STOCK-BASED COMPENSATION

The Duke Energy Corporation 2015 Long-Term Incentive Plan (the 2015 Plan) provides for the grant of stock-based compensation awards to employees and outside directors. The 2015 Plan reserves 10 million shares of common stock for issuance. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. However, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards that are exercised or vest in the future. Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.

The following table summarizes the total expense recognized by the Duke Energy Registrants, net of tax, for stock-based compensation.



	Years Ended December 31,
(in millions)	2017		2016		2015
Duke Energy	$	43	$	35	$	38
Duke Energy Carolinas	15		12		14
Progress Energy	16		12		14
Duke Energy Progress	10		7		9
Duke Energy Florida	6		5		5
Duke Energy Ohio	3		2		2
Duke Energy Indiana	4		3		4
Piedmont^(a)	3

(a) See discussion below for information on Piedmont's pre-merger stock-based compensation plans.

Duke Energy's pretax stock-based compensation costs, the tax benefit associated with stock-based compensation expense and stock-based compensation costs capitalized are included in the following table.



	Years Ended December 31,
(in millions)	2017		2016		2015
Restricted stock unit awards	$	41	$	36	$	38
Performance awards	27		19		23
Pretax stock-based compensation cost	$	68	$	55	$	61
Tax benefit associated with stock-based compensation expense	$	25	$	20	$	23
Stock-based compensation costs capitalized	4		2		3

RESTRICTED STOCK UNIT AWARDS

Restricted stock unit (RSU) awards generally vest over periods from immediate to three years. Fair value amounts are based on the market price of Duke Energy's common stock on the grant date. The following table includes information related to restricted stock unit awards.



	Years Ended December 31,
	2017		2016		2015
Shares awarded (in thousands)	583		684		524
Fair value (in millions)	$	47	$	52	$	41

The following table summarizes information about restricted stock unit awards outstanding.



			Weighted Average
	Shares		Grant Date Fair Value
	(in thousands)		(per share)
Outstanding at December 31, 2016	1,139		$	76
Granted	583		80
Vested	(553	)	76
Forfeited	(48	)	78
Outstanding at December 31, 2017	1,121		78
Restricted stock unit awards expected to vest	1,094		78

The total grant date fair value of shares vested during the years ended December 31, 2017, 2016 and 2015 was $42 million, $38 million and $41 million, respectively. At December 31, 2017, Duke Energy had $29 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of twenty-three months.

PERFORMANCE AWARDS

Stock-based performance awards generally vest after three years if performance targets are met.

Performance awards granted in 2017, 2016 and 2015 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a predefined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy’s performance-based share awards. The model uses three-year historical volatilities and correlations for all companies in the predefined peer group, including Duke Energy, to simulate Duke Energy’s relative TSR as of the end of the performance period. For each simulation, Duke Energy’s relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy’s relative TSR for each grant are incorporated within the model. For performance awards granted in 2017, the model used a risk-free interest rate of 1.5 percent, which reflects the yield on three-year Treasury bonds as of the grant date, and an expected volatility of 17.2 percent based on Duke Energy's historical volatility over three years using daily stock prices.

In addition to TSR, performance awards granted in 2017 and 2016 contain a performance condition based on Duke Energy's cumulative adjusted EPS. Performance awards granted in 2017 also contain a performance condition based on the total incident case rate, one of our key employee safety metrics. The actual number of shares issued will range from zero to 200 percent of target shares depending on the level of performance achieved.

The following table includes information related to stock-based performance awards.



	Years Ended December 31,
	2017		2016		2015
Shares granted assuming target performance (in thousands)	461		338		321
Fair value (in millions)	$	37	$	25	$	26

The following table summarizes information about stock-based performance awards outstanding and assumes payout at the target level.



			Weighted Average
	Shares		Grant Date Fair Value
	(in thousands)		(per share)
Outstanding at December 31, 2016	862		$	75
Granted	461		81
Forfeited	(258	)	69
Outstanding at December 31, 2017	1,065		79
Stock-based performance awards expected to vest	1,034		79

No performance awards vested during the year ended December 31, 2017. The total grant date fair value of shares vested during the years ended December 31, 2016 and 2015 was $25 million and $26 million, respectively. At December 31, 2017, Duke Energy had $34 million of unrecognized compensation cost, which is expected to be recognized over a weighted average period of twenty-three months.

STOCK OPTIONS

Stock options, when granted, have a maximum option term of 10 years and with an exercise price not less than the market price of Duke Energy's common stock on the grant date. There were no stock options granted or exercised during the year ended December 31, 2017. There were no stock options outstanding at December 31, 2017.

The following table summarizes additional information related to stock options exercised and granted.



	Years Ended December 31,
(in millions)	2016		2015
Intrinsic value of options exercised	$	1	$	5
Tax benefit related to options exercised	—		2
Cash received from options exercised	7		17

PIEDMONT

Prior to Duke Energy's acquisition of Piedmont, Piedmont had an incentive compensation plan that had a series of three-year performance and RSU awards for eligible officers and other participants. The Agreement and Plan of Merger (Merger Agreement) between Duke Energy and Piedmont provided for the conversion of the 2014-2016 and 2015-2017 performance awards and the nonvested 2016 RSU award into the right to receive $60 cash per share upon the close of the transaction. In December 2015, Piedmont's board of directors authorized the accelerated vesting, payment and taxation of the 2014-2016 and 2015-2017 performance awards, as well as the 2016 RSU award, at the election of the participant. Substantially all participants elected to accelerate the settlement of these awards. As a result of the settlement of these awards, 194 thousand shares of Piedmont shares were issued to participants, net of shares withheld for applicable federal and state income taxes, at a closing price of $56.85 and a fair value of $11 million. The 2016-2018 performance award cycle was approved subsequent to the Merger Agreement and was converted into a Duke Energy RSU award as discussed above at the consummation of the acquisition.

Piedmont's stock-based compensation costs and the tax benefit associated with stock-based compensation expense are included in the following table. Piedmont's stock-based compensation costs were not material for the two months ended December 31, 2016.



	Years Ended October 31,
(in millions)	2016		2015
Pretax stock-based compensation cost	$	16	$	14
Tax benefit associated with stock-based compensation expense	6		4
Net of tax stock-based compensation cost	$	10	$	10