XML 63 R18.htm IDEA: XBRL DOCUMENT v3.7.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.
Fair value measurements are classified in three levels based on the fair value hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is one in which transactions for an asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 – A fair value measurement utilizing inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly, for an asset or liability. Inputs include (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities and credit spreads. A Level 2 measurement cannot have more than an insignificant portion of its valuation based on unobservable inputs. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less-than-active markets.
Level 3 – Any fair value measurement that includes unobservable inputs for more than an insignificant portion of the valuation. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 measurements may include longer-term instruments that extend into periods in which observable inputs are not available.
Not Categorized – Certain investments are not categorized within the Fair Value hierarchy. These investments are measured based on the fair value of the underlying investments but may not be readily redeemable at that fair value.
Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.
Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels during the three months ended March 31, 2017 and 2016.
Valuation methods of the primary fair value measurements disclosed below are as follows.
Investments in equity securities
The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as New York Stock Exchange (NYSE) and Nasdaq Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.
Investments in debt securities
Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3.
Commodity derivatives
Commodity derivatives with clearinghouses are classified as Level 1. Other commodity derivatives, including Piedmont's gas supply contracts, are primarily valued using internally developed discounted cash flow models that incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.
Interest rate derivatives
Most over-the-counter interest rate contract derivatives are valued using financial models that utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward interest rate curves, notional amounts, interest rates and credit quality of the counterparties.
Other fair value considerations
See Note 2 related to the acquisition of Piedmont in 2016. See Note 11 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the valuation of goodwill and intangible assets.
DUKE ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not categorized

Nuclear decommissioning trust fund equity securities
$
4,284

$
4,207

$

$

$
77

Nuclear decommissioning trust fund debt securities
2,107

602

1,505



Other trading and available-for-sale equity securities
110

110




Other trading and available-for-sale debt securities
248

61

182

5


Derivative assets
83

2

71

10


Total assets
6,832

4,982

1,758

15

77

Derivative liabilities
(216
)

(71
)
(145
)

Net assets (liabilities)
$
6,616

$
4,982

$
1,687

$
(130
)
$
77

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not categorized

Nuclear decommissioning trust fund equity securities
$
4,106

$
4,029

$

$

$
77

Nuclear decommissioning trust fund debt securities
2,078

632

1,446



Other trading and available-for-sale equity securities
104

104




Other trading and available-for-sale debt securities
266

75

186

5


Derivative assets
162

5

136

21


Total assets
6,716

4,845

1,768

26

77

Derivative liabilities
(252
)
(2
)
(63
)
(187
)

Net assets (liabilities)
$
6,464

$
4,843

$
1,705

$
(161
)
$
77


The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements. Amounts included in earnings for derivatives are primarily included in Operating Revenues.
 
 
 
Three Months Ended March 31, 2017
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
5

 
$
(166
)
 
$
(161
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
Settlements

 
(9
)
 
(9
)
Total amount included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities

 
40

 
40

Balance at end of period
$
5

 
$
(135
)
 
$
(130
)
 
Three Months Ended March 31, 2016
(in millions)
Investments

 
Derivatives (net)

 
Total

Balance at beginning of period
$
5

 
$
10

 
$
15

Purchases, sales, issuances and settlements:
 
 
 
 
 
Sales
(1
)
 

 
(1
)
Settlements

 
(7
)
 
(7
)
Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities

 
(1
)
 
(1
)
Balance at end of period
$
4

 
$
2

 
$
6


DUKE ENERGY CAROLINAS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not categorized

Nuclear decommissioning trust fund equity securities
$
2,366

$
2,289

$

$

$
77

Nuclear decommissioning trust fund debt securities
1,026

146

880



Other available-for-sale debt securities
3



3


Derivative assets
17


17



Total assets
3,412

2,435

897

3

77

Derivative liabilities
(14
)

(14
)


Net assets
$
3,398

$
2,435

$
883

$
3

$
77

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not categorized

Nuclear decommissioning trust fund equity securities
$
2,245

$
2,168

$

$

$
77

Nuclear decommissioning trust fund debt securities
1,013

178

835



Other available-for-sale debt securities
3



3


Derivative assets
33


33



Total assets
3,294

2,346

868

3

77

Derivative liabilities
(16
)

(16
)


Net assets
$
3,278

$
2,346

$
852

$
3

$
77


There was no change to the Level 3 balance during the three months ended March 31, 2017 and March 31, 2016.
 
 

PROGRESS ENERGY
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Nuclear decommissioning trust fund equity securities
$
1,918

$
1,918

$

Nuclear decommissioning trust fund debt securities
1,081

456

625

Other available-for-sale debt securities
58

12

46

Derivative assets
34


34

Total assets
3,091

2,386

705

Derivative liabilities
(34
)

(34
)
Net assets
$
3,057

$
2,386

$
671

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Nuclear decommissioning trust fund equity securities
$
1,861

$
1,861

$

Nuclear decommissioning trust fund debt securities
1,065

454

611

Other available-for-sale debt securities
65

21

44

Derivative assets
85


85

Total assets
3,076

2,336

740

Derivative liabilities
(25
)

(25
)
Net assets
$
3,051

$
2,336

$
715


DUKE ENERGY PROGRESS
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Nuclear decommissioning trust fund equity securities
$
1,541

$
1,541

$

Nuclear decommissioning trust fund debt securities and other
733

221

512

Other available-for-sale debt securities and other
1

1


Derivative assets
20


20

Total assets
2,295

1,763

532

Derivative liabilities
(10
)

(10
)
Net assets
$
2,285

$
1,763

$
522

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Nuclear decommissioning trust fund equity securities
$
1,505

$
1,505

$

Nuclear decommissioning trust fund debt securities and other
708

207

501

Other available-for-sale debt securities and other
1

1


Derivative assets
46


46

Total assets
2,260

1,713

547

Derivative liabilities
(7
)

(7
)
Net assets
$
2,253

$
1,713

$
540


DUKE ENERGY FLORIDA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Nuclear decommissioning trust fund equity securities
$
377

$
377

$

Nuclear decommissioning trust fund debt securities and other
348

235

113

Other available-for-sale debt securities and other
47

1

46

Derivative assets
14


14

Total assets
786

613

173

Derivative liabilities
(19
)

(19
)
Net assets
$
767

$
613

$
154

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Nuclear decommissioning trust fund equity securities
$
356

$
356

$

Nuclear decommissioning trust fund debt securities and other
357

247

110

Other available-for-sale debt securities and other
48

4

44

Derivative assets
39


39

Total assets
800

607

193

Derivative liabilities
(12
)

(12
)
Net assets
$
788

$
607

$
181


DUKE ENERGY OHIO
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which are disclosed in Note 9.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Derivative assets
$
1

$

$

$
1

Derivative liabilities
(5
)

(5
)

Net (liabilities) assets
$
(4
)
$

$
(5
)
$
1

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Derivative assets
$
5

$

$

$
5

Derivative liabilities
(6
)

(6
)

Net (liabilities) assets
$
(1
)
$

$
(6
)
$
5


The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
 
Derivatives (net)
 
Three Months Ended March 31,
(in millions)
2017

 
2016

Balance at beginning of period
$
5

 
$
3

Purchases, sales, issuances and settlements:
 
 
 
Settlements
(1
)
 
(2
)
Total losses included on the Condensed Consolidated Balance Sheet as regulatory assets or liabilities
(3
)
 
(1
)
Balance at end of period
$
1

 
$


DUKE ENERGY INDIANA
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the table below exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Other available-for-sale equity securities
$
84

$
84

$

$

Other available-for-sale debt securities and other
31


31


Derivative assets
9



9

Net assets
$
124

$
84

$
31

$
9

 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Other available-for-sale equity securities
$
79

$
79

$

$

Other available-for-sale debt securities and other
31


31


Derivative assets
16



16

Total assets
126

79

31

16

Derivative liabilities
(2
)
(2
)


Net assets
$
124

$
77

$
31

$
16


The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
 
Derivatives (net)
 
Three Months Ended March 31,
(in millions)
2017

 
2016

Balance at beginning of period
$
16

 
$
7

Purchases, sales, issuances and settlements:
 
 
 
Settlements
(7
)
 
(5
)
Balance at end of period
$
9

 
$
2


PIEDMONT
The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. See Note 10 for additional information related to investments.
 
March 31, 2017
(in millions)
Total Fair Value

Level 1

Level 3

Other trading equity securities
4

4


Other trading debt securities
1

1


Derivative assets
2

2


Total assets
7

7


Derivative liabilities
(145
)

(145
)
Net (liabilities) assets
$
(138
)
$
7

$
(145
)
 
December 31, 2016
(in millions)
Total Fair Value

Level 1

Level 3

Other trading equity securities
$
4

$
4

$

Other trading debt securities
1

1


Derivative assets
3

3


Total assets
8

8


Derivative liabilities
(187
)

(187
)
Net (liabilities) assets
$
(179
)
$
8

$
(187
)

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.
 
Derivatives (net)
 
Three Months Ended March 31,
(in millions)
2017

 
2016

Balance at beginning of period
$
(187
)
 
$
(149
)
Total gains and settlements
42

 
23

Balance at end of period
$
(145
)
 
$
(126
)
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following table includes quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
 
March 31, 2017
 
Fair Value
 
 
 
 
 
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Duke Energy Ohio
 

 
 
 
 
 
Financial Transmission Rights (FTRs)
$
1

RTO auction pricing
FTR price – per megawatt-hour (MWh)
$
0.23

-
$
2.02

Duke Energy Indiana
 

 
 
 
 
 
FTRs
9

RTO auction pricing
FTR price – per MWh
(1.08
)
-
5.33

Piedmont
 
 
 
 
 
 
Natural gas contracts
(145
)
Discounted cash flow
Forward natural gas curves – price per million British thermal unit (MMBtu)
2.08

-
3.57

Duke Energy
 
 
 
 
 
 
Total Level 3 derivatives
$
(135
)
 
 
 
 
 
 
December 31, 2016
 
Fair Value
 
 
 
 
 
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Duke Energy Ohio
 

 
 
 
 
 
FTRs
$
5

RTO auction pricing
FTR price – per MWh
$
0.77

-
$
3.52

Duke Energy Indiana
 

 
 
 
 
 
FTRs
16

RTO auction pricing
FTR price – per MWh
(0.83
)
-
9.32

Piedmont
 
 
 
 
 
 
Natural gas contracts
(187
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
2.31

-
4.18

Duke Energy
 
 
 
 
 
 
Total Level 3 derivatives
$
(166
)
 
 
 
 
 

OTHER FAIR VALUE DISCLOSURES
The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.
 
March 31, 2017
 
December 31, 2016
(in millions)
Book Value

 
Fair Value

 
Book Value

 
Fair Value

Duke Energy
$
48,998

 
$
50,480

 
$
47,895

 
$
49,161

Duke Energy Carolinas
9,491

 
10,405

 
9,603

 
10,494

Progress Energy
18,148

 
19,742

 
17,541

 
19,107

Duke Energy Progress
6,761

 
7,103

 
7,011

 
7,357

Duke Energy Florida
6,981

 
7,596

 
6,125

 
6,728

Duke Energy Ohio
1,977

 
2,122

 
1,884

 
2,020

Duke Energy Indiana
3,784

 
4,292

 
3,786

 
4,260

Piedmont
1,821

 
1,954

 
1,821

 
1,933


At both March 31, 2017 and December 31, 2016, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper, and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.