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Fair Value Measurements

3 Months Ended

Mar. 31, 2024

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 the 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 as defined by GAAP. Certain investments are not categorized within the fair value hierarchy. These investments are measured at fair value using the net asset value per share practical expedient. The net asset value is derived based on the investment cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.

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.

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 the New York Stock Exchange 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. Commodity derivatives with observable forward curves are classified as Level 2. 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 natural 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 certain 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.

Foreign currency derivatives

Most over-the-counter foreign currency derivatives are valued using financial models that utilize observable inputs for similar instruments and are classified as Level 2. Inputs include forward foreign currency rate curves, notional amounts, foreign currency rates and credit quality of the counterparties.

Other fair value considerations

See Note 12 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2023, 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 tables below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 9. See Note 10 for additional information related to investments by major security type for the Duke Energy Registrants.


	March 31, 2024
(in millions)	Total Fair Value		Level 1		Level 2		Level 3		Not Categorized
NDTF cash and cash equivalents	$	140	$	140	$	—	$	—	$	—
NDTF equity securities	7,837		7,802		—		—		35
NDTF debt securities	2,810		873		1,937		—		—
Other equity securities	173		173		—		—		—
Other debt securities	271		50		221		—		—
Other cash and cash equivalents	21		21		—		—		—

Derivative assets	255		77		172		6		—
Total assets	11,507		9,136		2,330		6		35

Derivative liabilities	(612)		(51)		(561)		—		—
Net assets	$	10,895	$	9,085	$	1,769	$	6	$	35


	December 31, 2023
(in millions)	Total Fair Value		Level 1		Level 2		Level 3		Not Categorized
NDTF cash and cash equivalents	$	133	$	133	$	—	$	—	$	—
NDTF equity securities	7,278		7,241		—		—		37
NDTF debt securities	2,732		829		1,903		—		—
Other equity securities	158		158		—		—		—
Other debt securities	271		55		216		—		—
Other cash and cash equivalents	31		31		—		—		—
Derivative assets	189		37		137		15		—
Total assets	10,792		8,484		2,256		15		37

Derivative liabilities	(729)		(60)		(669)		—		—
Net assets	$	10,063	$	8,424	$	1,587	$	15	$	37

The following table provides reconciliations 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)		2024		2023
Balance at beginning of period		$	15	$	34


Purchases, sales, issuances and settlements:



Settlements		(13)		(20)

Total gains (losses) included on the Condensed Consolidated Balance Sheet		4		(2)
Balance at end of period		$	6	$	12

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.


	March 31, 2024
(in millions)	Total Fair Value		Level 1		Level 2		Not Categorized
NDTF cash and cash equivalents	$	81	$	81	$	—	$	—
NDTF equity securities	4,514		4,479		—		35
NDTF debt securities	1,480		418		1,062		—
Other AFS debt securities	—		—		—		—
Derivative assets	35		—		35		—
Total assets	6,110		4,978		1,097		35
Derivative liabilities	(234)		—		(234)		—
Net assets	$	5,876	$	4,978	$	863	$	35


	December 31, 2023
(in millions)	Total Fair Value		Level 1		Level 2		Not Categorized
NDTF cash and cash equivalents	$	51	$	51	$	—	$	—
NDTF equity securities	4,196		4,159		—		37
NDTF debt securities	1,438		375		1,063		—

Derivative assets	35		—		35		—
Total assets	5,720		4,585		1,098		37
Derivative liabilities	(260)		—		(260)		—
Net assets	$	5,460	$	4,585	$	838	$	37

PROGRESS ENERGY