Risk Management, Derivative Instruments And Hedging Activities |
15. RISK MANAGEMENT, DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Duke Energy Registrants closely monitor the risks associated with commodity price changes and changes in interest rates on their operations and, where appropriate, use various commodity and interest rate instruments to manage these risks. Certain of these derivative instruments qualify for hedge accounting and are designated as hedging instruments, while others either do not qualify as hedges or have not been designated as hedges (hereinafter referred to as undesignated contracts). The Duke Energy Registrants' primary use of energy commodity derivatives is to hedge the generation portfolio against exposure to changes in the prices of power and fuel. Interest rate swaps are entered into to manage interest rate risk primarily associated with the Duke Energy Registrants' variable-rate and fixed-rate borrowings. The accounting guidance for derivatives requires the recognition of all derivative instruments not identified as NPNS as either assets or liabilities at fair value in the Consolidated Balance Sheets. For derivative instruments that qualify for hedge accounting, the Duke Energy Registrants may elect to designate such derivatives as either cash flow hedges or fair value hedges. The Duke Energy Registrants offset fair value amounts recognized on the Consolidated Balance Sheets related to derivative instruments executed with the same counterparty under the same master netting agreement. The operations of the USFE&G business segment meet the criteria for regulatory accounting treatment. Accordingly, for derivatives designated as cash flow hedges within USFE&G, gains and losses are reflected as a regulatory liability or asset instead of as a component of AOCI. For derivatives designated as fair value hedges or left undesignated within USFE&G, gains and losses associated with the change in fair value of these derivative contracts would be deferred as a regulatory liability or asset, thus having no immediate earnings impact. Within the Duke Energy Registrants' unregulated businesses, for derivative instruments that qualify for hedge accounting and are designated as cash flow hedges, the effective portion of the gain or loss is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any gains or losses on the derivative that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For derivative instruments that qualify and are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item are recognized in earnings in the current period. The Duke Energy Registrants include the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item in the Consolidated Statements of Operations. Additionally, the Duke Energy Registrants enter into derivative agreements that are economic hedges that either do not qualify for hedge accounting or have not been designated as a hedge. The changes in fair value of these undesignated derivative instruments are reflected in current earnings. Commodity Price Risk The Duke Energy Registrants are exposed to the impact of market changes in the future prices of electricity (energy, capacity and financial transmission rights), coal, natural gas and emission allowances (SO2, seasonal NOX and annual NOX) as a result of their energy operations such as electricity generation and the transportation and sale of natural gas. With respect to commodity price risks associated with electricity generation, the Duke Energy Registrants are exposed to changes including, but not limited to, the cost of the coal and natural gas used to generate electricity, the prices of electricity in wholesale markets, the cost of capacity and electricity purchased for resale in wholesale markets and the cost of emission allowances primarily at the Duke Energy Registrants' coal fired power plants. Risks associated with commodity price changes on future operations are closely monitored and, where appropriate, various commodity contracts are used to mitigate the effect of such fluctuations on operations. Exposure to commodity price risk is influenced by a number of factors, including, but not limited to, the term of the contract, the liquidity of the market and delivery location. Commodity Fair Value Hedges. At December 31, 2012, there were no open commodity derivative instruments that were designated as fair value hedges. Commodity Cash Flow Hedges. At December 31, 2012, there were immaterial open commodity derivative instruments that were designated as cash flow hedges. Undesignated Contracts. The Duke Energy Registrants use derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts may include contracts not designated as a hedge, contracts that do not qualify for hedge accounting, derivatives that do not or no longer qualify for the NPNS scope exception, and de-designated hedge contracts. These contracts expire as late as 2016. Undesignated contracts also include contracts associated with operations that Duke Energy continues to wind down or has included as discontinued operations. As these undesignated contracts expire as late as 2021, Duke Energy has entered into economic hedges that leave it minimally exposed to changes in prices over the duration of these contracts. Duke Energy Carolinas and Progress Energy Carolinas use derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Duke Energy Carolinas and Progress Energy Carolinas have also entered into firm power sale agreements, which are accounted for as derivative instruments, as part of the Interim FERC Mitigation in connection with Duke Energy's merger with Progress Energy. See Note 2 for further information. Duke Energy Carolinas' undesignated contracts as of December 31, 2012, are primarily associated with forward sales and purchases of power. Progress Energy Carolinas' undesignated contracts as of December 31, 2012, are primarily associated with forward purchases of fuel used in electricity generation. Progress Energy Florida uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at December 31, 2012, are primarily associated with forward purchases of fuel used in electricity generation. Duke Energy Ohio uses derivative contracts as economic hedges to manage the market risk exposures that arise from providing electricity generation and capacity to large energy customers, energy aggregators, retail customers and other wholesale companies. Undesignated contracts at December 31, 2012 are primarily associated with forward sales and purchases of power, coal and gas for the Commercial Power segment. Duke Energy Indiana uses derivative contracts as economic hedges to manage the market risk exposures that arise from electricity generation. Undesignated contracts at December 31, 2012, are primarily associated with forward purchases and sales of power, financial transmission rights and emission allowances. Interest Rate Risk The Duke Energy Registrants are exposed to risk resulting from changes in interest rates as a result of their issuance or anticipated issuance of variable and fixed-rate debt and commercial paper. Interest rate exposure is managed by limiting variable-rate exposures to a percentage of total debt and by monitoring the effects of market changes in interest rates. To manage risk associated with changes in interest rates, the Duke Energy Registrants may enter into financial contracts; primarily interest rate swaps and U.S. Treasury lock agreements. Additionally, in anticipation of certain fixed-rate debt issuances, a series of forward starting interest rate swaps may be executed to lock in components of the market interest rates at the time and terminated prior to or upon the issuance of the corresponding debt. When these transactions occur within a business that meets the criteria for regulatory accounting treatment, these contracts may be treated as undesignated and any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded as a regulatory liability or asset and amortized as a component of interest expense over the life of the debt. Alternatively, these derivatives may be designated as hedges whereby, any pre-tax gain or loss recognized from inception to termination of the hedges would be recorded in AOCI and amortized as a component of interest expense over the life of the debt. The following table shows the notional amounts for derivatives related to interest rate risk. Notional Amounts of Derivative Instruments Related to Interest Rate | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2012 | (in millions) | | Duke
Energy | | Duke
Energy
Carolinas | | Progress Energy | | Progress Energy Carolinas | | Progress Energy Florida | | Duke
Energy
Ohio | | Duke
Energy
Indiana | Cash flow hedges(a) | | $ | 1,047 | | $ | ― | | $ | ― | | $ | ― | | $ | ― | | $ | ― | | $ | ― | Undesignated contracts | | | 290 | | | ― | | | 50 | | | 50 | | | ― | | | 27 | | | 200 | Fair value hedges | | | 250 | | | ― | | | ― | | | ― | | | ― | | | 250 | | | ― | | Total notional amount | | $ | 1,587 | | $ | ― | | $ | 50 | | $ | 50 | | $ | ― | | $ | 277 | | $ | 200 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2011 | (in millions) | | Duke
Energy | | Duke
Energy
Carolinas | | Progress Energy | | Progress Energy Carolinas | | Progress Energy Florida | | Duke
Energy
Ohio | | Duke
Energy
Indiana | Cash flow hedges(a) | | $ | 841 | | $ | ― | | $ | 500 | | $ | 250 | | $ | 50 | | $ | ― | | $ | ― | Undesignated contracts | | | 247 | | | ― | | | ― | | | ― | | | ― | | | 27 | | | 200 | Fair value hedges | | | 275 | | | 25 | | | ― | | | ― | | | ― | | | 250 | | | ― | | Total notional amount | | $ | 1,363 | | $ | 25 | | $ | 500 | | $ | 250 | | $ | 50 | | $ | 277 | | $ | 200 | | | | | | | | | | | | | | | | | | | | | | | | (a) | Duke Energy includes amounts related to non-recourse variable rate long-term debt of VIEs of $620 million at December 31, 2012 and $466 million at December 31, 2011. |
Volumes The following table shows information relating to the volume of the Duke Energy registrants outstanding commodity derivative activity. Amounts disclosed represent the notional volumes of commodities contracts accounted for at fair value. For option contracts, notional amounts include only the delta-equivalent volumes which represent the notional volumes times the probability of exercising the option based on current price volatility. Volumes associated with contracts qualifying for the NPNS exception have been excluded from the table below. Amounts disclosed represent the absolute value of notional amounts. 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 below. For additional information on notional dollar amounts of debt subject to derivative contracts accounted for at fair value, see “Interest Rate Risk” section above. | | December 31, 2012 | | | Duke Energy | | Duke Energy Carolinas | | Progress Energy | | Progress Energy Carolinas | | Progress Energy Florida | | Duke Energy Ohio | | Duke Energy Indiana | Commodity contracts | | | | | | | | | | | | | | Electricity-energy (Gigawatt-hours)(a) | 52,104 | | 2,028 | | 1,850 | | 1,850 | | ― | | 51,215 | | 97 | Electricity-capacity (Gigawatt-months) | 5 | | ― | | 5 | | 5 | | ― | | ― | | ― | Oil (millions of gallons) | 5 | | ― | | 5 | | ― | | 5 | | ― | | ― | Natural gas (millions of decatherms) | 528 | | ― | | 348 | | 118 | | 230 | | 180 | | ― | | | | | | | | | | | | | | | | | | December 31, 2011 | | | Duke Energy | | Duke Energy Carolinas | | Progress Energy | | Progress Energy Carolinas | | Progress Energy Florida | | Duke Energy Ohio | | Duke Energy Indiana | Commodity contracts | | | | | | | | | | | | | | Electricity-energy (Gigawatt-hours)(a) | 14,118 | | ― | | ― | | ― | | ― | | 14,655 | | 682 | Emission allowances NOX (thousands of tons) | 9 | | ― | | ― | | ― | | ― | | 9 | | ― | Oil (millions of gallons) | ― | | ― | | 10 | | ― | | 10 | | ― | | ― | Natural gas (millions of decatherms) | 40 | | ― | | 347 | | 103 | | 244 | | 2 | | 1 | | | | | | | | | | | | | | | | (a) | Amounts at Duke Energy Ohio include intercompany positions that are eliminated at Duke Energy. | | |
Duke Energy The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | | December 31, 2011 | (in millions) | Asset | | Liability | | | Asset | | Liability | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | | Current liabilities: other | $ | ― | | $ | 2 | | | $ | ― | | $ | ― | Deferred credits and other liabilities: other | | | | | 1 | | | | ― | | | ― | Interest rate contracts | | | | | | | | | | | | | Current assets: other | | 2 | | | ― | | | | 4 | | | ― | Investments and other assets: other | | 7 | | | ― | | | | 2 | | | ― | Current Liabilities: Other | | ― | | | 81 | | | | ― | | | 11 | Deferred credits and other liabilities: other | | ― | | | 35 | | | | ― | | | 76 | Total Derivatives Designated as Hedging Instruments | $ | 9 | | $ | 119 | | | $ | 6 | | $ | 87 | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | | Current assets: other | $ | 41 | | $ | 2 | | | $ | 81 | | $ | 31 | Investments and other assets: other | | 106 | | | 50 | | | | 35 | | | 17 | Current liabilities: other | | 106 | | | 407 | | | | 136 | | | 168 | Deferred credits and other liabilities: other | | 2 | | | 255 | | | | 25 | | | 93 | Interest rate contracts | | | | | | | | | | | | | Current liabilities: other | | ― | | | 76 | | | | ― | | | 2 | Deferred credits and other liabilities: other | | ― | | | 8 | | | | ― | | | 75 | Total Derivatives Not Designated as Hedging Instruments | $ | 255 | | $ | 798 | | | $ | 277 | | $ | 386 | Total Derivatives | $ | 264 | | $ | 917 | | | $ | 283 | | $ | 473 |
| The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash | flow hedges by type of derivative contract, and the Consolidated Statements of Operations line items in which such gains and losses are included when reclassified from AOCI. | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Pre-tax Gains (Losses) Recorded in AOCI | | | | | | | | | Interest rate contracts | $ | (23) | | $ | (88) | | $ | 2 | Commodity contracts | | 1 | | | ― | | | ― | Total Pre-tax Gains (Losses) Recorded in AOCI | $ | (22) | | $ | (88) | | $ | 2 | Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings(a) | | | | | | | | | Fuel used in electric generation and purchased power | $ | ― | | $ | ― | | $ | 2 | Interest rate contracts | | | | | | | | | Interest expense | | 2 | | | (5) | | | (5) | Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings | $ | 2 | | $ | (5) | | $ | (3) | | | | | | | | | | | (a) | Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period. |
There was no hedge ineffectiveness during the years ended December 31, 2012, 2011 and 2010, and no gains or losses have been excluded from the assessment of hedge effectiveness during the same periods. At December 31, 2012, and December 31, 2011, $151 million and $115 million, respectively of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI and a $5 million pre-tax gain is expected to be recognized in earnings during the next 12 months as the hedged transactions occur. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument, and the line items in the Consolidated Statements of Comprehensive Income in which such gains and losses are included or deferred on the Consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized in Earnings | | | | | | | | | Commodity contracts | | | | | | | | | Revenue, regulated electric | $ | (23) | | $ | ― | | $ | 1 | Revenue, nonregulated electric, natural gas and other | | 38 | | | (59) | | | (38) | Other income and expenses | | (2) | | | ― | | | ― | Fuel used in electric generation and purchased power regulated | | (194) | | | ― | | | ― | Fuel used in electric generation and purchased power - nonregulated | | 2 | | | (1) | | | 9 | Interest rate contracts | | | | | | | | | Interest expense | | (8) | | | ― | | | ― | Total Pre-tax (Losses) Gains Recognized in Earnings | $ | (187) | | $ | (60) | | $ | (28) | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts | | | | | | | | | Regulatory asset | $ | (2) | | $ | (1) | | $ | 5 | Regulatory liability | | 36 | | | 17 | | | 14 | Interest rate contracts | | | | | | | | | Regulatory asset | | 10 | | | (165) | | | (1) | Regulatory liability | | ― | | | (60) | | | 60 | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | 44 | | $ | (209) | | $ | 78 |
Duke Energy Carolinas The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Carolinas nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | December 31, 2011 | (in millions) | Asset | | Liability | | Asset | | Liability | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | Interest rate contracts | | | | | | | | | | | | Current assets: other | $ | ― | | $ | ― | | $ | 1 | | $ | ― | Total Derivatives Designated as Hedging Instruments | $ | ― | | $ | ― | | $ | 1 | | $ | ― | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | 6 | | | ― | | | ― | Deferred credits and other liabilities: other | | ― | | | 6 | | | ― | | | ― | Total Derivatives Not Designated as Hedging Instruments | $ | ― | | $ | 12 | | $ | ― | | $ | ― | Total Derivatives | $ | ― | | $ | 12 | | $ | 1 | | $ | ― |
| The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash | flow hedges by type of derivative contract, and the Consolidated Statements of Operations line items in which such gains and losses are included when reclassified from AOCI. | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings(a) | | | | | | | | | Interest rate contracts | | | | | | | | | Interest expense | | (3) | | | (5) | | $ | (6) | Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings | $ | (3) | | $ | (5) | | $ | (6) | | | | | | | | | | | (a) | Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period. |
At December 31, 2012 and 2011, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI for Duke Energy Carolinas. The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and the line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized in Earnings | | | | | | | | | Commodity contracts | | | | | | | | | Revenue, regulated electric | $ | (12) | | $ | ― | | $ | 1 | Total Pre-tax (Losses) Gains Recognized in Earnings | $ | (12) | | $ | ― | | $ | 1 | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts | | | | | | | | | Regulatory liability | $ | ― | | $ | ― | | $ | (1) | Interest rate contracts | | | | | | | | | Regulatory asset | $ | ― | | $ | (94) | | | ― | Regulatory liability | | ― | | | (60) | | | 60 | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | ― | | $ | (154) | | $ | 59 |
Progress Energy The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Progress Energy nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associate with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | December 31, 2011 | (in millions) | Asset | | Liability | | Asset | | Liability | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current liabilities: other | $ | ― | | $ | 2 | | $ | ― | | $ | 2 | Deferred credits and other liabilities: other | | ― | | | 1 | | | ― | | | 1 | Interest rate contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | ― | | | ― | | | 76 | Deferred credits and other liabilities: other | | ― | | | ― | | | ― | | | 17 | Total Derivatives Designated as Hedging Instruments | $ | ― | | $ | 3 | | $ | ― | | $ | 96 | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current assets: other | $ | 3 | | $ | ― | | $ | ― | | $ | ― | Investments and other assets: other | | 8 | | | ― | | | ― | | | ― | Current liabilities: other | | ― | | | 231 | | | 5 | | | 371 | Deferred credits and other liabilities: other | | ― | | | 195 | | | ― | | | 332 | Interest rate contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | 11 | | | ― | | | ― | Total Derivatives Not Designated as Hedging Instruments | $ | 11 | | $ | 437 | | $ | 5 | | $ | 703 | Total Derivatives | $ | 11 | | $ | 440 | | $ | 5 | | $ | 799 | | | | | | | | | | | | | |
| The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash | flow hedges by type of derivative contract, and the Consolidated Statements of Operations and Comprehensive Income line items in which such gains and losses are included when reclassified from AOCI. | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Pre-tax Gains (Losses) Recorded in AOCI(a) | | | | | | | | | Commodity contracts | $ | 1 | | $ | (3) | | $ | ― | Interest rate contracts | $ | (11) | | $ | (141) | | $ | (57) | Total Pre-tax Gains (Losses) Recorded in AOCI | $ | (10) | | $ | (144) | | $ | (57) | Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings(a) | | | | | | | | | Interest rate contracts(b) | | | | | | | | | Interest expense | $ | (14) | | $ | (13) | | $ | (11) | Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings | $ | (14) | | $ | (13) | | $ | (11) | Location of Pre-tax Gains and (Losses) Reclassified from AOCI to Regulatory Assets or Liabilities(c) | | | | | | | | | Interest rate contracts | | | | | | | | | Regulatory Assets | $ | (159) | | $ | ― | | $ | ― | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities | $ | (159) | | $ | ― | | $ | ― | | | | | | | | | | | (a) | Effective portion. | (b) | Amounts in AOCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt. | (c) | To conform to Duke Energy policies, effective with the merger, Progress Energy no longer designates derivative instruments related to interest rate cash flow hedges for regulated operations as cash flow hedges. As a result, the pre-tax losses on open derivative contracts as of the date of the merger were reclassified from AOCI to Regulatory assets. |
At December 31, 2012, and 2011 $65 million and $232 million, respectively of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI and a $5 million pre-tax loss is expected to be recognized in earnings during the next 12 months as the hedged transactions occur. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument, and the line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized in Earnings | | | | | | | | | Commodity contracts | | | | | | | | | Revenue, regulated electric | $ | (11) | | $ | 1 | | $ | 1 | Fuel used in electric generation and purchased power - regulated(a) | | (454) | | | (297) | | | (324) | Other income and expenses, net | | 7 | | | (59) | | | ― | Interest rate contracts | | | | | | | | | Interest expense | | (8) | | | ― | | | ― | Total Pre-tax (Losses) Gains Recognized in Earnings | $ | (466) | | $ | (355) | | $ | (323) | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts(c) | | | | | | | | | Regulatory asset | $ | (171) | | $ | (502) | | $ | (398) | Interest rate contracts(b) | | | | | | | | | Regulatory asset | | 6 | | | ― | | | ― | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | (165) | | $ | (502) | | $ | (398) | | | | | | | | | | | (a) | After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause. | (b) | Amounts in regulatory assets and liabilities related to terminated hedges are reclassified to earnings as the interest expense is recorded. The hedges will be amortized to interest expense over the term of the related debt. | (c) | Amounts are recorded as regulatory assets and liabilities in the Balance Sheets until derivatives are settled. |
Progress Energy Carolinas The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Progress Energy Carolinas nets the fair value of derivative contacts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | December 31, 2011 | (in millions) | Asset | | Liability | | Asset | | Liability | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current liabilities: other | $ | ― | | $ | 1 | | $ | ― | | | ― | Deferred credits and other liabilities: other | | ― | | | 1 | | | ― | | | ― | Interest rate contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | ― | | | ― | | | 38 | Deferred credits and other liabilities: other | | ― | | | ― | | | ― | | | 9 | Total Derivatives Designated as Hedging Instruments | $ | ― | | $ | 2 | | $ | ― | | $ | 47 | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts(a) | | | | | | | | | | | | Current assets: other | $ | 1 | | $ | ― | | $ | ― | | $ | ― | Investments and other assets: other | | 1 | | | ― | | | ― | | | ― | Current liabilities: other | | ― | | | 85 | | | ― | | | 91 | Deferred credits and other liabilities: other | | ― | | | 68 | | | ― | | | 110 | Interest rate contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | 11 | | | ― | | | ― | Total Derivatives Not Designated as Hedging Instruments | $ | 2 | | $ | 164 | | $ | ― | | $ | 201 | Total Derivatives | $ | 2 | | $ | 166 | | $ | ― | | $ | 248 | | | | | | | | | | | | | | (a) | Substantially all of these contracts receive regulatory treatment. |
| The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash | flow hedges by type of derivative contract, and the Consolidated Statements of Operations and Comprehensive Income line items in which such gains and losses are included when reclassified from AOCI. | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Pre-tax Gains (Losses) Recorded in AOCI(a) | | | | | | | | | Interest rate contracts(b) | $ | (7) | | $ | (70) | | $ | (16) | Total Pre-tax Gains (Losses) Recorded in AOCI | $ | (7) | | $ | (70) | | $ | (16) | Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings(a) | | | | | | | | | Interest rate contracts | | | | | | | | | Interest expense | $ | (5) | | $ | (7) | | $ | (7) | Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings | $ | (5) | | $ | (7) | | $ | (7) | Location of Pre-tax Gains and (Losses) Reclassified from AOCI to Regulatory Assets or Liabilities(c ) | | | | | | | | | Interest rate contracts | | | | | | | | | Regulatory assets | $ | (117) | | $ | ― | | $ | ― | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets or Liabilities | $ | (117) | | $ | ― | | $ | ― | | | | | | | | | | | (a) | Effective portion. | (b) | Amounts in AOCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt. | (c) | To conform to Duke Energy policies, effective with the merger, Progress Energy no longer designates derivative instruments related to interest rate cash flow hedges for regulated operations as cash flow hedges. As a result, the pre-tax losses on open derivative contracts as of the date of the merger were reclassified from AOCI to Regulatory assets. |
At December 31, 2011, $116 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and the line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized in Earnings | | | | | | | | | Commodity contracts | | | | | | | | | Revenue, regulated electric | $ | (11) | | $ | 1 | | $ | 1 | Fuel used in electric generation and purchased power -regulated(a) | | (115) | | | (60) | | | (46) | Interest rate contracts | | | | | | | | | Interest expense | | (6) | | | ― | | | ― | Total Pre-tax (Losses) Gains Recognized in Earnings | $ | (132) | | $ | (59) | | $ | (45) | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts(c) | | | | | | | | | Regulatory asset | $ | (55) | | $ | (140) | | $ | (77) | Interest rate contracts(b) | | | | | | | | | Regulatory asset | | 6 | | | ― | | | ― | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | (49) | | $ | (140) | | $ | (77) | | | | | | | | | | | (a) | After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause. | (b) | Amounts in regulatory assets and liabilities related to terminated hedges are reclassified to earnings as the interest expense is recorded. The hedges will be amortized to interest expense over the term of the related debt. | (c) | Amounts are recorded in regulatory assets and liabilities in the Balance Sheets until derivatives are settled. |
Progress Energy Florida The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair value of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Progress Energy Florida nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | December 31, 2011 | (in millions) | Asset | | Liability | | Asset | | Liability | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current liabilities: other | $ | ― | | $ | 1 | | $ | ― | | $ | 2 | Deferred credits and other liabilities: other | | ― | | | ― | | | ― | | | 1 | Interest rate contracts | | | | | | | | | | | | Deferred credits and other liabilities: other | | ― | | | ― | | | ― | | | 8 | Total Derivatives Designated as Hedging Instruments | $ | ― | | $ | 1 | | $ | ― | | $ | 11 | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts(a) | | | | | | | | | | | | Current Assets: Other | $ | 2 | | $ | ― | | $ | ― | | $ | ― | Investments and Other Assets: Other | | 7 | | | ― | | | ― | | | ― | Current liabilities: other | | ― | | | 146 | | | 5 | | | 266 | Deferred credits and other liabilities: other | | ― | | | 123 | | | ― | | | 222 | Total Derivatives Not Designated as Hedging Instruments | $ | 9 | | $ | 269 | | $ | 5 | | $ | 488 | Total Derivatives | $ | 9 | | $ | 270 | | $ | 5 | | $ | 499 | | | | | | | | | | | | | | (a) | Substantially all of these contracts receive regulatory treatment. |
| The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash | flow hedges by type of derivative contract, and the Consolidated Statements of Operations and Comprehensive Income line items in which such gains and losses are included when reclassified from AOCI. | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Pre-tax Gains (Losses) Recorded in AOCI(a) | | | | | | | | | Commodity contracts | $ | 1 | | $ | (3) | | $ | ― | Interest rate contracts(b) | | (2) | | | (35) | | | (11) | Total Pre-tax Gains (Losses) Recorded in AOCI | $ | (1) | | $ | (38) | | $ | (11) | Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings(a) | | | | | | | | | Interest rate contracts(b) | | | | | | | | | Interest expense | $ | (2) | | $ | (1) | | $ | ― | Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings | $ | (2) | | $ | (1) | | $ | ― | Location of Pre-tax Gains and (Losses) Reclassified from AOCI to Regulatory Assets(c) | | | | | | | | | Interest rate contracts | | | | | | | | | Regulatory assets | $ | (42) | | $ | ― | | $ | ― | Total Pre-tax Gains (Losses) Reclassified from AOCI to Regulatory Assets | $ | (42) | | $ | ― | | $ | ― | | | | | | | | | | | (a) | Effective portion | (b) | Amounts in AOCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt. | (c) | To conform to Duke Energy policies, effective with the merger, Progress Energy no longer designates derivative instruments related to interest rate cash flow hedges for regulated operations as cash flow hedges. As a result, the pre-tax losses on open derivative contracts as of the date of the merger were reclassified from AOCI to Regulatory assets. | | | | | | | | | | |
At December 31, 2011, $41 million of pre-tax deferred net losses on derivative instruments related to interest rate cash flow hedges were included as a component of AOCI. The following tables show the amount of pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and the line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized in Earnings | | | | | | | | | Commodity contracts | | | | | | | | | Fuel used in electric generation and purchased power - regulated(a) | $ | (339) | | $ | (237) | | $ | (278) | Interest rate contracts | | | | | | | | | Interest expense | | (2) | | | ― | | | ― | Total Pre-tax (Losses) Gains Recognized in Earnings | $ | (341) | | $ | (237) | | $ | (278) | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts(b) | | | | | | | | | Regulatory asset | $ | (116) | | $ | (362) | | $ | (321) | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | (116) | | $ | (362) | | $ | (321) | | | | | | | | | | | (a) | After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause. | (b) | Amounts are recorded in regulatory assets and liabilities in the Balance Sheets until derivatives are settled. |
Duke Energy Ohio The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Ohio nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | December 31, 2011 | (in millions) | Asset | | Liability | | Asset | | Liability | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | Interest rate contracts | | | | | | | | | | | | Current assets: other | $ | 2 | | $ | ― | | $ | 3 | | $ | ― | Investments and other assets: other | | ― | | | ― | | | 2 | | | ― | Total Derivatives Designated as Hedging Instruments | $ | 2 | | $ | ― | | $ | 5 | | $ | ― | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current assets: other | $ | 31 | | $ | 4 | | $ | 79 | | $ | 39 | Investments and other assets: other | | 81 | | | 51 | | | 29 | | | 18 | Current liabilities: other | | 106 | | | 132 | | | 136 | | | 146 | Deferred credits and other liabilities: other | | ― | | | 4 | | | 22 | | | 33 | Interest rate contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | 1 | | | ― | | | 1 | Deferred credits and other liabilities: other | | ― | | | 7 | | | ― | | | 8 | Total Derivatives Not Designated as Hedging Instruments | $ | 218 | | $ | 199 | | $ | 266 | | $ | 245 | Total Derivatives | $ | 220 | | $ | 199 | | $ | 271 | | $ | 245 |
There were no gains or losses on cash flow hedges recorded or reclassified at Duke Energy Ohio for the years ended December 31, 2012 and 2011, respectively. There was an immaterial amount of losses on cash flow hedges reclassified at Duke Energy Ohio for the year ended December 31, 2010. At December 31, 2012, there were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI for Duke Energy Ohio. The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument, and the line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized in Earnings | | | | | | | | | Commodity contracts | | | | | | | | | Revenue, nonregulated electric, natural gas and other | | 76 | | | (26) | | | (3) | Fuel used in electric generation and purchased power - nonregulated | | 2 | | | (1) | | | 9 | Interest rate contracts | | | | | | | | | Interest expense | | (1) | | | (1) | | | (1) | Total Pre-tax (Losses) Gains Recognized in Earnings | $ | 77 | | $ | (28) | | $ | 5 | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts | | | | | | | | | Regulatory asset | $ | 2 | | $ | 1 | | $ | 5 | Regulatory liability | | (1) | | | ― | | | ― | Interest rate contracts | | | | | | | | | Regulatory asset | | ― | | | (4) | | | (1) | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | 1 | | $ | (3) | | $ | 4 |
Duke Energy Indiana The following tables show fair value amounts of derivative contracts, and the line items in the Consolidated Balance Sheets in which such amounts are included. The fair values of derivative contracts are presented on a gross basis, even when the derivative instruments are subject to master netting arrangements where Duke Energy Indiana nets the fair value of derivative contracts subject to master netting arrangements with the same counterparty on the Consolidated Balance Sheets. Cash collateral payables and receivables associated with the derivative contracts have not been netted against the fair value amounts. | | December 31, 2012 | | December 31, 2011 | (in millions) | Asset | | Liability | | Asset | | Liability | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Commodity contracts | | | | | | | | | | | | Current assets: other | $ | 10 | | $ | ― | | $ | 4 | | $ | ― | Current liabilities: other | | ― | | | ― | | | ― | | | 2 | Interest rate contracts | | | | | | | | | | | | Current liabilities: other | | ― | | | 63 | | | ― | | | ― | Deferred credits and other liabilities: other | | ― | | | ― | | | ― | | | 66 | Total Derivatives Not Designated as Hedging Instruments | $ | 10 | | $ | 63 | | $ | 4 | | $ | 68 | Total Derivatives | $ | 10 | | $ | 63 | | $ | 4 | | $ | 68 |
| The following table shows the amount of gains and losses recognized on derivative instruments designated and qualifying as cash | flow hedges by type of derivative contract, and the Consolidated Statements of Operations line items in which such gains and losses are included when reclassified from AOCI. | | | | | | | | | | | | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Reclassified from AOCI into Earnings(a) | | | | | | | | | Interest rate contracts | | | | | | | | | Interest expense | | 3 | | | 2 | | $ | 3 | Total Pre-tax Gains (Losses) Reclassified from AOCI into Earnings | $ | 3 | | $ | 2 | | $ | 3 | | | | | | | | | | | (a) | Represents the gains and losses on cash flow hedges previously recorded in AOCI during the term of the hedging relationship and reclassified into earnings during the current period. |
There were no pre-tax deferred net gains or losses on derivative instruments related to cash flow hedges remaining in AOCI for Duke Energy Indiana at December 31, 2012, and 2011, respectively. The following tables show the amount of the pre-tax gains and losses recognized on undesignated contracts by type of derivative instrument and line items in the Consolidated Statements of Operations and Comprehensive Income in which such gains and losses are included or deferred on the Consolidated Balance Sheets as regulatory assets or liabilities. | | Year Ended December 31, | (in millions) | 2012 | | 2011 | | 2010 | Location of Pre-tax Gains and (Losses) Recognized as Regulatory Assets or Liabilities | | | | | | | | | Commodity contracts | | | | | | | | | Regulatory asset | $ | 2 | | $ | (2) | | $ | ― | Regulatory liability | | 35 | | | 17 | | | 14 | Interest rate contracts | | | | | | | | | Regulatory asset | | 4 | | | (67) | | | ― | Total Pre-tax Gains (Losses) Recognized as Regulatory Assets of Liabilities | $ | 41 | | $ | (52) | | $ | 14 |
Credit Risk Certain derivative contracts of the Duke Energy Registrants contain contingent credit features, such as material adverse change clauses or payment acceleration clauses that could result in immediate payments, the posting of letters of credit or the termination of the derivative contract before maturity if specific events occur, such as a credit rating downgrade below investment grade. The following table shows information with respect to derivative contracts that are in a net liability position and contain objective credit-risk related payment provisions. The amounts disclosed in the table below represent the aggregate fair value amounts of such derivative instruments at the end of the reporting period, the aggregate fair value of assets that are already posted as collateral under such derivative instruments at the end of the reporting period, and the aggregate fair value of additional assets that would be required to be transferred in the event that credit-risk-related contingent features were triggered. | | | December 31, 2012 | (in millions) | | Duke Energy | | Progress Energy | | Progress Energy Carolinas | | Progress Energy Florida | | Duke Energy Ohio | Aggregate fair value amounts of derivative instruments in a net liability position | | $ | 466 | | $ | 286 | | $ | 108 | | $ | 178 | | $ | 176 | Collateral already posted | | $ | 163 | | $ | 59 | | $ | 9 | | $ | 50 | | $ | 104 | Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered at the end of the reporting period | | $ | 230 | | $ | 227 | | $ | 99 | | $ | 128 | | $ | 2 | | | | | | | | | | | | | | | | | | | | | December 31, 2011 | (in millions) | | Duke Energy | | Progress Energy | | Progress Energy Carolinas | | Progress Energy Florida | | Duke Energy Ohio | Aggregate fair value amounts of derivative instruments in a net liability position | | $ | 96 | | $ | 489 | | $ | 152 | | $ | 337 | | $ | 94 | Collateral already posted | | $ | 36 | | $ | 147 | | $ | 24 | | $ | 123 | | $ | 35 | Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered at the end of the reporting period | | $ | 5 | | $ | 342 | | $ | 128 | | $ | 214 | | $ | 5 | | | | | | | | | | | | | | | | | |
Netting of Cash Collateral and Derivative Assets and Liabilities Under Master Netting Arrangements. In accordance with applicable accounting guidance, the Duke Energy Registrants have elected to offset fair value amounts (or amounts that approximate fair value) recognized on their Consolidated Balance Sheets related to cash collateral amounts receivable or payable against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting agreement. The amounts disclosed in the table below represent the receivables related to the right to reclaim cash collateral and payables related to the obligation to return cash collateral under master netting arrangements. See Note 16 for additional information on fair value disclosures related to derivatives. | | December 31, 2012 | | December 31, 2011 | (in millions) | Receivables | | Payables | | Receivables | | Payables | Duke Energy | | | | | | | | | | | | Amounts offset against net derivative positions | $ | 73 | | $ | ― | | $ | 10 | | $ | ― | Amounts not offset against net derivative positions | | 93 | | | ― | | | 30 | | | ― | Progress Energy | | | | | | | | | | | | Amounts offset against net derivative positions | | 58 | | | ― | | | 140 | | | ― | Amounts not offset against net derivative positions | | 1 | | | ― | | | 3 | | | ― | Progress Energy Carolinas | | | | | | | | | | | | Amounts offset against net derivative positions | | 9 | | | ― | | | 23 | | | ― | Amounts not offset against net derivative positions | | ― | | | ― | | | ― | | | ― | Progress Energy Florida | | | | | | | | | | | | Amounts offset against net derivative positions | | 49 | | | ― | | | 117 | | | ― | Amounts not offset against net derivative positions | | 1 | | | ― | | | 3 | | | ― | Duke Energy Ohio | | | | | | | | | | | | Amounts offset against net derivative positions | | 15 | | | ― | | | 9 | | | ― | Amounts not offset against net derivative positions | $ | 92 | | $ | ― | | $ | 28 | | $ | ― |
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