XML 87 R23.htm IDEA: XBRL DOCUMENT v3.8.0.1
Derivatives and Hedging
12 Months Ended
Dec. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging
DERIVATIVES AND HEDGING
The Duke Energy Registrants use commodity and interest rate contracts to manage commodity price risk and interest rate risk. The primary use of commodity derivatives is to hedge the generation portfolio against changes in the prices of electricity and natural gas. Piedmont enters into natural gas supply contracts to provide diversification, reliability and natural gas cost benefits to its customers. Interest rate swaps are used to manage interest rate risk associated with borrowings.
All derivative instruments not identified as NPNS are recorded at fair value as assets or liabilities on the Consolidated Balance Sheets. Cash collateral related to derivative instruments executed under master netting arrangements is offset against the collateralized derivatives on the Consolidated Balance Sheets. The cash impacts of settled derivatives are recorded as operating activities on the Consolidated Statements of Cash Flows.
INTEREST RATE RISK
The Duke Energy Registrants are exposed to changes in interest rates as a result of their issuance or anticipated issuance of variable-rate and fixed-rate debt and commercial paper. Interest rate risk is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into interest rate swaps, U.S. Treasury lock agreements and other financial contracts. In anticipation of certain fixed-rate debt issuances, a series of forward-starting interest rate swaps may be executed to lock in components of current market interest rates. These instruments are later terminated prior to or upon the issuance of the corresponding debt.
Cash Flow Hedges
For a derivative designated as hedging the exposure to variable cash flows of a future transaction, referred to as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings once the future transaction impacts earnings. Amounts for interest rate contracts are reclassified to earnings as interest expense over the term of the related debt. See the Consolidated Statements of Changes in Equity for gains and losses reclassified out of AOCI for the years ended December 31, 2017, and 2016. Duke Energy's interest rate derivatives designated as hedges include interest rate swaps used to hedge existing debt within the Commercial Renewables business.
Undesignated Contracts
Undesignated contracts include contracts not designated as a hedge because they are accounted for under regulatory accounting and contracts that do not qualify for hedge accounting.
Duke Energy’s interest rate swaps for its regulated operations employ regulatory accounting. With regulatory accounting, the mark-to-market gains or losses on the swaps are deferred as regulatory liabilities or regulatory assets, respectively. Regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. The accrual of interest on the swaps is recorded as Interest Expense.
In August 2016, Duke Energy unwound $1.4 billion of forward-starting interest rate swaps associated with the Piedmont acquisition financing described in Note 6. The swaps were considered undesignated as they did not qualify for hedge accounting. Losses on the swaps of $190 million are included within Interest Expense on the Consolidated Statements of Operations for the year ended December 31, 2016. See Note 2 for additional information related to the Piedmont acquisition.
The following tables show notional amounts of outstanding derivatives related to interest rate risk.
 
December 31, 2017
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

Cash flow hedges(a)
$
660

 
$

 
$

 
$

 
$

 
$

Undesignated contracts
927

 
400

 
500

 
250

 
250

 
27

Total notional amount
$
1,587

 
$
400

 
$
500

 
$
250

 
$
250

 
$
27

 
December 31, 2016
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

Cash flow hedges(a)
$
750

 
$

 
$

 
$

 
$

 
$

Undesignated contracts
927

 
400

 
500

 
250

 
250

 
27

Total notional amount
$
1,677

 
$
400

 
$
500

 
$
250

 
$
250

 
$
27

(a)
Duke Energy includes amounts related to consolidated VIEs of $660 million and $750 million at December 31, 2017, and 2016, respectively. During 2016, Duke Energy entered into interest rate swaps related to solar financing with an outstanding notional amount of $300 million, including $81 million of four-year swaps and $219 million of 18-year swaps, at December 31, 2016. See note 6 for additional information related to the solar facilities financing.
COMMODITY PRICE RISK
The Duke Energy Registrants are exposed to the impact of changes in the prices of electricity purchased and sold in bulk power markets and coal and natural gas purchases, including Piedmont's natural gas supply contracts. Exposure to commodity price risk is influenced by a number of factors including the term of contracts, the liquidity of markets and delivery locations. For the Subsidiary Registrants, bulk power electricity and coal and natural gas purchases flow through fuel adjustment clauses, formula based contracts or other cost sharing mechanisms. Differences between the costs included in rates and the incurred costs, including undesignated derivative contracts, are largely deferred as regulatory assets or regulatory liabilities. Piedmont policies allow for the use of financial instruments to hedge commodity price risks. The strategy and objective of these hedging programs are to use the financial instruments to reduce gas cost volatility for customers.
Volumes
The tables below include volumes of outstanding commodity derivatives. Amounts disclosed represent the absolute value of notional volumes of commodity contracts excluding NPNS. The Duke Energy Registrants 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.
 
December 31, 2017
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Indiana

 
Piedmont

Electricity (gigawatt-hours)
34

 

 

 

 

 
34

 

Natural gas (millions of dekatherms)
770

 
105

 
183

 
133

 
50

 
2

 
480

 
December 31, 2016
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
 
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Indiana

 
Piedmont

Electricity (gigawatt-hours)
147

 

 

 

 

 
147

 

Natural gas (millions of dekatherms)
890

 
91

 
269

 
118

 
151

 
1

 
529


LOCATION AND FAIR VALUE OF DERIVATIVE ASSETS AND LIABILITIES RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
The following tables show the fair value and balance sheet location of derivative instruments. Although derivatives subject to master netting arrangements are netted on the Consolidated Balance Sheets, the fair values presented below are shown gross and cash collateral on the derivatives has not been netted against the fair values shown.
Derivative Assets
 
December 31, 2017
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
34

 
$
2

 
$
2

 
$
1

 
$
1

 
$
1

 
$
27

 
$
2

Noncurrent
 
1

 

 
1

 
1

 

 

 

 

Total Derivative Assets – Commodity Contracts
 
$
35

 
$
2

 
$
3

 
$
2

 
$
1

 
$
1

 
$
27

 
$
2

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
1

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Noncurrent
 
15

 

 

 

 

 

 

 

Total Derivative Assets – Interest Rate Contracts
 
$
16


$


$


$


$


$


$

 
$

Total Derivative Assets
 
$
51

 
$
2

 
$
3

 
$
2

 
$
1

 
$
1

 
$
27

 
$
2

Derivative Liabilities
 
December 31, 2017
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
36

 
$
6

 
$
18

 
$
8

 
$
10

 
$

 
$

 
$
11

Noncurrent
 
146

 
4

 
10

 
4

 

 

 

 
131

Total Derivative Liabilities – Commodity Contracts
 
$
182

 
$
10

 
$
28

 
$
12

 
$
10

 
$

 
$

 
$
142

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
29

 
$
25

 
$

 
$

 
$

 
$

 
$

 
$

Noncurrent
 
6

 

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
1

 

 
1

 

 

 
1

 

 

Noncurrent
 
12

 

 
7

 
6

 
2

 
4

 

 

Total Derivative Liabilities – Interest Rate Contracts
 
$
48

 
$
25

 
$
8

 
$
6

 
$
2

 
$
5

 
$

 
$

Total Derivative Liabilities
 
$
230

 
$
35

 
$
36

 
$
18

 
$
12

 
$
5

 
$

 
$
142

Derivative Assets
 
December 31, 2016
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
108

 
$
23

 
$
61

 
$
35

 
$
26

 
$
4

 
$
16

 
$
3

Noncurrent
 
32

 
10

 
21

 
10

 
11

 
1

 

 

Total Derivative Assets – Commodity Contracts
 
$
140

 
$
33

 
$
82

 
$
45

 
$
37

 
$
5

 
$
16


$
3

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncurrent
 
$
19

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
3

 

 
3

 
1

 
2

 

 

 

Total Derivative Assets – Interest Rate Contracts
 
$
22

 
$

 
$
3

 
$
1

 
$
2

 
$

 
$

 
$

Total Derivative Assets
 
$
162

 
$
33

 
$
85

 
$
46

 
$
39

 
$
5

 
$
16

 
$
3

Derivative Liabilities
 
December 31, 2016
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Commodity Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
43

 
$

 
$
12

 
$

 
$
12

 
$

 
$
2

 
$
35

Noncurrent
 
166

 
1

 
7

 
1

 

 

 

 
152

Total Derivative Liabilities – Commodity Contracts
 
$
209

 
$
1

 
$
19

 
$
1

 
$
12

 
$

 
$
2

 
$
187

Interest Rate Contracts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$
8

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Noncurrent
 
8

 

 

 

 

 

 

 

Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
1

 

 

 

 

 
1

 

 

Noncurrent
 
26

 
15

 
6

 
6

 

 
5

 

 

Total Derivative Liabilities – Interest Rate Contracts
 
$
43

 
$
15

 
$
6

 
$
6

 
$

 
$
6

 
$

 
$

Total Derivative Liabilities
 
$
252

 
$
16

 
$
25

 
$
7

 
$
12

 
$
6

 
$
2

 
$
187


OFFSETTING ASSETS AND LIABILITIES
The following tables present the line items on the Consolidated Balance Sheets where derivatives are reported. Substantially all of Duke Energy's outstanding derivative contracts are subject to enforceable master netting arrangements. The Gross amounts offset in the tables below show the effect of these netting arrangements on financial position and include collateral posted to offset the net position. The amounts shown are calculated by counterparty. Accounts receivable or accounts payable may also be available to offset exposures in the event of bankruptcy. These amounts are not included in the tables below.
Derivative Assets
 
December 31, 2017
 
 
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
35

 
$
2

 
$
2

 
$
1

 
$
1

 
$
1

 
$
27

 
$
2

Gross amounts offset
 

 

 

 

 

 

 

 

Net amounts presented in Current Assets: Other
 
$
35


$
2


$
2


$
1


$
1


$
1


$
27

 
$
2

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
16

 
$

 
$
1

 
$
1

 
$

 
$

 
$

 
$

Gross amounts offset
 

 

 

 

 

 

 

 

Net amounts presented in Other Noncurrent Assets: Other
 
$
16

 
$

 
$
1

 
$
1

 
$

 
$

 
$

 
$

Derivative Liabilities
 
December 31, 2017
 
 
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
66

 
$
31

 
$
19

 
$
8

 
$
10

 
$
1

 
$

 
$
11

Gross amounts offset
 
(3
)
 
(2
)
 
(2
)
 
(2
)
 

 

 

 

Net amounts presented in Current Liabilities: Other
 
$
63

 
$
29

 
$
17

 
$
6

 
$
10

 
$
1

 
$

 
$
11

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
164

 
$
4

 
$
17

 
$
10

 
$
2

 
$
4

 
$

 
$
131

Gross amounts offset
 
(1
)
 

 
(1
)
 
(1
)
 

 

 

 

Net amounts presented in Other Noncurrent Liabilities: Other
 
$
163

 
$
4

 
$
16

 
$
9

 
$
2

 
$
4

 
$

 
$
131


Derivative Assets
 
December 31, 2016
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
111

 
$
23

 
$
64

 
$
36

 
$
28

 
$
4

 
$
16

 
$
3

Gross amounts offset
 
(11
)
 

 
(11
)
 

 
(11
)
 

 

 

Net amounts presented in Current Assets: Other
 
$
100

 
$
23

 
$
53

 
$
36

 
$
17

 
$
4

 
$
16

 
$
3

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
51

 
$
10

 
$
21

 
$
10

 
$
11

 
$
1

 
$

 
$

Gross amounts offset
 
(2
)
 
(1
)
 
(1
)
 
(1
)
 

 

 

 

Net amounts presented in Other Noncurrent Assets: Other
 
$
49

 
$
9

 
$
20

 
$
9

 
$
11

 
$
1

 
$

 
$

Derivative Liabilities
 
December 31, 2016
 
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Duke

 
 
 
 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

 
Energy

 
Energy

 
 
(in millions)
 
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

 
Ohio

 
Indiana

 
Piedmont

Current
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
52

 
$

 
$
12

 
$

 
$
12

 
$
1

 
$
2

 
$
35

Gross amounts offset
 
(11
)
 

 
(11
)
 

 
(11
)
 

 

 

Net amounts presented in Current Liabilities: Other
 
$
41

 
$

 
$
1

 
$

 
$
1

 
$
1

 
$
2

 
$
35

Noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross amounts recognized
 
$
200

 
$
16

 
$
13

 
$
7

 
$

 
$
5

 
$

 
$
152

Gross amounts offset
 
(2
)
 
(1
)
 
(1
)
 
(1
)
 

 

 

 

Net amounts presented in Other Noncurrent Liabilities: Other
 
$
198

 
$
15

 
$
12

 
$
6

 
$

 
$
5

 
$

 
$
152


OBJECTIVE CREDIT CONTINGENT FEATURES
Certain derivative contracts contain objective credit contingent features. These features include the requirement to post cash collateral or letters of credit if specific events occur, such as a credit rating downgrade below investment grade. The following tables show information with respect to derivative contracts that are in a net liability position and contain objective credit-risk-related payment provisions.
 
December 31, 2017
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

Aggregate fair value of derivatives in a net liability position
$
59

 
$
35

 
$
25

 
$
15

 
$
10

Fair value of collateral already posted

 

 

 

 

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
59

 
35

 
25

 
15

 
10

 
December 31, 2016
 
 
 
Duke

 
 
 
Duke

 
Duke

 
Duke

 
Energy

 
Progress

 
Energy

 
Energy

(in millions)
Energy

 
Carolinas

 
Energy

 
Progress

 
Florida

Aggregate fair value of derivatives in a net liability position
$
34

 
$
16

 
$
18

 
$
6

 
$
12

Fair value of collateral already posted

 

 

 

 

Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered
34

 
16

 
18

 
6

 
12

The Duke Energy Registrants have elected to offset cash collateral and fair values of derivatives. For amounts to be netted, the derivative and cash collateral must be executed with the same counterparty under the same master netting arrangement.