Duke Energy CORP | 2013 | FY | 3


11. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following tables present goodwill by reportable operating segment for Duke Energy and Duke Energy Ohio.

Duke Energy            
              
(in millions) Regulated Utilities International Energy Commercial Power Total
Balance at December 31, 2012            
Goodwill $ 15,950 $ 353 $ 933 $ 17,236
Accumulated impairment charges       (871)   (871)
Balance at December 31, 2012, as adjusted for accumulated impairment charges   15,950   353   62   16,365
Acquisitions (a)   2   (5)   2   (1)
Foreign exchange and other changes   (2)   (22)     (24)
Balance at December 31, 2013            
Goodwill   15,950   326   935   17,211
Accumulated impairment charges       (871)   (871)
Balance at December 31, 2013, as adjusted for accumulated impairment charges $ 15,950 $ 326 $ 64 $ 16,340
              
(a)Amounts represent purchase price adjustments related to the Progress Energy merger at Regulated Utilities, the Chilean hydro acquisition at International Energy and a minor renewables acquisition at Commercial Power. See Note 2 for further information on purchase price adjustments related to the Progress Energy merger.
              

Duke Energy Ohio        
          
(in millions)Regulated Utilities Commercial Power Total
Balance at December 31, 2012        
Goodwill$ 1,137 $ 1,188 $ 2,325
Accumulated impairment charges  (216)   (1,188)   (1,404)
Balance at December 31, 2012, as adjusted for accumulated impairment charges  921     921
Foreign exchange and other changes  (1)     (1)
Balance at December 31, 2013        
Goodwill  1,136   1,188   2,324
Accumulated impairment charges  (216)   (1,188)   (1,404)
Balance at December 31, 2013, as adjusted for accumulated impairment charges$ 920 $ $ 920
          

Progress Energy

Progress Energy had Goodwill of $3,655 million as of December 31, 2013 and 2012, for which there are no accumulated impairment charges.

Impairment Analysis

As the fair values of the reporting units of Duke Energy, Progress Energy and Duke Energy Ohio exceeded their respective carrying values at the date of the annual goodwill impairment analysis, no impairment charges were recorded.

In addition, at December 31, 2013, goodwill for the Renewables reporting unit within Commercial Power was analyzed for impairment primarily as a result of the expiration of wind production tax credits at the end of 2013. Based on results of the fourth quarter 2013 impairment analysis, the fair value of the Renewables reporting unit exceeded its carrying value and no impairment was recorded. The fair value of the Renewables reporting unit is impacted by a multitude of factors, including legislative actions related to tax credit extensions, long-term growth rate assumptions, the market price of power and discount rates. Management continues to monitor these assumptions for any indicators that the fair value of the reporting unit could be below the carrying value, and will assess goodwill for impairment as appropriate.

 

Intangible Assets

The following tables show the carrying amount and accumulated amortization of intangible assets.

                      
  December 31, 2013
(in millions)Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana
Emission allowances$ 63 $ 1 $ 21 $ 3 $ 18 $ 20 $ 21
Renewable energy certificates  82   16   64   64     2  
Gas, coal and power contracts  180           156   24
Wind development rights  86            
Other   76            
Total gross carrying amounts  487   17   85   67   18   178   45
Accumulated amortization - gas, coal and power contracts  (73)           (60)   (13)
Accumulated amortization - wind development rights  (12)            
Accumulated amortization - other  (24)            
Total accumulated amortization  (109)           (60)   (13)
Total intangible assets, net$ 378 $ 17 $ 85 $ 67 $ 18 $ 118 $ 32
                      
  December 31, 2012
(in millions)Duke Energy Duke Energy Carolinas Progress Energy Duke Energy Progress Duke Energy Florida Duke Energy Ohio Duke Energy Indiana
Emission allowances$ 80 $ $ 26 $ 4 $ 22 $ 24 $ 29
Renewable energy certificates  18   14   2   1      
Gas, coal and power contracts  295           272   24
Wind development rights  111            
Other   91           10  
Total gross carrying amounts  595   14   28   5   22   306   53
Accumulated amortization - gas, coal and power contracts  (180)           (168)   (12)
Accumulated amortization - wind development rights  (9)            
Accumulated amortization - other  (34)           (9)  
Total accumulated amortization  (223)           (177)   (12)
Total intangible assets, net$ 372 $ 14 $ 28 $ 5 $ 22 $ 129 $ 41
                      

Impairment of Emission Allowances

On August 8, 2011, the EPA's final rule to replace CAIR was published in the Federal Register. As further discussed in Note 5, CSAPR established state-level annual SO2 and NOx caps that were required to take effect on January 1, 2012, and state-level ozone-season NOx caps that were to take effect on May 1, 2012. CSAPR did not utilize CAA emission allowances as the original CAIR provided. Under CSAPR, the EPA was expected to issue new emission allowances to be used exclusively for purposes of complying with CSAPR cap-and-trade program. After this ruling was published in 2011, Duke Energy evaluated the effect of CSAPR on the carrying value of emission allowances recorded at its Regulated Utilities and Commercial Power segments. Based on the provisions of CSAPR, Duke Energy Ohio had more SO2 allowances than were needed to comply with the continuing CAA acid rain cap-and-trade program (excess emission allowances). Duke Energy Ohio incurred a pretax impairment of $79 million in 2011 to write down the carrying value of excess emission allowances held by Commercial Power to fair value. The charge is recorded in Goodwill and other impairment charges on Duke Energy Ohio's Consolidated Statements of Operations. This amount was based on the fair value of excess allowances held by Commercial Power for compliance under the continuing CAA acid rain cap-and-trade program as of September 30, 2011.

Amortization Expense
          
The following table presents amortization expense for gas, coal and power contracts, wind development rights and other intangible assets.
          
  December 31,
(in millions) 2013  2012  2011
Duke Energy$ 13 $ 14 $ 10
Duke Energy Ohio  8   12   8
Duke Energy Indiana  1   1   1
          

The table below shows the expected amortization expense for the next five years for intangible assets as of December 31, 2013. The expected amortization expense includes estimates of emission allowances consumption and estimates of consumption of commodities such as gas and coal under existing contracts, as well as estimated amortization related to the wind development projects. The amortization amounts discussed below are estimates and actual amounts may differ from these estimates due to such factors as changes in consumption patterns, sales or impairments of emission allowances or other intangible assets, delays in the in-service dates of wind assets, additional intangible acquisitions and other events.

                
(in millions) 2014  2015  2016  2017  2018
Duke Energy$ 43 $ 19 $ 17 $ 16 $ 16
Progress Energy  4   3   2   1   1
Duke Energy Progress  1        
Duke Energy Florida  3   3   2   1   1
Duke Energy Ohio  11   9   9   9   9
Duke Energy Indiana  22   1   1   1   1
                

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