The Duke Energy Registrants utilize various derivative instruments to manage risks primarily associated with commodity prices, foreign exchange 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 and foreign exchange 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 hedges (hereinafter referred to as undesignated contracts). All derivative instruments not meeting the criteria for the 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. Cash flows relative to derivative instruments are considered operating activities based on the nature of the underlying transactions.

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 for Duke Energy, or in the Condensed Consolidated Statements of Comprehensive Income for Duke Energy Carolinas, Duke Energy Ohio, and Duke Energy Indiana.

Information presented in the tables below relates to Duke Energy and Duke Energy Ohio. As regulatory accounting treatment is applied to substantially all of Duke Energy Carolinas and Duke Energy Indiana derivative instruments, and the carrying value of the respective derivative instruments comprise a small portion of Duke Energy's overall balance, separate disclosures for each of these registrants is not presented.

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, oil, natural gas and emission allowances (SO2, seasonal NOX and annual NOX) 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 and electricity purchased for resale 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, 2012, there were no open commodity derivative instruments that were designated as fair value hedges.

Commodity Cash Flow Hedges. At September 30, 2012, 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. These undesignated contracts expire as late as 2016.

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. Duke Energy Carolinas has also entered into a firm power sale agreement, which is accounted for as a derivative instrument, as part of the Interim FERC Mitigation in connection with Duke Energy's merger with Progress Energy. See Note 2. Undesignated contracts at September 30, 2012 are primarily associated with forward sales and purchases of power.

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, 2012 are primarily associated with forward sales and purchases of power, coal, natural gas 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, 2012 are primarily associated with forward purchases and sales of power, coal, natural gas, financial transmission rights and emission allowances.

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:

Notional Amounts of Derivative Instruments Related to Interest Rate

		Duke Energy		Duke Energy Carolinas		Duke Energy Ohio		Duke Energy Indiana
(in millions)		September 30, 2012
Cash Flow Hedges^(a)		$	869	$	―	$	―	$	―
Undesignated Contracts			342		―		27		200
Fair Value Hedges			275		25		250		―
	Total Notional Amount	$	1,486	$	25	$	277	$	200

(in millions)		December 31, 2011
Cash Flow Hedges^(a)		$	841	$	―	$	―	$	―
Undesignated Contracts			247		―		27		200
Fair Value Hedges			275		25		250		―
	Total Notional Amount	$	1,363	$	25	$	277	$	200

(a)	Includes amounts related to non-recourse variable rate long-term debt of VIEs of $442 million at September 30, 2012 and $466 million at December 31, 2011.

The following tables show information relating to the volume of Duke Energy and Duke Energy Ohio's outstanding commodity derivative activity. 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 Commodity Derivative Instruments Accounted for At Fair Value

		Duke Energy		Duke Energy Ohio
		September 30, 2012
Commodity contracts
Electricity-energy (Gigawatt-hours)^(a)(c)			27,820		29,770
Electricity-capacity (Gigawatt-months)			5		―
Oil (millions of gallons)			6		―
Natural gas (millions of decatherms)^(b)			436		131

		December 31, 2011
Commodity contracts
Electricity-energy (Gigawatt-hours)^(a)			14,118		14,655
Emission allowances NOX (thousands of tons)			9		9
Natural gas (millions of decatherms)			40		2

(a)	Amounts at Duke Energy Ohio include intercompany positions that are eliminated at Duke Energy.
(b)	Amounts at Duke Energy include 297 million decatherms of natural gas relate to Progress Energy.
(c)	Amounts at Duke Energy include amounts related to Duke Energy Carolinas and Progress Energy Carolinas Interim FERC mitigation contracts entered into as part of the Progress Energy merger.

	The following tables show fair value amounts of derivative contracts, 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

		Duke Energy				Duke Energy Ohio
		September 30, 2012
(in millions)		Asset		Liability		Asset		Liability
Derivatives Designated as Hedging Instruments
Commodity contracts
Current Liabilities: Other		$	―	$	1	$	―	$	―
Interest rate contracts
Current Assets: Other			5		―		4		―
Current Liabilities: Other			―		11		―		―
Deferred Credits and Other Liabilities: Other			―		107		―		―
Total Derivatives Designated as Hedging Instruments		$	5	$	119	$	4	$	―
Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other^(a)		$	55	$	5	$	33	$	12
Investments and Other Assets: Other			35		1		16		1
Current Liabilities: Other			94		377		85		110
Deferred Credits and Other Liabilities: Other			55		325		39		51
Interest rate contracts
Current Liabilities: Other^(b)			―		96		―		1
Deferred Credits and Other Liabilities: Other			―		8		―		8
Total Derivatives Not Designated as Hedging Instruments		$	239	$	812	$	173	$	183
Total Derivatives		$	244	$	931	$	177	$	183

(a)	Amount at Duke Energy includes $17 million related to commodity contracts at Duke Energy Indiana which receive regulatory accounting treatment.
(b)	Amount at Duke Energy includes $71 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

		Duke Energy				Duke Energy Ohio
		December 31, 2011
(in millions)		Asset		Liability		Asset		Liability
Derivatives Designated as Hedging Instruments
Interest rate contracts
Current Assets: Other		$	4	$	―	$	3	$	―
Investments and Other Assets: Other			2		―		2		―
Current Liabilities: Other			―		11		―		―
Deferred Credits and Other Liabilities: Other			―		76		―		―
Total Derivatives Designated as Hedging Instruments		$	6	$	87	$	5	$	―
Derivatives Not Designated as Hedging Instruments
Commodity contracts
Current Assets: Other		$	81	$	31	$	79	$	39
Investments and Other Assets: Other			35		17		29		18
Current Liabilities: Other			136		168		136		146
Deferred Credits and Other Liabilities: Other			25		93		22		33
Interest rate contracts
Current Liabilities: Other			―		2		―		1
Deferred Credits and Other Liabilities: Other^(a)			―		75		―		8
Total Derivatives Not Designated as Hedging Instruments		$	277	$	386	$	266	$	245
Total Derivatives		$	283	$	473	$	271	$	245

(a)	Amounts at Duke Energy include $67 million related to interest rate swaps at Duke Energy Indiana which receive regulatory accounting treatment.

	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, and the Condensed Consolidated Statements of Operations line items in which such gains and losses are included for Duke Energy.

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

		Three Months Ended
		September 30,
(in millions)		2012		2011
Pre-tax Gains (Losses) Recorded in AOCI
Interest rate contracts		$	(4)	$	(73)
Commodity contracts			1		―
Total Pre-tax Gains (Losses) Recorded in AOCI		$	(3)	$	(73)
Location of Pre-tax Gains (Losses) Reclassified from AOCI into Earnings^(a)
Interest rate contracts
Interest expense		$	2	$	(1)
Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings		$	2	$	(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.

		Nine Months Ended
		September 30,
(in millions)		2012		2011
Pre-tax Gains (Losses) Recorded in AOCI
Interest rate contracts		$	(30)	$	(80)
Commodity Contracts			1		―
Total Pre-tax Gains (Losses) Recorded in AOCI		$	(29)	$	(80)
Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings^(a)
Interest rate contracts
Interest expense		$	―	$	(4)
Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings		$	―	$	(4)

(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.

There were no gains or losses on cash flow hedges recorded or reclassified at Duke Energy Ohio for the nine months ended September 30, 2012 and 2011, respectively. There were no hedge ineffectiveness during the nine months ended September 30, 2012 and 2011, 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, 2012, and December 31, 2011, $136 million and $115 million, respectively of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges remains in AOCI and a $2 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, 2012, and December 31, 2011 there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI.

	The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative
instrument, and the line item(s) in the Condensed Consolidated Statements of Comprehensive Income 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				Duke Energy Ohio
		Three Months Ended September 30,
(in millions)		2012		2011		2012		2011
Location of Pre-tax Gains and (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric		$	(22)	$	―	$	―	$	―
Revenue, non-regulated electric, natural gas and other			(28)		―		(42)		(6)
Other income and expenses			(1)		―		―		―
Fuel used in electric generation and purchased power - Regulated			(135)		―		―		―
Interest rate contracts
Interest expense			(4)		―		―		―
Total Pre-tax (Losses) Gains Recognized in Earnings		$	(190)	$	―	$	(42)	$	(6)
Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset		$	61	$	2	$	―	$	2
Regulatory Liability^(a)			12		2		―		―
Interest rate contracts
Regulatory Asset^(b)			7		(146)		―		(4)
Regulatory Liability^(c)			―		(60)		―		―
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities		$	80	$	(202)	$	―	$	(2)

(a)	Amounts relate to commodity contracts at Duke Energy Indiana for the three months ended September 30, 2012.
(b)	Includes $82 million and $60 million related to interest rate swaps at Duke Energy Carolinas and Duke Energy Indiana, respectively for the three months ended September 30, 2011.
(c)	Amounts relate to interest rate swaps at Duke Energy Carolinas for the three months ended September 30, 2011.

		Duke Energy				Duke Energy Ohio
		Nine Months Ended September 30,
(in millions)		2012		2011		2012		2011
Location of Pre-tax Gains and (Losses) Recognized in Earnings
Commodity contracts
Revenue, regulated electric		$	(22)	$	―	$	―	$	―
Revenue, non-regulated electric, natural gas and other			8		(25)		33		(28)
Other income and expenses			(1)		―		―		―
Fuel used in electric generation and purchased power - Regulated			(135)		―		―		―
Fuel used in electric generation and purchased power - non-regulated			―		(1)		―		(1)
Interest rate contracts
Interest expense			(4)		―		(1)		(1)
Total Pre-tax (Losses) Gains Recognized in Earnings		$	(154)	$	(26)	$	32	$	(30)
Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities
Commodity contracts
Regulatory Asset		$	61	$	1	$	(2)	$	1
Regulatory Liability^(a)			34		12		1		―
Interest rate contracts
Regulatory Asset^(b)			(3)		(155)		―		(4)
Regulatory Liability^(c)			―		(60)		―		―
Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities		$	92	$	(202)	$	(1)	$	(3)

(a)	Amounts relate to commodity contracts at Duke Energy Indiana for the nine months ended September 30, 2012
(b)	Includes $91 million and $60 million related to interest rate swaps at Duke Energy Carolinas and Duke Energy Indiana, respectively for the nine months ended September 30, 2011.
(c)	Amounts relate to interest rate swaps at Duke Energy Carolinas for the nine months ended September 30, 2011.

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.

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

	Duke Energy		Duke Energy Ohio
(in millions)	September 30, 2012
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	524	$	195
Collateral Already Posted	$	158	$	84
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	259	$	7

(in millions)	December 31, 2011
Aggregate Fair Value Amounts of Derivative Instruments in a Net Liability Position	$	96	$	94
Collateral Already Posted	$	36	$	35
Additional Cash Collateral or Letters of Credit in the Event Credit-risk-related Contingent Features were Triggered at the End of the Reporting Period	$	5	$	5

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. See Note 9 for additional information on fair value disclosures related to derivatives.

Information Regarding Cash Collateral under Master Netting Arrangements

	Duke Energy				Duke Energy Ohio
	September 30, 2012
(in millions)	Receivables		Payable		Receivables		Payable
Amounts offset against net derivative positions	$	93	$	―	$	20	$	―
Amounts not offset against net derivative positions	$	72	$	―	$	70	$	―

	December 31, 2011
(in millions)	Receivables		Payable		Receivables		Payable
Amounts offset against net derivative positions	$	10	$	―	$	9	$	―
Amounts not offset against net derivative positions	$	30	$	―	$	28	$	―