Edgar Filing: Duke Energy Ohio, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2012 or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to


Commission file number	Exact name of registrants as specified in their charters, addresses of principal executive offices, telephone numbers and states of incorporation	IRS Employer Identification No.
1-32853	DUKE ENERGY CORPORATION 550 South Tryon Street Charlotte, NC 28202-1803 704-382-3853 State of Incorporation: Delaware	20-2777218

1-4928	DUKE ENERGY CAROLINAS, LLC 526 South Church Street Charlotte, NC 28202-1803 704-382-3853 State of Incorporation: North Carolina	56-0205520

1-1232	DUKE ENERGY OHIO, INC. 139 East Fourth Street Cincinnati, OH 45202 704-382-3853 State of Incorporation: Ohio	31-0240030

1-3543	DUKE ENERGY INDIANA, INC. 1000 East Main Street Plainfield, IN 46168 704-382-3853 State of Incorporation: Indiana	35-0594457

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Duke Energy Corporation (Duke Energy)	Yes x	No ¨		Duke Energy Ohio, Inc. (Duke Energy Ohio)	Yes x	No ¨
Energy Carolinas, LLC (Duke Energy Carolinas)	Yes x	No ¨		Duke Energy Indiana, Inc. (Duke Energy Indiana)	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Duke Energy	Yes x	No ¨		Duke Energy Ohio	Yes x	No ¨
Duke Energy Carolinas	Yes x	No ¨		Duke Energy Indiana	Yes x	No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Duke Energy	Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
Duke Energy Carolinas	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
Duke Energy Ohio	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
Duke Energy Indiana	Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Duke Energy	Yes ¨	No x		Duke Energy Ohio	Yes ¨	No x
Duke Energy Carolinas	Yes ¨	No x		Duke Energy Indiana	Yes ¨	No x

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date.

Outstanding as of November 5, 2012 Registrant	Description	Shares
Duke Energy	Common Stock, par value $0.001	704,243,727
Duke Energy Carolinas	All of the registrant’s limited liability company member interests are directly owned by Duke Energy.
Duke Energy Ohio	All of the registrant’s common stock is indirectly owned by Duke Energy.
Duke Energy Indiana	All of the registrant’s common stock is indirectly owned by Duke Energy.

This combined Form 10-Q is filed separately by four registrants: Duke Energy, Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana (collectively the Duke Energy Registrants). Information contained herein relating to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.

Duke Energy Carolinas, Duke Energy Ohio and Duke Energy Indiana meet the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format specified in General Instructions H(2) of Form 10-Q.

TABLE OF CONTENTS
Safe Harbor for Forward-Looking Statements

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements

	Duke Energy Corporation (Duke Energy)
		Unaudited Condensed Consolidated Statements of Operations	5
		Unaudited Condensed Consolidated Comprehensive Income	6
		Unaudited Condensed Consolidated Balance Sheets	7
		Unaudited Condensed Consolidated Statements of Cash Flows	8
		Unaudited Condensed Consolidated Statements of Equity	9

	Duke Energy Carolinas, LLC (Duke Energy Carolinas)
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	10
		Unaudited Condensed Consolidated Balance Sheets	11
		Unaudited Condensed Consolidated Statements of Cash Flows	12
		Unaudited Condensed Consolidated Statements of Member’s Equity	13

	Duke Energy Ohio, Inc. (Duke Energy Ohio)
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	14
		Unaudited Condensed Consolidated Balance Sheets	15
		Unaudited Condensed Consolidated Statements of Cash Flows	16
		Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity	17

	Duke Energy Indiana, Inc. (Duke Energy Indiana)
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	18
		Unaudited Condensed Consolidated Balance Sheets	19
		Unaudited Condensed Consolidated Statements of Cash Flows	20
		Unaudited Condensed Consolidated Statements of Common Stockholder’s Equity	21

	Combined Notes to Unaudited Condensed Consolidated Financial Statements
		Note 1 - Organization and Basis of Presentation	22
		Note 2 - Acquisitions and Sales of Other Assets	23
		Note 3 - Business Segments	27
		Note 4 - Regulatory Matters	30
		Note 5 - Commitments and Contingencies	39
		Note 6 - Debt and Credit Facilities	45
		Note 7 - Goodwill, Intangible Assets and Impairments	47
		Note 8 - Risk Management, Derivative Instruments and Hedging Activities	48
		Note 9 - Fair Value of Financial Instruments	54
		Note 10 - Investments in Debt and Equity Securities	61
		Note 11 - Variable Interest Entities	64
		Note 12 - Earnings Per Common Share	69
		Note 13 - Stock-Based Compensation	70
		Note 14 - Employee Benefit Plans	71
		Note 15 - Severance	74
		Note 16 - Income Taxes and Other Taxes	74
		Note 17 - Related Party Transactions	75
		Note 18 - Guarantees and Indemnifications	76
		Note 19 - New Accounting Standards	77
		Note 20 - Subsequent Events	77

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		78

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		94

Item 4.	Controls and Procedures		94

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		95

Item 1A.	Risk Factors		95

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		95

Item 6.	Exhibits		96

	Signatures		97

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management’s beliefs and assumptions. These forward-looking statements, which are intended to cover Duke Energy and the applicable Duke Energy Registrants, are identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will,” “potential,” “forecast,” “target,” “guidance,” “outlook,” and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

· State, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements, as well as rulings that affect cost and investment recovery or have an impact on rate structures;

· The ability to recover eligible costs and earn an adequate return on investment through the regulatory process;

· The scope of necessary repairs of the delamination of Crystal River Unit 3 Nuclear Plant could prove more extensive or costly than is currently identified, such repairs could prove not to be feasible resulting in early retirement of the unit, the cost of repair and/or replacement power could exceed estimates and insurance coverage or may not be recoverable through the regulatory process;

· The ability to maintain relationships with customers, employees or suppliers post-merger;

· The ability to successfully integrate the Progress Energy businesses and realize cost savings and any other synergies expected from the merger;

· The risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;

· The impact of compliance with material restrictions of conditions related to the Progress Energy merger imposed by regulators could exceed our expectations;

· Costs and effects of legal and administrative proceedings, settlements, investigations and claims;

· Industrial, commercial and residential growth or decline in the respective Duke Energy Registrants’ service territories, customer base or customer usage patterns;

· Additional competition in electric markets and continued industry consolidation;

· Political and regulatory uncertainty in other countries in which Duke Energy conducts business;

· The influence of weather and other natural phenomena on each of the Duke Energy Registrants’ operations, including the economic, operational and other effects of storms, hurricanes, droughts and tornadoes;

· The ability to successfully operate electric generating facilities and deliver electricity to customers;

· The ability to recover, in a timely manner, if at all, costs associated with future significant weather events through the regulatory process;

· The impact on the Duke Energy Registrants’ facilities and business from a terrorist attack, cyber security threats and other catastrophic events;

· The inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks;

· The timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate;

· Unscheduled generation outages, unusual maintenance or repairs and electric transmission system constraints;

· The performance of electric generation facilities and of projects undertaken by Duke Energy’s non-regulated businesses;

· The results of financing efforts, including the Duke Energy Registrants’ ability to obtain financing on favorable terms, which can be affected by various factors, including the respective Duke Energy Registrants’ credit ratings and general economic conditions;

· Declines in the market prices of equity securities and resultant cash funding requirements for Duke Energy’s defined benefit pension plans and nuclear decommissioning trust funds;

· The level of creditworthiness of counterparties to Duke Energy Registrants’ transactions;

· Employee workforce factors, including the potential inability to attract and retain key personnel;

· Growth in opportunities for the respective Duke Energy Registrants’ business units, including the timing and success of efforts to develop domestic and international power and other projects;

· Construction and development risks associated with the completion of Duke Energy Registrants’ capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from ratepayers in a timely manner or at all;

· The Subsidiary Registrants ability to pay dividends or distributions to Duke Energy Corporation holding company (the Parent);

· The effect of accounting pronouncements issued periodically by accounting standard-setting bodies;

· The impact of potential goodwill impairments; and

· The ability to successfully complete future merger, acquisition or divestiture plans.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. The Duke Energy Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
(in millions, except per-share amounts)			2012		2011		2012		2011
Operating Revenues
	Regulated electric		$	5,763	$	3,016	$	10,892	$	8,165
	Non-regulated electric, natural gas, and other			882		867		2,708		2,586
	Regulated natural gas			77		81		329		410
	Total operating revenues			6,722		3,964		13,929		11,161
Operating Expenses
	Fuel used in electric generation and purchased power - regulated			2,222		957		3,848		2,603
	Fuel used in electric generation and purchased power - non-regulated			484		383		1,328		1,147
	Cost of natural gas and coal sold			40		48		184		262
	Operation, maintenance and other			1,654		866		3,262		2,705
	Depreciation and amortization			666		455		1,620		1,346
	Property and other taxes			326		183		681		538
	Impairment charges			266		300		668		309
		Total operating expenses		5,658		3,192		11,591		8,910
Gains (Losses) on Sales of Other Assets and Other, net				14		(5)		21		9
Operating Income				1,078		767		2,359		2,260
Other Income and Expenses
	Equity in earnings of unconsolidated affiliates			33		43		118		123
	Impairments and gains on sales of unconsolidated affiliates			―		(3)		(6)		11
	Other income and expenses, net			132		83		291		297
		Total other income and expenses		165		123		403		431
Interest Expense				401		213		857		635
Income From Continuing Operations Before Income Taxes				842		677		1,905		2,056
Income Tax Expense from Continuing Operations				248		208		565		633
Income From Continuing Operations				594		469		1,340		1,423
Income From Discontinued Operations, net of tax				4		1		5		1
Net Income				598		470		1,345		1,424
Less: Net Income (Loss) Attributable to Noncontrolling Interests				4		(2)		12		6
Net Income Attributable to Duke Energy Corporation			$	594	$	472	$	1,333	$	1,418


Earnings Per Share - Basic and Diluted
	Income from continuing operations attributable to Duke Energy Corporation common shareholders
		Basic	$	0.84	$	1.06	$	2.50	$	3.19
		Diluted	$	0.84	$	1.06	$	2.50	$	3.19
	Income from discontinued operations attributable to Duke Energy Corporation common shareholders
		Basic	$	0.01	$	―	$	0.01	$	―
		Diluted	$	0.01	$	―	$	0.01	$	―
	Net Income attributable to Duke Energy Corporation common shareholders
		Basic	$	0.85	$	1.06	$	2.51	$	3.19
		Diluted	$	0.85	$	1.06	$	2.51	$	3.19
	Dividends declared per share		$	―	$	―	$	2.265	$	2.22
	Weighted-average shares outstanding
		Basic		699		444		531		444
		Diluted		699		444		531		444

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(in millions)

2012

2011

2012

2011

Net income

598

470

1,345

1,424

Other comprehensive (loss) income, net of tax

Foreign currency translation adjustments

(246)

(85)

(150)

Pension and OPEB adjustments^(a)

(21)

(15)

(6)

Net unrealized loss on cash flow hedges^(b)

(2)

(47)

(19)

(52)

Reclassification into earnings from cash flow hedges^(c)

(2)

―

Unrealized gain on investments in auction rate securities^(d)

Unrealized gain on investments in available for sale securities^(e)

―

Reclassification into earnings from available for sale securities^(f)

(1)

―

(4)

―

Other comprehensive income (loss), net of tax

(20)

(288)

(110)

(198)

Comprehensive income

578

182

1,235

1,226

Less: Comprehensive income (loss) attributable to Noncontrolling Interests

(13)

(2)

Comprehensive income attributable to Duke Energy Corporation

574

195

1,227

1,228

(a)

Net of $10 million tax benefit and $7 million tax benefit for the three and nine months ended September 30, 2012 and insignificant tax expense and $3 tax benefit for the three and nine months ended September 30, 2011.

(b)

Net of $1 million tax benefit and $10 million tax benefit for the three and nine months ended September 30, 2012 and $26 million tax benefit and $28 million tax benefit for the three and nine months ended September 30, 2011.

(c)

Net of insignificant tax benefit for each of the three and nine months ended September 30, 2012 and insignificant tax expense and $1 million tax expense for the three and nine months ended September 30, 2011, respectively.

(d)

Net of $1 million tax benefit and $2 million tax expense for the three and nine months ended September 30, 2012 and $5 million tax expense and $6 million tax expense for the three and nine months ended September 30, 2011.

(e)

Net of $2 million tax expense for the three and nine months ended September 30, 2012.

(f)

Net of $2 million tax benefit for the three and nine months ended September 30, 2012.

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		September 30,		December 31,
(in millions, except per-share amounts)		2012		2011
ASSETS
Current Assets
Cash and cash equivalents		$	1,761	$	2,110
Short-term investments			335		190
Receivables (net of allowance for doubtful accounts of $31 at September 30, 2012 and $35 at December 31, 2011)			1,596		784
Restricted receivables of variable interest entities (net of allowance for doubtful accounts of $43 at September 30, 2012 and $40 at December 31, 2011)			1,250		1,157
Inventory			3,041		1,588
Other			2,123		1,051
	Total current assets		10,106		6,880
Investments and Other Assets
Investments in equity method unconsolidated affiliates			542		460
Nuclear decommissioning trust funds			4,155		2,060
Goodwill			16,180		3,849
Intangibles, net			359		363
Notes receivable			74		62
Restricted other assets of variable interest entities			115		135
Other			2,186		2,231
	Total investments and other assets		23,611		9,160
Property, Plant and Equipment
Cost			100,156		60,377
Cost, variable interest entities			961		913
Accumulated depreciation and amortization			(32,318)		(18,709)
Generation facilities to be retired, net			232		80
	Net property, plant and equipment		69,031		42,661
Regulatory Assets and Deferred Debits
Regulatory assets			9,097		3,672
Other			163		153
	Total regulatory assets and deferred debits		9,260		3,825
Total Assets		$	112,008	$	62,526
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable		$	1,912	$	1,433
Notes payable and commercial paper			600		154
Non-recourse notes payable of variable interest entities			275		273
Taxes accrued			601		431
Interest accrued			474		252
Current maturities of long-term debt			2,488		1,894
Other			2,206		1,091
	Total current liabilities		8,556		5,528
Long-term Debt			35,198		17,730
Non-recourse long-term debt of variable interest entities			911		949
Deferred Credits and Other Liabilities
Deferred income taxes			10,317		7,581
Investment tax credits			462		384
Accrued pension and other post-retirement benefit costs			2,542		856
Asset retirement obligations			4,846		1,936
Regulatory liabilities			5,739		2,919
Other			2,349		1,778
	Total deferred credits and other liabilities		26,255		15,454
Commitments and Contingencies
Preferred stock of subsidiaries			93		―
Equity
Common stock, $0.001 par value, 2 billion shares authorized; 704 million and 445 million shares outstanding at September 30, 2012 and December 31, 2011, respectively			1		1
Additional paid-in capital			39,249		21,132
Retained earnings			1,995		1,873
Accumulated other comprehensive loss			(340)		(234)
	Total Duke Energy Corporation shareholders' equity		40,905		22,772
Noncontrolling interests			90		93
	Total equity		40,995		22,865
Total Liabilities and Equity		$	112,008	$	62,526

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Nine Months Ended
					September 30,
(in millions)					2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income				$	1,345	$	1,424
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation, amortization and accretion (including amortization of nuclear fuel)			1,865		1,508
			Equity component of AFUDC			(209)		(193)
			Severance expense			73		―
			FERC mitigation costs			117		―
			Community support and charitable contributions expense			100		―
			Gains on sales of other assets			(21)		(19)
			Impairment of other long-lived assets			588		309
			Deferred income taxes			437		526
			Equity in earnings of unconsolidated affiliates			(118)		(123)
			Voluntary opportunity cost deferral			(101)		―
			Contributions to qualified pension plans			(79)		―
			Accrued pension and other post-retirement benefit costs			152		78
			(Increase) decrease in
				Net realized and unrealized mark-to-market and hedging transactions		68		37
				Receivables		(83)		115
				Inventory		(22)		(87)
				Other current assets		101		248
			Increase (decrease) in
				Accounts payable		(222)		(455)
				Taxes accrued		(7)		30
				Other current liabilities		128		(172)
			Other assets			(167)		91
			Other liabilities			34		(290)
				Net cash provided by operating activities		3,979		3,027
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures					(3,845)		(2,990)
	Investment expenditures					(7)		(36)
	Acquisitions					(36)		(50)
	Cash acquired from the merger with Progress Energy					71		―
	Purchases of available-for-sale securities					(2,159)		(2,409)
	Proceeds from sales and maturities of available-for-sale securities					1,947		2,313
	Net proceeds from the sales of other assets, and sales of and collections on notes receivable					29		115
	Change in restricted cash					(27)		(19)
	Other					38		6
				Net cash used in investing activities		(3,989)		(3,070)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from the:
		Issuance of long-term debt				2,626		1,015
		Issuance of common stock related to employee benefit plans				16		13
	Payments for the redemption of long-term debt					(1,934)		(179)
	Notes payable and commercial paper					98		537
	Distributions to noncontrolling interests					(14)		(19)
	Contributions from noncontrolling interests					76		―
	Dividends paid					(1,211)		(994)
	Other					4		32
				Net cash (used in) provided by financing activities		(339)		405
	Net (decrease) increase in cash and cash equivalents					(349)		362
	Cash and cash equivalents at beginning of period					2,110		1,670
	Cash and cash equivalents at end of period				$	1,761	$	2,032
	Supplemental Disclosures:
	Merger with Progress Energy
		Fair value of assets acquired			$	48,698	$	―
		Fair value of liabilities assumed			$	30,627	$	―
		Issuance of common stock			$	18,071	$	―
	Significant non-cash transactions:
		Accrued capital expenditures			$	407	$	276
		Extinguishment of debt related to investment in Attiki Gas Supply, S. A.			$	66	$	―

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

Duke Energy Corporation Shareholders

Accumulated Other Comprehensive Income (Loss)

Net Gains

Pension and

Common

Additional

Foreign

(Losses) on

OPEB Related

Common

Stock

Common

Paid-in

Retained

Currency

Cash Flow

Adjustments

Stockholders'

Noncontrolling

Total

(in millions)

Stock

Capital

Earnings

Adjustments

Hedges

Other

to AOCI

Equity

Interests

Equity

Balance at December 31, 2010

443

21,023

1,496

(18)

(17)

(60)

22,522

131

22,653

Net income

―

1,418

―

1,418

1,424

Other comprehensive (loss) income

―

(142)

(49)

(6)

(190)

(8)

(198)

Common stock issuances, including dividend reinvestment and employee benefits

―

Common stock dividends

―

(994)

―

(994)

―

(994)

Changes in noncontrolling interest in subsidiaries

―

(24)

Balance at September 30, 2011

444

21,061

1,920

(45)

(67)

(10)

(66)

22,794

105

22,899

Balance at December 31, 2011

445

21,132

1,873

(45)

(71)

(9)

(109)

22,772

22,865

Net income ^(a)

―

1,333

―

1,333

1,344

Other comprehensive (loss) income

―

(81)

(19)

(15)

(106)

(4)

(110)

Common stock issued in connection with the Progress Energy Merger

258

18,071

Common stock issuances, including dividend reinvestment and employee benefits

―

Common stock dividends

―

(1,211)

―

(1,211)

―

(1,211)

Deconsolidation of DS Cornerstone, LLC^(b)

(82)

Contribution from noncontrolling interest in DS Cornerstone, LLC^(b)

Changes in noncontrolling interest in subsidiaries^(c)

―

(4)

Balance at September 30, 2012

704

39,249

1,995

(126)

(90)

―

(124)

40,905

40,995

(a)

For the nine months ended September 30, 2012, consolidated net income of $1,345 million includes $1 million attributable to preferred shareholders of subsidiaries. Income attributable to preferred shareholders of subsidiaries is not a component of total equity and is excluded from the table above.

(b)

Refer to Note 2 for further information on the deconsolidation of DS Cornerstone, LLC.

(c)

Includes $14 million of payments to noncontrolling interests.

See Notes to Unaudited Condensed Consolidated Financial Statements

PART I

DUKE ENERGY CAROLINAS, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

(in millions)

2012

2011

2012

2011

Operating Revenues-Regulated Electric

1,939

1,868

5,056

5,027

Operating Expenses

Fuel used in electric generation and purchased power

576

577

1,398

1,557

Operation, maintenance and other

562

447

1,369

1,377

Depreciation and amortization

233

210

687

601

Property and other taxes

100

279

259

Impairment charges