Fitch Affirms Duke Energy and Its Subsidiaries Ratings

  Fitch Affirms Duke Energy and Its Subsidiaries Ratings

Business Wire

NEW YORK -- June 18, 2013

Fitch Ratings has affirmed the existing Issuer Default Ratings (IDR) and
instrument ratings of Duke Energy Corp. (DUK) and its subsidiaries. Fitch has
also withdrawn the commercial paper ratings of Duke Energy Progress, LLC (DEP)
and Duke Energy Florida, LLC (DEF). The two CP programs are discontinued. A
full list of the ratings appears at the end of this release. The Rating
Outlook for all entities except DEF is Stable.

DEF's Rating Outlook remains Negative due to uncertainties related the
retirement of the Crystal River 3 (CR3) nuclear plant. Despite a 2012
settlement agreement that gave DEP the sole discretion to retire CR3, the
company remains exposed to a The Florida Public Service Commission (FPSC)
review of the retirement decision and a mediated settlement of its insurance
claim, which was well below the total insurance coverage.

Key Rating Drivers

Conservative Business Model: The consolidated ratings are supported by the
credit strength and cash flow diversity of DUK's six regulated utility
subsidiaries. Utility operations are expected to provide approximately 85% of
consolidated earnings and cash flow. Each of the utilities has a solid credit
profile and is well positioned within their respective rating categories.

Solid Credit Metrics: Consolidated credit metrics are expected to remain
strong over the forecast period. Fitch estimates consolidated EBITDA/interest
and funds from operations (FFO)/interest will both average over 5.0 times (x),
and FFO/debt approximately 19%, which is consistent with Fitch's target ratios
for 'BBB+' issuers and DUK's peer group of utility parent companies.
Debt/EBITDA, however, will be somewhat weak for the rating category with 2013
debt/EBITDA projected by Fitch to be about 4.4x, trending down to about 4.0x
over the next two years.

Capital and Operating Cost Recovery: Six tariff increases are expected to be
implemented in 2013 which will strengthen consolidated earnings and cash flow
measures. Three of the tariff increases have already been approved and a
Notice of Settlement in Principle has been filed in a fourth case. DEP, Duke
Energy Ohio, LLC (DEO) and DEF raised base rates earlier this year following
regulatory approval of settlement agreements. The Notice of Settlement was
filed in the Duke Energy Carolinas, LLC (DEC) case. An additional tariff
adjustment is expected for DEC in South Carolina later this year. Resolution
of DEO's pending gas rate case is also expected before year end.

Duke Energy Indiana, LLC (DEI) also increased rates $155 million in January
2013 through a rider mechanism to reflect the full amount of construction work
in progress (CWIP) up to the approved cost cap of $2.595 billion related to
its Edwardsport Integrated Gasification Combined Cycle (IGCC) plant.

Moderating Capital Requirements: Consolidated capital expenditures are
expected to decline through 2014, reflecting the completion of several
electric generation modernization projects in 2012 and into 2013. Expenditures
then begin to ramp up beginning in 2015 due, in part, to rising environmental
expenditures and plans to add new natural gas plants in the Carolinas, Florida
and Kentucky later this decade to replace plant retirements and meet load
growth. The capex forecast also includes discretionary expenditures for
uncommitted renewable and commercial transmission projects.

High Parent Leverage: The high percentage of parent debt is a rating concern.
The acquisition of the more levered PGN in 2012 increased the proportion of
debt at the parent level (DUK plus PGN). In the near term, Fitch expects
parent debt (DUK plus PGN) to approximate 29% of consolidated debt.

Achieving Synergies: DUK is at risk for achieving system fuel savings included
as part of the PGN merger settlement agreement with the North Carolina Public
Service Commission. The companies agreed to guarantee $687 million in system
fuel savings for Carolina retail customers over the next five years (plus an
additional 18 months if coal consumption at certain plants is less than
originally forecast due to low gas prices). The company claims to be on track
to achieve its targeted savings.

Rating Sensitivities

Unexpected CR3 Costs: Unexpected costs related to the retirement of the CR3
nuclear plant not recoverable from rate payers or meaningful additional
customer refunds related to the Florida Public Service Commission review of
the adequacy of the insurance claims settlement could also pressure credit
metrics.

IGCC Operational Issues: Unexpected operational issues at DEI's Edwardsport
IGCC that increase operating or capital costs would also pressure credit
metrics.

Increased Parent leverage: Higher than expected parent leverage could
adversely affect ratings.

Duke Energy Carolinas

Key Rating Drivers

Solid Credit Profile: Credit metrics are solidly positioned within the
existing rating category and are expected to improve due to rate increases
implemented in North and South Carolina in January 2012 and additional rate
increases anticipated later this year in both states. The rate increases
provide a return of and on DEC's new plant investments. Over the next few
years, Fitch expects EBITDA/interest to exceed 6.0x, FFO/interest to be in
excess of 5.5x and FFO/debt to range between 23%-25%. Debt/EBITDA is expected
to range between 3.3x and 3.0x.

Manageable Capital Requirements: DEC completed a major construction cycle in
2012 and as a result, capital expenditures are moderate over the next several
years. Both the 825 MW Cliffside coal-fired generating station and the 620 MW
natural gas fired Dan River combined cycle unit entered commercial operation
in late 2012. Capex is expected to trend moderately upward beginning in 2015,
primarily due to environmental compliance spending and planned natural gas
capacity additions later in the decade.

Constructive Regulation: The regulatory environment in both North Carolina and
South Carolina is constructive. North Carolina state regulation permits annual
tariff adjustments to recover fuel, demand side management, energy efficiency
and certain renewable costs. SC has similar rules. The NCUC has adopted
settlements in almost all major rate cases in the last several years and
authorized ROEs that are generally at or above the industry average. The NCUC
has also adopted constructive frameworks that provide a degree of certainty
for recovery of legislatively mandated emission reductions.

Pending Rate Cases: Rate cases are pending in both North and South Carolina to
recover capital investments in the new electric generation facilities and
other cost of service items. The North Carolina Public Staff filed a Notice of
Settlement in Principle last week that provides for $205 million rate increase
in the first two years and an additional $35 million beginning in year three.
The increase is based on a 10.2% return on equity (ROE) and a 53% equity
ratio. The 2013 rate cases are the last of three rate filings to recover
capital invested to modernize the generation fleet and power delivery system.

Achieving Synergies: DUK is at risk for achieving system fuel savings included
as part of the PGN merger settlement agreement with the NCUC. The two North
Carolina companies agreed to guarantee $687 million in system fuel savings for
retail customers over the next five years. The company claims to be on track
to achieve its targeted savings.

Rating Sensitivities

No rating changes are expected at this time; however, downward pressure could
result from:

Cost Control: Inability to realize cost savings and other synergies related to
the merger could pressure credit metrics.

Duke Energy Progress

Key Rating Drivers

Rate Support: On May 30, 2013, the NCUC approved a settlement agreement that
should enhance earnings and cash flow and reverse a downtrend in credit
metrics in recent years. The settlement agreement provides a two-step $182.8
million (5.7%) base rate increase premised on a 10.2% ROE and a 53% equity
ratio. A $151.4 million base rate increase becomes effective June 1, 2013 and
an additional $31.4 million June 1, 2014.

DEP is also considering a rate filing in South Carolina later this year. DEP
has not raised base rates since 1988 due in large part to above average sales
and customer growth which has since abated.

Constructive Regulatory Environment: Fitch considers regulation in North
Carolina, DEP's primary regulatory jurisdiction, to be constructive. NC state
regulation permits annual tariff adjustments to recover fuel, demand side
management, energy efficiency and certain renewable costs.

Sound Financial Profile: Higher rates and lower operating and maintenance
expenses are expected by Fitch to drive credit improvements in 2013 and
beyond. Fitch expects EBITDA/interest and FFO/interest coverage measures to
both exceed 6.0x, over the next several years with FFO/debt in excess of 20%.
The ratio of debt/EBITDA is expected to average about 3.3x.

Moderating Capex: DEP is nearing completion of a large capex program designed
to retire all of its coal fired generating facilities in North Carolina that
do not have scrubbers and to add new gas fired generation. The 920 MW Lee
natural gas combined cycle plant was completed earlier this year and the 625
MW L.V. Sutton combined cycle natural gas plant is expected to be completed by
year-end.

Rating Sensitivities

No rating changes are expected at this time; however, downward pressure could
result from:

Cost Control: Inability to realize cost savings and other synergies related to
the merger with DUK.

Duke Energy Florida

Key Rating Drivers

Sound Credit Profile: After weakening in 2012, Fitch expects credit metrics to
strengthen in 2013 and beyond due to a Jan. 1, 2013 rate increase ($150
million), lower CR3 related fuel and O&M expense and the retirement of $435
million of debt with cash. Over the next three years, Fitch estimates
EBITDA/interest will average 5.9x, FFO/interest 4.5x, FFO/debt 18% and
debt/EBITDA 3.3x. Absent an adverse outcome from the FPSC's pending CR3
related review, credit metrics should improve after 2014 when required fuel
cost refunds decline.

Rate Settlement Agreement: A rate settlement agreement approved by the FPSC
establishes a framework for treatment of CR3 costs, granted a $150 million
rate increase effective Jan. 1, 2013, and allowed recovery of $350 million of
Levy County Nuclear (LCN) project costs and recovery of costs to complete the
LCN license application. Partly, offsetting the positive elements are
provisions for rate refunds of $388 million of CR3 replacement power costs
primarily in 2013 and 2014, a rate freeze through 2016 and the removal of CR3
from rate base.

Base Rate Increase: DEF implemented a $150 million rate increase in January
2013. The rate increase is lower than previously expected due to the removal
of CR3 from rate base. DEF also agreed to freeze base rates through 2016. DEF
is also permitted to accrue, for future rate setting purposes, a carrying
charge equal to the after-tax debt return of 3.41% on the CR3 investment until
CR3 cost recovery begins.

Constructive Regulatory Environment: Fitch considers regulation in Florida to
be constructive. The FPSC employs several tariff adjustment mechanisms that
benefit cash flow. In addition to a fuel adjustment clause, energy
conservation expenses, specified environmental compliance costs and qualified
nuclear costs are recoverable outside of base rate cases.

CR3 Retirement: Earlier this year management announced it will retire DEF's
860 MW (789 MW owned) CR3 nuclear plant rather than attempt a complex first of
its kind repair. The unit has been out of service since late 2009. Despite a
2012 settlement agreement that gave DEP the sole discretion to retire CR3, the
company remains exposed to a FPSC review of the mediated insurance settlement,
which was well below the total insurance coverage. Under the retirement
scenario the settlement permits DEF to seek recovery of CR3's embedded cost in
2017 at a reduced ROE equal to 70% of the company's prevailing authorized ROE.
Importantly, the agreement also allows the recovery of on-going replacement
power costs.

Rating Sensitivities

Unexpected CR3 costs: Unexpected costs related to the retirement of CR3 that
are not recoverable from rate payers or meaningful additional customer refunds
related to the review of the adequacy of the insurance settlement could
pressure credit metrics and ratings.

Duke Energy Indiana

Key Rating Drivers

Strong Credit Metrics: Credit metrics are strong and should begin to trend
upward following the January implementation of IGCC rider 8, allowing recovery
of the remaining Edwardsport CWIP up to the to the hard cap of $2.595 billion.
The additional CWIP provides $155 million on an annualized basis. Fitch
expects EBITDA/interest and FFO/interest coverage measures to average about
6.0x over the next three years. Debt/EBITDA is expected to average 3.5x and
FFO/debt more than 20%.

Regulatory Environment: Fitch considers regulation in Indiana to be
constructive. Indiana statutes permit the timely recovery of fuel and
purchased power costs, environmental expenditures, energy efficiency programs,
pipeline safety and bad debts. Although CWIP is not generally included in rate
base, the IURC has permitted a cash return on pollution control equipment and
allowed CWIP for DEI's Edwardsport IGCC plant.

Settlement Agreement: In April 2012, DEI entered into a settlement agreement
that largely resolves the regulatory treatment of the company's investment in
the Edwardsport IGCC plant. The agreement established a $2.59 billion cap on
costs to be reflected in customer rates compared to a final estimated cost of
$3.5 billion. The company also agreed not to request a retail base rate
increase prior to March 2013, with rates in effect no earlier than April 1,
2014. Due to the settlement agreement, DEI wrote-off $420 million, in addition
to previous write downs of $222 million and $44 million.

Rating Sensitivities

No rating changes are expected at this time; however, downward pressure could
result from:

IGCC Operational Issues: Unexpected operational issues at DEI's new IGCC plant
that increase operating or capital costs would also pressure credit metrics.

Duke Energy Ohio

Key Rating Drivers

Strong Credit Profile: Despite a decline in 2012, credit quality measures are
strong for the rating category and should rebound in 2013 and beyond due to a
May 2013 rate increase and moderating debt balance. The decline in 2012 was
primarily attributable to implementation of a new Electric Security Plan (ESP)
that shifted DEO's coal-fired generating capacity to market based rates
effective Jan. 1, 2012. Fitch expects EBITDA/interest and FFO/interest
coverage measures to average about 7.0x and 6.0x, respectively over the next
three years. Debt/EBITDA is expected to average 3.0x and FFO/debt more than
20%.

ESP: The 2012 ESP shifted DEO's coal-fired electric generating capacity to
market based rates effective Jan. 1, 2012, increasing merchant exposure and
business risk. Since the prevailing energy price is well below the negotiated
price embedded in the prior ESP, earnings and cash flow were lower in 2012. To
mitigate the revenue loss, the new ESP established a non-bypassable stability
charge that is designed to generate approximately $110 million annually
through 2014. In addition, in September 2012 $500 million of maturing debt was
refinanced with parent debt.

Capacity Rider Filing: In August 2012, DEO requested a cost based capacity
charge to replace the PJM Market based charge in current rates. DEO proposed
to defer the difference between the two rates and to seek cash recovery of the
deferral beginning in 2015. If approved the new mechanism would provide
approximately $728 million of incremental revenue over three years. Ohio
regulators previously approved a similar mechanism for AEP subsidiary Ohio
Power Co.

Rate Increase: On May 1, 2013, the Ohio Public Utilities Commission (PUC)
approved a settlement agreement that provides DEO a $49 million (2.9%)
increase in electric distribution rates. The settlement is based on a 9.84%
ROE and a 53.3% equity ratio. The settlement agreement did not resolve DEO's
request to recover $22 million of manufactured gas plant remediation costs and
the issue remains pending. A decision on the gas case is expected late summer.
DEO originally requested an $86.6 million (5.1%) electric increase and a $44.6
million natural gas rate increase.

Corporate Reorganization: The ESP requires DEO to transfer its coal-fired
generating assets (3,529 MW) to an affiliate at net book value by Dec. 31,
2014. Current ratings assume the assets will be transferred to Duke Energy
Commercial Asset Management (DECAM), a direct subsidiary of DEO, in which case
DEO retains the operating and financial risk. DECAM currently houses a
portfolio of merchant natural gas plants aggregating approximately 3,752 MW.
Under the ESP, DEO is prohibited from providing credit support to the merchant
assets. As part of the reorganization plan, $500 million of DEO debt was
refinanced with DUK debt in late 2012 and an additional $400 million is
scheduled to be refinanced in a similar manner in conjunction with the asset
transfer in 2014.

Rating Sensitivities

No rating changes are expected at this time; however, downward pressure could
result from:

Merchant Exposure: Unexpected losses on the merchant generating assets due to
operational issues or hedging strategies could adversely affect current
ratings.

Asset Transfer: Transferring the generating assets to a separate DUK
subsidiary in conjunction could result in improved ratings.

Duke Energy Kentucky

Key Rating Drivers

Strong Credit Metrics: Credit metrics are strongly positioned in the 'BBB+'
rating category. Fitch expects EBITDA/interest and FFO/interest coverage
measures to be in excess of 6.0x and 5.5x, respectively. Debt/EBITDA is
expected to range between 3.0x and 3.5x and FFO/debt to be excess of 20%.

Regulatory Environment: Fitch considers regulation in Kentucky to be
constructive. Regulatory statutes permit recovery of environmental costs,
which is particularly important given the company's reliance on coal-fired
generation.

Rating Sensitivities

No rating changes are expected at this time; however, downward pressure could
result from:

Regulatory Environment: Change in Environmental cost recovery mechanism would
adversely affect credit quality

Fitch has affirmed the following ratings with a Stable Outlook:

Duke Energy Corp.

--Long-term IDR at 'BBB+';

--Senior unsecured debt at 'BBB+';

--Junior subordinated notes at 'BBB-';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

Duke Energy Carolinas, LLC

--Long-term IDR at 'A-';

--First mortgage bonds at 'A+';

--Senior unsecured debt at 'A';

--Short-term IDR at 'F2'.

Duke Energy Indiana, LLC

--Long-term IDR at 'BBB+';

--First mortgage bonds at 'A';

--Senior unsecured debt at 'A-';

--Short-term IDR at 'F2'.

Duke Energy Ohio, LLC

--Long-term IDR at 'BBB+';

--First mortgage bonds at 'A';

--Senior unsecured debt at 'A-';

--Short-term IDR at 'F2'.

Duke Energy Kentucky, LLC

--Long-term IDR at 'BBB+';

--First mortgage bonds at 'A';

--Senior unsecured debt at 'A-';

--Short-term IDR at 'F2'.

Progress Energy, Inc.

--Long-term IDR at 'BBB';

--Senior unsecured debt at 'BBB';

--Short-term IDR at 'F2'.

Duke Energy Progress, LLC

--Long-term IDR at 'A-';

--First mortgage bonds at 'A+';

--Senior unsecured debt at 'A';

--Short-term IDR at 'F2'.

Fitch has affirmed the following ratings with a Negative Outlook:

Duke Energy Florida, LLC

--Long-term IDR at 'BBB+';

--First mortgage bonds at 'A';

--Senior unsecured debt at 'A-';

--Short-term IDR at 'F2'.

Fitch has withdrawn the following ratings:

Duke Energy Progress, LLC

--Commercial Paper at 'F2'.

Duke Energy Florida, LLC

--Commercial Paper at 'F2'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);

--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 13, 2012);

--'Rating North American Utilities, Power, Gas and Water Companies' (May 16,
2011);

-- 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT
Credit Analysis' (Dec. 13, 2012);

--'Short-Term Ratings Criteria for Non-Financial Corporates', Aug. 9, 2012.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693750

Rating North American Utilities, Power, Gas, and Water Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696670

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793912

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