143		(29)
Interest Expense	354		306		48
Income Before Income Taxes	1,166		1,066		100
Income Tax Expense	158		75		83
Net Income	$	1,008	$	991	$	17

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	2022
Residential sales	(0.8)	%
General service sales	7.5	%
Industrial sales	18.1	%
Wholesale power sales	2.5	%
Joint dispatch sales	27.5	%
Total sales	5.4	%
Average number of customers	1.9	%

Year Ended December 31, 2022, as compared to 2021

Operating Revenues. The variance was driven primarily by:

a $699 million increase in fuel revenues driven by higher fuel prices and higher volumes;
a $128 million increase due to higher pricing from the North Carolina retail rate case, net of a return of EDIT to customers;
a $58 million increase in weather-normal retail sales volumes;
a $39 million increase in rider revenues primarily due to storm securitization and energy efficiency riders, partially offset by the Renewable Energy Portfolio Standards rider;
a $27 million increase in retail sales due to favorable weather compared to the prior year; and
a $20 million increase in wholesale revenues, net of fuel, due to higher capacity volumes.


MD&A			DUKE ENERGY PROGRESS

Operating Expenses. The variance was driven primarily by:

a $714 million increase in fuel used in electric generation and purchased power primarily due to higher natural gas prices and changes in the generation mix, partially offset by the recovery of fuel expenses and lower coal expense;
a $90 million increase in depreciation and amortization due to higher amortization of deferred coal ash costs and amortization related to deferred storm costs, partially offset by lower depreciation related to the extension of the lives of nuclear facilities; and
a $31 million increase in property and other taxes due to higher franchise and property taxes and a prior year sales and use tax refund.

Partially offset by:

a $56 million decrease in impairment of assets and other charges primarily due to the prior year South Carolina Supreme Court decision on coal ash and optimization of the company's real estate portfolio and reduction of office space.

Other Income and Expenses, net. The variance was primarily due to coal ash insurance litigation proceeds received in the prior year.

Interest Expense. The variance was driven primarily by higher outstanding debt balances.

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 FLORIDA

Results of Operations


	Years Ended December 31,
(in millions)	2022		2021		Variance
Operating Revenues	$	6,353	$	5,259	$	1,094
Operating Expenses
Fuel used in electric generation and purchased power	2,586		1,806		780
Operation, maintenance and other	967		1,048		(81)
Depreciation and amortization	955		831		124
Property and other taxes	421		383		38
Impairment of assets and other charges	4		19		(15)
Total operating expenses	4,933		4,087		846
Gains on Sales of Other Assets and Other, net	2		1		1
Operating Income	1,422		1,173		249
Other Income and Expenses, net	74		71		3
Interest Expense	362		319		43
Income Before Income Taxes	1,134		925		209
Income Tax Expense	225		187		38
Net Income	$	909	$	738	$	171

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	2022
Residential sales	1.5	%
General service sales	3.5	%
Industrial sales	6.6	%
Wholesale power sales	38.7	%
Total sales	8.9	%
Average number of customers	1.7	%

Year Ended December 31, 2022, as compared to 2021

Operating Revenues. The variance was driven primarily by:

a $782 million increase in fuel revenues driven by higher fuel prices and higher volumes;
a $191 million increase in weather-normal retail sales volumes;
a $102 million increase in retail pricing due to base rate adjustments related to annual increases from the 2021 Settlement agreement and the solar base rate adjustment;


MD&A			DUKE ENERGY FLORIDA

a $46 million increase in rider revenues primarily due to increased Storm Protection Plan rider revenue driven by higher debt and equity returns from increased capital expenditures in the current year;
a $33 million increase in wholesale power revenues, net of fuel, primarily due to higher capacity revenues and bulk power sales; and
a $16 million increase in retail sales due to favorable weather in the current year.

Partially offset by:

an $86 million decrease in capacity revenue primarily due to accelerated recovery of the retired coal units Crystal River 1 and 2 in 2021.

Operating Expenses. The variance was driven primarily by:

a $780 million increase in fuel used in electric generation and purchased power primarily due to higher natural gas prices;
a $124 million increase in depreciation and amortization primarily due to an increase in depreciation rates starting in January 2022; and
a $38 million increase in property and other taxes primarily due to an increase in gross receipt taxes driven by higher revenues.

Partially offset by:

an $81 million decrease in operation, maintenance and other primarily due to reduced storm amortization and reduced vegetation management costs, partially offset by higher bad debt expense; and
a $15 million decrease in impairment of assets and other charges due to the prior year optimization of the company's real estate portfolio and reduction of office space.

Interest Expense. The variance was driven by higher interest rates and outstanding debt balances.

Income Tax Expense. The increase in tax expense was primarily due to higher pretax income.

DUKE ENERGY OHIO

Results of Operations


	Years Ended December 31,
(in millions)	2022		2021		Variance
Operating Revenues
Regulated electric	$	1,798	$	1,493	$	305
Regulated natural gas	716		544		172

Total operating revenues	2,514		2,037		477
Operating Expenses
Fuel used in electric generation and purchased power	657		409		248

Cost of natural gas	261		136		125
Operation, maintenance and other	523		479		44
Depreciation and amortization	324		307		17
Property and other taxes	369		355		14
Impairment of assets and other charges	(10)		25		(35)
Total operating expenses	2,124		1,711		413
Gains on Sales of Other Assets and Other, net	1		1		—
Operating Income	391		327		64
Other Income and Expenses, net	19		18		1
Interest Expense	129		111		18
Income Before Income Taxes	281		234		47
Income Tax (Benefit) Expense	(21)		30		(51)


Net Income	$	302	$	204	$	98


MD&A			DUKE ENERGY OHIO

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	2022			2022
Residential sales	(0.5)	%		13.7	%
General service sales	(2.1)	%		1.3	%
Industrial sales	(6.8)	%		0.7	%
Wholesale electric power sales	(11.0)	%		n/a
Other natural gas sales	n/a			(3.6)	%
Total sales	0.6	%		4.9	%
Average number of customers	1.3	%		0.6	%

Year Ended December 31, 2022, as compared to 2021

Operating Revenues. The variance was driven primarily by:

a $372 million increase in fuel related revenues primarily due to higher retail sales volumes and higher fuel rates in the current year in response to an increase in natural gas prices and purchased power expense;
a $55 million increase in retail revenue riders primarily due to the Ohio CEP and Distribution Capital Investment Rider (DCI);
a $39 million increase in other electric revenues primarily due to Distribution Decoupling rider adjustments recorded in 2021;
a $10 million increase in bulk power marketing sales; and
a $10 million increase due to favorable weather in the current year.

Partially offset by:

a $15 million decrease due to the MGP Settlement.

Operating Expenses. The variance was driven primarily by:

a $373 million increase in fuel expense primarily driven by higher retail prices and increased volumes for natural gas and purchased power;
a $44 million increase in operation, maintenance and other expense primarily due to the MGP Settlement, partially offset by employee related costs;
a $17 million increase in depreciation and amortization primarily driven by increases in distribution plant in service and lower CEP deferrals, partially offset by rate case adjustments for the over amortization of meter assets in 2022; and
a $14 million increase in property and other taxes primarily due to higher property taxes, higher kilowatt and natural gas distribution taxes and a lower Network Integration Transmission Services tax deferral.

Partially offset by:

a $35 million decrease in impairment of assets and other charges primarily due to the prior year impairments related to the propane caverns in Ohio and the optimization of the company's real estate portfolio and reduction of office space, partially offset by the partial reversal of the propane cavern impairment in the current year.

Interest Expense. The variance was primarily due to higher interest rates, outstanding debt balances and post in-service carrying costs, partially offset by AFUDC debt.

Income Tax (Benefit) Expense. The decrease in tax expense was primarily due to an increase in the amortization of excess deferred taxes related to the MGP Settlement.


MD&A			DUKE ENERGY INDIANA

DUKE ENERGY INDIANA

Results of Operations


	Years Ended December 31,
(in millions)	2022		2021		Variance
Operating Revenues	$	3,922	$	3,174	$	748
Operating Expenses
Fuel used in electric generation and purchased power	1,819		985		834
Operation, maintenance and other	729		750		(21)
Depreciation and amortization	645		615		30
Property and other taxes	75		73		2
Impairment of assets and other charges	388		9		379
Total operating expenses	3,656		2,432		1,224

Operating Income	266		742		(476)
Other Income and Expenses, net	36		42		(6)
Interest Expense	189		196		(7)
Income Before Income Taxes	113		588		(475)
Income Tax (Benefit) Expense	(24)		107		(131)
Net Income	$	137	$	481	$	(344)

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	2022
Residential sales	(0.4)	%
General service sales	1.8	%
Industrial sales	(12.1)	%
Wholesale power sales	5.4	%
Total sales	1.9	%
Average number of customers	1.4	%

Year Ended December 31, 2022, as compared to 2021

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

a $700 million increase in retail fuel revenues primarily due to higher fuel cost recovery driven by higher retail sales volumes and fuel prices;
a $74 million increase primarily due to wholesale revenues, including fuel revenues, driven by higher rates and the bulk power marketing sharing provision;
a $46 million increase in weather-normal retail sales volumes primarily due to higher nonresidential customer demand; and
a $20 million increase in retail sales due to favorable weather.

Partially offset by:

a $67 million decrease due to the Indiana Supreme Court ruling on recovery of certain coal ash costs;
a $13 million decrease primarily due to the Utility Receipts Tax repeal; and
a $12 million decrease primarily due to fixed bill plans and other electric revenues.

Operating Expenses. The variance was driven primarily by:

an $834 million increase in fuel used in electric generation and purchased power primarily due to higher purchased power expense and higher natural gas and coal costs;
a $379 million increase in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs; and
a $30 million increase in depreciation and amortization primarily due to additional plant in service, Step 2 rates true-up adjustment to depreciation expense and coal ash depreciation.

Partially offset by:

a $21 million decrease in operation, maintenance and other primarily due to lower outage, base maintenance work and employee related costs.


MD&A			DUKE ENERGY INDIANA

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 income taxes.

PIEDMONT

Results of Operations


	Years Ended December 31,
(in millions)	2022		2021		Variance



Operating Revenues	$	2,124	$	1,569	$	555
Operating Expenses
Cost of natural gas	1,015		569		446
Operation, maintenance and other	368		327		41
Depreciation and amortization	222		213		9
Property and other taxes	57		55		2
Impairment of assets and other charges	18		10		8
Total operating expenses	1,680		1,174		506
Gains on Sales of Other Assets and Other, net	4		—		4
Operating Income	448		395		53



Other Income and Expenses, net	54		64		(10)
Interest Expense	140		119		21
Income Before Income Taxes	362		340		22
Income Tax Expense	39		30		9
Net Income	$	323	$	310	$	13

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	2022
Residential deliveries	5.0	%
Commercial deliveries	8.5	%
Industrial deliveries	1.2	%
Power generation deliveries	23.3	%
For resale	(4.3)	%
Total throughput deliveries	15.7	%
Secondary market volumes	18.9	%
Average number of customers	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.

Year Ended December 31, 2022, as compared to 2021

Operating Revenues. The variance was driven primarily by:

a $257 million increase due to higher natural gas costs passed through to customers and higher volumes;
a $213 million increase due to increased secondary marketing activity including higher off-system sales natural gas costs; and
a $64 million increase due to base rate increases.

Operating Expenses. The variance was driven primarily by:

a $257 million increase in cost of natural gas due to higher natural gas costs passed through to customers and higher volumes;
a $189 million increase in cost of natural gas due to increased secondary marketing activity including higher off-system sales higher natural gas costs; and
a $41 million increase in operation, maintenance and other due to higher spend on internal and contract labor costs, locates, fleet, materials and other.

Other Income and Expenses, net. The variance was driven primarily by a decrease in AFUDC equity base.

Interest Expense. The variance was primarily due to higher debt outstanding and interest rates.

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.


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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;
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.

For further information, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."

Goodwill Impairment Assessments

Duke Energy performed its annual goodwill impairment tests for all reporting units as of August 31, 2022. 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, 2022, 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 Weighted Average Cost of Capital (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 2022 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, 2022, for each of Duke Energy’s reporting units ranged from 6.6% to 6.9%. 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. The implied market multiples used for calculating the fair values as of August 31, 2022, for each of Duke Energy's reporting units ranged from 10.3 to 13.6.


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 or implied market multiples over a prolonged period may have a material impact on the fair value of equity.

Duke Energy has $19.3 billion in Goodwill at both December 31, 2022, and 2021. For further information, see Note 12 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. Duke Energy has $12.7 billion and $12.6 billion of AROs as of December 31, 2022, and 2021, respectively. See Note 10, "Asset Retirement Obligations," for further details including a rollforward of related liabilities.

The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding the amount and timing of future cash flows, regulatory, legal, and legislative decisions, 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. In prior years, certain ash basins have had probability weightings applied to them based on different potential closure methods and the probabilities surrounding pending legal changes.

For further information, see Notes 4, 5 and 10 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."

Discontinued Operations

Duke Energy calculated an estimated impairment on the disposition of its Commercial Renewables Disposal Groups as of December 31, 2022. The impairment was recorded to write-down the carrying amount to fair value, less cost to sell. The fair value was primarily determined from the income approach using discounted cash flows, but also considered market information obtained through the bidding process. Estimated future cash flows under the income approach were based on Duke Energy's forecast, which was informed by existing power purchase agreements with offtakers and forward merchant curves. Significant assumptions used in the income approach include forward merchant curves and discount rates. The discount rates take into account both the after-tax cost of debt and cost of equity.

The actual loss will be recorded based on final sales agreements and could be materially different than the estimated loss.

For further information, See Note 2 to the Consolidated Financial Statements, "Dispositions."

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. Additionally, due to its existing tax attributes and projected tax credits to be generated relating to the IRA, Duke Energy does not expect to be a significant federal cash taxpayer until around 2030.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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)	2023		2024		2025
Electric Generation(a)	$	1,650	$	1,950	$	3,150
Electric Transmission	1,550		1,925		1,850
Electric Distribution	3,750		3,750		4,100
Environmental and Other	675		500		475
EU&I Growth Capital	7,625		8,125		9,575
Maintenance	2,800		2,625		2,425



Total EU&I	10,425		10,750		12,000
GU&I	1,375		1,150		975
Other	400		375		425


Total projected capital and investment expenditures	$	12,200	$	12,275	$	13,400

(a) Includes nuclear fuel of approximately $1.9 billion in 2023-2025.

Debt

Long-term debt maturities and the interest payable on long-term debt each represent a significant cash requirement for the Duke Energy Registrants. See Note 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for information regarding the Duke Energy Registrants' long-term debt at December 31, 2022, the weighted average interest rate applicable to each long-term debt category and a schedule of long-term debt maturities over the next five years.

Fuel and Purchased Power

Fuel and purchased power 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. Duke Energy’s contractual cash obligations for fuel and purchased power as of December 31, 2022, are as follows:


	Payments Due by Period
(in millions)	Total		Less than 1 year (2023)		2-3 years (2024 & 2025)		4-5 years (2026 & 2027)		More than 5 years (2028 & beyond)
Fuel and purchased power	$	23,255	$	5,840	$	7,277	$	3,674	$	6,464

Other Purchase Obligations

Other purchase obligations includes contracts for software, telephone, data and consulting or advisory services, contractual obligations for Engineering, Procurement, and Construction agreement costs for new generation plants, 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. Total cash commitments for related other purchase obligation expenditures are $12,095 million, with $11,118 million expected to be paid in the next 12 months.

See Note 6 to the Consolidated Financial Statements, “Leases” for a schedule of both finance lease and operating lease payments over the next five years. See Note 10 to the Consolidated Financial Statements, “Asset Retirement Obligations” for information on nuclear decommissioning trust funding obligations and the closure of ash impoundments.

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 8 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 in Note 8 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 18 to the Consolidated Financial Statements, "Variable Interest Entities."

Cash and Liquidity

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 7 to the Consolidated Financial Statements, “Debt and Credit Facilities,” for additional discussion of the money pool arrangement.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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.

As of December 31, 2022, Duke Energy had approximately $409 million of cash on hand, $5.2 billion available under its $9 billion Master 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 7 and 20 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 7 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.

Dividend Payments

In 2022, Duke Energy paid quarterly cash dividends for the 96th 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. Duke Energy increased the dividend by approximately 2% annually in both 2022 and 2021, and the company remains committed to continued growth of the dividend.

Dividend and Other Funding Restrictions of Duke Energy Subsidiaries

As discussed in Note 4 to the Consolidated Financial Statements, “Regulatory Matters,” Duke Energy’s 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, 2022, the amount of restricted net assets of 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.

Cash Flows From Operating Activities

Cash flows from operations of EU&I and GU&I 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 2023, Duke Energy anticipates issuing additional securities of $6.7 billion through debt capital markets. In certain instances Duke Energy may utilize instruments other than senior notes, including equity-content securities such as subordinated debt or preferred stock. Proceeds will primarily be for the purpose of funding capital expenditures and debt maturities. See to Note 7 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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


	Projected 2023		Actual 2022		Actual 2021
Equity	41	%	41	%	43	%
Debt	59	%	59	%	57	%

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, 2022, Duke Energy presented approximately $131 million of long-term debt as current on the Consolidated Balance Sheet as a result of a technical default due to the bankruptcy filing of a Duke Energy customer. The Duke Energy Registrants were in compliance with all other covenants related to their debt agreements as of December 31, 2022. 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.

Credit Ratings

Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2023.


	Moody's	S&P
Duke Energy Corporation	Stable	Stable
Issuer Credit Rating	Baa2	BBB+
Senior Unsecured Debt	Baa2	BBB
Junior Subordinated Debt/Preferred Stock	Baa3	BBB-
Commercial Paper	P-2	A-2
Duke Energy Carolinas	Stable	Stable
Senior Secured Debt	Aa3	A
Senior Unsecured Debt	A2	BBB+
Progress Energy	Stable	Stable
Senior Unsecured Debt	Baa1	BBB
Duke Energy Progress	Stable	Stable
Senior Secured Debt	Aa3	A

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.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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)	2022		2021
Cash flows provided by (used in):
Operating activities	$	5,927	$	8,290
Investing activities	(11,973)		(10,935)
Financing activities	6,129		2,609

Net increase (decrease) in cash, cash equivalents and restricted cash	83		(36)
Cash, cash equivalents and restricted cash at beginning of period	520		556
Cash, cash equivalents and restricted cash at end of period	$	603	$	520

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)	2022		2021		Variance
Net income	$	2,455	$	3,579	$	(1,124)
Non-cash adjustments to net income	7,385		5,941		1,444
Contributions to qualified pension plans	(58)		—		(58)
Payments for AROs	(584)		(540)		(44)


Working capital	(2,081)		(897)		(1,184)
Other assets and Other liabilities	(1,190)		207		(1,397)
Net cash provided by operating activities	$	5,927	$	8,290	$	(2,363)

The variance was driven primarily by:

a $1,184 million increase in cash outflows from working capital and a $1,397 million increase in cash outflows from Other assets and Other liabilities primarily due to an increase in under-collected fuel used in generation due to higher commodity costs.

Partially offset by:

a $320 million increase in net income after adjustment for non-cash items primarily due to higher revenues from rate cases in various jurisdictions, favorable weather and volumes, partially offset by an estimated impairment on the Commercial Renewables Disposal Groups.

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)	2022		2021		Variance
Capital, investment and acquisition expenditures, net of return of investment capital	$	(11,419)	$	(9,752)	$	(1,667)
Debt and equity securities, net	90		5		85

Disbursements to canceled equity method investments	—		(855)		855
Other investing items	(644)		(333)		(311)
Net cash used in investing activities	$	(11,973)	$	(10,935)	$	(1,038)

The variance relates primarily to an increase in capital expenditures due to higher investments in EU&I, partially offset by a payment made in 2021 to fund ACP's outstanding debt. The primary use of cash related to investing activities is typically capital, investment and acquisition expenditures, net of return of investment capital detailed by reportable business segment in the following table.


	Years Ended December 31,


(in millions)	2022		2021		Variance
Electric Utilities and Infrastructure	$	8,985	$	7,653	$	1,332
Gas Utilities and Infrastructure	1,295		1,271		24

Other	1,139		828		311
Total capital, investment and acquisition expenditures, net of return of investment capital	$	11,419	$	9,752	$	1,667


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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)	2022		2021		Variance


Issuances of long-term debt, net	$	7,478	$	3,758	$	3,720
Notes payable and commercial paper	574		479		95
Dividends paid	(3,179)		(3,114)		(65)

Contributions from noncontrolling interests	1,377		1,575		(198)
Other financing items	(121)		(89)		(32)
Net cash provided by financing activities	$	6,129	$	2,609	$	3,520

The variance was driven primarily by:

a $3,720 million net increase in proceeds from issuances of long-term debt, primarily due to timing of issuances and redemptions of long-term debt.

Partially offset by:

a $198 million decrease in contributions from noncontrolling interests, primarily due to fewer project investments financed by tax equity being placed into service in the current 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

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 the effects of regulation, commodity contract size and length, market liquidity, market conditions, location and unique or specific contract terms. 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 through its regulated utility operations is limited since these operations are subject to cost-based regulation and 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.

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 15 to the Consolidated Financial Statements, “Derivatives and Hedging.”

Generation Portfolio Risks

For the EU&I 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 limited due to mechanisms in these regulated jurisdictions that result in the sharing of most of the net profits from these activities with retail customers.

Hedging Strategies

Duke Energy 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 hedging 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.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Duke Energy also manages its exposure to basis risk through the use of congestion hedge products in RTOs such as financial transmission rights (PJM and MISO), which result in payments based on differentials in locational marginal prices. 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.

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.

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, 7, 15 and 17 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies,” “Debt and Credit Facilities,” “Derivatives and Hedging,” and “Fair Value Measurements.”

Duke Energy had $9.2 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2022. The impact of a 100-basis point change in interest rates on pretax income is approximately $92 million at December 31, 2022. 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, 2022.

Foreign Currency Exchange Risk

Duke Energy is exposed to risk resulting from changes in the foreign currency exchange rates as a result of its issuances of long-term debt denominated in a foreign currency. Duke Energy manages foreign currency exchange risk exposure by entering into cross-currency swaps, a type of financial derivative instrument, which mitigate foreign currency exchange exposure. See Notes 7, 15 and 17 to the Consolidated Financial Statements, “Debt and Credit Facilities,” “Derivatives and Hedging” and “Fair Value Measurements," respectively.

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 15 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.

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.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In response to the COVID-19 pandemic that began in March 2020, the Duke Energy Registrants announced a suspension of disconnections for nonpayment to assist customers during the national emergency. While disconnections have resumed, the company continued to offer flexible options to customers struggling with the pandemic and the economic fallout, including extended payment arrangements to satisfy delinquent balances through June 2021. Since then, the company has resumed standard payment arrangement options. 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 experienced higher charge-offs during 2022, and higher utility account balances in arrears as of December 31, 2022. There is an expectation for the increase in charge-offs to continue in the near term. The Duke Energy Registrants have reserved for these estimated losses in the allowance for doubtful account balance. See Notes 4 and 19 to the Consolidated Financial Statements, "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 18 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 Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. See Note 5 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 8 to the Consolidated Financial Statements, “Guarantees and Indemnifications,” for further information on guarantees issued by the Duke Energy Registrants.

Duke Energy is subject to credit risk from transactions with counterparties to cross-currency swaps related to future interest and principal payments. The credit exposure to such counterparties may take the form of higher costs to meet Duke Energy's future euro-denominated interest and principal payments in the event of counterparty default. Duke Energy selects highly rated banks as counterparties and allocates the hedge for each debt issuance across multiple counterparties. The master agreements with the counterparties impose collateral requirements on the parties in certain circumstances indicative of material deterioration in a party's creditworthiness.

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 16 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 23 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.

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, 2022, 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 10 to the Consolidated Financial Statements, “Asset Retirement Obligations,” for additional information regarding nuclear decommissioning costs. See Note 16 to the Consolidated Financial Statements, “Investments in Debt and Equity Securities,” for additional information regarding NDTF assets.


MD&A			OTHER MATTERS

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.

The following sections outline various proposed and recently enacted legislation and regulations that may impact the Duke Energy Registrants. Refer to Note 4 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.

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 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and "Asset Retirement Obligations," respectively.

Coal Ash Act

AROs recorded on the Duke Energy Carolinas and Duke Energy Progress Consolidated Balance Sheets at December 31, 2022, and December 31, 2021, 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 action plans to NCDEQ. On December 31, 2019, Duke Energy submitted updated groundwater corrective action plans for six sites in North Carolina and site-specific coal ash impoundment closure plans for all 14 North Carolina sites to NCDEQ. In addition, from 2020 through 2022, Duke Energy submitted updated comprehensive site assessments and groundwater corrective action plans for the remaining North Carolina sites, except for Buck Steam Station, which Duke Energy expects to submit in June 2023.

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 lowered 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 was estimated to be approximately $8 billion to $9 billion, of which approximately $3.5 billion has been spent through 2022. The majority of the remaining spend is expected to occur over the next 10 to 15 years.

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

For further information on ash basins and recovery, see Notes 4 and 10 to the Consolidated Financial Statements, "Regulatory Matters" and “Asset Retirement Obligations,” respectively.


MD&A			OTHER MATTERS

North Carolina House Bill 951

On October 13, 2021, North Carolina House Bill 951 (HB 951) was signed into law (the “Legislation”). This Legislation establishes a framework overseen by the NCUC to advance state CO2 emission reductions from electric generating facilities in the state through the use of least cost planning while providing for continued reliability and affordable rates for customers served by such generation. It also authorizes the use of performance-based regulation in North Carolina. Among other things, the Legislation requires the NCUC to:

develop an initial carbon plan that would target a 70% reduction in CO2 emissions from public utilities' electric generation in the state by 2030 and carbon neutrality by 2050, considering all resource options and the latest technology;
adopt rules to implement the requirements of the Legislation authorizing PBR that includes MYRP with a maximum three-year term, performance incentive mechanisms to track utility performance, and revenue decoupling for the residential customer class;
establish rules to securitize costs associated with the early retirement of subcritical coal-fired electric generating facilities necessary to achieve the authorized carbon reduction goals at 50% of remaining net book value, with the remaining net book value recovered through normal cost-of-service basis; and
initiate a process for updating rates and terms of certain existing solar power purchase agreements executed under PURPA.

In October 2022 and January 2023, Duke Energy Progress and Duke Energy Carolinas, respectively, filed applications with the NCUC, which proposed implementation of the Legislation’s provisions around PBR, including MYRP, residential decoupling and performance incentive mechanisms. Additionally, on December 30, 2022, the NCUC issued an order adopting the first Carbon Plan as directed by the Legislation.

See Note 4, "Regulatory Matters" to the Consolidated Financial Statements for more information.

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. 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.

Global Climate Change and Regulation of GHG Emissions

In 2021, President Biden recommitted the United States to the Paris Agreement and announced a new target for the United States of 50% to 52% reduction in economywide net GHG emissions from 2005 levels by 2030. The U.S. submittal to support this Paris target includes a goal for 100% carbon-free electricity by 2035. These actions have been supplemented by a number of executive orders by President Biden and an indication by a number of regulatory agencies, including the EPA, that they would impose additional regulations on CO2 and methane emissions to which Duke Energy will be subject. The Duke Energy Registrants are monitoring these matters and cannot predict the outcome, however, there could be a material impact on our clean energy transition.

CO****2 Emissions Reductions

The Duke Energy Registrants’ direct GHG emissions consist primarily of CO2 that results primarily from operating a fleet of coal-fired and natural gas-fired power plants to serve its customers reliably and affordably. In 2019, Duke Energy announced an updated climate strategy with new goals of at least 50% reduction in carbon emissions from 2005 levels from electric generation by 2030 and net-zero carbon emissions from electric generation by 2050. In February 2022, we added Scope 2 and certain Scope 3 emissions, including emissions from upstream purchased power and fossil fuel purchases, as well as downstream customer use of natural gas, to our 2050 net-zero goal. In October 2022, we announced an additional interim target to reduce carbon emissions from electric generation by 80% from 2005 levels by 2040. Duke Energy also adopted an interim goal of reducing Scope 2 and Scope 3 emissions mentioned above by 50% below 2021 levels by 2035.

The Duke Energy Registrants have taken actions that have resulted in a reduction of CO2 emissions over time. Between 2005 and 2022, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by 44%. Timelines and initiatives, as well as implementation of new technologies, for future reductions of GHG emissions will vary in each state in which the company operates and will involve collaboration with regulators, customers and other stakeholders. The goals announced in 2019, and updated in 2022, as well as the actions taken to reduce CO2 emissions, potentially lower the exposure to any future mandatory CO2 emission reduction requirements, whether as a result of federal legislation, EPA regulation, state regulation or other as yet unknown emission reduction requirement.

Actions to reduce CO2 emissions have included the retirement of 56 coal-fired electric generating units with a combined generating capacity of 7,500 MW, while investing in renewables and state-of-the-art highly efficient natural gas-fired generation that produces far fewer CO2 emissions per unit of electricity generated than coal. Duke Energy also has made investments to 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.

Duke Energy will continue to explore the use of currently available and commercially demonstrated technology to reduce CO2 emissions, including EE, wind, solar and storage, as well as evolving technologies like carbon capture, utilization and storage, the use of hydrogen and other low-carbon fuels, long-duration storage and advanced nuclear, in its efforts to achieve its net-zero goal as well as to comply with any future regulations. Duke Energy plans to adjust to and incorporate evolving and innovative technologies in a way that balances the reliability and affordability while meeting 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. Future levels of GHG emissions by the Duke Energy Registrants will be influenced by variables that include capacity needs in the jurisdictions in which they operate, public policy, tax incentives, economic conditions that affect electricity demand, fuel prices, market prices, availability of resources and labor, compliance with new or existing regulations, the ability to make enhancements to transmission and distribution systems to support increased renewables, and the existence of new technologies that can be deployed to generate the electricity necessary to meet customer demand.


MD&A			OTHER MATTERS

Currently, the Duke Energy Registrants do not purchase carbon credits or offsets for use in connection with the company's net-zero emissions goals. Though they may purchase carbon credits or offsets for such uses in the future, the amount or cost of which is not expected to be material at this time.

Generation Mix Planning Process

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 generation 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.

In September 2020, Duke Energy Carolinas and Duke Energy Progress filed their IRPs in North Carolina and South Carolina, and, in December 2021, Duke Energy Indiana filed its IRP, outlining an accelerated energy transition, which aligns with the company's 2030 CO2 emissions goal. In December 2021, the PSCSC rejected Duke Energy Carolinas and Duke Energy Progress’ preferred accelerated coal retirements IRP scenario and instead found that the base case without a price on CO2 emissions was the most reasonable IRP scenario.

In 2021, the state of North Carolina passed HB 951, which among other things, directs the NCUC to develop and approve a carbon reduction plan by the end of 2022 that would target a 70% reduction in CO2 emissions from Duke Energy Progress' and Duke Energy Carolinas' electric generation in the state by 2030 and carbon neutrality by 2050, considering all resource options and the latest technology. In light of this legislation, in November 2021, the NCUC declined to make a determination on the portfolios presented in the 2020 IRP noting that the legislation may impact the schedule for coal plant retirements and new resources and limited its order to short-term actions for use on an interim basis pending preparation of the carbon plan. The NCUC approved its initial carbon reduction plan in December 2022, which considered feedback from extensive stakeholder engagement and was informed by Duke Energy's initial proposed carbon plan, filed with the NCUC on May 16, 2022, and built on the IRPs that were filed in 2020 by Duke Energy Carolinas and Duke Energy Progress.

CO****2 and Methane Emissions Reductions from the Natural Gas Distribution Business

In addition to CO2 emissions resulting primarily from our operations of coal-fired and natural gas-fired power plants, the Duke Energy Registrants are also responsible for certain methane emissions from the distribution of natural gas to customers. In October 2020, Duke Energy announced a new goal to achieve net-zero methane emissions from its natural gas distribution business by 2030. The Duke Energy Registrants have taken actions that have resulted in methane emission reductions, including the replacement of cast iron and bare steel pipelines and associated services with plastic or coated steel, advanced methane leak detection efforts, reducing time to repair nonhazardous leaks and operational releases of methane, and investment in renewable natural gas.

Timelines and initiatives, as well as implementation of new technologies, for future reductions of upstream methane emissions will vary in each state in which the company’s natural gas distribution business operates and will involve collaboration with regulators, customers and other stakeholders. EPA has also proposed regulations that would require reduction of methane emissions upstream of the Duke Energy Registrants' natural gas distribution business. The impact of these regulations on natural gas fuel prices is not currently quantifiable.

In addition to possible EPA regulation of methane emissions, certain local governments, none within the jurisdictions in which the Duke Energy Registrants operate, have enacted or are considering initiatives to eliminate natural gas use in new buildings and focus on electrification. Enactment of similar regulations in the areas in which the Duke Energy Registrants' natural gas distribution operates could have a significant impact on the natural gas distribution business and its operations. At this time, such impacts are not able to be quantified; however, the net-zero methane goals announced in 2020 for the natural gas distribution business, as well as the actions taken to reduce these GHG emissions, potentially lowers the exposure to any future mandatory GHG emission reduction requirements. The Duke Energy Registrants would plan to seek recovery of their compliance costs with any new regulations through the regulatory process.

Physical Impacts of Climate Change

The Duke Energy Registrants recognize that scientists associate severe weather events with increasing levels of GHGs in the atmosphere. It is possible that 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. Additionally, the Duke Energy Registrants would plan to continue to seek recovery of storm costs through the appropriate regulatory mechanisms. For more information on storm securitization in North Carolina and storm cost recovery in Florida, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters."

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 systems 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.


MD&A			OTHER MATTERS

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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