Letter From The Chairman
Jim Rogers, Chairman
“Our commitment is to be nimble enough to adapt to change and new challenges, as we aspire to be the best and most innovative company in our industry.”
Jim Rogers

Dear Stakeholders:

Sustainability is about doing the right things today, to create a better tomorrow. Like anything worth doing, that’s not always easy. As we prepare for the future, we must also deal with the realities of today.

The current realities for Duke Energy are the rising cost of providing clean and reliable energy, navigating the regulatory process for a major merger, managing through a painfully slow economic recovery and, as always, balancing the needs of our many stakeholders.

I approach my role as CEO as a leader who looks to the future and positions our company for what’s next. We need to be ready to meet ever-higher environmental standards, to embrace the latest technologies, and to forge new partnerships — around the corner and around the globe.

I’m proud of the progress we’ve made. We are finding that sustainability is one of the ways we are unlocking innovation and improving our business. And, in a challenging economy, it helps us increase efficiency and reduce costs.

Our most recent accomplishments are outlined in this report and in our annual report, which shares the “Well positioned” theme.

Here, I’ll briefly summarize the highlights of the past year, and how we’re positioned for the future. But first, a word about the status of our pending merger with Progress Energy.

We spent considerable time and energy on merger integration planning throughout 2011. Regulatory approval, frankly, is taking longer than we expected. In particular, the Federal Energy Regulatory Commission (FERC) has raised concerns about the merged company’s potential wholesale market power in the Carolinas.

Our goal for this merger is to strike the right balance between benefits to our customers and our shareholders. We must also balance the expectations of our state commissions to keep electricity costs low, and the FERC’s concerns about market power.

On March 26, we filed a revised wholesale market power mitigation plan with the FERC, and as of this writing we are awaiting the agency’s decision. The merger is also subject to approvals by the North Carolina and South Carolina commissions, and other legal conditions prior to closing.

The closing date will depend on the successful completion of the regulatory approval process. As a merged or stand-alone company, we are well-positioned for the future — and for the changes new technologies will bring to the way we generate and deliver electricity.


Real results

Through a year marked by merger uncertainty, a slow-to-recover economy and major storms in the Carolinas and the Midwest, I could not be more proud of our employees. The people of Duke Energy have always laid the groundwork and done the hard work to meet our customers’ energy needs.

I look back on 2011 as the year we saw our vision for the future begin to take shape. We’ve set aggressive goals and put the plans in place to achieve them — and now we’re seeing real results.

I have to start with what matters most — safety. We had zero employee or contractor work-related fatalities for the first year since 2008. And our employee Total Incident Case Rate has improved every year since 2006. Again, our people deserve the credit — from our senior leaders who keep the focus on safety, to the front-line workers in the field, who consistently put safety first.


Modernization milestones

We are nearing the finish line on the first phase of the modernization of our generation fleet. This major undertaking not only provides cleaner energy; it also spurs economic growth — creating thousands of construction jobs.

Construction of a cleaner-coal unit at our Cliffside Steam Station in North Carolina and our Edwardsport coal-gasification plant in Indiana are nearly complete. When they go into operation later this year, they will provide coal-fired generation that’s among the cleanest in the United States.

In North Carolina, the natural gas-fired combined-cycle unit at Buck Steam Station has begun operation, and another at Dan River Steam Station will be operational this year.

Although we’ve had regulatory challenges around cost recovery for the Edwardsport project, we believe the costs we’ve incurred have been reasonable, prudent and necessary. A decision by the Indiana Utility Regulatory Commission on cost recovery is not expected before the end of the third quarter of this year.

Our modernization efforts will continue, as we upgrade some coal units and retire others that are reaching the end of their useful lives. And we continue to pursue the option to develop more nuclear energy. As the only technology available today to generate carbon-free, reliable electricity 24/7, nuclear power is vital to our energy future.

We are also partnering with energy companies in China to develop new clean energy technologies. In addition, we continue to monitor the long-term potential for low-cost natural gas from shale formations, in light of vast U.S. supplies.

At the same time, we are working to modernize our power grid — replacing the analog-based equipment that has served us well for decades. A digital grid moves power more efficiently, helps reduce outage restoration time and enables our customers to better manage their energy use. It also provides more options for bringing renewable power onto the grid, and can better accommodate the use of plug-in electric vehicles.

Every type of generation has its advantages and disadvantages. By pursuing a diverse generation mix — and bringing the benefits of digital technology to our power grid — we will be well-positioned to deliver affordable, reliable and clean energy for years to come.


Responsible rate recovery

All this modernization doesn’t come without a cost. We are spending $7 billion to bring four new advanced-technology power plants on line. We recover those and other capital investments through customer rates, spread over the operating lives of the plants.

We have received approval for rate increases in North Carolina and South Carolina — and for a new Electric Security Plan in Ohio that enables customers to take advantage of today’s low market rates.

As we continue our modernization program, customers can expect additional increases. However, our objective is to continue to control costs and keep our rates as low as possible.

To help customers cope with rising rates, we continue to expand our energy efficiency programs. In just a few short years, energy efficiency — helping customers curb their energy use and costs — has evolved from an industry-changing initiative to become part of the way we do business.


Reliable and cleaner generation

It was a great year for the performance of our power plants. Our nuclear fleet achieved a 93.0 percent
capacity factor, topping 90 percent for the 12th consecutive year. According to the Nuclear Energy Institute, the average capacity factor for U.S. nuclear plants in operation in 2011 was 89.0 percent. In addition, based on early reports by EUCG, a utility benchmarking group, our nuclear fleet had the nation’s lowest total operating cost per kilowatt-hour in 2011, and our Catawba Nuclear Station was the nation’s most cost-efficient plant.

Our regulated fossil fleet achieved 87.8 percent commercial availability, consistent with past strong performance. Our U.S. commercial fleet exceeded its operational targets with 88.9 percent availability, and our Midwest gas-fired plants achieved record generation levels.

We’re also seeing real results in our environmental performance.

The carbon intensity of our domestic fleet is improving, based on the latest available data for U.S.-based, investor-owned generators. Our carbon intensity ranking moved from 10th highest in 2008 to 12th highest in 2010 — even though we remained the fifth largest of those generators. Our international operations, consisting mostly of carbon-free hydropower, lower the carbon intensity of our total fleet by about 10 percent.

And, as of year-end 2011, we’ve reduced sulfur dioxide emissions by almost 76 percent and nitrogen oxides emissions by 52 percent since 2006 — thanks to environmental equipment we’ve installed at many of our coal-fired generating stations.


Moving on renewables

We are greatly expanding our renewable energy portfolio. We have invested more than $2.5 billion in our commercial renewable business over the past five years. By the end of 2012, we expect to have more than 1,800 megawatts of commercial wind and solar power in operation. Nearly all of that capacity is already committed for sale under long-term contracts with other electricity suppliers.

Wind and solar farms are often located in remote areas. So we’re also partnering with other companies to build transmission lines that will deliver clean, renewable energy to population centers — and also boost reliability and relieve congestion on the power grid.

In 2011, we formed a joint venture with American Transmission Co. to develop critically needed long-distance transmission projects across North America. And through a joint venture with American Electric Power, we plan to build and operate 240 miles of high-capacity transmission lines in Indiana.

Water is a valuable source of renewable generation that we’ve relied on for generations. Duke Energy International has a new, small hydroelectric plant in operation in Brazil; another is under construction and slated to begin operating by the end of 2012. And in 2011, we replaced two 1919-vintage hydroelectric turbines at our Bridgewater Hydro Station in North Carolina.


Support for our communities

Our community support grew again in 2011. Charitable giving from The Duke Energy Foundation and the company, along with employee and retiree donations and the value of volunteer hours, totaled more than $31 million in 2011, compared to about $29 million in 2010.

And our economic development teams helped bring commitments of nearly $4 billion in capital investments and 13,635 new jobs to our service areas in 2011 — in the midst of a “jobless recovery.”


Returns for our shareholders

Financially, our earnings exceeded 2010 results and our own expectations. In a continued weak economy, we ended 2011 with adjusted diluted earnings per share of $1.46. We also increased our quarterly dividend by about 2 percent. Our total shareholder return of 30.3 percent was better than our utility peers’ 19.3 percent, and well above the S&P 500’s 2.1 percent.

For the second straight year, our sustainability efforts earned us a place on the Dow Jones Sustainability World Index. Duke Energy was one of only 13 utilities selected worldwide. We also ranked on the DJSI North America for the sixth year in a row.

This recognition is a tremendous accomplishment — and it acknowledges our efforts to build a sustainability mindset throughout our business. In this report, you will read about our steady progress toward meeting our company’s sustainability goals, and how individuals and whole departments are accountable for achieving sustainable results.


Looking ahead

In the near term, the pending merger with Progress Energy remains top of mind. Meanwhile, we never take our eyes off the jobs at hand — safely serving the energy needs of our customers, reducing our environmental footprint, building a quality workforce, supporting our communities and maintaining value for our shareholders.

Our commitment is to be nimble enough to adapt to change and new challenges, as we aspire to be the best and most innovative company in our industry. Regardless of what 2012 and the years beyond have in store, Duke Energy remains strong, resilient and well-positioned for a sustainable future.



Jim Rogers’s signature

Jim Rogers
Chairman, President and
Chief Executive Officer

April 5, 2012