Risk Management, Derivative Instruments And Hedging Activities

9 Months Ended

Sep. 30, 2011

Risk Management, Derivative Instruments And Hedging Activities

8. Risk Management, Derivative Instruments and Hedging Activities

The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings.

Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as accounting hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the normal purchase normal sale (NPNS) exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively, thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts.

For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations. Regulatory accounting treatment is applied to substantially all of the derivative instruments at Duke Energy Carolinas and Duke Energy Indiana.

Commodity Price Risk

The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity required to purchase and sell electricity in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants' coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.

Commodity Fair Value Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as cash flow hedges.

Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.

Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. At September 30, 2011, Duke Energy Carolinas does not have any undesignated commodity contracts.

Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at September 30, 2011 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment.

Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at September 30, 2011 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances.

Interest Rate Risk

The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.

The following table shows the notional amounts for derivatives related to interest rate risk at September 30, 2011 and December 31, 2010.

Notional Amounts of Derivative Instruments Related to Interest Rate Risk

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
			(in millions)
Cash Flow Hedges(a)	$	846	$	—	$	—	$	—
Undesignated Contracts		748		500		27		200
Fair Value Hedges		275		25		250		—
Total Notional Amount at September 30, 2011	$	1,869	$	525	$	277	$	200

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio
			(in millions)
Cash Flow Hedges(a)	$	492	$	—	$	—
Undesignated Contracts		561		500		27
Fair Value Hedges		275		25		250
Total Notional Amount at December 31, 2010	$	1,328	$	525	$	277

(a) Includes amounts related to non-recourse variable rate long-term debt of VIEs of $470 million at September 30, 2011 and $492 million at December 31, 2010.

Volumes

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio's commodity derivative activity outstanding as of September 30, 2011 and December 31, 2010. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio 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 below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see "Interest Rate Risk" section above.

Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value

Duke Energy	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)		7,048		8,200
Electricity-capacity (Gigawatt-months)		—		58
Emission allowances: SO2 (thousands of tons)		8		8
Natural gas (millions of decatherms)		37		37
Duke Energy Ohio	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)(a)		11,947		13,183
Electricity-capacity (Gigawatt-months)		—		60

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

The following table shows fair value amounts of derivative contracts as of September 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.

Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets

Balance Sheet Location

Duke Energy	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		5		—		5		—
Investments and Other Assets: Other		4		—		16		—
Current Liabilities: Other		—		13		—		13
Deferred Credits and Other Liabilities: Other		—		71		—		—
Total Derivatives Designated as Hedging Instruments	$	9	$	84	$	21	$	13

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	73	$	30	$	108	$	54
Investments and Other Assets: Other		43		6		55		4
Current Liabilities: Other		15		50		75		118
Deferred Credits and Other Liabilities: Other		9		77		3		72
Interest rate contracts
Investments and Other Assets: Other(a)		—		—		60		—
Current Liabilities: Other(a)(b)		—		94		—		2
Deferred Credits and Other Liabilities: Other(c)		—		68		—		5
Total Derivatives Not Designated as Hedging Instruments	$	140	$	325	$	301	$	255
Total Derivatives	$	149	$	409	$	322	$	268

(a) As of December 31, 2010, includes $60 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(b) As of September 30, 2011, includes $92 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(c) As of September 30, 2011, includes $60 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

Duke Energy Ohio	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		4		—		4		—
Investments and Other Assets: Other		4		—		2		—
Total Derivatives Designated as Hedging Instruments	$	8	$	—	$	6	$	—

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	55	$	34	$	106	$	57
Investments and Other Assets: Other		7		2		6		2
Current Liabilities: Other		16		30		75		98
Deferred Credits and Other Liabilities: Other		12		17		3		7
Interest rate contracts
Current Liabilities: Other		—		1		—		1
Deferred Credits and Other Liabilities: Other		—		7		—		4
Total Derivatives Not Designated as Hedging Instruments	$	90	$	91	$	190	$	169
Total Derivatives	$	98	$	91	$	196	$	169

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three and nine months ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.

Cash Flow Hedges—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Comprehensive Income

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—			1			—			1
Interest rate contracts
Interest expense		(1	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Reclassified from AOCI into Earnings	$	(1	)	$	(1	)	$	(4	)	$	(3	)

Duke Energy Ohio	Three Months Ended September 30,				Nine months Ended September 30,
	2011		2010		2011		2010
	(in millions)				(in millions)
Location of Pre-tax Gains Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—		1		—		1
Total Pre-tax Gains Reclassified from AOCI into Earnings	$	—	$	1	$	—	$	1

(a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.

Duke Energy's effective portion of losses on cash flow hedges that were recognized in AOCI during the three and nine months ended September 30, 2011 were pre-tax losses of $73 million and $80 million, respectively, and pre-tax losses of $1 million and $14 million, respectively, during the three and nine months ended September 30, 2010. In addition, there was no hedge ineffectiveness during the three and nine months ended September 30, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.

Duke Energy. At September 30, 2011, $108 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI, and a $7 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.

Duke Energy Ohio. At September 30, 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and nine months ended September 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in

Income or as Regulatory Assets or Liabilities

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric	$	—		$	—		$	—		$	1
Revenue, non-regulated electric, natural gas and other		—			3			(25	)		(31	)
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Total Pre-tax Gains (Losses) Recognized in Earnings	$	—		$	3		$	(26	)	$	(24	)
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Regulatory Liability		2			(2	)		12			10
Interest rate contracts
Regulatory Asset(a)		(146	)		(6	)		(155	)		(8	)
Regulatory Liability(b)		(60	)		—			(60	)		—
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities	$	(202	)	$	(8	)	$	(202	)	$	4

(a) Includes amounts related to interest rate swaps at Duke Energy Carolinas during the three and nine months ended September 30, 2011 of $82 million and $91 million, respectively, and includes $60 million related to interest rate swaps at Duke Energy Indiana for both the three and nine months ended September 30, 2011.

(b) Amounts relate to interest rate swaps at Duke Energy Carolinas.

Duke Energy Ohio	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, non-regulated electric and other	$	(6	)	$	46		$	(28	)	$	28
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Interest rate contracts
Interest expense		—			(1	)		(1	)		(1	)
Total Pre-tax Gains (Losses) Recognized in Earnings(a)	$	(6	)	$	45		$	(30	)	$	33
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Interest rate contracts
Regulatory Asset		(4	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Recognized as Regulatory Assets	$	(2	)	$	(2	)	$	(3	)	$	(2	)

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

Credit Risk

Certain of Duke Energy and Duke Energy Ohio's derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio's credit rating below investment grade.

The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at September 30, 2011 and December 31, 2010.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features

Duke Energy	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	66	$	148
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14
Duke Energy Ohio	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	65	$	147
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14

Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of September 30, 2011 and December 31, 2010. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets(a)	$	28		—	$	2	$	3
	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy Ohio	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets (a)	$	16	$	—		—	$	3

(a) Amounts for payables primarily represent margin deposits related to futures contracts.

Duke Energy Corp [Member]

Risk Management, Derivative Instruments And Hedging Activities

8. Risk Management, Derivative Instruments and Hedging Activities

The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings.

Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as accounting hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the normal purchase normal sale (NPNS) exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively, thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts.

For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations. Regulatory accounting treatment is applied to substantially all of the derivative instruments at Duke Energy Carolinas and Duke Energy Indiana.

Commodity Price Risk

The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity required to purchase and sell electricity in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants' coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.

Commodity Fair Value Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as cash flow hedges.

Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.

Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. At September 30, 2011, Duke Energy Carolinas does not have any undesignated commodity contracts.

Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at September 30, 2011 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment.

Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at September 30, 2011 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances.

Interest Rate Risk

The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.

The following table shows the notional amounts for derivatives related to interest rate risk at September 30, 2011 and December 31, 2010.

Notional Amounts of Derivative Instruments Related to Interest Rate Risk

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
			(in millions)
Cash Flow Hedges(a)	$	846	$	—	$	—	$	—
Undesignated Contracts		748		500		27		200
Fair Value Hedges		275		25		250		—
Total Notional Amount at September 30, 2011	$	1,869	$	525	$	277	$	200

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio
			(in millions)
Cash Flow Hedges(a)	$	492	$	—	$	—
Undesignated Contracts		561		500		27
Fair Value Hedges		275		25		250
Total Notional Amount at December 31, 2010	$	1,328	$	525	$	277

(a) Includes amounts related to non-recourse variable rate long-term debt of VIEs of $470 million at September 30, 2011 and $492 million at December 31, 2010.

Volumes

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio's commodity derivative activity outstanding as of September 30, 2011 and December 31, 2010. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio 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 below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see "Interest Rate Risk" section above.

Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value

Duke Energy	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)		7,048		8,200
Electricity-capacity (Gigawatt-months)		—		58
Emission allowances: SO2 (thousands of tons)		8		8
Natural gas (millions of decatherms)		37		37
Duke Energy Ohio	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)(a)		11,947		13,183
Electricity-capacity (Gigawatt-months)		—		60

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

The following table shows fair value amounts of derivative contracts as of September 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.

Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets

Balance Sheet Location

Duke Energy	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		5		—		5		—
Investments and Other Assets: Other		4		—		16		—
Current Liabilities: Other		—		13		—		13
Deferred Credits and Other Liabilities: Other		—		71		—		—
Total Derivatives Designated as Hedging Instruments	$	9	$	84	$	21	$	13

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	73	$	30	$	108	$	54
Investments and Other Assets: Other		43		6		55		4
Current Liabilities: Other		15		50		75		118
Deferred Credits and Other Liabilities: Other		9		77		3		72
Interest rate contracts
Investments and Other Assets: Other(a)		—		—		60		—
Current Liabilities: Other(a)(b)		—		94		—		2
Deferred Credits and Other Liabilities: Other(c)		—		68		—		5
Total Derivatives Not Designated as Hedging Instruments	$	140	$	325	$	301	$	255
Total Derivatives	$	149	$	409	$	322	$	268

(a) As of December 31, 2010, includes $60 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(b) As of September 30, 2011, includes $92 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(c) As of September 30, 2011, includes $60 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

Duke Energy Ohio	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		4		—		4		—
Investments and Other Assets: Other		4		—		2		—
Total Derivatives Designated as Hedging Instruments	$	8	$	—	$	6	$	—

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	55	$	34	$	106	$	57
Investments and Other Assets: Other		7		2		6		2
Current Liabilities: Other		16		30		75		98
Deferred Credits and Other Liabilities: Other		12		17		3		7
Interest rate contracts
Current Liabilities: Other		—		1		—		1
Deferred Credits and Other Liabilities: Other		—		7		—		4
Total Derivatives Not Designated as Hedging Instruments	$	90	$	91	$	190	$	169
Total Derivatives	$	98	$	91	$	196	$	169

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three and nine months ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.

Cash Flow Hedges—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Comprehensive Income

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—			1			—			1
Interest rate contracts
Interest expense		(1	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Reclassified from AOCI into Earnings	$	(1	)	$	(1	)	$	(4	)	$	(3	)

Duke Energy Ohio	Three Months Ended September 30,				Nine months Ended September 30,
	2011		2010		2011		2010
	(in millions)				(in millions)
Location of Pre-tax Gains Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—		1		—		1
Total Pre-tax Gains Reclassified from AOCI into Earnings	$	—	$	1	$	—	$	1

(a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.

Duke Energy's effective portion of losses on cash flow hedges that were recognized in AOCI during the three and nine months ended September 30, 2011 were pre-tax losses of $73 million and $80 million, respectively, and pre-tax losses of $1 million and $14 million, respectively, during the three and nine months ended September 30, 2010. In addition, there was no hedge ineffectiveness during the three and nine months ended September 30, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.

Duke Energy. At September 30, 2011, $108 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI, and a $7 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.

Duke Energy Ohio. At September 30, 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and nine months ended September 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in

Income or as Regulatory Assets or Liabilities

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric	$	—		$	—		$	—		$	1
Revenue, non-regulated electric, natural gas and other		—			3			(25	)		(31	)
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Total Pre-tax Gains (Losses) Recognized in Earnings	$	—		$	3		$	(26	)	$	(24	)
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Regulatory Liability		2			(2	)		12			10
Interest rate contracts
Regulatory Asset(a)		(146	)		(6	)		(155	)		(8	)
Regulatory Liability(b)		(60	)		—			(60	)		—
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities	$	(202	)	$	(8	)	$	(202	)	$	4

(a) Includes amounts related to interest rate swaps at Duke Energy Carolinas during the three and nine months ended September 30, 2011 of $82 million and $91 million, respectively, and includes $60 million related to interest rate swaps at Duke Energy Indiana for both the three and nine months ended September 30, 2011.

(b) Amounts relate to interest rate swaps at Duke Energy Carolinas.

Duke Energy Ohio	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, non-regulated electric and other	$	(6	)	$	46		$	(28	)	$	28
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Interest rate contracts
Interest expense		—			(1	)		(1	)		(1	)
Total Pre-tax Gains (Losses) Recognized in Earnings(a)	$	(6	)	$	45		$	(30	)	$	33
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Interest rate contracts
Regulatory Asset		(4	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Recognized as Regulatory Assets	$	(2	)	$	(2	)	$	(3	)	$	(2	)

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

Credit Risk

Certain of Duke Energy and Duke Energy Ohio's derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio's credit rating below investment grade.

The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at September 30, 2011 and December 31, 2010.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features

Duke Energy	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	66	$	148
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14
Duke Energy Ohio	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	65	$	147
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14

Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of September 30, 2011 and December 31, 2010. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets(a)	$	28		—	$	2	$	3
	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy Ohio	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets (a)	$	16	$	—		—	$	3

(a) Amounts for payables primarily represent margin deposits related to futures contracts.

Duke Energy Carolinas [Member]

Risk Management, Derivative Instruments And Hedging Activities

8. Risk Management, Derivative Instruments and Hedging Activities

The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings.

Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as accounting hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the normal purchase normal sale (NPNS) exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively, thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts.

For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations. Regulatory accounting treatment is applied to substantially all of the derivative instruments at Duke Energy Carolinas and Duke Energy Indiana.

Commodity Price Risk

The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity required to purchase and sell electricity in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants' coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.

Commodity Fair Value Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as cash flow hedges.

Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.

Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. At September 30, 2011, Duke Energy Carolinas does not have any undesignated commodity contracts.

Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at September 30, 2011 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment.

Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at September 30, 2011 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances.

Interest Rate Risk

The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.

The following table shows the notional amounts for derivatives related to interest rate risk at September 30, 2011 and December 31, 2010.

Notional Amounts of Derivative Instruments Related to Interest Rate Risk

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
			(in millions)
Cash Flow Hedges(a)	$	846	$	—	$	—	$	—
Undesignated Contracts		748		500		27		200
Fair Value Hedges		275		25		250		—
Total Notional Amount at September 30, 2011	$	1,869	$	525	$	277	$	200

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio
			(in millions)
Cash Flow Hedges(a)	$	492	$	—	$	—
Undesignated Contracts		561		500		27
Fair Value Hedges		275		25		250
Total Notional Amount at December 31, 2010	$	1,328	$	525	$	277

(a) Includes amounts related to non-recourse variable rate long-term debt of VIEs of $470 million at September 30, 2011 and $492 million at December 31, 2010.

Volumes

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio's commodity derivative activity outstanding as of September 30, 2011 and December 31, 2010. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio 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 below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see "Interest Rate Risk" section above.

Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value

Duke Energy	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)		7,048		8,200
Electricity-capacity (Gigawatt-months)		—		58
Emission allowances: SO2 (thousands of tons)		8		8
Natural gas (millions of decatherms)		37		37
Duke Energy Ohio	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)(a)		11,947		13,183
Electricity-capacity (Gigawatt-months)		—		60

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

The following table shows fair value amounts of derivative contracts as of September 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.

Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets

Balance Sheet Location

Duke Energy	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		5		—		5		—
Investments and Other Assets: Other		4		—		16		—
Current Liabilities: Other		—		13		—		13
Deferred Credits and Other Liabilities: Other		—		71		—		—
Total Derivatives Designated as Hedging Instruments	$	9	$	84	$	21	$	13

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	73	$	30	$	108	$	54
Investments and Other Assets: Other		43		6		55		4
Current Liabilities: Other		15		50		75		118
Deferred Credits and Other Liabilities: Other		9		77		3		72
Interest rate contracts
Investments and Other Assets: Other(a)		—		—		60		—
Current Liabilities: Other(a)(b)		—		94		—		2
Deferred Credits and Other Liabilities: Other(c)		—		68		—		5
Total Derivatives Not Designated as Hedging Instruments	$	140	$	325	$	301	$	255
Total Derivatives	$	149	$	409	$	322	$	268

(a) As of December 31, 2010, includes $60 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(b) As of September 30, 2011, includes $92 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(c) As of September 30, 2011, includes $60 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

Duke Energy Ohio	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		4		—		4		—
Investments and Other Assets: Other		4		—		2		—
Total Derivatives Designated as Hedging Instruments	$	8	$	—	$	6	$	—

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	55	$	34	$	106	$	57
Investments and Other Assets: Other		7		2		6		2
Current Liabilities: Other		16		30		75		98
Deferred Credits and Other Liabilities: Other		12		17		3		7
Interest rate contracts
Current Liabilities: Other		—		1		—		1
Deferred Credits and Other Liabilities: Other		—		7		—		4
Total Derivatives Not Designated as Hedging Instruments	$	90	$	91	$	190	$	169
Total Derivatives	$	98	$	91	$	196	$	169

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three and nine months ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.

Cash Flow Hedges—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Comprehensive Income

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—			1			—			1
Interest rate contracts
Interest expense		(1	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Reclassified from AOCI into Earnings	$	(1	)	$	(1	)	$	(4	)	$	(3	)

Duke Energy Ohio	Three Months Ended September 30,				Nine months Ended September 30,
	2011		2010		2011		2010
	(in millions)				(in millions)
Location of Pre-tax Gains Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—		1		—		1
Total Pre-tax Gains Reclassified from AOCI into Earnings	$	—	$	1	$	—	$	1

(a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.

Duke Energy's effective portion of losses on cash flow hedges that were recognized in AOCI during the three and nine months ended September 30, 2011 were pre-tax losses of $73 million and $80 million, respectively, and pre-tax losses of $1 million and $14 million, respectively, during the three and nine months ended September 30, 2010. In addition, there was no hedge ineffectiveness during the three and nine months ended September 30, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.

Duke Energy. At September 30, 2011, $108 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI, and a $7 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.

Duke Energy Ohio. At September 30, 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and nine months ended September 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in

Income or as Regulatory Assets or Liabilities

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric	$	—		$	—		$	—		$	1
Revenue, non-regulated electric, natural gas and other		—			3			(25	)		(31	)
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Total Pre-tax Gains (Losses) Recognized in Earnings	$	—		$	3		$	(26	)	$	(24	)
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Regulatory Liability		2			(2	)		12			10
Interest rate contracts
Regulatory Asset(a)		(146	)		(6	)		(155	)		(8	)
Regulatory Liability(b)		(60	)		—			(60	)		—
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities	$	(202	)	$	(8	)	$	(202	)	$	4

(a) Includes amounts related to interest rate swaps at Duke Energy Carolinas during the three and nine months ended September 30, 2011 of $82 million and $91 million, respectively, and includes $60 million related to interest rate swaps at Duke Energy Indiana for both the three and nine months ended September 30, 2011.

(b) Amounts relate to interest rate swaps at Duke Energy Carolinas.

Duke Energy Ohio	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, non-regulated electric and other	$	(6	)	$	46		$	(28	)	$	28
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Interest rate contracts
Interest expense		—			(1	)		(1	)		(1	)
Total Pre-tax Gains (Losses) Recognized in Earnings(a)	$	(6	)	$	45		$	(30	)	$	33
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Interest rate contracts
Regulatory Asset		(4	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Recognized as Regulatory Assets	$	(2	)	$	(2	)	$	(3	)	$	(2	)

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

Credit Risk

Certain of Duke Energy and Duke Energy Ohio's derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio's credit rating below investment grade.

The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at September 30, 2011 and December 31, 2010.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features

Duke Energy	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	66	$	148
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14
Duke Energy Ohio	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	65	$	147
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14

Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of September 30, 2011 and December 31, 2010. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets(a)	$	28		—	$	2	$	3
	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy Ohio	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets (a)	$	16	$	—		—	$	3

(a) Amounts for payables primarily represent margin deposits related to futures contracts.

Duke Energy Indiana [Member]

Risk Management, Derivative Instruments And Hedging Activities

8. Risk Management, Derivative Instruments and Hedging Activities

The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings.

Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as accounting hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the normal purchase normal sale (NPNS) exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively, thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts.

For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations. Regulatory accounting treatment is applied to substantially all of the derivative instruments at Duke Energy Carolinas and Duke Energy Indiana.

Commodity Price Risk

The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity required to purchase and sell electricity in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants' coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.

Commodity Fair Value Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as cash flow hedges.

Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.

Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. At September 30, 2011, Duke Energy Carolinas does not have any undesignated commodity contracts.

Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at September 30, 2011 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment.

Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at September 30, 2011 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances.

Interest Rate Risk

The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.

The following table shows the notional amounts for derivatives related to interest rate risk at September 30, 2011 and December 31, 2010.

Notional Amounts of Derivative Instruments Related to Interest Rate Risk

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
			(in millions)
Cash Flow Hedges(a)	$	846	$	—	$	—	$	—
Undesignated Contracts		748		500		27		200
Fair Value Hedges		275		25		250		—
Total Notional Amount at September 30, 2011	$	1,869	$	525	$	277	$	200

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio
			(in millions)
Cash Flow Hedges(a)	$	492	$	—	$	—
Undesignated Contracts		561		500		27
Fair Value Hedges		275		25		250
Total Notional Amount at December 31, 2010	$	1,328	$	525	$	277

(a) Includes amounts related to non-recourse variable rate long-term debt of VIEs of $470 million at September 30, 2011 and $492 million at December 31, 2010.

Volumes

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio's commodity derivative activity outstanding as of September 30, 2011 and December 31, 2010. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio 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 below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see "Interest Rate Risk" section above.

Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value

Duke Energy	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)		7,048		8,200
Electricity-capacity (Gigawatt-months)		—		58
Emission allowances: SO2 (thousands of tons)		8		8
Natural gas (millions of decatherms)		37		37
Duke Energy Ohio	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)(a)		11,947		13,183
Electricity-capacity (Gigawatt-months)		—		60

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

The following table shows fair value amounts of derivative contracts as of September 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.

Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets

Balance Sheet Location

Duke Energy	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		5		—		5		—
Investments and Other Assets: Other		4		—		16		—
Current Liabilities: Other		—		13		—		13
Deferred Credits and Other Liabilities: Other		—		71		—		—
Total Derivatives Designated as Hedging Instruments	$	9	$	84	$	21	$	13

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	73	$	30	$	108	$	54
Investments and Other Assets: Other		43		6		55		4
Current Liabilities: Other		15		50		75		118
Deferred Credits and Other Liabilities: Other		9		77		3		72
Interest rate contracts
Investments and Other Assets: Other(a)		—		—		60		—
Current Liabilities: Other(a)(b)		—		94		—		2
Deferred Credits and Other Liabilities: Other(c)		—		68		—		5
Total Derivatives Not Designated as Hedging Instruments	$	140	$	325	$	301	$	255
Total Derivatives	$	149	$	409	$	322	$	268

(a) As of December 31, 2010, includes $60 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(b) As of September 30, 2011, includes $92 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(c) As of September 30, 2011, includes $60 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

Duke Energy Ohio	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		4		—		4		—
Investments and Other Assets: Other		4		—		2		—
Total Derivatives Designated as Hedging Instruments	$	8	$	—	$	6	$	—

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	55	$	34	$	106	$	57
Investments and Other Assets: Other		7		2		6		2
Current Liabilities: Other		16		30		75		98
Deferred Credits and Other Liabilities: Other		12		17		3		7
Interest rate contracts
Current Liabilities: Other		—		1		—		1
Deferred Credits and Other Liabilities: Other		—		7		—		4
Total Derivatives Not Designated as Hedging Instruments	$	90	$	91	$	190	$	169
Total Derivatives	$	98	$	91	$	196	$	169

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three and nine months ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.

Cash Flow Hedges—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Comprehensive Income

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—			1			—			1
Interest rate contracts
Interest expense		(1	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Reclassified from AOCI into Earnings	$	(1	)	$	(1	)	$	(4	)	$	(3	)

Duke Energy Ohio	Three Months Ended September 30,				Nine months Ended September 30,
	2011		2010		2011		2010
	(in millions)				(in millions)
Location of Pre-tax Gains Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—		1		—		1
Total Pre-tax Gains Reclassified from AOCI into Earnings	$	—	$	1	$	—	$	1

(a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.

Duke Energy's effective portion of losses on cash flow hedges that were recognized in AOCI during the three and nine months ended September 30, 2011 were pre-tax losses of $73 million and $80 million, respectively, and pre-tax losses of $1 million and $14 million, respectively, during the three and nine months ended September 30, 2010. In addition, there was no hedge ineffectiveness during the three and nine months ended September 30, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.

Duke Energy. At September 30, 2011, $108 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI, and a $7 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.

Duke Energy Ohio. At September 30, 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and nine months ended September 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in

Income or as Regulatory Assets or Liabilities

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric	$	—		$	—		$	—		$	1
Revenue, non-regulated electric, natural gas and other		—			3			(25	)		(31	)
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Total Pre-tax Gains (Losses) Recognized in Earnings	$	—		$	3		$	(26	)	$	(24	)
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Regulatory Liability		2			(2	)		12			10
Interest rate contracts
Regulatory Asset(a)		(146	)		(6	)		(155	)		(8	)
Regulatory Liability(b)		(60	)		—			(60	)		—
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities	$	(202	)	$	(8	)	$	(202	)	$	4

(a) Includes amounts related to interest rate swaps at Duke Energy Carolinas during the three and nine months ended September 30, 2011 of $82 million and $91 million, respectively, and includes $60 million related to interest rate swaps at Duke Energy Indiana for both the three and nine months ended September 30, 2011.

(b) Amounts relate to interest rate swaps at Duke Energy Carolinas.

Duke Energy Ohio	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, non-regulated electric and other	$	(6	)	$	46		$	(28	)	$	28
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Interest rate contracts
Interest expense		—			(1	)		(1	)		(1	)
Total Pre-tax Gains (Losses) Recognized in Earnings(a)	$	(6	)	$	45		$	(30	)	$	33
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Interest rate contracts
Regulatory Asset		(4	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Recognized as Regulatory Assets	$	(2	)	$	(2	)	$	(3	)	$	(2	)

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

Credit Risk

Certain of Duke Energy and Duke Energy Ohio's derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio's credit rating below investment grade.

The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at September 30, 2011 and December 31, 2010.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features

Duke Energy	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	66	$	148
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14
Duke Energy Ohio	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	65	$	147
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14

Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of September 30, 2011 and December 31, 2010. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets(a)	$	28		—	$	2	$	3
	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy Ohio	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets (a)	$	16	$	—		—	$	3

(a) Amounts for payables primarily represent margin deposits related to futures contracts.

Duke Energy Ohio [Member]

Risk Management, Derivative Instruments And Hedging Activities

8. Risk Management, Derivative Instruments and Hedging Activities

The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices and interest rates. The primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate derivatives are entered into to manage interest rate risk associated with variable-rate and fixed-rate borrowings.

Certain derivative instruments qualify for hedge accounting and are designated as either cash flow hedges or fair value hedges, while others either do not qualify as accounting hedges (such as economic hedges) or have not been designated as accounting hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the normal purchase normal sale (NPNS) exception are recognized as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. As the regulated operations of the Duke Energy Registrants meet the criteria for regulatory accounting treatment, the majority of the derivative contracts entered into by the regulated operations are not designated as hedges since gains and losses on such contracts are deferred as regulatory liabilities and assets, respectively, thus there is no immediate earnings impact associated with changes in fair values of such derivative contracts.

For derivative instruments that qualify and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of Accumulated Other Comprehensive Income (AOCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. Any gains or losses on the derivative are included in the same line item as the offsetting loss or gain on the hedged item in the Condensed Consolidated Statements of Operations. Regulatory accounting treatment is applied to substantially all of the derivative instruments at Duke Energy Carolinas and Duke Energy Indiana.

Commodity Price Risk

The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO₂, seasonal NO_X and annual NO_X) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity required to purchase and sell electricity in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants' coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location.

Commodity Fair Value Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At September 30, 2011, there were no open commodity derivative instruments that were designated as cash flow hedges.

Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts.

Duke Energy Carolinas uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. At September 30, 2011, Duke Energy Carolinas does not have any undesignated commodity contracts.

Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at September 30, 2011 are primarily associated with forward sales and purchases of power, coal and emission allowances, for the Commercial Power segment.

Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at September 30, 2011 are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances.

Interest Rate Risk

The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt.

The following table shows the notional amounts for derivatives related to interest rate risk at September 30, 2011 and December 31, 2010.

Notional Amounts of Derivative Instruments Related to Interest Rate Risk

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
			(in millions)
Cash Flow Hedges(a)	$	846	$	—	$	—	$	—
Undesignated Contracts		748		500		27		200
Fair Value Hedges		275		25		250		—
Total Notional Amount at September 30, 2011	$	1,869	$	525	$	277	$	200

	Duke Energy Corporation		Duke Energy Carolinas		Duke Energy Ohio
			(in millions)
Cash Flow Hedges(a)	$	492	$	—	$	—
Undesignated Contracts		561		500		27
Fair Value Hedges		275		25		250
Total Notional Amount at December 31, 2010	$	1,328	$	525	$	277

(a) Includes amounts related to non-recourse variable rate long-term debt of VIEs of $470 million at September 30, 2011 and $492 million at December 31, 2010.

Volumes

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio's commodity derivative activity outstanding as of September 30, 2011 and December 31, 2010. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. Duke Energy and Duke Energy Ohio 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 below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see "Interest Rate Risk" section above.

Underlying Notional Amounts for Derivative Instruments Accounted for At Fair Value

Duke Energy	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)		7,048		8,200
Electricity-capacity (Gigawatt-months)		—		58
Emission allowances: SO2 (thousands of tons)		8		8
Natural gas (millions of decatherms)		37		37
Duke Energy Ohio	September 30, 2011		December 31, 2010
Commodity contracts
Electricity-energy (Gigawatt-hours)(a)		11,947		13,183
Electricity-capacity (Gigawatt-months)		—		60

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

The following table shows fair value amounts of derivative contracts as of September 30, 2011 and December 31, 2010, and the line item(s) in the Condensed Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Condensed Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts.

Location and Fair Value Amounts of Derivatives Reflected in the Condensed Consolidated Balance Sheets

Balance Sheet Location

Duke Energy	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		5		—		5		—
Investments and Other Assets: Other		4		—		16		—
Current Liabilities: Other		—		13		—		13
Deferred Credits and Other Liabilities: Other		—		71		—		—
Total Derivatives Designated as Hedging Instruments	$	9	$	84	$	21	$	13

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	73	$	30	$	108	$	54
Investments and Other Assets: Other		43		6		55		4
Current Liabilities: Other		15		50		75		118
Deferred Credits and Other Liabilities: Other		9		77		3		72
Interest rate contracts
Investments and Other Assets: Other(a)		—		—		60		—
Current Liabilities: Other(a)(b)		—		94		—		2
Deferred Credits and Other Liabilities: Other(c)		—		68		—		5
Total Derivatives Not Designated as Hedging Instruments	$	140	$	325	$	301	$	255
Total Derivatives	$	149	$	409	$	322	$	268

(a) As of December 31, 2010, includes $60 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(b) As of September 30, 2011, includes $92 million related to interest rate swaps at Duke Energy Carolinas which receive regulatory accounting treatment.

(c) As of September 30, 2011, includes $60 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

Duke Energy Ohio	September 30, 2011				December 31, 2010
	Asset		Liability		Asset		Liability
	(in millions)
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		4		—		4		—
Investments and Other Assets: Other		4		—		2		—
Total Derivatives Designated as Hedging Instruments	$	8	$	—	$	6	$	—

Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other	$	55	$	34	$	106	$	57
Investments and Other Assets: Other		7		2		6		2
Current Liabilities: Other		16		30		75		98
Deferred Credits and Other Liabilities: Other		12		17		3		7
Interest rate contracts
Current Liabilities: Other		—		1		—		1
Deferred Credits and Other Liabilities: Other		—		7		—		4
Total Derivatives Not Designated as Hedging Instruments	$	90	$	91	$	190	$	169
Total Derivatives	$	98	$	91	$	196	$	169

The following table shows the amount of the gains and losses recognized on derivative instruments designated and qualifying as cash flow hedges by type of derivative contract during the three and nine months ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included.

Cash Flow Hedges—Location and Amount of Pre-Tax Gains and (Losses) Recognized in Comprehensive Income

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—			1			—			1
Interest rate contracts
Interest expense		(1	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Reclassified from AOCI into Earnings	$	(1	)	$	(1	)	$	(4	)	$	(3	)

Duke Energy Ohio	Three Months Ended September 30,				Nine months Ended September 30,
	2011		2010		2011		2010
	(in millions)				(in millions)
Location of Pre-tax Gains Reclassified from AOCI into Earnings(a)
Commodity contracts
Fuel used in electric generation and purchased power—non-regulated		—		1		—		1
Total Pre-tax Gains Reclassified from AOCI into Earnings	$	—	$	1	$	—	$	1

(a) Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period.

Duke Energy's effective portion of losses on cash flow hedges that were recognized in AOCI during the three and nine months ended September 30, 2011 were pre-tax losses of $73 million and $80 million, respectively, and pre-tax losses of $1 million and $14 million, respectively, during the three and nine months ended September 30, 2010. In addition, there was no hedge ineffectiveness during the three and nine months ended September 30, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods for all Duke Energy Registrants.

Duke Energy. At September 30, 2011, $108 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI, and a $7 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur.

Duke Energy Ohio. At September 30, 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

The following table shows the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument during the three and nine months ended September 30, 2011 and 2010, and the line item(s) in the Condensed Consolidated Statements of Operations in which such gains and losses are included or deferred on the Condensed Consolidated Balance Sheets as regulatory assets or liabilities.

Undesignated Contracts—Location and Amount of Pre-Tax Gains and (Losses) Recognized in

Income or as Regulatory Assets or Liabilities

Duke Energy	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric	$	—		$	—		$	—		$	1
Revenue, non-regulated electric, natural gas and other		—			3			(25	)		(31	)
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Total Pre-tax Gains (Losses) Recognized in Earnings	$	—		$	3		$	(26	)	$	(24	)
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Regulatory Liability		2			(2	)		12			10
Interest rate contracts
Regulatory Asset(a)		(146	)		(6	)		(155	)		(8	)
Regulatory Liability(b)		(60	)		—			(60	)		—
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities	$	(202	)	$	(8	)	$	(202	)	$	4

(a) Includes amounts related to interest rate swaps at Duke Energy Carolinas during the three and nine months ended September 30, 2011 of $82 million and $91 million, respectively, and includes $60 million related to interest rate swaps at Duke Energy Indiana for both the three and nine months ended September 30, 2011.

(b) Amounts relate to interest rate swaps at Duke Energy Carolinas.

Duke Energy Ohio	Three Months Ended September 30,						Nine months Ended September 30,
	2011			2010			2011			2010
	(in millions)						(in millions)
Location of Pre-Tax Gains (Losses) Recognized in Earnings
Commodity contracts
Revenue, non-regulated electric and other	$	(6	)	$	46		$	(28	)	$	28
Fuel used in electric generation and purchased power-non-regulated		—			—			(1	)		6
Interest rate contracts
Interest expense		—			(1	)		(1	)		(1	)
Total Pre-tax Gains (Losses) Recognized in Earnings(a)	$	(6	)	$	45		$	(30	)	$	33
Location of Pre-Tax Gains (Losses) Recognized as Regulatory Assets
Commodity contracts
Regulatory Asset	$	2		$	—		$	1		$	2
Interest rate contracts
Regulatory Asset		(4	)		(2	)		(4	)		(4	)
Total Pre-tax Losses Recognized as Regulatory Assets	$	(2	)	$	(2	)	$	(3	)	$	(2	)

(a) Amounts include intercompany positions that are eliminated at Duke Energy.

Credit Risk

Certain of Duke Energy and Duke Energy Ohio's derivative contracts contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a downgrade of Duke Energy or Duke Energy Ohio's credit rating below investment grade.

The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered at September 30, 2011 and December 31, 2010.

Information Regarding Derivative Instruments that Contain Credit-risk Related Contingent Features

Duke Energy	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	66	$	148
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14
Duke Energy Ohio	September 30, 2011		December 31, 2010
	(in millions)
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	65	$	147
Collateral Already Posted	$	25	$	2
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	4	$	14

Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting rules, Duke Energy and Duke Energy Ohio have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Condensed Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements as of September 30, 2011 and December 31, 2010. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets(a)	$	28		—	$	2	$	3
	September 30, 2011				December 31, 2010
	(in millions)				(in millions)
Duke Energy Ohio	Receivables		Payables		Receivables		Payables
Amounts offset against net derivative positions on the Condensed Consolidated Balance Sheets	$	7		—	$	2		—
Amounts not offset against net derivative positions on the Condensed Consolidated Balance Sheets (a)	$	16	$	—		—	$	3

(a) Amounts for payables primarily represent margin deposits related to futures contracts.