STOCK-BASED COMPENSATION

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)	2018		2017		2016
Duke Energy	$	56	$	43	$	35
Duke Energy Carolinas	20		15		12
Progress Energy	21		16		12
Duke Energy Progress	13		10		7
Duke Energy Florida	8		6		5
Duke Energy Ohio	4		3		2
Duke Energy Indiana	5		4		3
Piedmont^(a)	3		3


(a)	Piedmont's stock-based compensation costs were not material for the two months ended December 31, 2016. See discussion below for information on Piedmont's pre-merger stock-based compensation plans.

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)	2018		2017		2016
Restricted stock unit awards	$	43	$	41	$	36
Performance awards	35		27		19
Pretax stock-based compensation cost	$	78	$	68	$	55
Stock-based compensation costs capitalized	5		4		2
Stock-based compensation expense	$	73	$	64	$	53
Tax benefit associated with stock-based compensation expense	$	17	$	25	$	20

RESTRICTED STOCK UNIT AWARDS

RSU 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 RSU awards.



	Years Ended December 31,
	2018		2017		2016
Shares awarded (in thousands)	649		583		684
Fair value (in millions)	$	49	$	47	$	52

The following table summarizes information about RSU awards outstanding.



			Weighted Average
	Shares		Grant Date Fair Value
	(in thousands)		(per share)
Outstanding at December 31, 2017	1,121		$	78
Granted	649		76
Vested	(545	)	78
Forfeited	(72	)	77
Outstanding at December 31, 2018	1,153		77
Restricted stock unit awards expected to vest	1,101		77

The total grant date fair value of shares vested during the years ended December 31, 2018, 2017 and 2016, was $43 million, $42 million and $38 million, respectively. At December 31, 2018, Duke Energy had $29 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of 23 months.

PERFORMANCE AWARDS

Stock-based performance awards generally vest after three years if performance targets are met. The actual number of shares issued will range from zero to 200 percent of target shares, depending on the level of performance achieved.

Performance awards contain market conditions based on relative TSR compared to a predefined peer group, as well as a performance condition based on Duke Energy's cumulative adjusted EPS. Performance awards granted in 2018 and 2017 also contain a performance condition based on the total incident case rate, one of our key employee safety metrics.

The market condition component of Duke Energy's performance awards is 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 2018, the model used a risk-free interest rate of 2.4 percent, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 16.0 percent based on Duke Energy's historical volatility over three years using daily stock prices.

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



	Years Ended December 31,
	2018		2017		2016
Shares granted assuming target performance (in thousands)	372		461		338
Fair value (in millions)	$	27	$	37	$	25

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



			Weighted Average
	Shares		Grant Date Fair Value
	(in thousands)		(per share)
Outstanding at December 31, 2017	1,065		$	79
Granted	372		73
Vested	(155	)	81
Forfeited	(165	)	80
Outstanding at December 31, 2018	1,117		77
Stock-based performance awards expected to vest	1,086		77

The total grant date fair value of shares vested during the years ended December 31, 2018, and 2016, was $13 million and $25 million, respectively. No performance awards vested during the year ended December 31, 2017. At December 31, 2018, Duke Energy had $30 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of 21 months.

PIEDMONT

Prior to Duke Energy's acquisition of Piedmont, Piedmont had an incentive compensation plan that had a series of three-year performance and RSU awards for eligible officers and other participants. The Merger Agreement provided for the conversion of the 2014-2016 and 2015-2017 performance awards and the nonvested 2016 RSU award into the right to receive $60 cash per share upon the close of the transaction. In December 2015, Piedmont's board of directors authorized the accelerated vesting, payment and taxation of the 2014-2016 and 2015-2017 performance awards, as well as the 2016 RSU award, at the election of the participant. Substantially all participants elected to accelerate the settlement of these awards. As a result of the settlement of these awards, 194 thousand shares of Piedmont shares were issued to participants, net of shares withheld for applicable federal and state income taxes, at a closing price of $56.85 and a fair value of $11 million. The 2016-2018 performance award cycle was approved subsequent to the Merger Agreement and was converted into a Duke Energy RSU award at the consummation of the acquisition.

Piedmont's stock-based compensation costs and the tax benefit associated with stock-based compensation expense are included in the following table.



(in millions)	Year Ended October 31, 2016
Pretax stock-based compensation cost	$	16
Tax benefit associated with stock-based compensation expense	6
Net of tax stock-based compensation cost	$	10