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Fair Value Measurements
 9 Months Ended
Sep. 30, 2019
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 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.
Transfers between levels represent assets or liabilities that were previously (i) categorized at a higher level for which the inputs to the estimate became less observable or (ii) classified at a lower level for which the inputs became more observable during the period. The Duke Energy Registrant’s policy is to recognize transfers between levels of the fair value hierarchy at the end of the period. There were no transfers between levels during the nine months ended September 30, 2019, and 2018.
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. Other commodity derivatives, including Piedmont's natural gas supply contracts, are primarily valued using internally developed discounted cash flow models that incorporate forward price, adjustments for liquidity (bid-ask spread) and credit or non-performance risk (after reflecting credit enhancements such as collateral), and are discounted to present value. Pricing inputs are derived from published exchange transaction prices and other observable data sources. In the absence of an active market, the last available price may be used. 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, 2018, 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 10. See Note 11 for additional information related to investments by major security type for the Duke Energy Registrants.
 
September 30, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not Categorized

NDTF equity securities
$
5,222

$
5,168

$
—

$
—

$
54

NDTF debt securities
2,476

804

1,672

—

—

Other equity securities
112

112

—

—

—

Other debt securities
324

92

232

—

—

Derivative assets
31

2

8

21

—

Total assets
8,165

6,178

1,912

21

54

Derivative liabilities
(353
)
(25
)
(217
)
(111
)
—

Net assets (liabilities)
$
7,812

$
6,153

$
1,695

$
(90
)
$
54

 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

Not Categorized

NDTF equity securities
$
4,475

$
4,410

$
—

$
—

$
65

NDTF debt securities
2,231

576

1,655

—

—

Other equity securities
99

99

—

—

—

Other debt securities
270

67

203

—

—

Derivative assets
57

4

25

28

—

Total assets
7,132

5,156

1,883

28

65

Derivative liabilities
(242
)
(11
)
(90
)
(141
)
—

Net assets (liabilities)
$
6,890

$
5,145

$
1,793

$
(113
)
$
65


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)
2019

 
2018

 
2019

 
2018

Balance at beginning of period
$
(79
)
 
$
(97
)
 
$
(113
)
 
$
(114
)
Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Purchases
—

 
—

 
38

 
56

Settlements
(9
)
 
(14
)
 
(32
)
 
(43
)
Total (losses) gains included on the Condensed Consolidated Balance Sheet
(2
)
 
(5
)
 
17

 
(15
)
Balance at end of period
$
(90
)
 
$
(116
)
 
$
(90
)
 
$
(116
)

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, 2019
(in millions)
Total Fair Value

Level 1

Level 2

Not Categorized

NDTF equity securities
$
2,901

$
2,847

$
—

$
54

NDTF debt securities
1,195

189

1,006

—

Total assets
4,096

3,036

1,006

54

Derivative liabilities
(67
)
—

(67
)
—

Net assets
$
4,029

$
3,036

$
939

$
54

 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

Not Categorized

NDTF equity securities
$
2,484

$
2,419

$
—

$
65

NDTF debt securities
1,069

149

920

—

Derivative assets
3

—

3

—

Total assets
3,556

2,568

923

65

Derivative liabilities
(33
)
—

(33
)
—

Net assets
$
3,523

$
2,568

$
890

$
65


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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
2,321

$
2,321

$
—

 
$
1,991

$
1,991

$
—

NDTF debt securities
1,281

615

666

 
1,162

427

735

Other debt securities
101

49

52

 
64

17

47

Derivative assets
5

—

5

 
4

—

4

Total assets
3,708

2,985

723

 
3,221

2,435

786

Derivative liabilities
(113
)
—

(113
)
 
(44
)
—

(44
)
Net assets
$
3,595

$
2,985

$
610

 
$
3,177

$
2,435

$
742


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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
1,907

$
1,907

$
—

 
$
1,588

$
1,588

$
—

NDTF debt securities
975

309

666

 
906

294

612

Other debt securities
2

2

—

 
6

6

—

Derivative assets
—

—

—

 
4

—

4

Total assets
2,884

2,218

666

 
2,504

1,888

616

Derivative liabilities
(43
)
—

(43
)
 
(27
)
—

(27
)
Net assets
$
2,841

$
2,218

$
623

 
$
2,477

$
1,888

$
589


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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

 
Total Fair Value

Level 1

Level 2

NDTF equity securities
$
414

$
414

$
—

 
$
403

$
403

$
—

NDTF debt securities
306

306

—

 
256

133

123

Other debt securities
56

4

52

 
48

1

47

Derivative assets
5

—

5

 
—

—

—

Total assets
781

724

57

 
707

537

170

Derivative liabilities
(54
)
—

(54
)
 
(9
)
—

(9
)
Net assets
$
727

$
724

$
3

 
$
698

$
537

$
161


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, 2019, and December 31, 2018.
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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 2

Level 3

 
Total Fair Value

Level 1

Level 2

Level 3

Other equity securities
$
74

$
74

$
—

$
—

 
$
67

$
67

$
—

$
—

Other debt securities
43

—

43

—

 
41

—

41

—

Derivative assets
16

—

—

16

 
23

1

—

22

Total assets
$
133

$
74

$
43

$
16

 
$
131

$
68

$
41

$
22


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)
2019

 
2018

 
2019

 
2018

Balance at beginning of period
$
28

 
$
44

 
$
22

 
$
27

Purchases, sales, issuances and settlements:

 
 
 
 
 
 
Purchases
—

 
—

 
29

 
49

Settlements
(7
)
 
(13
)
 
(26
)
 
(41
)
Total losses included on the Condensed Consolidated Balance Sheet
(5
)
 
(2
)
 
(9
)
 
(6
)
Balance at end of period
$
16

 
$
29

 
$
16

 
$
29

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, 2019
 
December 31, 2018
(in millions)
Total Fair Value

Level 1

Level 3

 
Total Fair Value

Level 1

Level 3

Derivative assets
$
2

$
2

$
—

 
$
3

$
3

$
—

Derivative liabilities
(111
)
—

(111
)
 
(141
)
—

(141
)
Net (liabilities) assets
$
(109
)
$
2

$
(111
)
 
$
(138
)
$
3

$
(141
)

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)
2019

 
2018

 
2019

 
2018

Balance at beginning of period
$
(114
)
 
$
(150
)
 
$
(141
)
 
$
(142
)
Total gains (losses) and settlements
3

 
(3
)
 
30

 
(11
)
Balance at end of period
$
(111
)
 
$
(153
)
 
$
(111
)
 
$
(153
)
QUANTITATIVE INFORMATION ABOUT UNOBSERVABLE INPUTS
The following tables include quantitative information about the Duke Energy Registrants' derivatives classified as Level 3.
 
September 30, 2019
 
Fair Value
 
 
 
 
 
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Duke Energy Ohio
 

 
 
 
 
 
FTRs
$
5

RTO auction pricing
FTR price – per MWh
$
0.57

-
$
3.38

Duke Energy Indiana
 

 
 
 
 
 
FTRs
16

RTO auction pricing
FTR price – per MWh
(0.52
)
-
6.85

Piedmont
 
 
 
 
 
 
Natural gas contracts
(111
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
1.85

-
2.99

Duke Energy
 
 
 
 
 
 
Total Level 3 derivatives
$
(90
)
 
 
 
 
 
 
December 31, 2018
 
Fair Value
 
 
 
 
 
Investment Type
(in millions)
Valuation Technique
Unobservable Input
Range
Duke Energy Ohio
 

 
 
 
 
 
FTRs
$
6

RTO auction pricing
FTR price – per MWh
$
1.19

-
$
4.59

Duke Energy Indiana
 

 
 
 
 
 
FTRs
22

RTO auction pricing
FTR price – per MWh
(2.07
)
-
8.27

Piedmont
 
 
 
 
 
 
Natural gas contracts
(141
)
Discounted cash flow
Forward natural gas curves – price per MMBtu
1.87

-
2.95

Duke Energy
 
 
 
 
 
 
Total Level 3 derivatives
$
(113
)
 
 
 
 
 

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, 2019
 
December 31, 2018
(in millions)
Book Value

 
Fair Value

 
Book Value

 
Fair Value

Duke Energy(a)
$
57,914

 
$
63,276

 
$
54,529

 
$
54,534

Duke Energy Carolinas
11,758

 
13,462

 
10,939

 
11,471

Progress Energy
19,119

 
21,952

 
18,911

 
19,885

Duke Energy Progress
9,049

 
9,995

 
8,204

 
8,300

Duke Energy Florida
7,132

 
8,356

 
7,321

 
7,742

Duke Energy Ohio
2,719

 
3,096

 
2,165

 
2,239

Duke Energy Indiana
4,208

 
5,018

 
3,782

 
4,158

Piedmont
2,384

 
2,664

 
2,138

 
2,180


(a)
Book value of long-term debt includes $1.5 billion as of September 30, 2019, and $1.6 billion as of December 31, 2018, of unamortized debt discount and premium, net in 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, 2019, and December 31, 2018, 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.