DUKE ENERGY CORPORATION Management's Discussion and Analysis includes financial information prepared in accordance with GAAP in theU.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 byDuke 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 andPiedmont 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
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 endedDecember 31, 2020 , filed with theSEC onFebruary 25, 2021 , for a discussion of variance drivers for the year endedDecember 31, 2020 , as compared toDecember 31, 2019 . DUKE ENERGY Duke Energy is an energy company headquartered inCharlotte, North Carolina . Duke Energy operates in theU.S. primarily through its direct and indirect subsidiaries,Duke Energy Carolinas ,Duke Energy Progress ,Duke Energy Florida ,Duke Energy Ohio ,Duke Energy Indiana and Piedmont. When discussing Duke Energy's consolidated financial information, it necessarily includes the results of the Subsidiary Registrants, which along with Duke Energy, are collectively referred to as the Duke Energy Registrants.
Executive Overview
At Duke Energy 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 2021, we continued to make progress, meeting our near-term financial commitments, executing on strategic priorities, and continuing to provide safe and reliable service while managing the ongoing impacts of the COVID-19 pandemic.
In 2021, we continued to position the company for sustainable long-term growth, working with stakeholders to achieve comprehensive bipartisan energy legislation inNorth Carolina , executing an importantNorth Carolina coal ash settlement agreement, and closing the first phase of the$2 billion investment of a minority interest inDuke Energy Indiana . We remain focused on executing on our clean energy transformation and a business portfolio that will deliver a reliable and growing dividend with 2021 representing the 95th consecutive year Duke Energy paid a cash dividend on its common stock.
Financial Results
[[Image Removed: duk-20211231_g6.jpg]][[Image Removed: duk-20211231_g7.jpg]]
(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.
40
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MD&A DUKE ENERGY
Duke Energy's 2021 Net Income Available to Duke Energy Corporation (GAAP
Reported Earnings) were impacted by favorable rate case outcomes and improved
volumes offset by charges which management believes are not indicative of
ongoing performance, including impairments related to workplace and workforce
realignment and regulatory settlements. 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.
2021 Areas of Focus and Accomplishments
Clean Energy Transformation. Our industry has been undergoing an incredible transformation and 2021 was a watershed year for our company where we executed on strategic priorities and delivered on our vision.
Coal Ash Settlement
InJanuary 2021 , we reached an agreement with theNorth Carolina Attorney General, the North Carolina Public Staff, and theSierra Club on costs related to coal ash management and safe basin closure, resolving the last remaining major issues on coal ash management inNorth Carolina . This settlement is significant as it resolves pending issues in the multiyear coal ash basin closure debate inNorth Carolina , which is critical for paving the way toward our clean energy future. The agreement brought financial clarity to approximately$9 billion of mitigation costs, supporting coal ash cost recovery inNorth Carolina forDuke Energy Carolinas andDuke Energy Progress with a rate of return for the company. We agreed to reduceNorth Carolina customers' costs by approximately$1 billion , while maintaining our ability to achieve our long-term financial goals and our transition to cleaner energy. The settlement agreement resolved all coal ash prudence and cost recovery issues in connection with the 2019 rate cases filed byDuke Energy Carolinas andDuke Energy Progress with the NCUC, as well as the equitable sharing issue on remand from the 2017Duke Energy Carolinas and Duke Energy Progress North Carolina rate cases.
In a significant move to support the company's path to net-zero strategy, inSeptember 2021 we completed the first phase of the investment of a 19.9% minority interest inDuke Energy Indiana by an affiliate of GIC, transferring 11.05% ownership interest in exchange for approximately$1.025 billion . The proceeds from the two-phase$2.05 billion investment are expected to partially fund the company's$63 billion capital and investment expenditure plan. This plan includes grid improvement, investments in clean energy and an improved customer experience - keys to our strategy to reduce carbon emissions from electricity generation to net-zero by 2050.
North Carolina Energy Legislation
InOctober 2021 , North Carolina House Bill 951 was signed into law after legislative leaders announced bipartisan support for and theGeneral Assembly passed this new legislation. House Bill 951 reflects new state policy that would accelerate a clean energy transition for generation serving customers in the Carolinas, including providing a framework for a goal of 70% carbon reduction in electric generation in the state from 2005 levels by 2030 and carbon neutrality by 2050 while continuing to prioritize affordability and reliability for our customers, who are located inNorth Carolina andSouth Carolina . The legislation establishes a framework overseen by the NCUC to advance state CO2 emission reductions through the use of least cost planning, including stakeholder involvement, and also introduces modernized recovery mechanisms, including multiyear rate plans, that promote more efficient recovery of investments and align incentives between the company and the state's energy policy objectives.
Generating Cleaner Energy
We're targeting energy generated from coal to represent less than 5% by 2030 and a full exit by 2035, subject to regulatory approvals. We've made strong progress to date in reducing carbon emissions from electricity generation (a 44% reduction from 2005) and have committed to do more (at least 50% reduction by 2030 and net-zero by 2050). We've filed and refined comprehensive IRPs consistent with this strategy in multiple jurisdictions and updated the enterprise capital plan through 2026 to increase planned investments to$63 billion with over 80% of this capital plan funding investments in the grid and clean energy transition. The increased capital plan will allow us to accelerate coal plant retirements, make needed grid investments to enable renewables and energy storage, increase resiliency, and allow for dynamic power flows. Our commitment for 2030 includes retiring higher-emitting plants, operating our existing carbon-free resources and investing in renewables, our energy delivery system, and natural gas infrastructure. In 2021, we passed the milestone of 10,000 MW of solar and wind resources and plan to own or purchase 16,000 MW of renewables by 2025 and 24,000 MW by 2030. In June, we filed an application with the NRC to renewOconee Nuclear Station's operating licenses for an additional 20 years and we intend to seek 20-year extensions and renewal of operating licenses for all 11 reactors. As we look beyond 2030, we will need additional tools to continue our progress. We will work actively to advocate for research and development and deployment of carbon-free, dispatchable resources. That includes longer-duration energy storage, advanced nuclear technologies, carbon capture and zero-carbon fuels.
Modernizing the Power Grid and Natural Gas Infrastructure
Our grid improvement programs continue to be a key component of our growth strategy. Modernization of the electric grid, including smart meters, storm hardening, self-healing and targeted undergrounding, helps to ensure the system is better prepared for severe weather, improves the system's reliability and flexibility, and provides better information and services for customers. We continue to expand our self-optimizing grid capabilities, and in 2021, smart, self-healing technologies helped to avoid more than 700,000 extended customer outages across our six-state electric service area, saving customers more than 1.2 million hours of lost outage time. We added 60 new self-healing networks in 2021 across our six-state service area and upgraded many existing systems to improve their smart capabilities and self-healing efficiency. Additionally, we expect to invest$100 million in electric vehicle charging over the next three years. Duke Energy has a demonstrated track record of driving efficiencies and productivity into the business and we continue to leverage new technology, digital tools and data analytics across the business in response to a transforming landscape. 41 -------------------------------------------------------------------------------- MD&A DUKE ENERGY Recognizing the continued importance of natural gas to our plans, we continue to work toward a net-zero methane emission goal by 2030 related to our natural gas distribution business. InAugust 2021 , we announced a partnership with Accenture and Microsoft to develop a novel technology platform with the intent of measuring baseline methane emissions from natural gas distribution systems with a high level of accuracy in near real time. Once deployed, we expect the use of satellite technology and the new platform will increase the speed of a field response team's ability to identify and repair methane leaks along distribution lines and systems. Constructive Regulatory and Legislative Outcomes. One of our long-term strategic goals is to achieve modernized regulatory constructs in our jurisdictions. Modernized constructs provide benefits, which include improved earnings and cash flows through more timely recovery of investments, as well as stable pricing for customers. As highlighted above, House Bill 951 provides the framework for many of these benefits inNorth Carolina under the direction of the NCUC. Also, inOctober 2021 , theSoutheast Energy Exchange Market (SEEM) received clearance from theFERC . The new SEEM platform will facilitate sub-hourly, bilateral trading, allowing participants to buy and sell power close to the time the energy is consumed, utilizing available unreserved transmission. Southeastern electricity customers are expected to see cost, reliability and environmental benefits. In 2021, we received constructive rate case orders related to our 2019 North Carolina rate cases for bothDuke Energy Carolinas andDuke Energy Progress and also reached constructive settlement agreements in our natural gas businesses inKentucky ,North Carolina , andTennessee . InOctober 2021 ,Duke Energy Ohio filed a request to review the company's electric distribution rates. We have a multiyear rate plan inFlorida and inJanuary 2021 , we reached a constructive settlement agreement with key consumer groups to bring additional certainty to rates through 2024. In addition, grid investment riders in the Midwest andFlorida enable more timely cost recovery and earnings growth. Customer Satisfaction. Duke Energy continues to transform the customer experience through our use of customer data to better inform operational priorities and performance levels. This data-driven approach allows us to identify the investments that are the most important to the customer experience. We successfully implemented the first three jurisdictional releases of Customer Connect, a new system that consolidates four legacy billing systems into one customer-service platform, allowing us to deliver the universal experience customers expect. Our work has been recognized by our customers and we have maintained our above-target performance throughout the year, despite the resumption of standard billing and payment practices in most jurisdictions. Operational Excellence, Safety and Reliability. The reliable and safe operation of our power plants, electric distribution system and natural gas infrastructure in our communities is foundational to our customers, our financial results and our credibility with stakeholders. Our regulated generation fleet and nuclear sites had strong performance throughout the year and our electric distribution system performed well. The safety of our workforce is a core value. Our employees delivered strong safety results in 2021, and we are at or near the top of our industry. Storm activity was limited in our regulated service territories in 2021, but we supported Entergy Louisiana, sending approximately 500 workers to aid in restoring power after Hurricane Ida. The February winter storm inTexas adversely impactedDuke Energy Renewables' operations. In addition to operating at reduced capacity, we were required to purchase power at scarcity pricing levels to meet fixed volume commitments. Enterprisewide lessons learned were formed immediately following theTexas weather event to identify opportunities to ensure readiness for extreme weather. Our ability to effectively handle all facets of the 2021 storm response efforts, including navigating ongoing COVID-19 protocols, is a testament to our team's extensive preparation and coordination, applying lessons learned from previous storms, and to on-the-ground management throughout the restoration efforts. Duke Energy has received over 20 Emergency Response Awards since EEI began recognizing storm response in 1998 (including eight for assisting other utilities, and eight in our service territories over the last decade).
Leading Through COVID-19. COVID-19 continued to impact all that we accomplished in 2021 and demonstrated our resiliency and agility:
•In addition to achieving financial results in the upper half of our original guidance, we have continued our cost-management journey - focused on driving productivity, increasing flexibility and prioritizing spend based on risk and strategic value to our customers and investors. In 2021, we maintained approximately$200 million of O&M savings identified during the earliest days of the pandemic. We also have successfully navigated supply chain challenges and the impacts of inflation. Our procurement teams have created action plans to enhance planning, augment supply, amend operations and leverage our scale to mitigate these risks to the extent possible. •Duke Energy kept electricity and natural gas flowing while continuing to voluntarily make significant accommodations for our customers. To continue to support our customers, we extended the COVID-19 payment flexibility policies we developed in 2020 without compromising our financial performance. We extended payment arrangements for new arrearages, modified reconnection policies and increased the time customers had to restructure agreements. We analyzed each state's regulatory environment to identify additional state-specific solutions. To better connect customers to federal and state assistance dollars: a dedicated Agency team was created to help local customer assistance agencies in making pledges for Duke Energy customers; a small team was established to work directly with state and federal agencies; and a team of "payment navigators" was piloted to work directly with customers to connect them with available assistance dollars in their local communities. •We implemented safety procedures designed to provide physical safety for our workers and provided support for our employees. Throughout the year, we aligned with local, state, and federal policies on COVID-19 protocols. •In May, we announced that theDuke Energy Plaza , a 40-floor office tower currently under construction in Uptown Charlotte, will become the company's new corporate headquarters, allowing us to reduce occupied space in theCharlotte area by approximately 60% to optimize our real estate footprint. We've rolled out our new hybrid workplace model (WorkSmart) with about 85% of our office-based workforce working in the WorkSmart model. The WorkSmart team has prepared our buildings to ensure employees return to work safely and have put in place the tools and technologies needed to ensure the most effective transition. 42 -------------------------------------------------------------------------------- MD&A DUKE ENERGY
Duke Energy Objectives - 2022 and Beyond
Duke Energy will continue to deliver exceptional value to customers, be an integral part of the communities in which we do business and provide attractive returns to investors. We have an achievable, long-term strategy in place, and it is producing tangible results, yet the industry in which we operate is becoming more and more dynamic. We are adjusting, where necessary, and accelerating our focus in key areas to ensure the company is well positioned to be successful for many decades into the future. As we look ahead to 2022, our plans include:
•Continuing to place the customer at the center of all that we do, which includes providing customized products and solutions
•Strengthening our relationships with our stakeholders in the communities in which we operate and invest
•Generating cleaner energy and working to achieve net-zero carbon emissions by 2050 and net-zero methane emissions by 2030
•Modernizing and strengthening a green-enabled energy grid and our natural gas infrastructure
•Maintaining the safety of our communities and employees
•Deploying digital tools across our business
•Working to encourage greenhouse gas emission reductions in our supply chain as we implement the update to our goals to include Scope 2 and certain Scope 3 emissions in our 2050 net-zero goal. The Scope 3 emissions included in our goal include emissions from upstream fossil fuel procurement, production of power purchased for resale, and from downstream use of sold products in our natural gas distribution business.
Matters Impacting Future Results
The matters discussed herein could materially impact the future operating results, financial condition and cash flows of the Duke Energy Registrants and Business Segments.
Regulatory Matters Coal Ash CostsDuke Energy Carolinas andDuke Energy Progress have approximately$1.2 billion and$1.4 billion , respectively, in regulatory assets related to coal ash retirement obligations as ofDecember 31, 2021 . Future spending, including amounts recorded for depreciation and liability accretion, is expected to continue to be deferred. The majority of spend is expected to occur over the next 15-20 years.Duke Energy Indiana has interpreted the CCR rule to identify the coal ash basin sites impacted and has assessed the amounts of coal ash subject to the rule and a method of compliance. In 2020, theHoosier Environmental Council filed a petition challenging theIndiana Department of Environmental Management's (IDEM) partial approval of five ofDuke Energy Indiana's ash pond site closure plans atGallagher Station . The petition does not challenge the other basin closures approved by IDEM at other Indiana stations. 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$749 million in regulatory assets related to coal ash asset retirement obligations as ofDecember 31, 2021 . InJanuary 2022 ,Duke Energy Indiana received a letter from theEPA regarding interpretation of the CCR rule. See Note 4 to the Consolidated Financial Statements, "Commitments and Contingencies" for more information.
MGP
Duke Energy Ohio and other parties have filed with the PUCO a Stipulation and Recommendation that would resolve all open issues regarding manufactured gas plant remediation costs incurred between 2013 and 2019, includingDuke Energy Ohio's request for additional deferral authority beyond 2019, and the pending issues related to the Tax Act as it relates toDuke Energy Ohio's natural gas operations. These impacts, if approved by the PUCO, are not expected to have a material impact onDuke Energy Ohio's financial statements.Duke Energy Ohio has approximately$104 million in regulatory assets related to MGP as ofDecember 31, 2021 . Failure to approve the Stipulation and Recommendation, disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact.
For additional information, see Note 3 to the Consolidated Financial Statements, "Regulatory Matters."
Commercial Renewables Duke Energy continues to monitor recoverability of renewable merchant plants located in theElectric Reliability Council of Texas West market and in the PJM West market, due to fluctuating market pricing and long-term forecasted energy prices. Based on the most recent recoverability test, the carrying value approximated the aggregate estimated future undiscounted cash flows for the assets under review. A continued decline in energy market pricing or other factors unfavorably impacting the economics would likely result in a future impairment. Duke Energy has approximately$200 million in property, plant and equipment related to these assets as ofDecember 31, 2021 . Impairment of these assets could result in adverse impacts. For additional information, see Note 10 to the Consolidated Financial Statements, "Property, Plant and Equipment." InFebruary 2021 , a severe winter storm impacted certain Commercial Renewables assets inTexas . Extreme weather conditions limited the ability for these solar and wind facilities to generate and sell electricity into theElectric Reliability Council of Texas market. Lost revenues and higher than expected purchased power costs have negatively impacted the operating results of these generating units. In addition, Duke Energy has been named in multiple lawsuits arising out of this winter storm. For more information, see Notes 2 and 4 to the Consolidated Financial Statements, "Business Segments" and "Commitments and Contingencies," respectively. 43 -------------------------------------------------------------------------------- MD&A DUKE ENERGY Duke Energy is also monitoring supply chain disruptions, including the cost and availability of key components of planned generating facilities, which could impact the timing of in-service or economics of commercial renewables projects and may result in adverse impacts on operating results.
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 toDuke 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:
•Workplace and Workforce Realignment represents costs attributable to business transformation, including long-term real estate strategy changes and workforce realignment. •Regulatory Settlements represents an impairment charge related to theSouth Carolina Supreme Court decision on coal ash, insurance proceeds, theDuke Energy Carolinas andDuke Energy Progress coal ash settlement and the partial settlements in the 2019 North Carolina rate cases.
•Gas Pipeline Investments represents costs related to the cancellation of the ACP investment and additional exit obligations.
•Severance represents the reversal of 2018 Severance charges, which were
deferred as a result of a partial settlement in the
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,
2021 2020
(in millions, except per share amounts) Earnings EPS Earnings EPS GAAP Reported Earnings/EPS
$ 3,802 $ 4.94 $ 1,270 $ 1.72 Adjustments to Reported: Workplace and Workforce Realignment(a) 148 0.20 - - Regulatory Settlements(b) 69 0.09 872 1.19 Gas Pipeline Investments(c) 15 0.02 1,711 2.32 Severance(d) - - (75) (0.10) Discontinued Operations (7) (0.01) (7) (0.01) Adjusted Earnings/Adjusted EPS$ 4,027 $ 5.24 $
3,771
(a) Net of tax benefit of$44 million . (b) Net of tax benefit of$21 million and tax benefit of$263 million for the years endedDecember 31, 2021 , and 2020, respectively. (c) Net of tax benefit of$5 million and tax benefit of$399 million for the years endedDecember 31, 2021 , and 2020, respectively. (d) Net of tax expense of$23 million .
Year Ended
GAAP Reported EPS was$4.94 for the year endedDecember 31, 2021 , compared to$1.72 for the year endedDecember 31, 2020 . The increase in GAAP Reported Earnings/EPS was primarily due to prior year charges related to the cancellation of the ACP pipeline and the CCR Settlement Agreement filed with the NCUC, partially offset by workplace and workforce realignment costs in the current year. As discussed and shown in the table above, management also evaluates financial performance based on adjusted EPS. Duke Energy's adjusted EPS was$5.24 for the year endedDecember 31, 2021 , compared to$5.12 for the year endedDecember 31, 2020 . The increase in Adjusted Earnings/Adjusted EPS was primarily due to positive rate case contributions and higher volumes, partially offset by higher operation and maintenance expenses, lower Commercial Renewables earnings and share dilution from equity issuances. 44 --------------------------------------------------------------------------------
MD&A SEGMENT RESULTS
SEGMENT RESULTS
The remaining information presented in this discussion of results of operations
is on a GAAP basis. Management evaluates segment performance based on segment
income. Segment income is defined as income from continuing operations net of
income attributable to noncontrolling interests and preferred stock dividends.
Segment income includes intercompany revenues and expenses that are eliminated
in the Consolidated Financial Statements.
Duke Energy's segment structure includes the following segments: Electric
Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial
Renewables. The remainder of Duke Energy's operations is presented as Other. See
Note 2 to the Consolidated Financial Statements, "Business Segments," for
additional information on Duke Energy's segment structure.
Years Ended December 31,
(in millions) 2021 2020 Variance
Operating Revenues $ 22,603 $ 21,720 $ 883
Operating Expenses
Fuel used in electric generation and purchased power 6,332 6,128 204
Operations, maintenance and other 5,340 5,391 (51)
Depreciation and amortization 4,251 4,068 183
Property and other taxes 1,233 1,188 45
Impairment of assets and other charges 204 971 (767)
Total operating expenses 17,360 17,746 (386)
Gains on Sales of Other Assets and Other, net 13 11 2
Operating Income 5,256 3,985 1,271
Other Income and Expenses, net 534 344 190
Interest Expense 1,432 1,320 112
Income Before Income Taxes 4,358 3,009 1,349
Income Tax Expense 494 340 154
Less: Income Attributable to Noncontrolling Interest 14 - 14
Segment Income $ 3,850 $
2,669
Duke Energy Carolinas GWh sales 87,796 84,574 3,222 Duke Energy Progress GWh sales 66,797 65,240 1,557 Duke Energy Florida GWh sales 42,422 42,490 (68) Duke Energy Ohio GWh sales 24,129 23,484 645 Duke Energy Indiana GWh sales 31,388 30,528 860
49,871 50,419 (548)
Year Ended
Electric Utilities and Infrastructure's variance is due to higher revenues from rate cases in various jurisdictions, higher retail sales volumes and the prior year coal ash settlement agreement filed with the NCUC, partially offset by an impairment charge related to theSouth Carolina Supreme Court decision on coal ash, higher depreciation and amortization and interest expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
•a$420 million increase in retail base rate pricing due to general rate cases inIndiana andNorth Carolina net of rider impacts as well as annual increases from the multiyear settlement rate adjustments inFlorida ;
•a
•a
•a
Partially offset by:
•a
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MD&A SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE
Operating Expenses. The variance was driven primarily by:
•a$767 million decrease in impairment of assets and other charges primarily due to the prior year CCR Settlement Agreement filed with the NCUC inJanuary 2021 , partially offset by theSouth Carolina Supreme Court decision on coal ash atDuke Energy Carolinas andDuke Energy Progress in the current year; and •a$51 million decrease in operations, maintenance and other driven by decreased storm amortization atDuke Energy Florida and lower COVID-19 costs, partially offset by higher employee-related expenses.
Partially offset by:
•a
•a$183 million increase in depreciation and amortization primarily due to resolution of rate cases and higher plant in service, partially offset by lower depreciation related to the extension of the lives of nuclear facilities atDuke Energy Carolinas andDuke Energy Progress ; and •a$45 million increase in property and other taxes primarily due to higher property taxes atDuke Energy Carolinas andDuke Energy Ohio and a prior year sales and use tax refund atDuke Energy Carolinas .
Other Income and Expenses, net. The increase is primarily due to coal ash
insurance litigation proceeds at
Interest Expense. The variance was primarily driven by interest expense on excess deferred tax liabilities removed from rate base as a result of theNorth Carolina rate cases, debt returns on a lower coal ash regulatory asset balance resulting from the CCR Settlement Agreement as well lower debt returns resulting from theIndiana rate case. Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income, partially offset by an increase in the amortization of excess deferred taxes.
Years Ended December 31,
(in millions) 2021 2020 Variance
Operating Revenues $ 2,112 $ 1,748 $ 364
Operating Expenses
Cost of natural gas 705 460 245
Operation, maintenance and other 442 430 12
Depreciation and amortization 303 258 45
Property and other taxes 120 112 8
Impairment of assets and other charges 19 7 12
Total operating expenses 1,589 1,267 322
Operating Income 523 481 42
Other Income and Expenses
Equity in earnings (losses) of unconsolidated affiliates 8 (2,017) 2,025
Other Income and Expenses, net 62 56 6
Total other income and expenses 70 (1,961) 2,031
Interest Expense 142 135 7
Income (Loss) Before Income Taxes 451 (1,615) 2,066
Income Tax Expense (Benefit) 55 (349) 404
Segment Income (Loss) $ 396 $ (1,266) $ 1,662
490,071,039 52,688,852
Duke Energy Midwest LDC throughput (MCF) 85,787,624 84,160,162 1,627,462
Year Ended
Gas Utilities and Infrastructure's results were impacted primarily by the cancellation of the ACP pipeline in the prior year and margin growth, partially offset by higher depreciation expense. The following is a detailed discussion of the variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
•a
•a
•a
46
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MD&A SEGMENT RESULTS - GAS UTILITIES AND INFRASTRUCTURE
•a
•an
Operating Expenses. The variance was driven primarily by:
•a
•a
•a$12 million increase in impairment of assets and other charges related to the propane caverns inOhio andKentucky , partially offset by an impairment of ACP redelivery projects in the prior year.
Equity in earnings (losses) of unconsolidated affiliates. The variance was driven primarily by the cancellation of the ACP pipeline in the prior year.
Income Tax Expense. The increase in tax expense was primarily due to the cancellation of the ACP pipeline project recorded in the prior year.
Commercial Renewables
Years Ended December 31,
(in millions) 2021 2020 Variance
Operating Revenues $ 476 $ 502 $ (26)
Operating Expenses
Operation, maintenance and other 342 285 57
Depreciation and amortization 225 199 26
Property and other taxes 34 27 7
Impairment of assets and other charges - 6 (6)
Total operating expenses 601 517 84
Losses on Sales of Other Assets and Other, net - (1) 1
Operating Loss (125) (16) (109)
Other Income and Expenses, net (24) 7 (31)
Interest Expense 72 66 6
Loss Before Income Taxes (221) (75) (146)
Income Tax Benefit (78) (65) (13)
Add: Loss Attributable to Noncontrolling Interests 344 296 48
Segment Income $ 201 Renewable plant production, GWh 10,701 10,204 497 Net proportional MW capacity in operation(a) 4,729 3,937 792
(a) Certain projects are included in tax-equity structures where investors have differing interests in the project's economic attributes. Amounts shown represent 100% of the tax-equity project's capacity.
Year Ended
Commercial Renewables' results were unfavorable to prior year primarily driven
by the impacts from Texas Storm Uri, which resulted in a
Operating Revenues. The variance was primarily driven by a$19 million decrease due to lower wind resource and operating downtime, a$15 million decrease for lower market prices in the current year impacting the wind portfolio, and a$4 million decrease due to fewer distributed energy projects placed into service. This was partially offset by an$8 million increase for market sales in excess of market purchases during Texas Storm Uri and a$6 million increase due to growth of new projects. Operating Expenses. The variance was primarily due to$49 million for higher operating expenses, depreciation expense and property tax expense as a result of the growth in new projects placed in service since prior year,$31 million increase for higher operating expenses attributed to maintenance at several wind and solar facilities, an$8 million increase for higher engineering and construction costs within the distributed energy portfolio, and a$2 million increase associated with Texas Storm Uri. This was partially offset by a$6 million decrease related to an impairment charge in the prior year for a non-contracted wind project.
Other Income and Expenses, net. The variance was primarily driven by a
Income Tax Benefit. The increase in the tax benefit was primarily driven by an increase in pretax losses partially offset by an increase in taxes associated with tax equity investments and a decrease in PTCs generated. Loss Attributable to Noncontrolling Interests. The variance was primarily driven by the net increase of losses allocated to tax equity members of$60 million from existing and new projects financed with tax equity, partially offset by a$12 million loss resulting from Texas Storm Uri. 47 --------------------------------------------------------------------------------
MD&A SEGMENT RESULTS - OTHER
Other
Years Ended
(in millions) 2021 2020 Variance Operating Revenues$ 111 $ 97 $ 14 Operating Expenses 412 12 400 Losses on Sales of Other Assets and Other, net (1) - (1) Operating (Loss) Income (302) 85 (387) Other Income and Expenses, net 121 92 29 Interest Expense 643 657 (14) Loss Before Income Taxes (824) (480) (344) Income Tax Benefit (279) (162) (117) Less: Net Income Attributable to Noncontrolling Interests 1 1 - Less: Preferred Dividends 106 107 (1) Net Loss$ (652) $ (426) $ (226)
Year Ended
The higher net loss was driven by asset impairments to optimize the company's real estate portfolio and reduce office space as parts of the business move to a hybrid and remote workforce strategy as well as a reversal of severance costs in the prior year. Operating Expenses. The increase in operations, maintenance and other of$248 million was primarily due to a reversal of severance costs in the prior year and higher obligations to theDuke Energy Foundation in the current year. The increase in impairment of assets and other charges of$132 million was due to asset impairments taken in order to optimize the company's real estate portfolio and reduce office space as parts of the business move to a hybrid and remote workforce strategy.
Other Income and Expenses, net. The variance was primarily due to higher equity earnings from the NMC investment.
Income Tax Benefit. The increase in the tax benefit was primarily driven by an
increase in pretax losses and a reduction of a valuation allowance relating to a
capital loss carryforward, partially offset by lower state tax expense in the
prior year.
48
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MD&A DUKE ENERGY CAROLINAS
SUBSIDIARY REGISTRANTS
Basis of Presentation
The results of operations and variance discussion for the Subsidiary Registrants is presented in a reduced disclosure format in accordance with General Instruction (I)(2)(a) of Form 10-K.
DUKE ENERGY CAROLINAS Results of Operations Years Ended December 31, (in millions) 2021 2020 Variance Operating Revenues$ 7,102 $ 7,015 $ 87 Operating Expenses Fuel used in electric generation and purchased power 1,601 1,682 (81) Operation, maintenance and other 1,833 1,743 90 Depreciation and amortization 1,468 1,462 6 Property and other taxes 320 299 21 Impairment of assets and other charges 227 476 (249) Total operating expenses 5,449 5,662 (213) Gains on Sales of Other Assets and Other, net 2 1 1 Operating Income 1,655 1,354 301 Other Income and Expenses, net 270 177 93 Interest Expense 538 487 51 Income Before Income Taxes 1,387 1,044 343 Income Tax Expense 51 88 (37) Net Income$ 1,336 $ 956 $ 380 The following table shows the percent changes in GWh sales and average number of customers forDuke 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 2021 Residential sales 4.6 % General service sales 2.7 % Industrial sales 5.2 % Wholesale power sales 4.5 % Joint dispatch sales 2.8 % Total sales 3.8 % Average number of customers 2.3 %
Year Ended
Operating Revenues. The variance was driven primarily by:
•a
•a
•a
•a
Partially offset by:
•an
•a
Operating Expenses. The variance was driven primarily by:
•a$249 million decrease in impairment of assets and other charges due to the prior year CCR Settlement Agreement filed with the NCUC inJanuary 2021 , partially offset by theSouth Carolina Supreme Court decision on coal ash and optimization of the company's real estate portfolio and reduction of office space as parts of the business move to a hybrid and remote workforce strategy; and •an$81 million decrease in fuel used in electric generation and purchased power primarily associated with the recovery of fuel expenses, partially offset by higher natural gas prices and changes in the generation mix. 49 --------------------------------------------------------------------------------
MD&A DUKE ENERGY CAROLINAS
Partially offset by:
•a
•a$21 million increase in property and other taxes primarily due to property tax valuation adjustments and a prior year sales and use tax refund, partially offset by sales and use tax refunds in the current year and lower payroll tax due to the CARES Act employee retention credits.
Other Income and Expense, net. The variance was primarily due to coal ash insurance litigation proceeds and lower non-service pension costs.
Interest Expense. The variance was driven by interest expense on excess deferred tax liabilities removed from rate base as a result of theNorth Carolina rate case and debt returns on a lower coal ash regulatory asset balance resulting from the CCR Settlement Agreement. Income Tax Expense. The decrease in tax expense was primarily due to an increase in the amortization of excess deferred taxes, partially offset by an increase in pretax income. PROGRESS ENERGY Results of Operations Years Ended December 31, (in millions) 2021 2020 Variance Operating Revenues$ 11,057 $ 10,627 $ 430 Operating Expenses Fuel used in electric generation and purchased power 3,584 3,479 105 Operation, maintenance and other 2,529 2,479 50 Depreciation and amortization 1,929 1,818 111 Property and other taxes 542 545 (3) Impairment of assets and other charges 82 495 (413) Total operating expenses 8,666 8,816 (150) Gains on Sales of Other Assets and Other, net 14 9 5 Operating Income 2,405 1,820 585 Other Income and Expenses, net 215 129 86 Interest Expense 794 790 4 Income Before Income Taxes 1,826 1,159 667 Income Tax Expense 227 113 114 Net Income 1,599 1,046 553 Less: Net Income Attributable to Noncontrolling Interests 1 1 - Net Income Attributable to Parent$ 1,598 $ 1,045 $ 553
Year Ended
Operating Revenues. The variance was driven primarily by:
•a$223 million increase in retail pricing due to theNorth Carolina rate case and base rate adjustments atDuke Energy Florida related to annual increases from the 2017 Settlement Agreement and the solar base rate adjustment;
•a
•a
•a$58 million increase in wholesale revenues, net of fuel, primarily driven by a prior year coal ash settlement and higher capacity volumes atDuke Energy Progress , partially offset by a restructured capacity contract atDuke Energy Florida ; •a$25 million increase in other revenues atDuke Energy Florida primarily due to higher transmission revenues and higher customer charges that were waived due to COVID-19 in the prior year; and
•a
Partially offset by:
•a
Operating Expenses. The variance was driven primarily by:
•a$413 million decrease in impairment of assets and other charges primarily due to the prior year CCR Settlement Agreement filed with the NCUC inJanuary 2021 , partially offset by the current yearSouth Carolina Supreme Court decision on coal ash atDuke Energy Progress and optimization of the company's real estate portfolio and reduction of office space as parts of the business move to a hybrid and remote workforce strategy. 50 --------------------------------------------------------------------------------
MD&A PROGRESS ENERGY
Partially offset by:
•a $111 million increase in depreciation and amortization primarily due to
accelerated depreciation of retired Crystal River coal units and an increase in
plant base at Duke Energy Florida , partially offset by the extension of the
lives at nuclear facilities at Duke Energy Progress ;
•a $105 million increase in fuel used in electric generation and purchased power
primarily due to higher demand, changes in generation mix and recognition of
RECs used for compliance at Duke Energy Progress and outside fuel purchases
during a major plant outage; and
•a $50 million increase in operation, maintenance and other expense driven by
higher employee-related costs, a prior year severance cost adjustment related to
the 2019 North Carolina retail rate case and outage costs, partially offset by
reduced storm amortization at Duke Energy Florida .
Other Income and Expenses, net. The increase is primarily due to coal ash
insurance litigation proceeds at Duke Energy Progress , lower non-service pension
costs and unrealized gains on the nuclear decommissioning trust fund at Duke
Energy Florida .
Income Tax Expense. The increase in tax expense was primarily due to an increase
in pretax income, partially offset by an increase in the amortization of excess
deferred taxes.
DUKE ENERGY PROGRESS
Results of Operations
Years Ended December 31,
(in millions) 2021 2020 Variance
Operating Revenues $ 5,780 $ 5,422 $ 358
Operating Expenses
Fuel used in electric generation and purchased power 1,778 1,743 35
Operation, maintenance and other 1,467 1,332 135
Depreciation and amortization 1,097 1,116 (19)
Property and other taxes 159 167 (8)
Impairment of assets and other charges 63 499 (436)
Total operating expenses 4,564 4,857 (293)
Gains on Sales of Other Assets and Other, net 13 8 5
Operating Income 1,229 573 656
Other Income and Expenses, net 143 75 68
Interest Expense 306 269 37
Income Before Income Taxes 1,066 379 687
Income Tax Expense (Benefit) 75 (36) 111
Net Income $ 991 $ 415 $ 576
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 2021
Residential sales 6.0 %
General service sales (0.4) %
Industrial sales (7.7) %
Wholesale power sales 4.0 %
Joint dispatch sales (2.2) %
Total sales 2.4 %
Average number of customers 1.5 %
Year Ended
Operating Revenues. The variance was driven primarily by:
•a
•an$80 million increase in wholesale revenues, net of fuel, primarily due to a coal ash settlement in the prior year, and higher capacity volumes, partially offset by lower recovery of coal ash costs;
•a
51
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MD&A DUKE ENERGY PROGRESS
•a
•a
Operating Expenses. The variance was driven primarily by:
• a$436 million decrease in impairment of assets and other charges primarily due to the prior year CCR Settlement Agreement filed with the NCUC inJanuary 2021 ; and
•a
Partially offset by:
•a$135 million increase in operation, maintenance and other expense primarily due to higher employee-related costs and a prior year severance cost adjustment related to the 2019 North Carolina retail rate case, increased outage costs and energy efficiency program costs; and
•a
Other Income and Expense, net. The increase is primarily due to coal ash insurance litigation proceeds and lower non-service pension costs.
Interest Expense. The variance was driven by interest expense on excess deferred tax liabilities removed from rate base as a result of theNorth Carolina rate case and debt returns on a lower coal ash regulatory asset balance resulting from the CCR Settlement Agreement. Income Tax Expense. The increase in tax expense was primarily due to an increase in in pretax income, partially offset by the amortization of excess deferred taxes.DUKE ENERGY FLORIDA Results of Operations Years Ended December 31, (in millions) 2021 2020 Variance Operating Revenues$ 5,259 $ 5,188 $ 71 Operating Expenses Fuel used in electric generation and purchased power 1,806 1,737 69 Operation, maintenance and other 1,048 1,131 (83) Depreciation and amortization 831 702 129 Property and other taxes 383 381 2 Impairment of assets and other charges 19 (4) 23 Total operating expenses 4,087 3,947 140 Gains on Sales of Other Assets and Other, net 1 1 - Operating Income 1,173 1,242 (69) Other Income and Expenses, net 71 53 18 Interest Expense 319 326 (7) Income Before Income Taxes 925 969 (44) Income Tax Expense 187 198 (11) Net Income$ 738 $ 771 $ (33) The following table shows the percent changes in GWh sales and average number of customers forDuke 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 2021 Residential sales (1.2) % General service sales 2.3 % Industrial sales 4.6 % Wholesale power sales 22.6 % Total sales (0.2) % Average number of customers 1.5 % 52
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MD&A DUKE ENERGY FLORIDA
Year Ended
Operating Revenues. The variance was driven primarily by:
•a$162 million increase in fuel and capacity revenues primarily due to higher retail sales volumes and accelerated recovery of the retired coal unitsCrystal River 1 and 2; •an$83 million increase in retail pricing due to base rate adjustments related to annual increases from the 2017 Settlement Agreement and the solar base rate adjustment; •a$25 million increase in other revenues primarily due to lower revenues in the prior year due to the moratorium on customer late payments and service charges in response to the COVID-19 pandemic, lower outdoor lighting equipment rentals in the prior year, and higher transmission revenues due to prior year customer settlement and the increased network billing rates;
•a
•a
Partially offset by:
•a
•a
•a
Operating Expenses. The variance was driven primarily by:
•a
•a$69 million increase in fuel used in electric generation and purchased power primarily due to higher natural gas prices, and outside fuel purchases during a major plant outage at the Hines facility; and
•a
Partially offset by:
•an$83 million decrease in operation, maintenance and other expense primarily due to decreased storm amortization costs, partially offset by outage maintenance costs at Hines and the timing of Customer Connect costs including training and labor.
Other Income and Expense, net. The increase is primarily due to lower non-service pension costs and gains on the nuclear decommissioning trust fund.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income.
53
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MD&A DUKE ENERGY OHIO
DUKE ENERGY OHIO
Results of Operations
Years Ended December 31,
(in millions) 2021 2020 Variance
Operating Revenues
Regulated electric $ 1,493 $ 1,405 $ 88
Regulated natural gas 544 453 91
Total operating revenues 2,037 1,858 179
Operating Expenses
Fuel used in electric generation and purchased power 409 339 70
Cost of natural gas 136 73 63
Operation, maintenance and other 479 463 16
Depreciation and amortization 307 278 29
Property and other taxes 355 324 31
Impairment of assets and other charges 25 - 25
Total operating expenses 1,711 1,477 234
Gains on Sales of Other Assets and Other, net 1 - 1
Operating Income 327 381 (54)
Other Income and Expenses, net 18 16 2
Interest Expense 111 102 9
Income Before Income Taxes 234 295 (61)
Income Tax Expense 30 43 (13)
Net Income $ 204 $ 252 $ (48)
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 2021 2021
Residential sales 2.7 % - %
General service sales 3.0 % 4.8 %
Industrial sales 4.0 % 3.2 %
Wholesale electric power sales 45.8 % n/a
Other natural gas sales n/a 1.6 %
Total sales 2.7 % 1.9 %
Average number of customers 0.6 % 0.8 %
Year Ended
Operating Revenues. The variance was driven primarily by:
•an
•a
•a
•an
•a
•a
Operating Expenses. The variance was driven primarily by:
•a
•a$31 million increase in property and other taxes primarily due to increased plant in service, and higher kilowatt and natural gas distribution taxes due to increased usage; 54 -------------------------------------------------------------------------------- MD&ADUKE ENERGY OHIO
•a
•a$25 million increase in impairment of assets and other charges related to the propane caverns inOhio andKentucky and other charges to optimize the company's real estate portfolio and reduce office space as parts of the business move to a hybrid and remote workforce strategy. Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income.DUKE ENERGY INDIANA Results of Operations Years Ended December 31, (in millions) 2021 2020 Variance Operating Revenues$ 3,174 $ 2,795 $ 379 Operating Expenses Fuel used in electric generation and purchased power 985 767 218 Operation, maintenance and other 750 762 (12) Depreciation and amortization 615 569 46 Property and other taxes 73 81 (8) Impairment of assets and other charges 9 - 9 Total operating expenses 2,432 2,179 253 Operating Income 742 616 126 Other Income and Expenses, net 42 37 5 Interest Expense 196 161 35 Income Before Income Taxes 588 492 96 Income Tax Expense 107 84 23 Net Income$ 481 $ 408 $ 73 The following table shows the percent changes in GWh sales and average number of customers forDuke 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 2021 Residential sales 3.0 % General service sales 4.3 % Industrial sales 2.9 % Wholesale power sales 5.8 % Total sales 2.8 % Average number of customers 1.1 %
Year Ended
Operating Revenues. The variance was driven primarily by:
•a
•a
•a
•a
•a
Operating Expenses. The variance was driven primarily by:
•a
•a$46 million increase in depreciation and amortization primarily due to a change in depreciation rates from theIndiana retail rate case, amortization of deferred coal ash pond ARO and additional plant in service; and •a$9 million increase in impairment of assets and other charges to optimize the company's real estate portfolio and reduce office space as parts of the business move to a hybrid workforce strategy. 55 --------------------------------------------------------------------------------
MD&A DUKE ENERGY INDIANA
Partially offset by:
•a $12 million decrease in operation, maintenance and other primarily due to
major outage costs incurred in the prior year and outage delays in the current
year; and
•an $8 million decrease in property and other taxes attributable to property tax
true ups for prior periods, utility receipts tax refunds and lower payroll tax
due to the CARES Act employee retention credits.
Interest Expense. The variance is primarily driven by lower post-in-service
carrying costs and higher debt returns in the prior year on ash basin closure
costs resulting from the
Income Tax Expense. The increase in tax expense was primarily due to an increase
in pretax income.
PIEDMONT
Results of Operations
Years Ended December 31,
(in millions) 2021 2020 Variance
Operating Revenues $ 1,569 $ 1,297 $ 272
Operating Expenses
Cost of natural gas 569 386 183
Operation, maintenance and other 327 322 5
Depreciation and amortization 213 180 33
Property and other taxes 55 53 2
Impairment of assets and other charges 10 7 3
Total operating expenses 1,174 948 226
Operating Income 395 349 46
Equity in earnings of unconsolidated affiliates 9 9 -
Other income and expenses, net 55 51 4
Total other income and expenses 64 60 4
Interest Expense 119 118 1
Income Before Income Taxes 340 291 49
Income Tax Expense 30 18 12
Net Income $ 310 $ 273 $ 37 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 2021 Residential deliveries 7.0 % Commercial deliveries 6.9 % Industrial deliveries 4.1 % Power generation deliveries 14.0 % For resale 13.2 % Total throughput deliveries 10.8 % Secondary market volumes 37.2 % Average number of customers 1.9 % 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
Operating Revenues. The variance was driven primarily by:
•a
•a
•a
•an
56
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MD&A PIEDMONTOperating Expenses. The variance was driven primarily by:
•a
•a
Income Tax Expense. The increase in tax expense was primarily due to an increase in pretax income.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of financial statements requires the application of accounting policies, judgments, assumptions and estimates that can significantly affect the reported results of operations, cash flows or the amounts of assets and liabilities recognized in the financial statements. Judgments made include the likelihood of success of particular projects, possible legal and regulatory challenges, earnings assumptions on pension and other benefit fund investments and anticipated recovery of costs, especially through regulated operations. Management discusses these policies, estimates and assumptions with senior members of management on a regular basis and provides periodic updates on management decisions to the Audit Committee. Management believes the areas described below require significant judgment in the application of accounting policy or in making estimates and assumptions that are inherently uncertain and that may change in subsequent periods.
For further information, see Note 1 to the Consolidated Financial Statements, "Summary of Significant Accounting Policies."
Regulated Operations Accounting
Substantially all of Duke Energy's regulated operations meet the criteria for application of regulated operations accounting treatment. As a result, Duke Energy is required to record assets and liabilities that would not be recorded for nonregulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities are recorded when it is probable that a regulator will require Duke Energy to make refunds to customers or reduce rates to customers for previous collections or deferred revenue for costs that have yet to be incurred.
Management continually assesses whether recorded regulatory assets are probable of future recovery by considering factors such as:
•applicable regulatory environment changes;
•historical regulatory treatment for similar costs in Duke Energy's jurisdictions;
•litigation of rate orders;
•recent rate orders to other regulated entities;
•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 3 to the Consolidated Financial Statements, "Regulatory Matters."
Goodwill Impairment Assessments
Duke Energy performed its annual goodwill impairment tests for all reporting units as ofAugust 31, 2021 . 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 ofAugust 31, 2021 , all of the reporting units' estimated fair value of equity substantially exceeded the carrying value of equity. The fair values of the reporting units were calculated using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Estimated future cash flows under the income approach are based on Duke Energy's internal business plan. Significant assumptions used are growth rates, future rates of return expected to result from ongoing rate regulation and discount rates. Management determines the appropriate discount rate for each of its reporting units based on the WACC for each individual reporting unit. The WACC takes into account both the after-tax cost of debt and cost of equity. A major component of the cost of equity is the current risk-free rate on 20-yearU.S. Treasury bonds. In the 2021 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 ofAugust 31, 2021 , for each of Duke Energy's reporting units ranged from 5.4% to 5.8%. 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. 57 -------------------------------------------------------------------------------- MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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 ofAugust 31 . The implied market multiples used for calculating the fair values as ofAugust 31, 2021 , for each of Duke Energy's reporting units ranged from 9.7 to 12.7. 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 approximately
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 approximately$12.8 billion and$13 billion of AROs as ofDecember 31, 2021 , and 2020, respectively. See Note 9, "Asset Retirement Obligations," for further details including a rollforward of related liabilities. The present value of the initial obligation and subsequent updates are based on discounted cash flows, which include estimates regarding the amount and timing of future cash flows, regulatory, legal, and legislative decisions, selection of discount rates and cost escalation rates, among other factors. These estimates are subject to change. Obligations for nuclear decommissioning are based on site-specific cost studies.Duke Energy Carolinas andDuke 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 andDuke 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 builtDOE facility. Obligations for closure of ash basins are based upon discounted cash flows of estimated costs for site-specific plans. Certain ash basins have had probability weightings applied to them based on different potential closure methods and the probabilities surrounding pending legal changes.
For further information, see Notes 3, 4 and 9 to the Consolidated Financial Statements, "Regulatory Matters," "Commitments and Contingencies" and "Asset Retirement Obligations."
Long-Lived Asset Impairment Assessments, Excluding Regulated Operations
Duke Energy evaluates property, plant and equipment for impairment when events or changes in circumstances (such as a significant change in cash flow projections or the determination that it is more likely than not that an asset or asset group will be sold) indicate the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with their carrying value. Performing an impairment evaluation involves a significant degree of estimation and judgment in areas such as identifying circumstances that indicate an impairment may exist, identifying and grouping affected assets and developing the undiscounted future cash flows. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value and recording a loss if the carrying value is greater than the fair value. Additionally, determining fair value requires probability weighting future cash flows to reflect expectations about possible variations in their amounts or timing and the selection of an appropriate discount rate. Although cash flow estimates are based on relevant information available at the time the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results. When determining whether an asset or asset group has been impaired, management groups assets at the lowest level that has discrete cash flows. During 2021, Duke Energy evaluated recoverability of certain renewable merchant plants due to changing market pricing and declining long-term forecasted energy prices, primarily driven by lower long-term forecasted natural gas prices, capital cost of new renewables and increased renewable penetration. It was determined the assets were all recoverable as the carrying value of the assets approximated or were less than the aggregate estimated future cash flows. Duke Energy has approximately$200 million and$210 million in Property, plant and equipment related to these assets as ofDecember 31, 2021 , and 2020, respectively. Workplace and workforce realignment has been a focus for the company and costs have been incurred attributable to business transformation, including long-term real estate strategy changes and workforce realignment. For further information, see Notes 2 and 10 to the Consolidated Financial Statements, "Business Segments" and "Property, Plant and Equipment."
Pension and Other Post-Retirement Benefits
The calculation of pension expense, other post-retirement benefit expense and
net pension and other post-retirement assets or liabilities require the use of
assumptions and election of permissible accounting alternatives. Changes in
assumptions can result in different expense and reported asset or liability
amounts and future actual experience can differ from the assumptions. Duke
Energy believes the most critical assumptions for pension and other
post-retirement benefits are the expected long-term rate of return on plan
assets and the assumed discount rate applied to future projected benefit
payments.
58
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MD&A CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Duke Energy elects to amortize net actuarial gain or loss amounts that are in
excess of 10% of the greater of the market-related value of plan assets or the
plan's projected benefit obligation, into net pension or other post-retirement
benefit expense over the average remaining service period of active participants
expected to benefit under the plan. If all or almost all of a plan's
participants are inactive, the average remaining life expectancy of the inactive
participants is used instead of average remaining service period. Prior service
cost or credit, which represents an increase or decrease in a plan's pension
benefit obligation resulting from plan amendment, is amortized on a
straight-line basis over the average expected remaining service period of active
participants expected to benefit under the plan. If all or almost all of a
plan's participants are inactive, the average remaining life expectancy of the
inactive participants is used instead of average remaining service period.
As of December 31, 2021 , Duke Energy assumes pension and other post-retirement
plan assets will generate a long-term rate of return of 6.50%. The expected
long-term rate of return was developed using a weighted average calculation of
expected returns based primarily on future expected returns across asset classes
considering the use of active asset managers, where applicable. The asset
allocation targets were set after considering the investment objective and the
risk profile. Equity securities are held for their higher expected returns. Debt
securities are primarily held to hedge the qualified pension liability. Real
assets, return-seeking fixed income, hedge funds and other global securities are
held for diversification. Investments within asset classes are diversified to
achieve broad market participation and reduce the impact of individual managers
on investments.
Duke Energy discounted its future U.S. pension and other post-retirement
obligations using a rate of 2.90% as of December 31, 2021 . Discount rates used
to measure benefit plan obligations for financial reporting purposes reflect
rates at which pension benefits could be effectively settled. As of December 31,
2021 , Duke Energy determined its discount rate for U.S. pension and other
post-retirement obligations using a bond selection-settlement portfolio
approach. This approach develops a discount rate by selecting a portfolio of
high-quality corporate bonds that generate sufficient cash flow to provide for
projected benefit payments of the plan. The selected bond portfolio is derived
from a universe of non-callable corporate bonds rated Aa quality or higher.
After the bond portfolio is selected, a single interest rate is determined that
equates the present value of the plan's projected benefit payments discounted at
this rate with the market value of the bonds selected.
Future changes in plan asset returns, assumed discount rates and various other
factors related to the participants in Duke Energy's pension and post-retirement
plans will impact future pension expense and liabilities. Duke Energy cannot
predict with certainty what these factors will be in the future. The following
table presents the approximate effect on Duke Energy's 2022 pretax pension
expense, pretax other post-retirement expense, pension obligation and other
post-retirement benefit obligation if a 0.25% change in rates were to occur.
Qualified and Non- Other Post-Retirement
Qualified Pension Plans Plans
(in millions) 0.25 % (0.25) % 0.25 % (0.25) %Effect on 2022 pretax pension and other post-retirement expense: Expected long-term rate of return
$ (21) $ 21 $ - $ - Discount rate (6) 6 1 (1)
Effect on pension and other post-retirement benefit
obligation at
(189) 193 (11) 12
For further information, see Note 22 to the Consolidated Financial Statements, "Employee Benefit Plans."
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Duke Energy relies primarily upon cash flows from operations, debt and equity
issuances and its existing cash and cash equivalents to fund its liquidity and
capital requirements. Duke Energy's capital requirements arise primarily from
capital and investment expenditures, repaying long-term debt and paying
dividends to shareholders. Additionally, due to its existing tax attributes,
Duke Energy does not expect to be a significant federal cash taxpayer until
around 2030.
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MD&A LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
Duke Energy continues to focus on reducing risk and positioning its business for
future success and will invest principally in its strongest business sectors.
Duke Energy's projected capital and investment expenditures, including AFUDC
debt and capitalized interest, for the next three fiscal years are included in
the table below.
(in millions) 2022 2023 2024
New generation $ 14 $ 156 $ 445
Regulated renewables 742 1,194 1,346
Environmental 780 580 461
Nuclear fuel 453 366 385
Major nuclear 252 186 48
Customer additions 596 591 605Grid modernization and other transmission and distribution projects
4,154 4,377 4,526
Maintenance and other 2,959 3,050 2,609
Total Electric Utilities and Infrastructure 9,950 10,500 10,425
Gas Utilities and Infrastructure 1,350 1,375 1,150
Commercial Renewables and Other 1,050 1,100 650
Total projected capital and investment expenditures
12,975$ 12,225 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 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for information regarding the Duke Energy Registrants' long-term debt atDecember 31, 2021 , the weighted average interest rate applicable to each long-term debt category and a schedule of long-term debt maturities over the next five years.Fuel and Purchased Power Fuel and purchased power includes firm capacity payments that provide Duke Energy with uninterrupted firm access to electricity transmission capacity and natural gas transportation contracts, as well as undesignated contracts and contracts that qualify as NPNS. Duke Energy's contractual cash obligations for fuel and purchased power as ofDecember 31, 2021 , are as follows: Payments Due by Period More than 5 Less than 1 2-3 years 4-5 years years (2027 & (in millions) Total year (2022) (2023 & 2024) (2025 & 2026) beyond) Fuel and purchased power$ 19,976 $ 4,594 $ 6,071 $ 3,618 $ 5,693 Other Purchase Obligations Other purchase obligations includes contracts for software, telephone, data and consulting or advisory services, contractual obligations for EPC costs for new generation plants, wind and solar facilities, plant refurbishments, maintenance and day-to-day contract work and commitments to buy certain products. Amount excludes certain open purchase orders for services that are provided on demand for which the timing of the purchase cannot be determined. Total cash commitments for related other purchase obligation expenditures are$7,941 million , with$7,526 million expected to be paid in the next 12 months. See Note 5 to the Consolidated Financial Statements, "Leases" for a schedule of both finance lease and operating lease payments over the next five years. See Note 9 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 7 to the Consolidated Financial Statements, "Guarantees and Indemnifications," for further details of the guarantee arrangements. Issuance of these guarantee arrangements is not required for the majority of Duke Energy's operations. Thus, if Duke Energy discontinued issuing these guarantees, there would not be a material impact to the consolidated results of operations, cash flows or financial position. Other than the guarantee arrangements discussed in Note 7 and off-balance sheet debt related to non-consolidated VIEs, Duke Energy does not have any material off-balance sheet financing entities or structures. For additional information, see Note 17 to the Consolidated Financial Statements, "Variable Interest Entities."
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 6 to the Consolidated Financial Statements,
"Debt and Credit Facilities," for additional discussion of the money pool
arrangement.
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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, 2021 , Duke Energy had approximately $343 million of cash on
hand, $5.0 billion available under its $8 billion Master Credit Facility and
$500 million available under the $1 billion Three-Year Revolving Credit
Facility. Duke Energy expects to have sufficient liquidity in the form of cash
on hand, cash from operations and available credit capacity to support its
funding needs. Additionally, by January 2023 , Duke Energy is expecting another
$1,025 million from GIC for the second closing of the investment in Duke Energy
Indiana . Proceeds from the minority interest investment are expected to
partially fund Duke Energy's $63 billion capital and investment expenditure
plan. Refer to Notes 6 and 19 to the Consolidated Financial Statements, "Debt
and Credit Facilities" and "Stockholders' Equity," respectively, for information
regarding Duke Energy's debt and equity issuances, debt maturities and available
credit facilities including the Master Credit Facility.
Credit Facilities and Registration Statements
See Note 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding credit facilities and shelf registration statements available to Duke Energy and the Duke Energy Registrants.
Dividend Payments
In 2021, Duke Energy paid quarterly cash dividends for the 95th consecutive year and expects to continue its policy of paying regular cash dividends in the future. There is no assurance as to the amount of future dividends because they depend on future earnings, capital requirements, financial condition and are subject to the discretion of the Board of Directors. Duke Energy targets a dividend payout ratio of between 65% and 75%, based upon adjusted EPS. Duke Energy increased the dividend by approximately 2% annually in both 2021 and 2020, and the company remains committed to continued growth of the dividend.
Dividend and Other Funding Restrictions of Duke Energy Subsidiaries
As discussed in Note 3 to the Consolidated Financial Statements, "Regulatory Matters," Duke Energy's wholly owned public utility operating companies have restrictions on the amount of funds that can be transferred to Duke Energy through dividends, advances or loans as a result of conditions imposed by various regulators in conjunction with merger transactions.Duke Energy Progress andDuke 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. AtDecember 31, 2021 , the amount of restricted net assets of wholly owned subsidiaries of Duke Energy that may not be distributed to Duke Energy in the form of a loan or dividend does not exceed a material amount of Duke Energy's net assets. Duke Energy does not have any legal or other restrictions on paying common stock dividends to shareholders out of its consolidated equity accounts. Although these restrictions cap the amount of funding the various operating subsidiaries can provide to Duke Energy, management does not believe these restrictions will have a significant impact on Duke Energy's ability to access cash to meet its payment of dividends on common stock and other future funding obligations.
Cash Flows From Operating Activities
Cash flows from operations ofElectric Utilities andInfrastructure and Gas Utilities and Infrastructure are primarily driven by sales of electricity and natural gas, respectively, and costs of operations. These cash flows from operations are relatively stable and comprise a substantial portion of Duke Energy's operating cash flows. Weather conditions, working capital and commodity price fluctuations and unanticipated expenses including unplanned plant outages, storms, legal costs and related settlements can affect the timing and level of cash flows from operations. As part of Duke Energy's continued effort to improve its cash flows from operations and liquidity, Duke Energy works with vendors to improve terms and conditions, including the extension of payment terms. To support this effort, Duke Energy established a supply chain finance program (the "program") in 2020, under which suppliers, at their sole discretion, may sell their receivables from Duke Energy to the participating financial institution. The financial institution administers the program. Duke Energy does not issue any guarantees with respect to the program and does not participate in negotiations between suppliers and the financial institution. Duke Energy does not have an economic interest in the supplier's decision to participate in the program and receives no interest, fees or other benefit from the financial institution based on supplier participation in the program. Suppliers' decisions on which invoices are sold do not impact Duke Energy's payment terms, which are based on commercial terms negotiated between Duke Energy and the supplier regardless of program participation. A significant deterioration in the credit quality of Duke Energy, economic downturn or changes in the financial markets could limit the financial institutions willingness to participate in the program. Duke Energy does not believe such risk would have a material impact on our cash flows from operations or liquidity, as substantially all our payments are made outside the program. Duke Energy believes it has sufficient liquidity resources through the commercial paper markets, and ultimately, the Master Credit Facility, to support these operations. Cash flows from operations are subject to a number of other factors, including, but not limited to, regulatory constraints, economic trends and market volatility (see Item 1A, "Risk Factors," for additional information).
Debt Issuances
Depending on availability based on the issuing entity, the credit rating of the issuing entity, and market conditions, the Subsidiary Registrants prefer to issue first mortgage bonds and secured debt, followed by unsecured debt. This preference is the result of generally higher credit ratings for first mortgage bonds and secured debt, which typically result in lower interest costs.Duke Energy Corporation primarily issues unsecured debt. 61 -------------------------------------------------------------------------------- MD&A LIQUIDITY AND CAPITAL RESOURCES In 2022, Duke Energy anticipates issuing additional securities of$9.5 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 6 to the Consolidated Financial Statements, "Debt and Credit Facilities," for further information regarding significant debt issuances in 2021. Duke Energy's capitalization is balanced between debt and equity as shown in the table below. Projected 2022 Actual 2021 Actual 2020 Equity 42 % 43 % 44 % Debt 58 % 57 % 56 % Restrictive Debt Covenants Duke Energy's debt and credit agreements contain various financial and other covenants. Duke Energy's Master Credit Facility contains a covenant requiring the debt-to-total capitalization ratio to not exceed 65% for each borrower, excluding Piedmont, and 70% for Piedmont. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements or sublimits thereto. As ofDecember 31, 2021 , each of the Duke Energy Registrants was in compliance with all covenants related to their debt agreements. In addition, some credit agreements may allow for acceleration of payments or termination of the agreements due to nonpayment, or acceleration of other significant indebtedness of the borrower or some of its subsidiaries. None of the debt or credit agreements contain material adverse change clauses. Credit Ratings
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/Ba1 BBB-
Commercial Paper P-2 A-2
Duke Energy Carolinas Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+
Progress Energy Stable Stable
Senior Unsecured Debt Baa1 BBB
Duke Energy Progress Stable Stable
Senior Secured Debt Aa3 A
Duke Energy Florida Stable Stable
Senior Secured Debt A1 A
Senior Unsecured Debt A3 BBB+
Duke Energy Ohio Stable Stable
Senior Secured Debt A2 A
Senior Unsecured Debt Baa1 BBB+
Duke Energy Indiana Stable Stable
Senior Secured Debt Aa3 A
Senior Unsecured Debt A2 BBB+
Duke Energy Kentucky Stable Stable
Senior Unsecured Debt Baa1 BBB+
Piedmont Natural Gas Stable Stable
Senior Unsecured A3 BBB+
Credit ratings are intended to provide credit lenders a framework for comparing
the credit quality of securities and are not a recommendation to buy, sell or
hold. The Duke Energy Registrants' credit ratings are dependent on the rating
agencies' assessments of their ability to meet their debt principal and interest
obligations when they come due. If, as a result of market conditions or other
factors, the Duke Energy Registrants are unable to maintain current balance
sheet strength, or if earnings and cash flow outlook materially deteriorates,
credit ratings could be negatively impacted.
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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) 2021 2020
Cash flows provided by (used in):
Operating activities $ 8,290 $ 8,856
Investing activities (10,935) (10,604)
Financing activities 2,609 1,731
Net decrease in cash, cash equivalents and restricted cash (36) (17)
Cash, cash equivalents and restricted cash at beginning of period
556 573
Cash, cash equivalents and restricted cash at end of period $ 520 $ 556
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) 2021 2020 Variance
Net income $ 3,579 $ 1,082 $ 2,497
Non-cash adjustments to net income 5,941 8,353 (2,412)
Payments for AROs (540) (610)
70
Refund of AMT credit carryforwards - 572
(572)
Working capital (690) (541)
(149)
Net cash provided by operating activities
The variance was driven primarily by:
•a
•a$149 million increase in cash outflows from working capital primarily due to an increase in under collected fuel used in generation due to higher pricing, partially offset by coal ash insurance litigation proceeds, fluctuations in accounts payable levels and timing of property tax accruals and payments in the current year. Partially offset by: •an$85 million increase in net income after adjustment for non-cash items primarily due to higher revenues from rate cases in various jurisdictions, higher retail sales volumes and the prior year coal ash settlement agreement filed with the NCUC, partially offset by an impairment charge related to theSouth Carolina Supreme Court Decision on coal ash, higher depreciation, amortization and accretion and interest expense; and
•a
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
(in millions) 2021 2020 Variance
Capital, investment and acquisition expenditures, net of return of investment capital
$ (9,752) $ (10,144) $ 392 Debt and equity securities, net 5 (62) 67 Disbursements to canceled equity method investments (855) - (855) Other investing items (333) (398) 65 Net cash used in investing activities $
(10,935)
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MD&A LIQUIDITY AND CAPITAL RESOURCES
The variance relates primarily to a payment made to fund ACP's outstanding debt,
partially offset by a decrease in capital expenditures due to lower overall
investments in the Commercial Renewables segment. 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
(in millions) 2021 2020 Variance Electric Utilities and Infrastructure$ 7,653 $ 7,612 $ 41 Gas Utilities and Infrastructure 1,271 1,303 (32) Commercial Renewables 543 965 (422) Other 285 264 21 Total capital, investment and acquisition expenditures, net of return of investment capital$ 9,752 $ 10,144 $ (392) 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) 2021 2020 Variance
Issuance of common stock $ 5 $ 2,745 $ (2,740)
Issuances of long-term debt, net 3,758 1,824 1,934
Notes payable and commercial paper 479 (319)
798
Dividends paid (3,114) (2,812)
(302)
Contributions from noncontrolling interests 1,575 426
1,149
Other financing items (94) (133)
39
Net cash provided by financing activities
878
The variance was driven primarily by:
•a
•a$1,149 million increase in contributions from noncontrolling interests, primarily due to a$1,025 million receipt from GIC to make an indirect minority interest investment of 11.05% inDuke Energy Indiana ; and
•a
Partially offset by:
•a
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