STOCK-BASED COMPENSATION

The Duke Energy Corporation 2015 Long-Term Incentive Plan (the 2015 Plan) provides for the grant of stock-based compensation awards to employees and outside directors. The 2015 Plan reserves 10 million shares of common stock for issuance. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or vest in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.

The following table summarizes the total expense recognized by the Duke Energy Registrants, net of tax, for stock-based compensation.



	Years Ended December 31,
(in millions)	2016		2015		2014
Duke Energy	$	35	$	38	$	38
Duke Energy Carolinas	12		14		12
Progress Energy	12		14		14
Duke Energy Progress	7		9		9
Duke Energy Florida	5		5		5
Duke Energy Ohio	2		2		5
Duke Energy Indiana	3		4		3

Duke Energy's pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense and stock-based compensation costs capitalized are included in the following table.



	Years Ended December 31,
(in millions)	2016		2015		2014
Restricted stock unit awards	$	36	$	38	$	39
Performance awards	19		23		22
Pretax stock-based compensation cost	$	55	$	61	$	61
Tax benefit associated with stock-based compensation expense	$	20	$	23	$	23
Stock-based compensation costs capitalized	2		3		4

RESTRICTED STOCK UNIT AWARDS

Restricted stock unit awards generally vest over periods from immediate to three years. Fair value amounts are based on the market price of Duke Energy's common stock on the grant date. The following table includes information related to restricted stock unit awards.



	Years Ended December 31,
	2016		2015		2014
Shares awarded (in thousands)	684		524		557
Fair value (in millions)	$	52	$	41	$	40

The following table summarizes information about restricted stock unit awards outstanding.



			Weighted Average
	Shares		Grant Date Fair Value
	(in thousands)		(per share)
Outstanding at December 31, 2015	953		$	75
Piedmont transfers in	113		79
Granted	684		75
Vested	(525	)	73
Forfeited	(86	)	76
Outstanding at December 31, 2016	1,139		76
Restricted stock unit awards expected to vest	1,056		76

The total grant date fair value of shares vested during the years ended December 31, 2016, 2015 and 2014 was $38 million, $41 million and $52 million, respectively. At December 31, 2016, Duke Energy had $27 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of one year, ten months.

PERFORMANCE AWARDS

Stock-based performance awards generally vest after three years if performance targets are met.

Performance awards granted in 2016, 2015 and 2014 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a predefined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant are incorporated within the model.

For performance awards granted in 2016, the model used a risk-free interest rate of 0.9 percent, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 16.1 percent based on Duke Energy's historical volatility over three years using daily stock prices. The performance awards granted in 2016 also contain a performance condition based on Duke Energy's cumulative adjusted EPS.

The following table includes information related to stock-based performance awards.



	Years Ended December 31,
	2016		2015		2014
Shares awarded (in thousands)	675		642		542
Fair value (in millions)	$	25	$	26	$	19

The following table summarizes information about stock-based performance awards outstanding and assumes payout at the maximum level.



			Weighted Average
	Shares		Grant Date Fair Value
	(in thousands)		(per share)
Outstanding at December 31, 2015	1,697		$	40
Granted	675		38
Vested	(544	)	46
Forfeited	(104	)	38
Outstanding at December 31, 2016	1,724		38
Stock-based performance awards expected to vest	1,199		38

The total grant date fair value of shares vested during the years ended December 31, 2016, 2015 and 2014 was $25 million, $26 million and $27 million, respectively. At December 31, 2016, Duke Energy had $24 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of one year, ten months.

STOCK OPTIONS

Stock options are granted with a maximum option term of 10 years and with an exercise price not less than the market price of Duke Energy's common stock on the grant date. The following table summarizes information about stock options outstanding.



			Weighted Average
	Stock Options		Exercise Price
	(in thousands)		(per share)
Outstanding at December 31, 2015	103		$	69
Exercised	(103	)	69
Outstanding at December 31, 2016	—		—

The following table summarizes additional information related to stock options exercised and granted.



	Years Ended December 31,
(in millions)	2016		2015		2014
Intrinsic value of options exercised	$	1	$	5	$	6
Tax benefit related to options exercised	—		2		2
Cash received from options exercised	7		17		25