Derivatives and Hedging

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND HEDGING

The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into natural gas supply contracts to provide diversification, reliability and natural gas cost benefits to its customers. Interest rate derivatives are used to manage interest rate risk associated with borrowings.

All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Condensed Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Condensed Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Condensed Consolidated Statements of Cash Flows.

INTEREST RATE RISK

The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps or Treasury locks may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt.

Cash Flow Hedges

For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once the future transaction impacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. Gains and losses reclassified out of AOCI for the three and six months ended June 30, 2019, and 2018, were not material. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business and forward-starting interest rate swaps not accounted for under regulatory accounting.

Undesignated Contracts

Undesignated contracts primarily include contracts not designated as a hedge because they are accounted for under regulatory accounting or contracts that do not qualify for hedge accounting.

Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense on the Duke Energy Registrant's Condensed Consolidated Statements of Operations and Comprehensive Income.

The following table shows notional amounts of outstanding derivatives related to interest rate risk.



	June 30, 2019
			Duke				Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio
Cash flow hedges	$	959	$	—	$	—	$	—	$	—	$	—
Undesignated contracts	1,427		600		800		250		550		27
Total notional amount^(a)	$	2,386	$	600	$	800	$	250	$	550	$	27



	December 31, 2018
			Duke				Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio
Cash flow hedges	$	923	$	—	$	—	$	—	$	—	$	—
Undesignated contracts	1,721		300		1,200		650		550		27
Total notional amount^(a)	$	2,644	$	300	$	1,200	$	650	$	550	$	27


(a)	Duke Energy includes amounts related to consolidated VIEs of $659 million in cash flow hedges as of June 30, 2019, and $422 million in cash flow hedges and $194 million in undesignated contracts as of December 31, 2018.

COMMODITY PRICE RISK

The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases, including Piedmont's natural gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula-based contracts or other cost-sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce natural gas costs volatility for customers.

Volumes

The tables below include volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants have netted contractual amounts where offsetting purchase and sale contracts exist with identical delivery locations and times of delivery. Where all commodity positions are perfectly offset, no quantities are shown.



	June 30, 2019
		Duke		Duke	Duke	Duke	Duke
	Duke	Energy	Progress	Energy	Energy	Energy	Energy
	Energy	Carolinas	Energy	Progress	Florida	Ohio	Indiana	Piedmont
Electricity (GWh)	33,135	—	—	—	—	3,514	29,621	—
Natural gas (millions of dekatherms)	740	133	173	173	—	—	4	430



	December 31, 2018
		Duke		Duke	Duke	Duke	Duke
	Duke	Energy	Progress	Energy	Energy	Energy	Energy
	Energy	Carolinas	Energy	Progress	Florida	Ohio	Indiana	Piedmont
Electricity (GWh)	15,286	—	—	—	—	1,786	13,500	—
Natural gas (millions of dekatherms)	739	121	169	166	3	—	1	448

U.S. EQUITY SECURITIES RISK

In May 2019, Duke Energy Florida entered into a Decommissioning Services Agreement for the accelerated decommissioning of Crystal River Unit 3 with ADP CR3, LLC and ADP SF1, LLC. The accelerated decommissioning of Crystal River Unit 3 is subject to the approval of the NRC and the FPSC. Duke Energy Florida executed U.S. equity option collars within the NDTF in May 2019 to preserve the U.S. equity portfolio value in the Duke Energy Florida NDTF in the event the accelerated decommissioning is approved. These option collars were executed as a purchase of a put option and the sale of a call option on certain U.S. equity index funds. The put and call options create a collar to guarantee a minimum and maximum investment value for the Duke Energy Florida NDTF U.S. equity portfolio. The put and call options were entered into at zero-cost, with the price to purchase the puts offset entirely by the funds received to sell the calls. As of June 30, 2019, the aggregate notional amount of both the put and call options was 305,000 units in U.S. equity security index funds. The derivative balances associated with these equity options are immaterial as of June 30, 2019. The options are not designated as hedging instruments. Substantially all of Duke Energy Florida’s NDTF qualifies for regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the options are deferred as regulatory liabilities or regulatory assets, respectively.

LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED ON THE CONDENSED CONSOLIDATED BALANCE SHEETS

The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the Condensed Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.



Derivative Assets	June 30, 2019
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	37	$	—	$	—	$	—	$	—	$	7	$	29	$	2
Total Derivative Assets – Commodity Contracts	$	37	$	—	$	—	$	—	$	—	$	7	$	29	$	2
Interest Rate Contracts
Designated as Hedging Instruments
Noncurrent	1		—		—		—		—		—		—		—
Total Derivative Assets – Interest Rate Contracts	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Derivative Assets	$	38	$	—	$	—	$	—	$	—	$	7	$	29	$	2



Derivative Liabilities	June 30, 2019
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	64	$	31	$	24	$	24	$	—	$	—	$	2	$	7
Noncurrent	140		8		24		9		—		—		—		107
Total Derivative Liabilities – Commodity Contracts	$	204	$	39	$	48	$	33	$	—	$	—	$	2	$	114
Interest Rate Contracts
Designated as Hedging Instruments
Current	$	4	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Noncurrent	32		—		—		—		—		—		—		—
Not Designated as Hedging Instruments
Current	86		54		31		2		29		1		—		—
Noncurrent	16		—		11		—		10		5		—		—
Total Derivative Liabilities – Interest Rate Contracts	$	138	$	54	$	42	$	2	$	39	$	6	$	—	$	—
Total Derivative Liabilities	$	342	$	93	$	90	$	35	$	39	$	6	$	2	$	114



Derivative Assets	December 31, 2018
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	35	$	2	$	2	$	2	$	—	$	6	$	23	$	3
Noncurrent	4		1		2		2		—		—		—		—
Total Derivative Assets – Commodity Contracts	$	39	$	3	$	4	$	4	$	—	$	6	$	23	$	3
Interest Rate Contracts
Designated as Hedging Instruments
Current	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Noncurrent	3		—		—		—		—		—		—		—
Not Designated as Hedging Instruments
Current	2		—		—		—		—		—		—		—
Noncurrent	12		—		—		—		—		—		—		—
Total Derivative Assets – Interest Rate Contracts	$	18	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Derivative Assets	$	57	$	3	$	4	$	4	$	—	$	6	$	23	$	3



Derivative Liabilities	December 31, 2018
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Commodity Contracts
Not Designated as Hedging Instruments
Current	$	33	$	14	$	10	$	5	$	6	$	—	$	—	$	8
Noncurrent	158		10		15		6		—		—		—		133
Total Derivative Liabilities – Commodity Contracts	$	191	$	24	$	25	$	11	$	6	$	—	$	—	$	141
Interest Rate Contracts
Designated as Hedging Instruments
Current	$	12	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Noncurrent	6		—		—		—		—		—		—		—
Not Designated as Hedging Instruments
Current	23		9		13		11		2		1		—		—
Noncurrent	10		—		6		5		1		4		—		—
Total Derivative Liabilities – Interest Rate Contracts	$	51	$	9	$	19	$	16	$	3	$	5	$	—	$	—
Total Derivative Liabilities	$	242	$	33	$	44	$	27	$	9	$	5	$	—	$	141

OFFSETTING ASSETS AND LIABILITIES

The following tables present the line items on the Condensed Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The gross amounts offset in the tables below show the effect of these netting arrangements on financial position, and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.



Derivative Assets	June 30, 2019
			Duke				Duke		Duke		Duke		Duke
	Duke		Energy		Progress		Energy		Energy		Energy		Energy
(in millions)	Energy		Carolinas		Energy		Progress		Florida		Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	37	$	—	$	—	$	—	$	—	$	7	$	29	$	2
Gross amounts offset	—		—		—		—		—		—		—		—
Net amounts presented in Current Assets: Other	$	37	$	—	$	—	$	—	$	—	$	7	$	29	$	2
Noncurrent
Gross amounts recognized	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gross amounts offset	—		—		—		—		—		—		—		—
Net amounts presented in Other Noncurrent Assets: Other	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—



Derivative Liabilities	June 30, 2019
				Duke					Duke			Duke		Duke		Duke
	Duke			Energy		Progress			Energy			Energy		Energy		Energy
(in millions)	Energy			Carolinas		Energy			Progress			Florida		Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	154		$	85	$	55		$	26		$	29	$	1	$	2	$	7
Gross amounts offset	(1		)	—		(1		)	(1		)	—		—		—		—
Net amounts presented in Current Liabilities: Other	$	153		$	85	$	54		$	25		$	29	$	1	$	2	$	7
Noncurrent
Gross amounts recognized	$	188		$	8	$	35		$	9		$	10	$	5	$	—	$	107
Gross amounts offset	—			—		—			—			—		—		—		—
Net amounts presented in Other Noncurrent Liabilities: Other	$	188		$	8	$	35		$	9		$	10	$	5	$	—	$	107



Derivative Assets	December 31, 2018
				Duke						Duke			Duke		Duke		Duke
	Duke			Energy			Progress			Energy			Energy		Energy		Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida		Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	38		$	2		$	2		$	2		$	—	$	6	$	23	$	3
Gross amounts offset	(3		)	(2		)	(2		)	(2		)	—		—		—		—
Net amounts presented in Current Assets: Other	$	35		$	—		$	—		$	—		$	—	$	6	$	23	$	3
Noncurrent
Gross amounts recognized	$	19		$	1		$	2		$	2		$	—	$	—	$	—	$	—
Gross amounts offset	(3		)	(1		)	(2		)	(2		)	—		—		—		—
Net amounts presented in Other Noncurrent Assets: Other	$	16		$	—		$	—		$	—		$	—	$	—	$	—	$	—



Derivative Liabilities	December 31, 2018
				Duke						Duke			Duke		Duke		Duke
	Duke			Energy			Progress			Energy			Energy		Energy		Energy
(in millions)	Energy			Carolinas			Energy			Progress			Florida		Ohio		Indiana		Piedmont
Current
Gross amounts recognized	$	68		$	23		$	23		$	16		$	8	$	1	$	—	$	8
Gross amounts offset	(4		)	(2		)	(2		)	(2		)	—		—		—		—
Net amounts presented in Current Liabilities: Other	$	64		$	21		$	21		$	14		$	8	$	1	$	—	$	8
Noncurrent
Gross amounts recognized	$	174		$	10		$	21		$	11		$	1	$	4	$	—	$	133
Gross amounts offset	(3		)	(1		)	(2		)	(2		)	—		—		—		—
Net amounts presented in Other Noncurrent Liabilities: Other	$	171		$	9		$	19		$	9		$	1	$	4	$	—	$	133

OBJECTIVE CREDIT CONTINGENT FEATURES

Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions.



	June 30, 2019
			Duke				Duke
	Duke		Energy		Progress		Energy
(in millions)	Energy		Carolinas		Energy		Progress
Aggregate fair value of derivatives in a net liability position	$	67	$	34	$	33	$	33
Fair value of collateral already posted	—		—		—		—
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered	67		34		33		33



	December 31, 2018
			Duke				Duke
	Duke		Energy		Progress		Energy
(in millions)	Energy		Carolinas		Energy		Progress
Aggregate fair value of derivatives in a net liability position	$	44	$	19	$	25	$	25
Fair value of collateral already posted	—		—		—		—
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered	44		19		25		25

The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement.