DUKE ENERGY CORPORATION The following combined Management's Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Duke Energy andDuke Energy Carolinas , Progress Energy,Duke Energy Progress ,Duke Energy Florida ,Duke Energy Ohio ,Duke Energy Indiana andPiedmont . 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. DUKE ENERGY Duke Energy is an energy company headquartered inCharlotte, North Carolina . Duke Energy operates in theU.S. primarily through its wholly owned subsidiaries,Duke Energy Carolinas ,Duke Energy Progress ,Duke Energy Florida ,Duke Energy Ohio ,Duke Energy Indiana andPiedmont . 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. Management's Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the nine months endedSeptember 30, 2020 , and with Duke Energy's Annual Report on Form 10-K for the year endedDecember 31, 2019 . Executive Overview Road to Net-Zero Carbon Duke Energy has committed to net-zero carbon emissions from electric generation by 2050 in a reliable and cost-effective manner. Our commitment to address our climate is integrated into everything we do as we seek to reduce our greenhouse gas emissions and mitigate risk. We have already lowered our carbon emissions by 39% since 2005, retired over 50 coal units since 2010 and expanded our renewables portfolio by adding 8,000 MW of wind and solar onto our system through 2019. To further support our climate strategy, Duke Energy has announced plans to convert most of its 10,000-vehicle fleet to electric by 2030. InOctober 2020 , Duke Energy also announced its commitment to achieve net-zero methane emissions across our local gas distribution companies by 2030. OnSeptember 1, 2020 ,Duke Energy Carolinas andDuke Energy Progress filed integrated resource plans with the utility commissions inNorth Carolina andSouth Carolina , presenting six potential pathways to transition the energy system to further accelerate carbon reduction over the next 15 years. These pathways were designed with extensive input from more than 200 diverse groups and will continue to be developed with engagement from policymakers and stakeholders. Each potential pathway keeps the company on a trajectory to meet carbon goals while exploring accelerated coal retirement options, increasing renewables, including offshore wind, and further developing new technologies. We expect that execution of some combination of pathways will reduce carbon emissions between approximately 55%-75% through the 2035 planning horizon and will require total incremental investment capital of between$20 billion to$50 billion .Duke Energy Florida is investing to bring 700 MW of solar online by 2022 and has filed a$1 billion shared solar program called Clean Energy Connection, which will add another 750 MW of solar by the end of 2024.Duke Energy Indiana continues to focus on accelerating closure of coal plants, planning to add to the 1,100 MW of coal that has been retired since 2010. We will closely monitor the impacts of these plans as they accelerate coal plant retirements and may cause us to seek specific regulatory recovery. COVID-19 The COVID-19 pandemic is having a significant impact on global health and economic environments. Retail electric sales are down approximately 3% for the year compared to the prior year due to the pandemic. This reduction however is not as steep as expected in our revisedMarch 2020 forecast. The company incurred approximately$39 million and$91 million of incremental COVID-19 costs before deferral for the three and nine months endedSeptember 30, 2020 , respectively. These costs are primarily bad debt expense, personal protective equipment and cleaning supplies. For the nine months endedSeptember 30, 2020 , the company has deferred approximately$56 million . Further, the company waived approximately$29 million and$54 million of late payment fees for the three and nine months endedSeptember 30, 2020 , respectively. The Duke Energy Registrants are monitoring developments closely, have taken steps to mitigate the impacts to our business, and have a pandemic response plan in place to protect our employees, customers and communities. • Employees. The health of our employees is of paramount importance. Power
plants and electricity and natural gas delivery facilities are staffed.
Employees who are not involved with power generation, power delivery,
customer service or certain other functions have been performing their work
duties remotely from home. Employees who need to interact with customers in
person are following the
guidelines, including social distancing and use of face masks. Operating
procedure changes include additional cleaning and disinfection procedures at
our facilities.
• Customers. The Duke Energy Subsidiary Registrants have resumed certain
standard billing and credit practices, disconnections for nonpayment and late
payment charges, all of which were previously suspended in the first quarter
of 2020 in order to give customers experiencing financial hardship extra time
to make payments. See Note 3 to the Condensed Consolidated Financial
Statements, "Regulatory Matters," for additional information. The COVID-19
pandemic and stay-at-home orders caused many commercial and industrial
customers to reduce or suspend operations beginning in late March and April,
which has impacted the Duke Energy Registrants' volumes during the nine
months ended September 30, 2020 . Many of these customers have begun to
restart their businesses.
• Communities.
in donations and grants during the nine months ended
support hunger relief, local health and human services nonprofits, and
education initiatives across the Duke Energy Registrants' service
territories.
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MD&A DUKE ENERGY
• Policymaker actions. The CARES Act was signed by
2020. Duke Energy Registrants are benefiting from certain provisions such as
the accelerated refund of AMT credits, which resulted in receipt of a
million refund and
deferral of certain payroll taxes through
the Condensed Consolidated Financial Statements, "Income Taxes," for
additional information.
• Cost mitigation. Duke Energy has developed and executed a significant cost
containment plan during 2020 to offset a portion of the revenue decline
experienced as a result of the COVID-19 pandemic. This plan includes a
variety of cost efficiency measures, including managing plant costs due to
lower production, lower employee expenses and lower financing costs due to
favorable market conditions.
Regulatory Activity. See Note 3 to the Condensed Consolidated Financial
Statements, "Regulatory Matters," for additional information.
• On
Staff filed a Second Agreement and Stipulation of Partial Settlement, which
is subject to review and approval of the NCUC, resolving certain remaining
issues in the 2019 base rate proceeding. The
concluded on
concluded on
expect the NCUC to issue an order on each net rate increase in early 2021. On
implement temporary rates, seeking to exercise its statutory right to
implement temporary rates subject to refund. The NCUC approved these requests
and rates were effective on
Energy Carolinas and
• On
joint petition with the NCUC seeking authorization for the financing of each
utilities' storm recovery activities as a result of Hurricane Florence,
Hurricane Michael, Hurricane Dorian and Winter Storm Diego. The total revenue
requirement over the proposed 15-year bond period for the storm recovery
charges is approximately
million for
of the respective storm recovery costs will result in expected customer
savings of 32% for
Progress customers.
•
The IURC issued its order
approximately
estimated to be approximately 75% of the total and became effective on July
30, 2020. Step two rates are estimated to be the remaining 25% of the total
rate increase and will be effective in the first quarter of 2021. Several
groups filed notices of appeal of the IURC order on
• COVID-19 deferral requests
•
with the NCUC for deferral treatment of incremental costs and waived
customer fees due to the COVID-19 pandemic on August 7, 2020 . Duke
Energy Carolinas and Duke Energy Progress filed a similar request with
the PSCSC on August 14, 2020 .
•
deferral of incremental costs incurred due to the COVID-19 pandemic, as
well as specific miscellaneous lost revenues. The request seeks to use
existing bad debts and uncollectible riders already in place for both
electric and natural gas operations. Duke Energy Ohio would
subsequently file for rider recovery at a later date. On June 17, 2020 ,
the PUCO approved Duke Energy Ohio's deferral application.
• On May 8, 2020 , Duke Energy Indiana , along with other Indiana
utilities, filed a request with the IURC for approval of deferral
treatment for costs associated with the COVID-19 pandemic. On
2020, the IURC issued its order permitting jurisdictional utilities to
use regulatory accounting for any impacts associated with the
prohibition on utility disconnections, waiver or exclusion of certain
utility fees, the use of expanded payment arrangements to aid
customers, and for COVID-19 related uncollectible and incremental bad
debt expense.
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.
COVID-19
Duke Energy cannot predict the extent to which the COVID-19 pandemic will impact
its results of operations, financial position and cash flows in the future. Duke
Energy will continue to actively monitor the impacts of COVID-19 including the
economic slowdown caused by business closures or by reduced operations of
businesses and governmental agencies. The pandemic and resultant economic
slowdown will adversely affect the company's customers, suppliers and partners
and could cause an increase in certain costs, such as bad debt, and a reduction
in the demand for energy. It could also cause delays in construction for
Commercial Renewables and availability of financing. The company also has
various pending rate case proceedings that have been delayed. Duke Energy has
cost mitigation plans in place to partially offset these impacts, and the
ability to execute these plans is critical to preserving future financial
results. Furthermore, the actions of federal, state or local authorities may
impact our business operations in ways that we currently cannot anticipate. See
Item 1A. Risk Factors for discussion of risks associated with COVID-19 and
Liquidity and Capital Resources within this section for a discussion of
liquidity impacts of COVID-19.
ACP
On July 5, 2020 , Duke Energy and Dominion Energy determined that they would no
longer invest in the construction of the Atlantic Coast Pipeline. Duke Energy
has recorded approximately $2.1 billion of pretax charges and expects additional
charges of less than $50 million to be recorded when certain exit costs related
to the project are incurred by ACP. Estimates used to calculate the loss could
be revised and exit obligations, which have not yet been incurred or recorded
could have an adverse impact on future results. Furthermore, the loss of
earnings from this project, including AFUDC, will lower Duke Energy's future
expected results. See Notes 1, 3, 4 and 11 to the Condensed Consolidated
Financial Statements, "Organization and Basis of Presentation," "Regulatory
Matters," "Commitments and Contingencies," and "Variable Interest Entities,"
respectively, for additional information.
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--------------------------------------------------------------------------------MD&A MATTERS IMPACTING FUTURE RESULTS
Regulatory Matters Coal Ash Costs OnDecember 31, 2019 ,Duke Energy Carolinas andDuke Energy Progress entered into a settlement agreement withNorth Carolina Department of Environmental Quality and certain community groups under whichDuke Energy Carolinas andDuke Energy Progress agreed to excavate seven of the nine remaining coal ash basins inNorth Carolina with ash moved to on-site lined landfills. At the two remaining basins, uncapped basin ash will be excavated and moved to lined landfills.Duke Energy Carolinas andDuke Energy Progress have also received orders from the PSCSC granting the companies' requests for retail rate increases but denying recovery of certain coal ash costs.Duke Energy Carolinas andDuke Energy Progress have appealed these decisions to theSouth Carolina Supreme Court and those appeals are pending. Appeals of the 2017 North Carolina approved rate cases forDuke Energy Carolinas andDuke Energy Progress are still pending at theNorth Carolina Supreme Court . TheNorth Carolina Attorney General and various intervenors primarily dispute the allowance of recovery of coal ash costs from customers, which was approved by the NCUC. An order from regulatory or judicial authorities disallowing recovery of costs related to closure of these ash basins could have an adverse impact on future results. In 2015, the EPA published in theFederal Register a rule to regulate the disposal of CCR from electric utilities as solid waste.Duke Energy Indiana has interpreted the 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.Duke Energy Indiana's interpretation of the requirements of the CCR rule is subject to potential legal challenges and further 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. An order from regulatory authorities disallowing recovery of costs related to closure of ash basins could have an adverse impact. Storm CostsDuke Energy Carolinas ,Duke Energy Progress andDuke Energy Florida's service territories were impacted by several named storms in 2018. Hurricane Florence, Hurricane Michael and Winter Storm Diego caused flooding, extensive damage and widespread power outages to the service territories ofDuke Energy Carolinas andDuke Energy Progress .Duke Energy Florida's service territory was also impacted by Hurricane Michael, a Category 5 hurricane and the most powerful storm to hit the FloridaPanhandle in recorded history. InSeptember 2019 , Hurricane Dorian impactedDuke Energy Progress andDuke Energy Florida's service territories. A significant portion of the incremental operation and maintenance expenses related to these storms has been deferred. An order from regulatory authorities disallowing the deferral and future recovery of storm restoration costs could have an adverse impact. Grid Improvement CostsDuke Energy Carolinas received an order from the NCUC in 2018, which denied the Grid Rider Stipulation and deferral treatment of grid improvement costs.Duke Energy Carolinas andDuke Energy Progress have petitioned for deferral of future grid improvement costs in their 2019 rate cases. There could be adverse impact if grid improvement costs are not ultimately approved for recovery and/or deferral treatment. Rate Cases In 2019,Duke Energy Carolinas andDuke Energy Progress filed general rate cases with the NCUC. The outcome of these rate cases could have a material impact. MGP The PUCO has issued an order authorizing recovery of MGP costs at certain sites inOhio with a deadline to complete the MGP environmental investigation and remediation work prior toDecember 31, 2016 . This deadline was subsequently extended toDecember 31, 2019 .Duke Energy Ohio has filed for a request for extension of the deadline. A hearing on that request has not been scheduled. Disallowance of costs incurred, failure to complete the work by the deadline or failure to obtain an extension from the PUCO could result in an adverse impact. For additional information, see Note 3 to the Condensed Consolidated Financial Statements, "Regulatory Matters." Commercial Renewables Duke Energy continues to monitor recoverability of a renewable merchant plant located in theElectric Reliability Council of Texas West market, due to declining market pricing and declining long-term forecasted energy prices, primarily driven by lower forecasted natural gas prices. Based on the most recent recoverability test performed this quarter, the carrying value approximated the aggregate estimated future undiscounted cash flows for this plant. A continued decline in energy market pricing would likely result in a future impairment. Impairment of this asset could result in adverse impacts. For additional information, see Note 2 to the Condensed Consolidated Financial Statements, "Business Segments." See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Duke Energy Registrants' Annual Reports on Form 10-K for the year endedDecember 31, 2019 , for discussion of risks associated with the Tax Act. Results of Operations Non-GAAP Measures 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. 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 presented may not be comparable to similarly titled measures used by other companies because other companies may not calculate the measures in the same manner. 101 --------------------------------------------------------------------------------
MD&A DUKE ENERGY Management evaluates financial performance in part based on non-GAAP financial measures, including adjusted earnings and adjusted EPS. Adjusted earnings and adjusted EPS represent income from continuing operations available toDuke Energy Corporation common stockholders in dollar and per share amounts, adjusted for the dollar and per share impact of special items. As discussed below, special items represent certain charges and credits, which management believes are not indicative of Duke Energy's ongoing performance. The most directly comparable GAAP measures for adjusted earnings and adjusted EPS are GAAP Reported Earnings and GAAP Reported EPS, respectively. Special items included in the periods presented below include the following, which management believes do not reflect ongoing costs: • Gas Pipeline Investments represents costs related to the cancellation of the ACP pipeline and additional exit costs related toConstitution .
• Severance represents the reversal of 2018 costs, which were deferred as a
result of a partial settlement in the Duke Energy Carolinas and the Duke
Energy Progress 2019 North Carolina rate cases.
• Regulatory Settlements represents charges related to Duke Energy
Carolinas' and Duke Energy Progress' partial settlements in the 2019 North
Carolina rate cases.
• Impairment Charges represents a reduction of a prior year impairment at
Citrus County CC.
Three Months EndedSeptember 30, 2020 , as compared toSeptember 30, 2019 GAAP reported EPS was$1.74 for the third quarter of 2020 compared to$1.82 in the third quarter of 2019. GAAP reported earnings decreased primarily due to unfavorable weather, additional charges related to the gas pipeline investments and higher depreciation expense, partially offset by positive rate case impacts and lower operations and maintenance expense. As discussed above, management also evaluates financial performance based on adjusted EPS. Duke Energy's third quarter 2020 adjusted EPS was$1.87 compared to$1.79 for the third quarter of 2019. The increase in adjusted earnings was primarily due to positive rate case impacts and lower operations and maintenance expense, partially offset by unfavorable weather. The following table reconciles non-GAAP measures, including adjusted EPS, to their most directly comparable GAAP measures. Three Months Ended
2020 2019
(in millions, except per share amounts) Earnings EPS Earnings EPS GAAP Reported Earnings/GAAP Reported EPS$ 1,265 $ 1.74 $ 1,327 $ 1.82 Adjustments: Gas Pipeline Investments(a) 69 0.09 - - Regulatory Settlements(b) 27 0.04 - - Impairment Charges(c) - - (19 ) (0.03 ) Adjusted Earnings/Adjusted EPS$ 1,361 $ 1.87 $
1,308
(a) Net of tax benefit of
(b) Net of tax benefit of
(c) Net of
Nine Months EndedSeptember 30, 2020 , as compared toSeptember 30, 2019 GAAP Reported EPS was$1.85 for the nine months endedSeptember 30, 2020 , compared to$4.18 for the nine months endedSeptember 30, 2019 . GAAP reported earnings decreased primarily due to the cancellation of the ACP pipeline. As discussed above, management also evaluates financial performance based on adjusted EPS. Duke Energy's adjusted EPS was$4.09 for the nine months endedSeptember 30, 2020 , compared to$4.15 for the nine months endedSeptember 30, 2019 . The decrease in adjusted earnings was primarily due to unfavorable weather, higher depreciation expense, a prior year adjustment related to income tax recognition for equity method investments and preferred stock dividends. This was partially offset by positive rate case impacts, growth in Commercial Renewables and lower operations and maintenance expense. 102 --------------------------------------------------------------------------------
MD&A DUKE ENERGY
The following table reconciles non-GAAP measures, including adjusted EPS, to their most directly comparable GAAP measures.
Nine Months Ended September 30,
2020 2019
(in millions, except per-share amounts) Earnings EPS Earnings
EPS
GAAP Reported Earnings/GAAP Reported EPS
$ 4.18 Adjustments: Gas Pipeline Investments(a) 1,695 2.30 - - Severance(b) (75 ) (0.10 ) - - Regulatory Settlements(c) 27 0.04 - - Impairment Charges(d) - - (19 ) (0.03 ) Adjusted Earnings/Adjusted EPS$ 2,994 $ 4.09 $ 3,028
(a) Net of tax benefit of
(b) Net of tax expense of
(c) Net of tax benefit of
(d) Net of tax expense of
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 Condensed 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 Condensed Consolidated Financial Statements, "Business Segments," for additional information on Duke Energy's segment structure.Electric Utilities and Infrastructure Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2020 2019 Variance 2020 2019 Variance Operating Revenues$ 6,379 $ 6,577 $ (198 ) $ 16,596 $ 17,381 $ (785 ) Operating Expenses Fuel used in electric generation and purchased power 1,869 1,994 (125 ) 4,703 5,286 (583 ) Operation, maintenance and other 1,326 1,357 (31 ) 3,891 3,957 (66 ) Depreciation and amortization 1,053 1,026 27 3,023 2,924 99 Property and other taxes 286 301 (15 ) 885 899 (14 ) Impairment charges 20 (20 ) 40 23 (16 ) 39 Total operating expenses 4,554 4,658 (104 ) 12,525 13,050 (525 ) Gains on Sales of Other Assets and Other, net 3 - 3 11 - 11 Operating Income 1,828 1,919 (91 ) 4,082 4,331 (249 ) Other Income and Expenses, net 67 87 (20 ) 241 267 (26 ) Interest Expense 308 336 (28 ) 991 1,004 (13 ) Income Before Income Taxes 1,587 1,670 (83 ) 3,332 3,594 (262 ) Income Tax Expense 206 285 (79 ) 493 650 (157 ) Segment Income$ 1,381 $ 1,385 $ (4 ) $ 2,839 $ 2,944 $ (105 )
Duke Energy Carolinas GWh sales 23,726 25,587 (1,861 )
64,045 69,019 (4,974 )
Duke Energy Progress GWh sales 19,035 19,502 (467 ) 49,512 52,072 (2,560 )
Duke Energy Florida GWh sales 12,973 12,996 (23 ) 32,390 32,618 (228 )
Duke Energy Ohio GWh sales 6,678 7,135 (457 ) 17,763 18,959 (1,196 )
Duke Energy Indiana GWh sales 8,463 8,711 (248 ) 22,842 24,181 (1,339 )
Total Electric Utilities and
Infrastructure GWh sales 70,875 73,931 (3,056 ) 186,552 196,849 (10,297 )
Net proportional MW capacity in
operation 50,371 49,711 660
Three Months Ended September 30, 2020 , as compared to September 30, 2019
Electric Utilities and Infrastructure's variance is due to lower fuel revenues
and unfavorable weather partially offset by higher revenues resulting from the
Indiana retail rate case and Duke Energy Florida base and solar rate
adjustments. The following is a detailed discussion of the variance drivers by
line item.
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--------------------------------------------------------------------------------MD&A SEGMENT RESULTS - ELECTRIC UTILITIES AND INFRASTRUCTURE
Operating Revenues. The variance was driven primarily by:
• a
well as an accelerated refund of fuel costs at Duke Energy Florida in
response to the COVID-19 pandemic;
• a $75 million decrease in retail sales, net of fuel revenues, due to
unfavorable weather compared to prior year; and
• a $62 million decrease in rider revenues primarily due to energy
efficiency programs.
Partially offset by:
• a
case, net of rider revenues; and
• a
rate adjustments related to annual increases from the 2017 Settlement
Agreement and the Solar Base Rate Adjustment.
Operating Expenses. The variance was driven primarily by:
• a
power primarily due to lower generation demand and lower fuel costs;
• a $31 million decrease in operation, maintenance and other expense
primarily driven by the deferral of 2018 severance costs due to the
partial settlement agreement between
Staff of the NCUC related to the 2019 North Carolina retail rate case; and
• a
year property tax reassessments.
Partially offset by: • a$40 million increase in impairment charges primarily due to an
impairment of Duke Energy Carolina's
reduction of an impairment at
• a
due to additional plant in service and change in depreciation rates due to
the
Other Income and Expenses, net. The variance was primarily due to lower AFUDC equity in the current year. Interest Expense. The variance was primarily due to lower interest rates on outstanding debt. Income Tax Expense. The decrease in tax expense was primarily due to a decrease in pretax income and an increase in the amortization of excess deferred taxes. The ETRs for the three months endedSeptember 30, 2020 , and 2019 were 13.0% and 17.1%, respectively. The decrease in the ETR was primarily due to an increase in the amortization of excess deferred taxes. Nine Months EndedSeptember 30, 2020 , as compared toSeptember 30, 2019 Electric Utilities and Infrastructure's variance is due to unfavorable weather, lower weather-normal retail sale volumes driven by impacts from the COVID-19 pandemic and lower wholesale revenues, partially offset by higher revenues resulting from theIndiana andSouth Carolina retail rate cases andDuke Energy Florida base and solar rate adjustments. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • a$642 million decrease in fuel revenues driven by lower sales volumes as well as an accelerated refund of fuel costs atDuke Energy Florida in response to the COVID-19 pandemic; • a$199 million decrease in retail sales, net of fuel revenues, due to unfavorable weather in the current year;
• a
to higher recovery of coal ash cost in the prior year and lower capacity
volumes at
• a
• a
nonresidential customer demand driven by impacts from the COVID-19
pandemic.
Partially offset by:
• a
case, net of rider revenues;
• a
rate adjustments related to annual increases from the 2017 Settlement
Agreement and the Solar Base Rate Adjustment; and
• a
rate case, net of a return of EDIT to customers.
Operating Expenses. The variance was driven primarily by:
• a
power primarily due to lower generation demand and lower fuel, coal, and
natural gas costs;
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• a
primarily driven by the deferral of 2018 severance costs due to the
partial settlement agreement between
Staff of the NCUC related to the 2019 North Carolina retail rate case; and
• a
year property tax reassessments.
Partially offset by:
• a
due to additional plant in service and a change in depreciation rates from
the Indiana and South Carolina retail rate cases; and
• a $39 million increase in impairment charges primarily due to an
impairment of Duke Energy Carolina's Clemson assets and a prior year
reduction of an impairment at Duke Energy Florida's Citrus County CC.
Other Income and Expenses, net. The variance was primarily due to lower AFUDC
equity in the current year.
Interest Expense. The variance was primarily due to lower interest rates on
outstanding debt.
Income Tax Expense. The decrease in tax expense was primarily due to a decrease
in pretax income and an increase in the amortization of excess deferred taxes.
The ETRs for the nine months ended September 30, 2020 , and 2019, were 14.8% and
18.1%, respectively. The decrease in the ETR was primarily due to an increase in
the amortization of excess deferred taxes.
Gas Utilities and Infrastructure
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2020 2019 Variance 2020 2019 Variance
Operating Revenues $ 241 $ 249 $
(8 )
41 48 (7 ) 300 451 (151 )
Operation, maintenance and
other 103 108 (5 ) 312 325 (13 )
Depreciation and amortization 65 64 1 193 192 1
Property and other taxes 26 24 2 82 84 (2 )
Impairment charges 7 7 7 - 7
Total operating expenses 242 244 (2 ) 894 1,052 (158 )
Operating (Loss) Income (1 ) 5 (6 ) 300 259 41
Other Income and Expenses
Equity in (losses) earnings
of unconsolidated affiliates (71 ) 37 (108 ) (2,004 ) 101 (2,105 )
Other income and expenses,
net 16 5 11 42 18 24
Total other income and
expenses (55 ) 42 (97 ) (1,962 ) 119 (2,081 )
Interest Expense 35 29 6 103 86 17
(Loss) Income Before Income
Taxes (91 ) 18 (109 ) (1,765 ) 292 (2,057 )
Income Tax Benefit (18 ) (8 ) (10 ) (365 ) - (365 )
Segment (Loss) Income $ (73 ) $ 26 $
(99 )
Piedmont LDC throughput (dekatherms) 115,549,371 121,378,484
(5,829,113 ) 360,861,306 377,729,141 (16,867,835 ) Duke Energy Midwest LDC throughput (Mcf)
9,678,342 9,997,444 (319,102 ) 58,570,583 62,278,623 (3,708,040 )
Three Months Ended September 30, 2020 , as compared to September 30, 2019
Gas Utilities and Infrastructure's results were impacted primarily by the
cancellation of the ACP pipeline. The following is a detailed discussion of the
variance drivers by line item.
Operating Revenues. The variance was driven primarily by:
• an $8 million decrease due to lower natural gas costs passed through to
customers and decreased off-system sales natural gas costs; and
• a
Partially offset by: • a$5 million increase due toNorth Carolina base rate case increases. Operating Expenses. The variance was driven primarily by: • a$7 million decrease in cost of natural gas primarily due to lower natural gas prices and decreased off-system sales natural gas costs. 105
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Partially offset by:
• a
materials write-off.
Equity in (losses) earnings of unconsolidated affiliates. The variance was driven primarily by additional charges related to the cancellation of the ACP pipeline. Income Tax Benefit. The increase in the tax benefit was primarily due to a decrease in pretax income, partially offset by a decrease in AFUDC Equity. Nine Months EndedSeptember 30, 2020 , as compared toSeptember 30, 2019 Gas Utilities and Infrastructure's results were impacted primarily by the cancellation of the ACP pipeline. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was driven primarily by: • a$151 million decrease due to lower natural gas costs passed through to
customers, lower volumes, and decreased off-system sales natural gas
costs; and
• a
Partially offset by: • a$65 million increase due toNorth Carolina base rate case increases.
Operating Expenses. The variance was driven primarily by:
• a
prices, lower volumes and decreased off-system sales natural gas costs;
and
• a
of previously expensed IT project costs and employee labor and benefits
costs.
Partially offset by:
• a
materials write-off.
Equity in (losses) earnings of unconsolidated affiliates. The variance was driven primarily by the cancellation of the ACP pipeline. Other Income and Expenses, net. The variance was driven primarily by AFUDC equity and intercompany interest related toBelews Creek andMarshall Power Generation contracts. Interest Expense. The variance was driven primarily by interest on the EDIT balance being returned to customers and higher debt outstanding in the current year, offset by lower AFUDC debt income. Income Tax Benefit. The increase in tax benefit was primarily due to a decrease in pretax income driven by the impact of the cancellation of the ACP pipeline project recorded in the second quarter of 2020. The ETRs for the nine months endedSeptember 30, 2020 , and 2019, were 20.7% and 0.0%, respectively. The increase in the ETR was primarily due to an adjustment, recorded in the first quarter of 2019, related to the income tax recognition for equity method investments. The equity method investment adjustment was immaterial and relates to prior years. 106 --------------------------------------------------------------------------------
MD&A SEGMENT RESULTS - COMMERCIAL RENEWABLES
Commercial Renewables
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2020 2019 Variance 2020 2019 Variance
Operating Revenues $ 126 $ 138 $ (12 ) $ 378 $ 362 $ 16
Operating Expenses
Operation, maintenance and other 72 81 (9 ) 204 211 (7 )
Depreciation and amortization 52 43 9 148 123 25
Property and other taxes 8 6 2 24 18 6
Impairment charges - - - 6 - 6
Total operating expenses 132 130 2 382 352 30
Operating (Loss) Income (6 ) 8 (14 ) (4 ) 10 (14 )
Other Income and Expenses, net (1 ) 13 (14 ) - 3 (3 )
Interest Expense 18 35 (17 ) 49 78 (29 )
Loss Before Income Taxes (25 ) (14 ) (11 ) (53 ) (65 ) 12
Income Tax Benefit (15 ) (35 ) 20 (52 ) (94 ) 42
Add: Loss Attributable to
Noncontrolling Interests 70 19 51 208 110 98
Segment Income $ 60 $ 40 $ 20 Renewable plant production, GWh 2,563 2,146 417 7,660 6,528 1,132 Net proportional MW capacity in operation(a) 3,984 3,162 822
(a) Certain projects are included in tax equity structures where investors
have differing interests in the project's economic attributes. One hundred
percent of the tax equity project's capacity is included in the table
above.
Three Months EndedSeptember 30, 2020 , as compared toSeptember 30, 2019 Commercial Renewables' results were favorable primarily due to the growth of new tax equity investments, which includes over 200 MW of capacity installed during the third quarter 2020. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was primarily driven by a$10 million decrease resulting from lower wind resource and solar irradiance and a$13 million decrease within the distributed energy portfolios for lower engineering and construction costs related to project delays from COVID-19. This was partially offset by a$12 million increase from growth of new projects placed in service. Operating Expenses. The variance was due to an$18 million increase in operating expenses driven by the growth of new projects placed in service. This was partially offset by$12 million decrease within the distributed energy portfolios for lower engineering and construction costs related to project delays from COVID-19 and$4 million of continued cost saving measures. Other Income and Expenses, net. The decrease in other income was primarily due to a$12 million reclassification to Interest Expense in the prior year of non-qualifying hedge activity. Interest Expense. The decrease was primarily due to a$12 million reclassification from Other Income and Expenses, net and a$3 million reclassification from Operating Expenses in the prior year of non-qualifying hedge activity as well as higher capitalized interest of$2 million in the current year for solar and wind projects in development. Income Tax Benefit. The decrease in the tax benefit was primarily driven by an increase in taxes associated with tax equity investments and a decrease in production tax credits generated. Loss Attributable to Noncontrolling Interests. The increase was driven by the growth of new tax equity investments. Nine Months EndedSeptember 30, 2020 , as compared toSeptember 30, 2019 Commercial Renewables' results were favorable primarily due to growth of new tax equity investments. Since the third quarter of 2019, Commercial Renewables has placed in service approximately 800 MW of capacity. The following is a detailed discussion of the variance drivers by line item. Operating Revenues. The variance was primarily driven by a$32 million increase associated with the growth of new projects placed in service. This was partially offset by an$18 million decrease within the distributed energy portfolios for lower engineering and construction costs related to delays from COVID-19. Operating Expenses. The variance was primarily driven by a$45 million increase in operating expenses due to the growth of new projects placed in service and a$6 million impairment charge related to a non-contracted wind project located within theElectric Reliability Council of Texas west market. This was partially offset by a$22 million decrease within the distributed energy portfolios for lower engineering and construction costs related to delays from COVID-19. Interest Expense. The decrease was primarily driven by$15 million of non-qualifying hedge activity in the prior year and higher capitalized interest of$11 million in the current year for solar and wind projects in development. 107
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