On July 2, 2012, Progress Energy consummated the merger with Duke Energy, and became, and will continue as, a direct wholly owned subsidiary of Duke Energy. Under the terms of the merger agreement, each share of Progress Energy common stock was converted into 0.87083 shares of Duke Energy common stock as adjusted for the one-for-three reverse stock split of Duke Energy stock, effected in conjunction with, and immediately prior to, the merger. Each outstanding option to acquire, and each outstanding equity award relating to, one share of Progress Energy common stock was converted into an option to acquire, or an equity award relating to, 0.87083 shares of Duke Energy common stock. The terms and vesting periods of outstanding options and equity awards were not changed as a result of the merger.

As a result of the merger, the prior Progress Energy shares outstanding were cancelled. Progress Energy now has 100 authorized, issued and outstanding shares of common stock.

On June 8, 2012, the FERC conditionally approved the merger including Duke Energy and Progress Energy's revised market power mitigation plan, the Joint Dispatch Agreement (JDA) and the joint Open Access Transmission Tariff (OATT). The revised market power mitigation plan provides for the acceleration of one transmission project and the construction of seven other transmission projects (Long-term FERC Mitigation) and interim firm power sale agreements during the construction of the transmission projects (Interim FERC Mitigation). The Long-term FERC Mitigation will increase power imported into the service areas of Duke Energy Carolinas LLC (Duke Energy Carolinas), a wholly owned subsidiary of Duke Energy, and PEC and enhance competitive power supply options in the service areas. The construction of these projects will occur over the next two to three years. In conjunction with the Interim FERC Mitigation, Duke Energy Carolinas and PEC entered into power sale agreements with various counterparties that were effective with the consummation of the merger. These agreements, or similar power sale agreements, will be in place until the Long-term FERC Mitigation is operational. Under the agreements PEC will deliver around-the-clock power during the winter and summer in quantities that vary by season and by peak period.

The FERC order requires an independent party to monitor whether the power sale agreements remain in effect during construction of the transmission projects and provide quarterly reports to the FERC regarding the status of construction of the transmission projects.

North Carolina Utilities Commission and Public Service Commission of South Carolina

In September 2011, Duke Energy and Progress Energy reached settlements with the Public Staff of the North Carolina Utilities Commission (NC Public Staff) and the South Carolina Office of Regulatory Staff (ORS) and certain other interested parties in connection with the regulatory proceedings related to the merger, the JDA and the OATT that were pending before the NCUC and PSCSC. These settlements were updated in May 2012 to reflect the results of ongoing merger-related applications pending before the FERC. As part of these settlements and the application for approval of the merger by the NCUC and PSCSC, Duke Energy Carolinas and PEC agreed to the conditions and obligations listed below.

On June 29, 2012, the NCUC approved the merger application and the JDA application with conditions that were reflective of the settlement agreements described above. On July 2, 2012, the PSCSC approved the JDA application subject to Duke Energy Carolinas and PEC providing their South Carolina retail customers pro rata benefits equivalent to those approved by the NCUC in its merger approval order.

On July 6, 2012, the NCUC issued an order initiating investigation and scheduling hearings on the Duke Energy board of directors' decision on July 2, 2012, to replace William D. Johnson with James E. Rogers as President and CEO of Duke Energy subsequent to the merger close, as well as other related matters. See Note 4C for further information.

The following pre-tax consummation charges were recognized upon closing of the merger and are included in our Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2012.

(in millions)		PEC		PEF		Progress Energy
FERC Mitigation		$	71	$	-	$	71
Severance costs			42		24		66
Community support, charitable contributions and other			54		9		63
	Total	$	167	$	33	$	200

The FERC Mitigation charges reflect the portion of transmission project costs that are probable of disallowance, the impairment of the carrying value of the generation assets serving the Interim FERC Mitigation, and the mark-to-market loss recognized on the power sale agreements upon closing of the merger. Subsequent changes in the fair value of the interim power sale agreements are reflected in regulated electric operating revenues over the life of the contracts. The charges related to the transmission projects and the impairment of the carrying value of generation assets were recorded within impairment charges in the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2012. The mark-to-market loss on the power sale agreements was recorded in regulated electric operating revenues in the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2012. Realized gains or losses on the interim contract sales are also recorded within regulated electric operating revenues. The ability to successfully defend future recovery of a portion of the transmission projects in rates and any future changes to estimated transmission project costs could impact the amount that is not expected to be recovered.

In conjunction with the merger, in November 2011, Duke Energy and Progress Energy each offered a voluntary severance plan (VSP) to certain eligible employees. VSP and other severance costs incurred during the three and nine months ended September 30, 2012, were recorded primarily within operations, maintenance and other (O&M) expense in the Consolidated Statements of Operations and Comprehensive Income. See Note 13 for further information related to employee severance expenses.

Community support, charitable contributions and other reflect (i) the unconditional obligation to provide funding at a level comparable to historic practices over the next four years and (ii) financial and legal advisory costs that were incurred upon the closing of the merger, retention and relocation costs paid to certain employees. These charges were recorded within O&M expense in the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2012.

The following table summarizes pre-tax merger consummation costs, integration and other related costs (collectively referred to as costs to achieve), including those discussed above, substantially all of which are included in operating expenses in our Statements of Operations and Comprehensive Income:

	Three months ended September 30				Nine months ended September 30
(in millions)	2012		2011		2012		2011
Progress Energy	$	218	$	14	$	241	$	32
PEC		180		7		194		17
PEF		38		7		47		15

Duke Energy expects to incur significant system integration and other merger-related transition costs primarily through 2016 that are necessary in order to achieve certain cost savings, efficiencies and other benefits anticipated to result from the merger.

In 2011, we evaluated our business needs for office space after the merger and formulated an exit plan to vacate one of our corporate headquarters buildings. We have begun to gradually vacate the premises and will be fully vacated by January 1, 2013. In December 2011, we executed an agreement with a third party to sublease the building until 2035. The estimated exit cost liability associated with this exit plan is $17 million for us, of which $9 million of expense will be attributable to PEC, $4 million to PEF and $4 million to other Duke Energy subsidiaries. The exit cost liability is being recognized proportionately as we vacate the premises, which began in the fourth quarter of 2011. The costs of the exit plan are included in O&M expense in the Consolidated Statements of Operations and Comprehensive Income.

The following table presents a reconciliation of the beginning and ending exit cost liability balance:

(in millions)
Balance, December 31, 2011		$	5
Additional exit cost recognized			5
Balance, June 30, 2012			10
Additional exit cost recognized^(a)			2
Balance, September 30, 2012^(b)		$	12

^(a)	PEC, PEF and other Duke Energy subsidiaries recognized exit costs of $1 million, $- million and $1 million, respectively, for the three months ended September 30, 2012, and $4 million, $2 million and $1 million, respectively, for the nine months ended September 30, 2012.
^(b)	Expense related to the recognition of the cumulative exit cost liability at September 30, 2012, was attributed to PEC, PEF and other Duke Energy subsidiaries totaling $8 million, $3 million and $1 million, respectively.

Included in discontinued operations, net of tax are amounts related to adjustments of our prior sales of diversified businesses. These adjustments are generally due to guarantees and indemnifications provided for certain legal, tax and environmental matters. See Note 5C for further discussion of our guarantees. The ultimate resolution of these matters could result in additional adjustments in future periods.

During the three months ended September 30, 2012 and 2011, earnings (loss) from discontinued operations, net of tax was $3 million and $- million, respectively. During the nine months ended September 30, 2012 and 2011, earnings (loss) from discontinued operations, net of tax was $10 million and $(4) million, respectively. Earnings for the nine months ended September 30, 2012, relates primarily to an $18 million pre-tax gain from the reversal of certain environmental indemnification liabilities for which the indemnification period expired in the first quarter of 2012.