Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair value is the exchange price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value definition focuses on an exit price versus the acquisition cost. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.

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

Fair value accounting guidance permits entities to elect to measure certain financial instruments that are not required to be accounted for at fair value, such as equity method investments or the company’s own debt, at fair value. The Duke Energy Registrants have not elected to record any of these items at fair value.

Valuation methods of the primary fair value measurements disclosed below are as follows.

Investments in equity securities

The majority of investments in equity securities are valued using Level 1 measurements. Investments in equity securities are typically valued at the closing price in the principal active market as of the last business day of the quarter. Principal active markets for equity prices include published exchanges such as the New York Stock Exchange and Nasdaq Stock Market. Foreign equity prices are translated from their trading currency using the currency exchange rate in effect at the close of the principal active market. There was no after-hours market activity that was required to be reflected in the reported fair value measurements.

Investments in debt securities

Most investments in debt securities are valued using Level 2 measurements because the valuations use interest rate curves and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate) and consider the counterparty credit rating. If the market for a particular fixed-income security is relatively inactive or illiquid, the measurement is Level 3.

Commodity derivatives

Commodity derivatives with clearinghouses are classified as Level 1. Commodity derivatives with observable forward curves are classified as Level 2. If forward price curves are not observable for the full term of the contract and the unobservable period had more than an insignificant impact on the valuation, the commodity derivative is classified as Level 3. In isolation, increases (decreases) in natural gas forward prices result in favorable (unfavorable) fair value adjustments for natural gas purchase contracts; and increases (decreases) in electricity forward prices result in unfavorable (favorable) fair value adjustments for electricity sales contracts. Duke Energy regularly evaluates and validates pricing inputs used to estimate the fair value of natural gas commodity contracts by a market participant price verification procedure. This procedure provides a comparison of internal forward commodity curves to market participant generated curves.

Interest rate derivatives

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

Other fair value considerations

See Note 11 in Duke Energy's Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of the valuation of goodwill and intangible assets.

DUKE ENERGY

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets. Derivative amounts in the tables below for all Duke Energy Registrants exclude cash collateral, which is disclosed in Note 8. See Note 9 for additional information related to investments by major security type for the Duke Energy Registrants.

	September 30, 2021
(in millions)	Total Fair Value		Level 1		Level 2		Level 3		Not Categorized
NDTF cash and cash equivalents	$	164	$	164	$	—	$	—	$	—
NDTF equity securities	6,754		6,705		—		—		49
NDTF debt securities	2,943		998		1,945		—		—
Other equity securities	145		145		—		—		—
Other debt securities	283		45		238		—		—
Other cash and cash equivalents	87		87		—		—		—
Derivative assets	543		27		490		26		—
Total assets	10,919		8,171		2,673		26		49
Derivative liabilities	(415)		(2)		(256)		(157)		—
Net assets (liabilities)	$	10,504	$	8,169	$	2,417	$	(131)	$	49

	December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Level 3		Not Categorized
NDTF cash and cash equivalents	$	177	$	177	$	—	$	—	$	—
NDTF equity securities	6,235		6,189		—		—		46
NDTF debt securities	2,717		874		1,843		—		—
Other equity securities	146		146		—		—		—
Other debt securities	285		37		248		—		—
Other cash and cash equivalents	127		127		—		—		—
Derivative assets	61		1		53		7		—
Total assets	9,748		7,551		2,144		7		46
Derivative liabilities	(324)		—		(240)		(84)		—
Net assets (liabilities)	$	9,424	$	7,551	$	1,904	$	(77)	$	46

The following tables provide reconciliations of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Derivatives (net)
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Balance at beginning of period	$	(131)	$	(92)	$	(77)	$	(102)
Total pretax realized or unrealized losses included in comprehensive income	(11)		(102)		(86)		(102)
Purchases, sales, issuances and settlements:
Purchases	—		—		21		14
Settlements	4		(3)		(4)		(18)
Total gains (losses) included on the Condensed Consolidated Balance Sheet	7		(6)		15		5
Balance at end of period	$	(131)	$	(203)	$	(131)	$	(203)

DUKE ENERGY CAROLINAS

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	September 30, 2021
(in millions)	Total Fair Value		Level 1		Level 2		Not Categorized
NDTF cash and cash equivalents	$	60	$	60	$	—	$	—
NDTF equity securities	3,912		3,863		—		49
NDTF debt securities	1,461		359		1,102		—
Derivative assets	271		—		271		—
Total assets	5,704		4,282		1,373		49
Derivative liabilities	(18)		—		(18)		—
Net assets	$	5,686	$	4,282	$	1,355	$	49

	December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Not Categorized
NDTF cash and cash equivalents	$	30	$	30	$	—	$	—
NDTF equity securities	3,685		3,639		—		46
NDTF debt securities	1,250		192		1,058		—
Derivative assets	20		—		20		—
Total assets	4,985		3,861		1,078		46
Derivative liabilities	(20)		—		(20)		—
Net assets	$	4,965	$	3,861	$	1,058	$	46

PROGRESS ENERGY

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	September 30, 2021						December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Total Fair Value		Level 1		Level 2
NDTF cash and cash equivalents	$	104	$	104	$	—	$	147	$	147	$	—
NDTF equity securities	2,842		2,842		—		2,550		2,550		—
NDTF debt securities	1,482		639		843		1,467		682		785
Other debt securities	26		—		26		26		—		26
Other cash and cash equivalents	18		18		—		106		106		—
Derivative assets	215		—		215		33		—		33
Total assets	4,687		3,603		1,084		4,329		3,485		844
Derivative liabilities	(12)		—		(12)		(29)		—		(29)
Net assets	$	4,675	$	3,603	$	1,072	$	4,300	$	3,485	$	815

DUKE ENERGY PROGRESS

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	September 30, 2021						December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Total Fair Value		Level 1		Level 2
NDTF cash and cash equivalents	$	92	$	92	$	—	$	76	$	76	$	—
NDTF equity securities	2,736		2,736		—		2,459		2,459		—
NDTF debt securities	1,030		278		752		993		237		756
Other cash and cash equivalents	16		16		—		1		1		—
Derivative assets	215		—		215		33		—		33
Total assets	4,089		3,122		967		3,562		2,773		789
Derivative liabilities	—		—		—		(14)		—		(14)
Net assets	$	4,089	$	3,122	$	967	$	3,548	$	2,773	$	775

DUKE ENERGY FLORIDA

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	September 30, 2021						December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Total Fair Value		Level 1		Level 2
NDTF cash and cash equivalents	$	12	$	12	$	—	$	71	$	71	$	—
NDTF equity securities	106		106		—		91		91		—
NDTF debt securities	452		361		91		474		445		29
Other debt securities	26		—		26		26		—		26
Other cash and cash equivalents	1		1		—		1		1		—
Total assets	597		480		117		663		608		55
Derivative liabilities	(12)		—		(12)		—		—		—
Net assets	$	585	$	480	$	105	$	663	$	608	$	55

DUKE ENERGY OHIO

The recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets were not material at September 30, 2021, and December 31, 2020.

DUKE ENERGY INDIANA

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	September 30, 2021								December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3
Other equity securities	$	90	$	90	$	—	$	—	$	97	$	97	$	—	$	—
Other debt securities	46		—		46		—		45		—		45		—
Other cash and cash equivalents	19		19		—		—		1		1		—		—
Derivative assets	36		12		—		24		6		—		—		6
Total assets	191		121		46		24		149		98		45		6
Derivative liabilities	(2)		(2)		—		—		(1)		(1)		—		—
Net assets	$	189	$	119	$	46	$	24	$	148	$	97	$	45	$	6

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Derivatives (net)
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Balance at beginning of period	$	22	$	10	$	6	$	11
Purchases, sales, issuances and settlements:
Purchases	—		—		18		10
Settlements	(3)		(3)		(12)		(13)
Total gains included on the Condensed Consolidated Balance Sheet	5		1		12		—
Balance at end of period	$	24	$	8	$	24	$	8

PIEDMONT

The following tables provide recorded balances for assets and liabilities measured at fair value on a recurring basis on the Condensed Consolidated Balance Sheets.

	September 30, 2021						December 31, 2020
(in millions)	Total Fair Value		Level 1		Level 2		Total Fair Value		Level 1		Level 2
Derivative assets	$	12	$	12	$	—	$	1	$	1	$	—
Derivative liabilities	(148)		—		(148)		(122)		—		(122)
Net (liabilities) assets	$	(136)	$	12	$	(148)	$	(121)	$	1	$	(122)

The following table provides a reconciliation of beginning and ending balances of assets and liabilities measured at fair value using Level 3 measurements.

	Derivatives (net)
	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Balance at beginning of period	$	—	$	(105)	$	—	$	(117)
Total (losses) gains and settlements	—		(6)		—		6
Balance at end of period	$	—	$	(111)	$	—	$	(111)

QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS

The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.

	September 30, 2021
										Weighted
	Fair Value									Average
Investment Type	(in millions)		Valuation Technique	Unobservable Input	Range					Range
Duke Energy
Electricity contracts	$	(157)	RTO forward pricing	Forward electricity curves – price per MWh	$	18.02	-	$	143.85	$	38.43
Duke Energy Ohio
FTRs	2		RTO auction pricing	FTR price – per MWh	0.06		-	1.27		0.71
Duke Energy Indiana
FTRs	24		RTO auction pricing	FTR price – per MWh	(1.11)		-	8.55		1.61
Duke Energy
Total Level 3 derivatives	$	(131)

	December 31, 2020
									Weighted
	Fair Value								Average
Investment Type	(in millions)		Valuation Technique	Unobservable Input	Range				Range
Duke Energy
Electricity contracts	$	(84)	Discounted cash flow	Forward electricity curves – price per MWh	$	14.68	-	$151.84	$28.84
Duke Energy Ohio
FTRs	1		RTO auction pricing	FTR price – per MWh	0.25		-	1.68	0.79
Duke Energy Indiana
FTRs	6		RTO auction pricing	FTR price – per MWh	(2.40)		-	7.41	1.05
Duke Energy
Total Level 3 derivatives	$	(77)

OTHER FAIR VALUE DISCLOSURES

The fair value and book value of long-term debt, including current maturities, is summarized in the following table. Estimates determined are not necessarily indicative of amounts that could have been settled in current markets. Fair value of long-term debt uses Level 2 measurements.

	September 30, 2021				December 31, 2020
(in millions)	Book Value		Fair Value		Book Value		Fair Value
Duke Energy(a)	$	62,802	$	69,381	$	59,863	$	69,292
Duke Energy Carolinas	12,975		14,964		12,218		14,917
Progress Energy	19,488		22,593		19,264		23,470
Duke Energy Progress	9,848		10,915		9,258		10,862
Duke Energy Florida	7,549		8,932		7,915		9,756
Duke Energy Ohio	3,092		3,517		3,089		3,650
Duke Energy Indiana	4,092		4,883		4,091		5,204
Piedmont	2,968		3,320		2,780		3,306

(a)Book value of long-term debt includes $1.3 billion at September 30, 2021, and December 31, 2020, of net unamortized debt discount and premium of purchase accounting adjustments related to the mergers with Progress Energy and Piedmont that are excluded from fair value of long-term debt.

At both September 30, 2021, and December 31, 2020, fair value of cash and cash equivalents, accounts and notes receivable, accounts payable, notes payable and commercial paper and nonrecourse notes payable of VIEs are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.