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, 2023, 2022 and 2021.

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, 2022, filed with the SEC on February 27, 2023, for a discussion of variance drivers for the year ended December 31, 2022, as compared to December 31, 2021.

DUKE ENERGY

Duke Energy, an energy company headquartered in Charlotte, North Carolina, operates in the U.S. primarily through its 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 2023, we continued to make progress, generating positive strategic and regulatory outcomes, navigating rising interest rates, lower volumes due to mild temperatures and other macroeconomic headwinds, while meeting our near-term financial commitments and continuing to provide the safe and reliable service that our communities depend on.

In 2023, we furthered our transition to a fully regulated utility by closing on the sale of our commercial utility-scale solar and wind group and our distributed generation operations. We advanced a variety of regulatory priorities resulting in positive outcomes and modern recovery mechanisms, and continued to engage with our customers and 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 2023 representing the 97th consecutive year Duke Energy paid a cash dividend on its common stock.


MD&A			DUKE ENERGY

Financial Results

1774 1775

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

Duke Energy's 2023 Net Income Available to Duke Energy Corporation (GAAP Reported Earnings) was impacted by higher regulatory charges in the prior year. Additional drivers primarily include growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense. These items were partially offset by higher interest and depreciation expense, unfavorable weather and lower volumes. 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.

2023 Areas of Focus and Accomplishments

Clean Energy Transition. Our industry continues to experience an unprecedented level of change and 2023 was a dynamic year for our company as we navigated ongoing macroeconomic headwinds and continued to execute on our strategic priorities and deliver on our vision.

Generating Cleaner Energy

We are targeting energy generated from coal to represent less than 5% of total generation by 2030 and a full exit by 2035, subject to regulatory approvals, as part of the largest planned coal fleet retirement in the industry. We have made strong progress to date in reducing carbon emissions from electricity generation (a 48% reduction from 2005) and have established goals to do more (at least 50% reduction by 2030, 80% by 2040, and net zero by 2050). We are also working to reduce 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 was one of the first utilities to address the totality of its impact – approximately 95% of the Company's greenhouse gas emissions are tied to a measurable net zero goal. Over the next decade, we expect to deploy between approximately $170 and $180 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 customers' exposure to fuel volatility. We have filed and refined comprehensive IRPs consistent with this strategy in multiple jurisdictions, allowing us to make needed investments to increase grid resiliency and enable coal plant retirements, renewables and energy storage.

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, Duke Energy committed to a plan to sell the Commercial Renewables business, excluding the offshore wind contract for Carolina Long Bay. 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. We closed on the sales of the commercial utility-scale solar and wind group and the distributed generation group in October 2023, facilitating our transition to a fully regulated utility.


MD&A			DUKE ENERGY

Carolinas Integrated Resource Plan

HB 951 was passed in 2021 reflecting North Carolina policy accelerating a clean energy transition for generation 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 in North Carolina through the use of least cost planning, including stakeholder involvement, and also introduced modernized recovery mechanisms under PBR, which consists of MYRP, PIMS, and residential decoupling, and promotes more efficient recovery of investments and aligns 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 and 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. In August 2023, Duke Energy Carolinas and Duke Energy Progress filed an updated combined systemwide Carolinas IRP with the NCUC and the PSCSC, setting the course for the next 15 years of our clean energy transition. The plan outlined the diverse resources required to serve customers reliably and to achieve our clean energy transition in both states. In January 2024, we filed supplemental modeling and analysis with the NCUC and PSCSC due to substantially increased load forecasts resulting from continued economic development successes in the Carolinas occurring since the system-wide plan was prepared.

Modernizing the Power Grid and Natural Gas Infrastructure

We are leveraging new technology, digital tools and data analytics across the business in response to a transforming landscape and our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding, helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for our customers. We continue to enhance our customers' experience with the Self-Optimizing Grid (SOG), our flagship grid improvement program spanning all of Duke Energy’s regulated utilities. In 2023, our SOG investments helped to avoid approximately 330,000 customer interruptions across our six-state electric service area, preventing customers from having more than 1.4 million hours of lost outage time during major events.

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. Recognizing the importance of natural gas, 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 remain focused on reducing methane emissions, leveraging our partnerships, emissions platform, sensors and other technologies to find and fix leaks in near real time. We also use cross compression to avoid releasing natural gas into the atmosphere during certain operational activities.

In October, we announced plans to build and operate our first system capable of producing, storing and combusting 100% green hydrogen. The one-of-its-kind, end-to-end system will use solar energy at Duke Energy Florida's 74.5-MW DeBary solar plant to produce green hydrogen for an upgraded on-site CT designed to operate on a blend of natural gas and hydrogen or up to 100% hydrogen. We anticipate the system will be installed and fully functioning in 2024, providing access to on-demand, dispatchable, increasingly clean energy for our Duke Energy Florida customers.

Response to Macroeconomic Headwinds. While 2023 presented unique macroeconomic challenges, Duke Energy has a demonstrated track record of executing on our business plans while driving efficiencies and productivity in the business. Despite rising interest rates and near-record mild weather across all of our service territories, we achieved financial results within our adjusted EPS guidance and 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. We executed on our Workload Reduction Initiative launched in late 2022 while building on our culture of continuous improvement to continue to identify ways to reduce operating costs. We remain focused on organization simplification, automation, reducing service levels provided to internal customers as appropriate, outsourcing, and continued operational excellence.

Volatile commodity prices led to rapid fuel cost increases in 2022, impacting the price of electricity in all of our jurisdictions. We actively worked to manage and maintain prices at lower levels than they otherwise would have been in light of increased commodity prices, working with our regulators to extend recovery periods in certain jurisdictions in a way that was manageable for our customers. In 2023, we made substantial progress, recovering $1.5 billion in deferred fuel costs this year. With these actions, lower fuel prices, and increased stability in these markets during 2023, we anticipate to be in line with our historical average balance of deferred fuel costs by the end of 2024.

While inflation has moderated to a degree, we continue to successfully navigate supply chain challenges including longer lead times and shortages of solar panels and other equipment. We execute longer supply agreements and proactively secure equipment in advance of hurricane season. 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.

Recent macroeconomic headwinds aside, the level of economic development success and growth experienced in our service territories is significantly above what we have experienced over the last two decades. In 2023, Site Selection magazine recognized Duke Energy as a “Top Utility in Economic Development," recognizing our critical role and successful efforts working with our state partners to win 67 projects this year alone, representing approximately $22 billion in new capital investment and 15,000 new jobs within our service territories. These projects include transformational electric vehicle and battery manufacturing facilities as well as data centers. Supporting the increasing generation load demands expected from projects like these in the coming years is an immense opportunity for our Company and the communities we proudly serve.

Constructive Regulatory and Legislative Outcomes. One of our long-term strategic goals is to achieve modernized regulatory constructs across all of 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.

In North Carolina, as highlighted above, HB 951 authorizes the use of modernized regulatory constructs under the direction of the NCUC. In October 2022, Duke Energy Progress filed its first North Carolina rate case utilizing PBR and reached partial settlements on key matters in April and May 2023. In August 2023, the NCUC issued a constructive order approving these partial settlements and Duke Energy Progress' PBR Application with certain modifications, marking the first implementation of an MYRP under the performance-based regulations authorized by HB 951. Duke Energy Progress implemented revised Year 1 rates on October 1, 2023. In January 2023, we also filed a Duke Energy Carolinas rate case in North Carolina, which incorporated elements of PBR. In August 2023, we reached partial settlements on key matters with the Public Staff and received a constructive order from the NCUC in December 2023, with new rates effective January 2024. After more than a decade of work, these rate cases mark a significant milestone in securing regulatory approval of modern ratemaking structures in North Carolina.


MD&A			DUKE ENERGY

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 2023. In February 2023, the PSCSC approved a constructive comprehensive settlement with all parties in the Duke Energy Progress South Carolina rate case and we implemented new customer rates effective April 1, 2023. In the Midwest, we received a constructive order on our Duke Energy Kentucky electric rate case in October 2023. As it relates to our natural gas businesses, in Duke Energy Ohio, we filed a stipulation on key matters in our base rate case with all parties except the OCC in April 2023. We received an order approving the stipulation in November 2023. In September 2023, the TPUC approved a settlement related to our Annual Review Mechanism in Tennessee, with adjusted rates effective October 1, 2023. 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 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. In 2023, we made progress on our South Carolina storm securitization filings. The PSCSC approved a comprehensive settlement in September 2023 and issued its financing order in October 2023. Also in South Carolina, we filed a Duke Energy Carolinas rate case with the PSCSC in January 2024.

We also continued 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. In 2023, we worked to advocate successfully for the best interests of our customers, communities, and Company in important areas, including the preservation and application of nuclear PTCs in the regulated utility business model.

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. While customer satisfaction across our industry continues to be impacted by the macroeconomic environment and the impacts of inflationary pressures including higher fuel prices on customer bills, our work continues to be recognized by our customers, with strong customer satisfaction scores in our jurisdictions including Piedmont, which was ranked number one in customer satisfaction by J.D. Power for residential natural gas service in the south for the second year in a row.

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. Late 2022 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.

Following the Moore County Substation attack, we reassessed the criticality of every substation, evaluated new security tools and technology, and conducted benchmarking with peer utilities. We created a plan to enhance physical security and resiliency at sites that are critical to the Bulk Electric System and those with the greatest impact to customers. We will work to implement these enhancements across all jurisdictions, representing an investment of approximately $500 million over the next three years. In North Carolina, recovery has been approved through the MYRP. Cost recovery requests in South Carolina, Florida and the Midwest are expected to be included in future rate cases.

In December 2022, high winds and extreme cold from Winter Storm Elliott, customer demand that was higher than forecasted, and the 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. In 2023, we established the Bulk Electric System Oversight Board to provide executive oversight of programs and policies designed to ensure energy adequacy for our customers. We practiced our forecasting, grid assessment, oversight, and governance processes throughout the summer, as hot weather challenged operations from time to time. We will continue to work to ensure that our grid and fleet can withstand the stress of extreme weather on our system, evaluate lessons learned and enhance our strategy and communications to effectively serve our customers now and in the future.

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 and we remain an industry leader in personal safety. In 2023, we achieved one of the best safety records in our company’s history with our TICR significantly above target. For the eighth consecutive year, we ranked first among North American combined gas and electric companies in Edison Electric Institute’s (EEI) annual safety survey, and our gas operations organization finished in the top 10% for the third year in a row, according to the American Gas Association. And, for the first time since our merger with Progress Energy in 2012, we finished the year with less than 100 Occupational Safety and Health Administration recordable incidents. In addition, we continued our strong environmental performance, with no reportable environmental events.

Our workforce and our contract partners worked hard to prepare for this year’s storm season, through drills, material planning, call center readiness, contingency planning, and customer communications. This summer, we experienced extreme weather across our regions, including a July 4 series of major storms in the Midwest, numerous storms in July and August in the Carolinas, and Hurricane Idalia in August, impacting Florida and the east coast of the Carolinas. We safely restored power to 95% of affected customers within 48 hours. Our preparation and robust communications to our customers and communities enhanced our reputation and built stakeholder loyalty and support.

Our ability to effectively handle all facets of the 2023 storm response efforts while making ongoing investments to enhance the reliability and physical security of the grid, mitigate ongoing macroeconomic challenges, and navigate 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 20 Emergency Response Awards since EEI began recognizing storm response in 1998 (including 11 for assisting other utilities).

Duke Energy Objectives – 2024 and Beyond

At Duke Energy, our business strategy centers on delivering reliable, affordable and cleaner energy to our customers and communities, safely transforming and readying our system by investing in innovative technologies, 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 leveraging business transformation to exceed customer expectations, optimizing investments to drive attractive shareholder returns, and by 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.


MD&A			DUKE ENERGY

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 have approximately $1.6 billion and $1.2 billion, respectively, in regulatory assets related to coal ash retirement obligations as of December 31, 2023. 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 primarily expected to occur over the next 10 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 established methods 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. Duke Energy Indiana has approximately $408 million in regulatory assets related to coal ash asset retirement obligations as of December 31, 2023. See “Other Matters” and Note 4 to the Consolidated Financial Statements, "Regulatory Matters" for more information.

Fuel Cost Recovery

As a result of rapidly rising commodity costs during 2022, including natural gas, fuel and purchased power prices in excess of amounts included in fuel-related revenues led to an increase in the undercollection of fuel costs from customers in jurisdictions including Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida. These amounts were deferred in regulatory assets and impacted the cash flows of the registrants, including increased borrowings to temporarily finance related expenditures until recovery. Natural gas costs stabilized in 2023 and the Duke Energy Registrants are making progress collecting deferred fuel balances. Regulatory filings have been made and approved for recovery of all remaining uncollected 2022 fuel costs. Across all jurisdictions, Duke Energy recovered $1.5 billion of deferred fuel costs in 2023, and expects deferred fuel cost balances to be back in line with historical norms by the end of 2024. See Note 4 to the Consolidated Financial Statements, "Regulatory Matters" for more information.

Commercial Renewables

In November 2022, Duke Energy committed to a plan to sell the Commercial Renewables Disposal Groups. The Commercial Renewables Disposal Groups were classified as held for sale and as discontinued operations in the fourth quarter of 2022. Duke Energy entered into purchase and sale agreements with affiliates of Brookfield in June 2023 for the sale of the utility-scale solar and wind group and with affiliates of ArcLight in July 2023 for the distributed generation group. Both transactions closed in October 2023 and proceeds from the sales were used for debt avoidance. Duke Energy expects to complete the disposition of the remaining assets in the first half of 2024. 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 market. Originally, Duke Energy (Parent) was named in multiple lawsuits arising out of this winter storm, but the plaintiffs have dismissed Duke Energy (parent) from these lawsuits. The legal actions related to all but one of the project companies in this matter transferred to affiliates of Brookfield in conjunction with the transaction closing in October 2023. For more information, see Note 5 to the Consolidated Financial Statements, "Commitments and Contingencies."

Supply Chain

In 2023, Duke Energy has experienced modest improvement in the stability of the markets for key materials purchased and used by the Company. The Company continues to monitor developments, including proposed federal regulations, that could disrupt or impact the Company's supply chain and, as a result, may impact Duke Energy's execution of its capital plan, future financial results, or the achievement of its clean energy goals.

Goodwill

The Duke Energy Registrants performed their annual goodwill impairment tests as of August 31, 2023, as described in Note 12 to the Consolidated Financial Statements, "Goodwill and Intangible Assets." As of August 31, 2023, all of Duke Energy Registrants' reporting units' estimated fair values materially exceeded the carrying values except for the GU&I reporting unit of Duke Energy Ohio. While no goodwill impairment charges were recorded in 2023, the potential for continued interest rate pressures, and the related impact on the weighted average cost of capital, without timely or adequate updates to the regulated allowed return on equity or deteriorating economic conditions impacting GU&I's future cash flows or equity valuations of peer companies could impact the estimated fair value of GU&I, and goodwill impairment charges could be recorded in the future. The carrying value of goodwill within GU&I for Duke Energy Ohio was approximately $324 million as of December 31, 2023.

Other

Duke Energy continues to monitor general market conditions, including the potential for continued interest rate pressures on the Company's cost of capital, which may impact Duke Energy's execution of its capital plan, future financial results, or the achievement of its clean energy goals.


MD&A			DUKE ENERGY

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 primarily represents net impairment charges related to Duke Energy Carolinas' and Duke Energy Progress' North Carolina rate case orders.
Organizational optimization costs represent amounts associated with strategic repositioning to a fully regulated utility, and primarily consist of severance costs, consultant fees and impairment charges for certain nonregulated assets.
Regulatory matters and litigation primarily 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.

Discontinued operations primarily includes impairments on the sale of the Commercial Renewables business and results from Duke Energy's Commercial Renewables Disposal Groups.

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

Reconciliation of GAAP Reported Amounts to Adjusted Amounts

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


	Years Ended December 31,
	2023				2022
(in millions, except per share amounts)	Earnings		EPS		Earnings		EPS
GAAP Reported Earnings/EPS	$	2,735	$	3.54	$	2,444	$	3.17
Adjustments to Reported:
Organizational Optimization(a)	95		0.13		—		—
Regulatory Matters(b)	64		0.08		—		—
Regulatory Matters and Litigation(c)	—		—		295		0.39
Workplace and Workforce Realignment(d)	—		—		105		0.14



Discontinued Operations(e)	1,391		1.81		1,216		1.57
Adjusted Earnings/Adjusted EPS	$	4,285	$	5.56	$	4,060	$	5.27

(a) Net of tax benefit of $29 million. $110 million recorded within Operations, maintenance and other and $14 million within Impairment of assets and other charges.

(b) Net of $20 million tax benefit. $68 million within Impairment of assets and other charges and $16 million within Operations, maintenance and other.

(c) 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 (Income) Loss Attributable to Noncontrolling Interests. $25 million recorded within Operations, maintenance and other.

(d) Net of tax benefit of $31 million. $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.

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

Year Ended December 31, 2023, as compared to 2022

GAAP Reported EPS was $3.54 for the year ended December 31, 2023, compared to $3.17 for the year ended December 31, 2022. In addition to the drivers below, the increase in GAAP Reported Earnings/EPS was also due to higher regulatory charges in the prior year.


MD&A			DUKE ENERGY

As discussed and shown in the table above, management also evaluates financial performance based on adjusted EPS. Duke Energy’s adjusted EPS was $5.56 for the year ended December 31, 2023, compared to $5.27 for the year ended December 31, 2022. The increase in Adjusted Earnings/Adjusted EPS was primarily due to growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense. These items were partially offset by higher interest and depreciation expense, unfavorable weather and lower volumes.

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.

Electric Utilities and Infrastructure


	Years Ended December 31,


(in millions)	2023		2022		Variance
Operating Revenues	$	26,921	$	26,024	$	897
Operating Expenses
Fuel used in electric generation and purchased power	9,164		8,862		302
Operations, maintenance and other	5,309		5,354		(45)
Depreciation and amortization	4,684		4,550		134
Property and other taxes	1,320		1,315		5
Impairment of assets and other charges	75		374		(299)
Total operating expenses	20,552		20,455		97
Gains on Sales of Other Assets and Other, net	28		7		21
Operating Income	6,397		5,576		821
Other Income and Expenses, net	517		467		50
Interest Expense	1,850		1,565		285
Income Before Income Taxes	5,064		4,478		586
Income Tax Expense	742		536		206
Less: Income Attributable to Noncontrolling Interest	99		13		86
Segment Income	$	4,223	$	3,929	$	294

Duke Energy Carolinas GWh sales	87,635		90,915		(3,280)
Duke Energy Progress GWh sales	66,717		70,435		(3,718)
Duke Energy Florida GWh sales	43,384		46,214		(2,830)
Duke Energy Ohio GWh sales	23,307		24,269		(962)
Duke Energy Indiana GWh sales	30,219		31,979		(1,760)
Total Electric Utilities and Infrastructure GWh sales	251,262		263,812		(12,550)
Net proportional MW capacity in operation(a)	54,404		54,347		57

(a) Net proportional MW capacity in operation reflects winter/nameplate capacity as of December 31, 2023, and 2022. See Item 2, "Properties" for further details.

Year Ended December 31, 2023, as compared to 2022

EU&I’s higher segment income was due to higher revenues from rate cases across multiple jurisdictions and the prior year Indiana court rulings on recovery of certain coal ash costs, partially offset by unfavorable weather, lower weather-normal retail sales volumes 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 $902 million increase in fuel revenues primarily due to higher fuel cost recovery in the current year;
a $363 million increase in storm revenues at Duke Energy Florida due to hurricanes Ian and Nicole collections;
a $276 million increase due to higher pricing at Duke Energy Progress from the South Carolina rate case and interim rates from the North Carolina rate case, the Duke Energy Ohio electric rate case, the Duke Energy Kentucky electric rate case and Ohio tax reform deferrals in prior year, and base rate adjustments related to annual increases from the 2021 Settlement Agreement at Duke Energy Florida;


MD&A			SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE

a $115 million increase in rider revenues primarily due to a decrease in the return of EDIT to customers compared to the prior year at Duke Energy Carolinas and increased Storm Protection Plan rider revenue at Duke Energy Florida; and
a $67 million increase due to the provision for rate refund recognized in the prior year related to the Indiana Supreme Court ruling on recovery of certain coal ash costs.

Partially offset by:

a $341 million decrease in retail sales due to unfavorable weather compared to prior year;
a $323 million decrease in wholesale revenues primarily due to lower demand at Duke Energy Florida and lower prices at Duke Energy Indiana; and
a $173 million decrease in weather-normal retail sales volumes.

Operating Expenses. The variance was driven primarily by:

a $302 million increase in fuel used in electric generation and purchased power due to changes in the generation mix at Duke Energy Carolinas and recovery of fuel expense at Duke Energy Carolinas, Duke Energy Progress and Duke Energy Florida; and
a $134 million increase in depreciation and amortization primarily due to higher plant in service, partially offset by the amortization of the DOE settlement regulatory liability at Duke Energy Florida.

Partially offset by:

a $299 million decrease in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs in the prior year, partially offset by rate case impacts at Duke Energy Carolinas and Duke Energy Progress in the current year; and
a $45 million decrease in operation, maintenance and other expense primarily due to decrease in spend on outside services and lower project costs at Duke Energy Carolinas and Duke Energy Progress, partially offset by an increase in storm amortization at Duke Energy Florida.

Gains on Sales of Other Assets and Other, net. The increase was primarily due to the sale of the Mint Street parking deck.

Other Income and Expenses, net. The variance was primarily due to non-service pension expense.

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 EDIT. The ETRs for the years ended December 31, 2023, and 2022, were 14.7% and 12.0%, respectively. The increase in the ETR was primarily due to a decrease in the amortization of EDIT.

Income Attributable to Noncontrolling Interest. The increase was due to the second and final tranche of the GIC minority interest sale.


MD&A			SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE

Gas Utilities and Infrastructure


	Years Ended December 31,


(in millions)	2023		2022		Variance
Operating Revenues	$	2,266	$	2,840	$	(574)
Operating Expenses
Cost of natural gas	593		1,276		(683)
Operation, maintenance and other	455		532		(77)
Depreciation and amortization	349		327		22
Property and other taxes	129		138		(9)
Impairment of assets and other charges	(4)		(12)		8
Total operating expenses	1,522		2,261		(739)
Gains on Sales of Other Assets and Other, net	—		1		(1)
Operating Income	744		580		164



Other income and expenses, net	106		78		28
Interest Expense	217		182		35
Income Before Income Taxes	633		476		157
Income Tax Expense	116		8		108
Add: Loss Attributable to Noncontrolling Interest	2		—		2
Segment Income	$	519	$	468	$	51

Piedmont Local Distribution Company (LDC) throughput (Dth)	569,752,712		628,035,471		(58,282,759)
Duke Energy Midwest LDC throughput (MCF)	80,252,769		90,010,669		(9,757,900)

Year Ended December 31, 2023, as compared to 2022

GU&I's results were impacted primarily by margin growth partially offset by 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 $683 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs.

Partially offset by:

a $26 million increase due to customer growth;
a $19 million increase due to North Carolina IMR;
a $15 million increase due to the MGP Settlement in prior year;
an $11 million increase due to Tennessee ARM revenue recognition;
a $9 million increase due to due to secondary marketing sales;
a $6 million increase in Ohio tax reform deferrals; and
a $4 million increase due to rider revenues.

Operating Expenses. The variance was driven primarily by:

a $683 million decrease in cost of natural gas due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs; and
a $77 million decrease in operations, maintenance and other due to the MGP Settlement in prior year, lower labor costs, retirement of propane facilities and pipeline safety and integrity work.

Partially offset by:

a $22 million increase in depreciation and amortization due to additional plant in service and lower CEP deferrals.

Other Income and Expenses, net. The variance was primarily due to revisions in estimated ACP ARO closure costs and higher AFUDC equity income.

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

Income Tax Expense. The increase in tax expense was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year and an increase in pretax income. The ETRs for the years ended December 31, 2023, and 2022, were 18.3% and 1.7%, respectively. The increase in the ETR was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year.


MD&A			SEGMENT RESULTS - OTHER

Other


	Years Ended December 31,


(in millions)	2023		2022		Variance
Operating Revenues	$	134	$	122	$	12






Operating Expenses	249		298		(49)
Gains on Sales of Other Assets and Other, net	24		14		10
Operating Loss	(91)		(162)		71
Other Income and Expenses, net	258		65		193
Interest Expense	1,097		778		319
Loss Before Income Taxes	(930)		(875)		(55)
Income Tax Benefit	(420)		(244)		(176)

Less: Preferred Dividends	106		106		—
Net Loss	$	(616)	$	(737)	$	121

Year Ended December 31, 2023, as compared to 2022

The lower net loss was driven by an increase in the tax benefit due to a favorable adjustment related to certain allowable tax deductions, a franchise tax benefit and higher returns on investments, partially offset by higher interest expense.

Operating Expenses. The decrease was primarily driven by franchise tax refunds in the current year and higher asset impairments in the prior year, partially offset by higher severance costs associated with strategic repositioning as the Company transitions to a fully regulated utility.

Other Income and Expenses, net. The variance was primarily due to higher return on investments that fund certain employee benefit obligations and higher yields on captive insurance investments.

Interest Expense. The variance was primarily due to higher interest rates on long-term debt and commercial paper, and higher outstanding long-term debt balances.

Income Tax Benefit. The increase in the tax benefit was primarily due to benefits associated with ongoing tax efficiency efforts and an increase in pretax losses. The ETRs for the year ended December 31, 2023, and 2022, were 45.2% and 27.9%, respectively. The increase in the ETR was primarily due to benefits associated with ongoing tax efficiency efforts. In 2023, the Company evaluated the deductibility of certain items spanning periods currently open under federal statute, including items related to interest on company-owned life insurance. As a result of this analysis, the Company recorded a favorable adjustment of approximately $120 million.

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX


	Years Ended December 31,
(in millions)	2023		2022		Variance
Loss From Discontinued Operations, net of tax	$	(1,455)	$	(1,323)	$	(132)

Year Ended December 31, 2023, as compared to 2022

The variance was primarily driven by lower results from Duke Energy's 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)	2023		2022		Variance
Operating Revenues	$	8,288	$	7,857	$	431
Operating Expenses
Fuel used in electric generation and purchased power	2,524		2,015		509
Operation, maintenance and other	1,774		1,892		(118)
Depreciation and amortization	1,593		1,526		67
Property and other taxes	320		340		(20)
Impairment of assets and other charges	44		26		18
Total operating expenses	6,255		5,799		456
Gains on Sales of Other Assets and Other, net	26		4		22
Operating Income	2,059		2,062		(3)
Other Income and Expenses, net	238		221		17
Interest Expense	686		557		129
Income Before Income Taxes	1,611		1,726		(115)
Income Tax Expense	141		126		15
Net Income	$	1,470	$	1,600	$	(130)

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	2023
Residential sales	(3.5)	%
General service sales	1.0	%
Industrial sales	(5.2)	%
Wholesale power sales	5.0	%
Joint dispatch sales	(10.9)	%
Total sales	(3.6)	%
Average number of customers	1.8	%

Year Ended December 31, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $528 million increase in fuel revenues due to higher fuel cost recovery;
a $71 million increase in rider revenues primarily due to the decrease in the return of EDIT to customers compared to the prior year;
a $28 million increase in wholesale revenues primarily due to higher contractual demand and sales; and
a $15 million increase in retail pricing due to interim rates from the North Carolina rate case.

Partially offset by:

a $193 million decrease in retail sales due to unfavorable weather compared to prior year; and
a $47 million decrease in weather-normal retail sales volumes.


MD&A			DUKE ENERGY CAROLINAS

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

a $509 million increase in fuel used in electric generation and purchased power primarily due to changes in the generation mix and the recovery of fuel expenses, partially offset by lower JDA purchased volumes and prices;
a $67 million increase in depreciation and amortization primarily due to a higher depreciable base, partially offset by a decrease due to lower coal ash amortization from the North Carolina rate case and higher Grid Improvement Plan deferrals in the current year; and
an $18 million increase in impairment of assets and other charges primarily due to the order in the North Carolina rate case, partially offset by prior year adjustments to optimize the Company's real estate portfolio and the South Carolina Supreme Court decision on coal ash.

Partially offset by:

a $118 million decrease in operation, maintenance and other primarily due to a decrease in spend on outside services and lower project costs; and
a $20 million decrease in property and other taxes primarily due to lower franchise taxes.

Gains on Sales of Other Assets and Other, net. The increase was primarily due to the sale of the Mint Street parking deck.

Other Income and Expenses. The variance was driven primarily by non-service pension expense and interest income.

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 a decrease in the amortization of EDIT, partially offset by a decrease in pretax income.

PROGRESS ENERGY

Results of Operations


	Years Ended December 31,
(in millions)	2023		2022		Variance
Operating Revenues	$	13,544	$	13,125	$	419
Operating Expenses
Fuel used in electric generation and purchased power	5,026		5,078		(52)
Operation, maintenance and other	2,636		2,458		178
Depreciation and amortization	2,151		2,142		9
Property and other taxes	644		607		37
Impairment of assets and other charges	28		12		16
Total operating expenses	10,485		10,297		188
Gains on Sales of Other Assets and Other, net	27		11		16
Operating Income	3,086		2,839		247
Other Income and Expenses, net	201		181		20
Interest Expense	954		844		110
Income Before Income Taxes	2,333		2,176		157
Income Tax Expense	377		348		29


Net Income	1,956		1,828		128

Year Ended December 31, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $363 million increase in storm revenues at Duke Energy Florida due to hurricanes Ian and Nicole collections;
a $254 million increase in fuel cost recovery from retail customers at Duke Energy Florida, partially offset by a decrease at Duke Energy Progress driven by lower JDA sales volumes at lower prices in the current year, partially offset by higher fuel cost recovery;
a $144 million increase due to higher pricing from the North Carolina and the South Carolina rate cases at Duke Energy Progress, and retail pricing due to base rate adjustments related to annual increases from the 2021 Settlement Agreement at Duke Energy Florida;
a $66 million increase in rider revenues at Duke Energy Florida primarily due to increased Storm Protection Plan rider and a decrease in the return of EDIT to customers compared to the prior year at Duke Energy Progress; and
a $23 million increase in franchise tax revenue primarily due to increased revenues over prior year at Duke Energy Florida.


MD&A			PROGRESS ENERGY

Partially offset by:

a $274 million decrease in wholesale revenues net of fuel due to decreased demand at Duke Energy Florida, partially offset by higher capacity rates net of lower volumes at Duke Energy Progress;
a $99 million decrease in weather-normal retail sales volumes at Duke Energy Progress and Duke Energy Florida; and
a $74 million decrease in retail sales due to unfavorable weather compared to prior year at Duke Energy Progress, partially offset by favorable weather in the current year at Duke Energy Florida.

Operating Expenses. The variance was driven primarily by:

a $178 million increase in operation, maintenance and other primarily due to storm amortization costs at Duke Energy Florida, partially offset by lower storm costs, a decrease in spend on outside services and lower project costs at Duke Energy Progress;
a $37 million increase in property and other taxes primarily due to higher franchise taxes and gross receipts taxes driven by higher revenues and higher property taxes due to property tax valuation adjustments at Duke Energy Florida, partially offset by lower franchise taxes at Duke Energy Progress; and
a $16 million increase in impairment of assets and other charges primarily due to rate case impacts, partially offset by prior year adjustments from the South Carolina Supreme Court decision on coal ash and optimization of the Company's real estate portfolio at Duke Energy Progress.

Partially offset by:

a $52 million decrease in fuel used in electric generation and purchased power primarily due to lower volumes and prices at Duke Energy Progress, partially offset by the recovery of fuel expenses at Duke Energy Progress and Duke Energy Florida.

Gains on Sales of Other Assets and Other, net. The increase was primarily due to sales of cell tower leases.

Other Income and Expenses, net. The variance was driven primarily by non-service pension expense and interest income.

Interest Expense. The variance was driven primarily by higher outstanding debt balances and interest rates 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 EDIT, partially offset by an increase in PTCs.

DUKE ENERGY PROGRESS

Results of Operations


	Years Ended December 31,
(in millions)	2023		2022		Variance
Operating Revenues	$	6,488	$	6,753	$	(265)
Operating Expenses
Fuel used in electric generation and purchased power	2,203		2,492		(289)
Operation, maintenance and other	1,379		1,475		(96)
Depreciation and amortization	1,266		1,187		79
Property and other taxes	164		190		(26)
Impairment of assets and other charges	29		7		22
Total operating expenses	5,041		5,351		(310)
Gains on Sales of Other Assets and Other, net	3		4		(1)
Operating Income	1,450		1,406		44
Other Income and Expenses, net	124		114		10
Interest Expense	427		354		73
Income Before Income Taxes	1,147		1,166		(19)
Income Tax Expense	149		158		(9)
Net Income	$	998	$	1,008	$	(10)


MD&A			DUKE ENERGY PROGRESS

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


Increase (Decrease) over prior year	2023
Residential sales	(4.1)	%
General service sales	(4.0)	%
Industrial sales	(12.2)	%
Wholesale power sales	(3.7)	%
Joint dispatch sales	(1.1)	%
Total sales	(5.3)	%
Average number of customers	1.7	%

Year Ended December 31, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $259 million decrease in fuel revenues due to lower JDA sales volumes at lower prices in the current year, partially offset by higher fuel cost recovery;
a $103 million decrease in retail sales due to unfavorable weather compared to prior year; and
a $70 million decrease in weather-normal retail sales volumes.

Partially offset by:

a $127 million increase due to higher pricing from the North Carolina and the South Carolina rate cases;
a $21 million increase in rider revenues primarily due to the decrease in the return of EDIT to customers compared to the prior year; and
a $17 million increase in wholesale revenues, net of fuel, due to higher capacity rates, partially offset by lower volumes.

Operating Expenses. The variance was driven primarily by:

a $289 million decrease in fuel used in electric generation and purchased power primarily due to changes in the generation mix, partially offset by the recovery of fuel expenses;
a $96 million decrease in operation, maintenance and other primarily due to lower storm costs, lower outside services and lower project costs; and
a $26 million decrease in property and other taxes due to lower franchise taxes.

Partially offset by:

a $79 million increase in depreciation and amortization due to higher depreciable base and rate case impacts; and
a $22 million increase in impairment of assets and other charges primarily due to rate case impacts offset by prior year adjustments from the South Carolina Supreme Court decision on coal ash and the optimization of the Company's real estate portfolio.

Other Income and Expenses, net. The variance was driven primarily by interest income.

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

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


MD&A			DUKE ENERGY FLORIDA

DUKE ENERGY FLORIDA

Results of Operations


	Years Ended December 31,
(in millions)	2023		2022		Variance
Operating Revenues	$	7,036	$	6,353	$	683
Operating Expenses
Fuel used in electric generation and purchased power	2,823		2,586		237
Operation, maintenance and other	1,239		967		272
Depreciation and amortization	885		955		(70)
Property and other taxes	480		421		59
Impairment of assets and other charges	(1)		4		(5)
Total operating expenses	5,426		4,933		493
Gains on Sales of Other Assets and Other, net	2		2		—
Operating Income	1,612		1,422		190
Other Income and Expenses, net	78		74		4
Interest Expense	413		362		51
Income Before Income Taxes	1,277		1,134		143
Income Tax Expense	261		225		36
Net Income	$	1,016	$	909	$	107

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	2023
Residential sales	1.1	%
General service sales	1.2	%
Industrial sales	(3.2)	%
Wholesale power sales	(49.3)	%
Total sales	(6.1)	%
Average number of customers	1.8	%

Year Ended December 31, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $513 million increase in fuel and capacity revenues primarily due to an increase in fuel and capacity rates billed to retail customers;
a $363 million increase in storm revenues due to hurricanes Ian and Nicole collections;
a $45 million increase in rider revenues primarily due to higher rates for the Storm Protection Plan rider;
a $29 million increase in retail sales due to favorable weather in the current year;
a $23 million increase in franchise taxes revenue primarily due to increased revenues over prior year; and
a $17 million increase in retail pricing due to base rate adjustments related to annual increases from the 2021 Settlement Agreement.

Partially offset by:

a $291 million decrease in wholesale power revenues, net of fuel, primarily due to decreased demand; and
a $29 million decrease in weather-normal retail sales volumes.

Operating Expenses. The variance was driven primarily by:

a $272 million increase in operation, maintenance and other primarily due to storm amortization;
a $237 million increase in fuel used in electric generation and purchased power primarily due to the recovery of fuel expenses, partially offset by a decrease in purchased power costs due to lower natural gas prices; and
a $59 million increase in property and other taxes primarily due to higher franchise taxes and gross receipts taxes driven by higher revenues and higher property taxes due to property tax valuation adjustments.


MD&A			DUKE ENERGY FLORIDA

Partially offset by:

a $70 million decrease in depreciation and amortization primarily due to the amortization of the DOE settlement regulatory liability, partially offset by higher depreciable base.

Interest Expense. The variance was primarily due to 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 EDIT, partially offset by an increase in PTCs.

DUKE ENERGY OHIO

Results of Operations


	Years Ended December 31,
(in millions)	2023		2022		Variance
Operating Revenues
Regulated electric	$	1,868	$	1,798	$	70
Regulated natural gas	639		716		(77)

Total operating revenues	2,507		2,514		(7)
Operating Expenses
Fuel used in electric generation and purchased power	608		657		(49)

Cost of natural gas	163		261		(98)
Operation, maintenance and other	478		523		(45)
Depreciation and amortization	367		324		43
Property and other taxes	364		369		(5)
Impairment of assets and other charges	3		(10)		13
Total operating expenses	1,983		2,124		(141)
Gains on Sales of Other Assets and Other, net	1		1		—
Operating Income	525		391		134
Other Income and Expenses, net	41		19		22
Interest Expense	169		129		40
Income Before Income Taxes	397		281		116
Income Tax Expense (Benefit)	63		(21)		84


Net Income	$	334	$	302	$	32

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	2023			2023
Residential sales	(4.8)	%		(13.5)	%
General service sales	1.5	%		(19.7)	%
Industrial sales	4.9	%		3.8	%
Wholesale electric power sales	(19.3)	%		n/a
Other natural gas sales	n/a			(0.7)	%
Total sales	(4.0)	%		(10.8)	%
Average number of customers	0.9	%		0.6	%

Year Ended December 31, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $77 million decrease in fuel-related revenues primarily due to lower retail sales volumes and lower fuel cost recovery in the current year;
a $59 million decrease in revenues related to lower OVEC rider collections and OVEC sales into PJM;
a $35 million decrease due to unfavorable weather compared to prior year; and
an $18 million decrease in retail revenue riders primarily due to the decrease in Distribution Capital Investment Rider, partially offset by increases in the Ohio CEP rider and Energy Efficiency Rider.


MD&A			DUKE ENERGY OHIO

Partially offset by:

a $145 million increase in price due to the Duke Energy Ohio and Duke Energy Kentucky electric rate cases and Ohio tax reform deferrals in prior year;
a $15 million increase due to the MGP Settlement in the prior year; and
an $11 million increase in weather-normal retail sales volumes.

Operating Expenses. The variance was driven primarily by:

a $147 million decrease in fuel expense primarily driven by lower retail prices for natural gas and purchased power and a decrease in purchased power volumes; and
a $45 million decrease in operation, maintenance and other expense primarily due to the MGP Settlement in the prior year.

Partially offset by:

a $43 million increase in depreciation and amortization primarily driven by an increase in distribution plant in service and depreciation rates resulting from the Duke Energy Ohio and Duke Energy Kentucky electric retail rate cases implemented in 2023; and
a $13 million increase in impairment of assets and other charges primarily due to the reversal in the prior year of the impairment related to the propane caverns in Ohio.

Other Income and Expenses. The variance was primarily due to interest income.

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

Income Tax Expense (Benefit). The increase in tax expense was primarily due to a decrease in the amortization of EDIT related to the MGP Settlement recorded in the prior year and an increase in pretax income.

DUKE ENERGY INDIANA

Results of Operations


	Years Ended December 31,
(in millions)	2023		2022		Variance
Operating Revenues	$	3,399	$	3,922	$	(523)
Operating Expenses
Fuel used in electric generation and purchased power	1,217		1,819		(602)
Operation, maintenance and other	713		729		(16)
Depreciation and amortization	666		645		21
Property and other taxes	59		75		(16)
Impairment of assets and other charges	—		388		(388)
Total operating expenses	2,655		3,656		(1,001)

Operating Income	744		266		478
Other Income and Expenses, net	76		36		40
Interest Expense	213		189		24
Income Before Income Taxes	607		113		494
Income Tax Expense (Benefit)	110		(24)		134
Net Income	$	497	$	137	$	360

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	2023
Residential sales	(6.3)	%
General service sales	(3.6)	%
Industrial sales	9.0	%
Wholesale power sales	(1.9)	%
Total sales	(5.5)	%
Average number of customers	1.2	%


MD&A			DUKE ENERGY INDIANA

Year Ended December 31, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $401 million decrease in retail fuel revenues primarily due to lower fuel cost recovery driven by lower retail sales volumes and fuel prices;
a $75 million decrease in wholesale revenues, including fuel revenues, driven by lower fuel prices;
a $51 million decrease in weather-normal retail sales volumes primarily due to lower customer demand; and
a $44 million decrease in retail sales due to unfavorable weather compared to the prior year.

Partially offset by:

a $67 million increase primarily due to the provision for rate refund related to the Indiana Supreme Court ruling on recovery of certain coal ash costs in the prior year.

Operating Expenses. The variance was driven primarily by:

a $602 million decrease in fuel used in electric generation and purchased power primarily due to lower purchased power expense, natural gas and coal costs, partially offset by higher deferred fuel amortization;
a $388 million decrease in impairment of assets and other charges primarily due to the Indiana court rulings on recovery of certain coal ash costs in the prior year;
a $16 million decrease in operation, maintenance and other primarily due to lower employee-related expenses and storm contingency costs; and
a $16 million decrease in property and other taxes primarily due to property tax true-ups and lower franchise taxes.

Partially offset by:

a $21 million increase in depreciation and amortization primarily due to higher depreciable base.

Other Income and Expenses, net. The variance was primarily due to coal ash insurance proceeds, non-service pension expense and interest income.

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

Income Tax Expense (Benefit). The increase in tax expense was primarily due to an increase in pretax income and a decrease in the amortization of EDIT related to the coal ash impairment recorded in the prior year.

PIEDMONT

Results of Operations


	Years Ended December 31,
(in millions)	2023		2022		Variance



Operating Revenues	$	1,628	$	2,124	$	(496)
Operating Expenses
Cost of natural gas	430		1,015		(585)
Operation, maintenance and other	344		368		(24)
Depreciation and amortization	237		222		15
Property and other taxes	59		57		2
Impairment of assets and other charges	(4)		18		(22)
Total operating expenses	1,066		1,680		(614)
Gains on Sales of Other Assets and Other, net	—		4		(4)
Operating Income	562		448		114



Other Income and Expenses, net	66		54		12
Interest Expense	165		140		25
Income Before Income Taxes	463		362		101
Income Tax Expense	84		39		45
Net Income	$	379	$	323	$	56


MD&A			PIEDMONT

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	2023
Residential deliveries	(14.3)	%
Commercial deliveries	(9.4)	%
Industrial deliveries	(2.4)	%
Power generation deliveries	(10.0)	%
For resale	(14.9)	%
Total throughput deliveries	(9.3)	%
Secondary market volumes	(26.6)	%
Average number of customers	1.5	%

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, 2023, as compared to 2022

Operating Revenues. The variance was driven primarily by:

a $585 million decrease due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs.

Partially offset by:

a $26 million increase due to customer growth;
a $19 million increase due to North Carolina IMR;
an $11 million increase due to Tennessee ARM revenue recognition; and
a $9 million increase due to secondary marketing sales.

Operating Expenses. The variance was driven primarily by:

a $585 million decrease in the cost of natural gas due to lower natural gas costs passed through to customers, lower volumes, and decreased off-system sales natural gas costs;
a $24 million decrease in operations, maintenance and other primarily due to lower labor costs, gas pipeline and integrity work and a decrease in bad debt reserves; and
a $22 million decrease in impairment of assets and other charges due to the optimization of the Company's real estate portfolio in the prior year.

Partially offset by:

a $15 million increase in depreciation and amortization due to additional plant in service.

Other Income and Expenses, net. The increase was primarily due to higher AFUDC equity income.

Interest Expense. The increase was primarily due to higher outstanding debt balances 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 EDIT.

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."


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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, 2023. 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, 2023, all of the reporting units' estimated fair value of equity 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 2023 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, 2023, for each of Duke Energy’s reporting units ranged from 6.3% to 6.6%. 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, 2023, for each of Duke Energy's reporting units ranged from 9.3 to 11.2.

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, 2023, and 2022. 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 $9.2 billion and $12.7 billion of AROs as of December 31, 2023, and 2022, respectively. See Note 10, "Asset Retirement Obligations," for further details including a rollforward of related liabilities.


MD&A			CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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.

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. Duke Energy continued to monitor the sales of the Commercial Renewables Disposal Groups throughout 2023 and recorded adjustments to the impairments as warranted by progression in the disposition process and changes in market information.

The actual loss for each of the Commercial Renewables Disposal Groups is being recorded based on final sales agreements and could differ from the estimated losses recorded as of December 31, 2023.

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. See Note 24 to the Consolidated Financial Statements, "Income Taxes," for more information.

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)	2024		2025		2026
Electric Generation(a)	$	3,200	$	4,100	$	5,225
Electric Transmission	2,325		2,550		2,625
Electric Distribution	4,625		5,150		4,825
Environmental and Other	725		875		700





Total EU&I	10,875		12,675		13,375
GU&I	1,150		1,150		1,125
Other	325		375		275


Total projected capital and investment expenditures	$	12,350	$	14,200	$	14,775

(a) Includes nuclear fuel of approximately $2.1 billion in 2024-2026.

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, 2023, 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. See Note 2 to the Consolidated Financial Statements, "Dispositions," for the timing and use of proceeds from the sale of certain Commercial Renewables assets to affiliates of Brookfield and ArcLight.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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, 2023, are as follows:


	Payments Due by Period
(in millions)	Total		Less than 1 year (2024)		2-3 years (2025 & 2026)		4-5 years (2027 & 2028)		More than 5 years (2029 & beyond)
Fuel and purchased power	$	19,726	$	4,831	$	6,116	$	2,991	$	5,788

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 $12,286 million, with $11,744 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 information on the money pool arrangement.

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

As of December 31, 2023, Duke Energy had approximately $253 million of cash on hand, $4.9 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 2023, Duke Energy paid quarterly cash dividends for the 97th 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 60% and 70%, based upon adjusted EPS. Duke Energy increased the dividend by approximately 2% annually in both 2023 and 2022, and the Company remains committed to continued growth of the dividend.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

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, 2023, 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 has a voluntary supply chain finance program (the “program”) 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 and Equity 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 2024, Duke Energy anticipates issuing additional securities of $6.9 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. In addition, in order to fund incremental growth capital, Duke Energy plans to issue $500 million of common stock equity per year through 2028 through the dividend reinvestment and ATM programs.

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


	Projected 2024		Actual 2023		Actual 2022
Equity	38	%	39	%	41	%
Debt	62	%	61	%	59	%

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. The Duke Energy Registrants were in compliance with all other covenants related to their debt agreements as of December 31, 2023. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses.


MD&A			LIQUIDITY AND CAPITAL RESOURCES

Credit Ratings

Moody’s Investors Service, Inc. and S&P provide credit ratings for various Duke Energy Registrants. The following table includes Duke Energy and certain subsidiaries’ credit ratings and ratings outlook as of February 2024.


	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	Negative	Stable
Senior Unsecured Debt	Baa1	BBB+
Piedmont Natural Gas	Stable	Stable
Senior Unsecured	A3	BBB+

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

Cash Flow Information

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


	Years Ended December 31,


(in millions)	2023		2022
Cash flows provided by (used in):
Operating activities	$	9,878	$	5,927
Investing activities	(12,475)		(11,973)
Financing activities	2,351		6,129

Net (decrease) increase in cash, cash equivalents and restricted cash	(246)		83
Cash, cash equivalents and restricted cash at beginning of period	603		520
Cash, cash equivalents and restricted cash at end of period	$	357	$	603


MD&A			LIQUIDITY AND CAPITAL RESOURCES

OPERATING CASH FLOWS

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


	Years Ended December 31,


(in millions)	2023		2022		Variance
Net income	$	2,874	$	2,455	$	419
Non-cash adjustments to net income	7,486		7,362		124
Contributions to qualified pension plans	(100)		(58)		(42)
Payments for AROs	(632)		(584)		(48)


Working capital	(1,248)		(2,081)		833
Other assets and Other liabilities	1,498		(1,167)		2,665
Net cash provided by operating activities	$	9,878	$	5,927	$	3,951

The variance was driven primarily by:

a $2,665 million increase in cash inflows from Other assets and Other liabilities and an $833 million decrease in cash outflows from Working capital, both of which are primarily due to the recovery of deferred fuel costs and the timing of accruals and payments in other working capital accounts; and
a $543 million increase in net income, after adjustment for non-cash items, primarily due to growth from riders and other retail margin, favorable rate case impacts, lower operations and maintenance expense and lower tax expense; partially offset by higher interest expense, unfavorable weather and lower volumes.

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)	2023		2022		Variance
Capital, investment and acquisition expenditures, net of return of investment capital	$	(12,622)	$	(11,419)	$	(1,203)
Debt and equity securities, net	63		90		(27)
Proceeds from the sales of Commercial Renewables Disposal Groups and other assets, net of cash divested	883		83		800

Other investing items	(799)		(727)		(72)
Net cash used in investing activities	$	(12,475)	$	(11,973)	$	(502)

The variance relates primarily to an increase in capital expenditures due to higher investments in EU&I, partially offset by the net proceeds received from the sales of Commercial Renewable Disposal Groups and other assets. 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)	2023		2022		Variance
Electric Utilities and Infrastructure	$	10,135	$	8,985	$	1,150
Gas Utilities and Infrastructure	1,492		1,295		197

Other	995		1,139		(144)
Total capital, investment and acquisition expenditures, net of return of investment capital	$	12,622	$	11,419	$	1,203

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)	2023		2022		Variance


Issuances of long-term debt, net	$	5,291	$	7,478	$	(2,187)
Notes payable and commercial paper	142		574		(432)
Dividends paid	(3,244)		(3,179)		(65)

Contributions from noncontrolling interests	278		1,377		(1,099)
Other financing items	(116)		(121)		5
Net cash provided by financing activities	$	2,351	$	6,129	$	(3,778)


MD&A			LIQUIDITY AND CAPITAL RESOURCES

The variance was driven primarily by:

a $2,187 million decrease in proceeds from net issuances of long-term debt, primarily due to timing of issuances and redemptions of long-term debt;
a $1,099 million decrease in contributions from noncontrolling interests, primarily due to a $1.03 billion receipt from an affiliate of GIC in 2022 related to an additional indirect minority interest investment in Duke Energy Indiana; and
a $432 million decrease in net borrowings of notes payable and commercial paper.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Management Policies

The Enterprise Risk Management policy framework at Duke Energy includes strategic, 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.

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.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 $8.0 billion of unhedged long- and short-term floating interest rate exposure at December 31, 2023. The impact of a 100-basis point change in interest rates on pretax income is approximately $80 million at December 31, 2023. 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, 2023.

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.

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. As a result, the Duke Energy Registrants experienced higher charge-offs during 2023, but lower utility account balances in arrears as of December 31, 2023. There is an expectation for the higher levels of charge-offs to continue. 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.


MD&A			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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, 2023, 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.

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.


MD&A			OTHER MATTERS

Greenhouse Gas Standards and Guidelines

On May 23, 2023, the EPA published in the Federal Register proposed new source performance standards under Clean Air Act (CAA) section 111(b) that would establish standards of performance for emissions of greenhouse gases (expressed as carbon dioxide (CO2)) for newly constructed, modified, and reconstructed fossil fuel-fired electric utility steam generating units and fossil fuel-fired stationary combustion turbines. On that same day, in a separate rulemaking under CAA section 111(d), the EPA published proposed emission guidelines for states to use in developing plans to limit CO2 emissions from existing fossil fuel-fired electric generating units and certain large existing stationary combustion turbines. Duke Energy is reviewing the proposed rules and analyzing the potential impacts they could have on the Company, which could be material. A final rule is anticipated in the second quarter of 2024.

Coal Combustion Residuals

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

On May 18, 2023, the EPA published in the Federal Register a proposed rule under the Resource Conservation and Recovery Act, which would establish regulatory requirements for inactive surface impoundments at inactive generating facilities (Legacy CCR Surface Impoundments) and establish groundwater monitoring, corrective action, closure and post-closure care requirements for all CCR management units at facilities otherwise subject to the CCR rule. Duke Energy is reviewing the proposed rule and analyzing the potential impacts it could have on the Company, which could be material. A final rule is anticipated in the second quarter of 2024.

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, 2023, and December 31, 2022, 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 2023, Duke Energy submitted updated comprehensive site assessments and groundwater corrective action plans for the remaining North Carolina sites.

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, J.E. 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 six of the nine remaining coal ash basins at these sites with ash moved to on-site lined landfills, including two at Allen, one at Mayo, one at Roxboro, and two at Rogers. At the three remaining basins at Belews Creek, Marshall and Roxboro, uncapped basin ash will be excavated and moved to lined landfills. Those portions of the basins at Belews Creek, 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.

The estimated total cost to permanently close all coal ash basins in North Carolina and South Carolina is estimated to be approximately $7 billion to $8 billion of which approximately $4 billion has been spent through 2023. The majority of the remaining spend is primarily expected to occur over the next 10 years. Duke Energy has completed excavation of all coal ash at the Riverbend, Dan River, Asheville and Sutton plants.

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

North Carolina House Bill 951

On October 13, 2021, HB 951 was signed into law, establishing 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 authorized the use of PBR in North Carolina. Among other things, HB 951 required the NCUC to:

develop a carbon plan that would target a 70% interim reduction in CO2 emissions from public utilities' electric generation in the state on the least cost path to 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;


MD&A			OTHER MATTERS

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 PPAs 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 HB 951’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 with the Carbon Plan to be updated every two years thereafter. With this order, the NCUC recognized the value of an “all of the above” approach to achieving CO2 emission reductions and established a set of near-term procurement and development activities needed to continue progress towards the targeted CO2 reductions, along with the schedule for the future biennial updates to the Carbon Plan. The NCUC approved a near-term action plan including stakeholder engagement activities for onshore wind generation and certain procurement and development activities to strengthen the grid, improve resilience for customers and interconnect new generation and storage (in all cases, subject to any further applicable regulatory processes). The NCUC also approved early development activities for long lead-time resources, affirmed the ownership structure required in HB 951, and provided an orderly transition out of coal generation by 2035.

In August 2023 and December 2023, the NCUC issued orders approving Duke Energy Progress' and Duke Energy Carolinas' PBR Applications, respectively, as modified by the partial settlements and the orders. 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 a number of proposed and final rules from federal regulatory agencies, including the EPA, that 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.

EU&I 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 a 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 2023, the Duke Energy Registrants have collectively lowered the CO2 emissions from their electricity generation by 48%. 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 energy 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 of energy 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 customer growth and 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.

Currently, the Duke Energy Registrants do not purchase carbon credits or offsets for use in connection with the Company's net-zero CO2 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.


MD&A			OTHER MATTERS

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, directed 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.

In August 2023, Duke Energy Carolinas and Duke Energy Progress filed their 2023 systemwide Carolinas Resource Plan (the Plan) with the NCUC and PSCSC. The Plan provided a range of generation options, including three core portfolios, reflecting an “all of the above” approach to powering the energy needs of our growing region. In the Plan, Duke Energy Carolinas and Duke Energy Progress recommended Portfolio 3 as the most prudent path forward to comply with applicable state laws, providing a reliable and orderly energy transition that was proposed as the most reasonable and lowest-cost plan for the Carolinas. Portfolio 3 proposes a diverse and reliable set of generation and energy storage solutions and shrinks the challenges of growth and the transition from coal by expanding industry-leading EE and demand response options, laying out a path to reliably exit coal by 2035. Portfolio 3 also makes the most of existing system resources by extending the lives of Duke Energy’s nuclear plants and extending the license and doubling the peak hourly capacity of the Bad Creek pumped-hydro storage facility. Near-term actions consistent with Portfolio 3 were also proposed that will be executed between now and 2026 to advance the orderly energy transition. In November 2023, Duke Energy Carolinas and Duke Energy Progress provided notice to the NCUC and PSCSC of a substantially increased load forecast resulting from increased economic development in the Carolinas occurring since the system-wide Plan was prepared. The companies filed supplemental modeling and analysis with the NCUC and PSCSC in January 2024, demonstrating the need for additional resources beyond the initial set of resources identified by the companies in their initial plan. The NCUC has scheduled an evidentiary hearing for July 2024, with an order expected by the end of 2024. The PSCSC will hold its hearing in September 2024 with a decision expected in late November 2024.

GU&I CO****2 and Methane Emissions Reductions

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.


MD&A			OTHER MATTERS

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 and storm cost recovery, 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.

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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