ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

The Duke Energy Registrants consolidate assets and liabilities from acquisitions as of the purchase date, and include earnings from acquisitions in consolidated earnings after the purchase date.

Acquisition of Piedmont Natural Gas

On October 24, 2015, Duke Energy entered into an Agreement and Plan of Merger (Merger Agreement) with Piedmont Natural Gas Company, Inc. (Piedmont), a North Carolina corporation. Under the terms of the Merger Agreement, Duke Energy will acquire Piedmont for $4.9 billion in cash. Upon closing, Piedmont will become a wholly owned subsidiary of Duke Energy.

Pursuant to the Merger Agreement, upon the closing of the merger, each share of Piedmont common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $60 in cash per share. In addition, Duke Energy will assume Piedmont's existing debt, which was approximately $1.9 billion at October 31, 2015, the end of Piedmont's most recent fiscal year. Duke Energy expects to finance the transaction with a combination of debt, equity issuances and other cash sources. As of December 31, 2015, Duke Energy entered into $900 million of forward starting interest rate swaps to lock in components of interest rates for the expected financing. The change in the fair value of the swaps from inception to December 31, 2015, was not material. For additional information on the forward-starting swaps, see Note 14.

In connection with the Merger Agreement with Piedmont, Duke Energy entered into a $4.9 billion senior unsecured bridge financing facility (Bridge Facility) with Barclays Capital, Inc. (Barclays). The Bridge Facility, if drawn upon, may be used to (i) fund the cash consideration for the transaction and (ii) pay certain fees and expenses in connection with the transaction. In November 2015, Barclays syndicated its commitment under the Bridge Facility to a broader group of lenders. Duke Energy does not expect to draw upon the Bridge Facility.

The Federal Trade Commission (FTC) has granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 22, 2016, shareholders of Piedmont Natural Gas approved the company's acquisition by Duke Energy. On January 15, 2016, Duke Energy filed for approval of the transaction and associated financing requests with the NCUC. On January 29, 2016, the NCUC approved the financing requests. On January 15, 2016, Duke Energy and Piedmont filed a joint request with the Tennessee Regulatory Authority for approval of a change in control of Piedmont that will result from Duke Energy's acquisition of Piedmont. In that request, Duke Energy and Piedmont requested that the Authority approve the change in control on or before April 30, 2016. Subject to receipt of required regulatory approvals and meeting closing conditions, Duke Energy and Piedmont target a closing by the end of 2016.

On December 11, 2015, Duke Energy Kentucky filed a declaratory request with the KPSC seeking a finding that the transaction does not constitute a change in control of Duke Energy Kentucky requiring KPSC approval. Duke Energy also presented the transaction for information before the PSCSC on January 13, 2016.

The Merger Agreement contains certain termination rights for both Duke Energy and Piedmont, and provides that, upon termination of the Merger Agreement under specified circumstances, Duke Energy would be required to pay a termination fee of $250 million to Piedmont and Piedmont would be required to pay Duke Energy a termination fee of $125 million.

See Note 4 for additional information regarding Duke Energy and Piedmont's joint investment in Atlantic Coast Pipeline, LLC (ACP).

Purchase of NCEMPA's Generation

On July 31, 2015, Duke Energy Progress completed the purchase of North Carolina Eastern Municipal Power Agency’s (NCEMPA) ownership interests in certain generating assets, fuel and spare parts inventory jointly owned with and operated by Duke Energy Progress for approximately $1.25 billion. This purchase was accounted for as an asset acquisition. The purchase resulted in the acquisition of a total of approximately 700 megawatts (MW) of generating capacity at Brunswick Nuclear Plant, Shearon Harris Nuclear Plant, Mayo Steam Plant and Roxboro Steam Plant. In connection with this transaction, Duke Energy Progress and NCEMPA entered into a 30-year wholesale power agreement, whereby Duke Energy Progress will sell power to NCEMPA to continue to meet the needs of NCEMPA customers.

The purchase price exceeds the historical carrying value of the acquired assets by $350 million, which was recognized as an acquisition adjustment, recorded in property, plant and equipment. Duke Energy Progress received FERC approval for inclusion of the acquisition adjustment in wholesale power formula rates on December 9, 2014. On July 8, 2015, the NCUC adopted a new rule that enables a rider mechanism for recovery of the costs to acquire, operate and maintain interests in the assets purchased as allocated to Duke Energy Progress' North Carolina retail operations, including the acquisition adjustment. Pursuant to the NCUC's approval, Duke Energy Progress implemented a rider to recover costs associated with the NCEMPA asset acquisition effective December 1, 2015. Duke Energy Progress also received an order from the PSCSC to defer the recovery of the South Carolina retail allocated costs of the asset purchased until the Company's next general rate case.

Assets Acquired

The ownership interests in generating assets acquired are subject to rate-setting authority of the FERC, NCUC and PSCSC and accordingly, the assets are recorded at historical cost. The assets acquired are presented in the following table.



(in millions)
Inventory	$	56
Net property, plant and equipment	845
Total assets	901
Acquisition adjustment, recorded within property, plant and equipment	350
Total purchase price	$	1,251

In connection with the acquisition, Duke Energy Progress acquired NCEMPA's nuclear decommissioning trust fund assets of $287 million and assumed asset retirement obligations of $204 million associated with NCEMPA's interest in the generation assets. The nuclear decommissioning trust fund and the asset retirement obligation are subject to regulatory accounting treatment.

DISPOSITIONS

Potential Sale of International Energy

On February 18, 2016, Duke Energy announced it had initiated a process to divest the International Energy business segment, excluding the equity method investment in National Methanol Company (NMC). Duke Energy is in the preliminary stage and there have been no binding or non-binding offers requested or submitted. Duke Energy can provide no assurance that this process will result in a transaction and there is no specific timeline for execution of a potential transaction. Proceeds from a successful exit would be used by Duke Energy to fund the operations and growth of domestic businesses. If the potential of a sale were to progress, it could result in classification of International Energy as assets held for sale and as a discontinued operation. As of December 31, 2015, the International Energy segment had a carrying value of approximately $2.7 billion, adjusted to include the cumulative foreign currency translation losses currently classified as accumulated other comprehensive income.

Midwest Generation Exit

Duke Energy, through indirect subsidiaries, completed the sale of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group) to a subsidiary of Dynegy on April 2, 2015, for approximately $2.8 billion in cash. On April 1, 2015, prior to the sale, Duke Energy Ohio distributed its indirect ownership interest in the nonregulated Midwest generation business to a subsidiary of Duke Energy Corporation.

The assets and liabilities of the Disposal Group prior to the sale were included in the Commercial Portfolio (formerly Commercial Power) segment and classified as held for sale in Duke Energy's and Duke Energy Ohio's Consolidated Balance Sheet at December 31, 2014. The following table presents information at the time of the sale related to the Duke Energy Ohio generation plants included in the Disposal Group.



				Total MW	Owned MW	Ownership
Facility	Plant Type	Primary Fuel	Location	Capacity^(d)	Capacity^(d)	Interest
Stuart^(a)(c)	Fossil Steam	Coal	OH	2,308	900	39	%
Zimmer^(a)	Fossil Steam	Coal	OH	1,300	605	46.5	%
Hanging Rock	Combined Cycle	Gas	OH	1,226	1,226	100	%
Miami Fort (Units 7 and 8)^(b)	Fossil Steam	Coal	OH	1,020	652	64	%
Conesville^(a)(c)	Fossil Steam	Coal	OH	780	312	40	%
Washington	Combined Cycle	Gas	OH	617	617	100	%
Fayette	Combined Cycle	Gas	PA	614	614	100	%
Killen^(b)(c)	Fossil Steam	Coal	OH	600	198	33	%
Lee	Combustion Turbine	Gas	IL	568	568	100	%
Dick's Creek	Combustion Turbine	Gas	OH	136	136	100	%
Miami Fort	Combustion Turbine	Oil	OH	56	56	100	%
Total Midwest Generation				9,225	5,884


(a)	Jointly owned with American Electric Power Generation Resources and The Dayton Power and Light Company.


(b)	Jointly owned with The Dayton Power and Light Company.


(c)	Not operated by Duke Energy Ohio.


(d)	Total MW capacity is based on summer capacity.

The Disposal Group also included a retail sales business owned by Duke Energy. In the second quarter of 2014, Duke Energy Ohio removed Ohio Valley Electric Corporation's (OVEC) purchase power agreement from the Disposal Group as it no longer intended to sell it with the Disposal Group.

The results of operations of the Disposal Group prior to the date of sale are classified as discontinued operations in the accompanying Consolidated Statements of Operations and Comprehensive Income. Certain immaterial costs that were eliminated as a result of the sale remained in continuing operations. The following table presents the results of discontinued operations.

Duke Energy



	Years Ended December 31,
(in millions)	2015			2014			2013
Operating Revenues	$	543		$	1,748		$	1,885
Loss on disposition^(a)	(45		)	(929		)	—

Income (loss) before income taxes^(b)	$	59		$	(818	)	$	141
Income tax expense (benefit)	26			(294		)	56
Income (loss) from discontinued operations of the Disposal Group	33			(524		)	85
Other, net of tax^(c)	(13		)	(52		)	1
Income (Loss) From Discontinued Operations, net of tax	$	20		$	(576	)	$	86


(a)	The Loss on disposition includes impairments recorded to adjust the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell.


(b)	The Income (loss) before income taxes includes the pretax impact of an $81 million charge for the settlement agreement reached in a lawsuit related to the Disposal Group for the year ended December 31, 2015. Refer to Note 5 for further information related to the lawsuit.


(c)	Relates to discontinued operations of businesses not related to the Disposal Group. Amounts include indemnifications provided for certain legal, tax and environmental matters, and foreign currency translation adjustments.

Duke Energy Ohio



	Years Ended December 31,
(in millions)	2015			2014			2013
Operating Revenues	$	412		$	1,299		$	1,503
Loss on disposition^(a)	(52		)	(959		)	—

Income (loss) before income taxes^(b)	$	44		$	(863	)	$	67
Income tax expense (benefit)	21			(300		)	32
Income (Loss) From Discontinued Operations, net of tax	$	23		$	(563	)	$	35


(a)	The Loss on disposition includes impairments recorded to adjust the carrying amount of the assets to the estimated fair value of the business, based on the selling price to Dynegy less cost to sell.


(b)	The Income (loss) before income taxes includes the pretax impact of an $81 million charge for the settlement agreement reached in a lawsuit related to the Disposal Group for the year ended December 31, 2015, respectively. Refer to Note 5 for further information related to the lawsuit.

Commercial Portfolio has a revolving credit agreement (RCA) which was used to support the operations of the nonregulated Midwest generation business. Interest expense associated with the RCA was allocated to discontinued operations. No other interest expense related to corporate level debt was allocated to discontinued operations.

Duke Energy Ohio had a power purchase agreement with the Disposal Group for a portion of its standard service offer (SSO) supply requirement. The agreement and the SSO expired in May 2015. Duke Energy received reimbursement for transition services provided to Dynegy through December 2015. The continuing cash flows were not considered direct cash flows or material. Duke Energy or Duke Energy Ohio did not significantly influence the operations of the Disposal Group during the transition service period.

See Notes 4 and 5 for a discussion of contingencies related to the Disposal Group that are retained by Duke Energy Ohio subsequent to the sale.