Electric and Gas Rate Update – June 14, 2013

Jim Ziolkowski, Rates Manager

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Agenda

Duke Energy Ohio Standard Service Offer Electric Security Plan Overview Auction Generation Riders Other Items

Base Rate Cases Electric Distribution Base Rate Case Filing Gas Base Rate Case Filing

Capacity Case Filing

Price To Compare

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Electric Security Plan Overview

Duke Energy Ohio filed for approval of its Standard Service Offer (SSO) in the form of an Electric Security Plan (ESP) in June 2011.

Settlement was reached in October 2011 with intervening parties.

Hearing held during November 2011.

ESP was approved by the PUCO in November 2011.

ESP effective January 1, 2012, through May 31, 2015.

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Electric Security Plan Overview

Highlights:

SSO load is procured through an auction. The cost of this auction-procured load is recovered through Riders RC and RE. True-ups addressed through Rider SCR.

Duke Energy Ohio will move its legacy generation plants to a non-regulated affiliate by 12/31/14.

Duke Energy Ohio will collect $110 million per year for three years through a new non-bypassable charge (Rider ESSC).

All previous generation-related charges terminated after December 31, 2011 (base generation, FPP, AAC, SRT, CD, shopping credit).

AUCTION SCHEDULE

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Details of Auctions

First auction held in December 2011.

Three products: January 2012 – May 2013 (33 tranches - $49.72) January 2012 – May 2014 (33 tranches – $51.10) January 2012 – May 2015 (34 tranches - $57.08)

Resulting blended auction price was $52.68 per MWh for the January 2012 through May 2013 delivery period.

Descending-price clock auction.

Charles River Associates was the auction manager. Boston Pacific monitored for the PUCO.

Auctions for full requirements service.

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Details of Auctions

Second auction held in May 2012 (17 tranches - $52.14 – June 2013 - May 2015).

Third auction held in November 2012 (16 tranches - $50.56 – June 2013 – May 2015).

Blended auction price is $53.22 per MWh for the June 2013 through May 2014 delivery period.

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Auction Schedule

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ESP Period 3 years and 5 months

1/1/2012 - 17 months 6/1/2013 6/1/2014

33 3333 33 3334 34 34 34

17 17 17

16 16 16

17 17

16 16

TOTAL TRANCHES 100 100 100

Auction 5 Nov 2013

Auction Date Tranches

Delivery Period Beginning

Auction 1 Dec 2011

Auction 2 May 2012

Auction 3 Nov 2012

Auction 4 May 2013

2012 ELECTRIC SECURITY PLANRATE STRUCTURE

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Generation Rates - 2013

The Price To Compare (bypassable) components of the ESP are: Rider RC (Retail Capacity) Rider RE (Retail Energy) Rider SCR (Supplier Cost Reconciliation) Rider AERR (Alternative Energy Recovery) Rider RECON (Reconciliation Rider) – Withdrawn May 2013 Rider RTO (Regional Transmission Organization)**

The non-bypassable components of the ESP are: Rider ESSC (Electric Security Stabilization Charge) Rider LFA (Load Factor Adjustment) Rider UE-GEN* (Uncollectible Expense – Generation) Rider BTR (Base Transmission Rider)**

* Bypassable if CRES opts out of PAR **Approved in separate proceeding

Legend

Fully Bypassable

Non-Bypassable

Rider RTO• Various RTO costs

BTR• Base transmission incl.

NITS

Distribution rates and riders

SCR• Supplier Cost

ReconciliationAERR (RECs)• Alternative Energy

RecoveryRECON - WithdrawnReconciles ESP riders

UE-GENGeneration Uncollectibles

RC and RE• Retail Capacity and

Energy• Derived from auction

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Electric Security Plan Rate Structure

ESSC• Electric Security

Stabilization

LFA• Load Factor Adjustment

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Rider RC (Retail Capacity)

Based on PJM market capacity price for the delivery period.

Converted into retail rates.

Rider RC will be adjusted before each of the three delivery periods in the ESP.

Rider RC is fully avoidable by shoppers.

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Rider RE (Retail Energy)

At the wholesale level, calculated by subtracting the capacity price for the delivery period from the blended auction price.

Converted into retail rates by adjusting for losses, taxes, and seasonality / blocks (for some rates).

Rider RE will be adjusted before each of the three delivery periods in the ESP.

Rider RE is fully avoidable by shoppers.

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Rider ESSC (Electric Security Stabilization Charge)

Collects $110 million per year for three years.

Expires after 12/31/14.

Will be trued up each year.

Rider ESSC is non-bypassable.

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Rider SCR (Supplier Cost Reconciliation)

Reconciles the Rider RE and Rider RC revenues received from retail customers with the payments owed to auction providers.

Recovers costs associated with auctions (e.g., consultants, setting up CBP website, etc.)

Adjusted quarterly.

Normally bypassable for shopping customers, but Rider SCR contains a non-bypassable provision.

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Rider SCR (Supplier Cost Reconciliation) – “Circuit Breaker”

Subject to Commission approval, Rider SCR becomes applicable to all retail jurisdictional customers in the Company’s electric service territory including those customers taking generation service from a CRES provider under the following circumstance:

The revenue balance within the SCR account becomes equal to or greater than ten percent of the Company’s total actual SSO revenues collected for the most recent twelve month period under Riders RE, RC, RECON, RTO, and AER-R. The total actual SSO revenue will be determined from data covering the most recent quarter for which it is available.

Duke Energy Ohio shall apply to the Commission for confirmation that the Company should modify the Rider such that it becomes non-bypassable regardless as to whether or not the balance in the Rider results from over- or under-recovery.

For customers of CRES providers, Rider SCR will become bypassable again when, at the time of the quarterly filing, the Rider balance of over- or under-recovery falls below the ten percent threshold.

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Rider AERR (Alternative Energy Recovery Rider)

Recovers the cost of Renewable Energy Certificates (RECs) associated with SSO (i.e., non-switched) load.

Adjusted quarterly.

Rider AERR is fully avoidable by shoppers.

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Rider UE-GEN (Uncollectible Expense - Generation)

Recovers uncollectible accounts expense related to generation service, including Percentage of Income Payment (PIPP) customer installments not collected through the Universal Service Fund Rider.

Non-bypassable, except it is bypassable for accounts that are not designated for Duke Energy Ohio’s Purchase of Accounts Receivables program.

Adjusted annually.

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Rider LFA (Load Factor Adjustment Rider)

Revenue neutral to Duke Energy Ohio.

Adjusted quarterly.

Rider LFA is non-bypassable.

Rider LFA applies to customers taking service under Rates DS, DP, and TS.

Demand charge and kWh credit.

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Other Items

Minimum stay rules eliminated for all customer classes.

Duke Energy Ohio purchases accounts receivables from CRES providers at zero discount.

Rider LM has been re-opened to both shoppers and non-shoppers.

Funding provided to various community agencies serving low income customers.

Distribution Decoupling Rider that does not apply to Rates DS, DP, and TS.

Alternative Energy, Energy Efficiency, Peak Demand Reduction

ESP does not impact commitment to meeting alternative energy, energy efficiency, or peak demand reduction requirements.

Duke Energy Ohio will continue energy efficiency and peak demand reduction programs (Rider EE-PDR).

Duke Energy Ohio continues to purchase RECs and also enter contracts to comply with alternative energy requirements.

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ESP Termination

The ESP will be effective through May 31, 2015.

The Company is required to make its next SSO filing by June 1, 2014.

ELECTRIC DISTRIBUTION &

GAS BASE RATE CASES

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Electric Distribution Case – Filed July 2012

Test Period: January 2012 – December 2012

Proposed Rate Increase: $86 million Settlement Rate Increase: $49 million

Proposed ROE: 10.6% Settlement ROE: 9.84%

Tariff-related changes: Rider LM (Load Management Rider) – monthly charge is $7.50 for Rate DS and DP Rate RTP (Real Time Pricing) – hourly prices based on PJM day-ahead prices

Hearing began on March 25, 2013. Settlement approved on May 1, 2013.

New electric distribution base rates effective May 6, 2013 on a service-rendered basis.

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Typical Bill Impacts (Total Bill Including Generation)

Rate DS 200 hours-use: 2.9% 300 hours-use: 2.5% 400 hours-use: 2.2%

Rate DM Approximately 2.5%

Rate DP 200 hours-use: 2.4% 300 hours-use: 2.1% 500 hours-use: 1.6%

Rate TS: Zero increase for all usage levels

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Gas Case – Filed July 2012

Test Period: January 2012 – December 2012

Proposed Rate Increase: $44.6 million Settlement Rate Increase: $0 (April 2013 AMRP rates rolled into base rates with zero net bill

impacts)

Proposed ROE: 10.6% Settlement ROE: 9.84%

Some key components: Recovery and Continued Deferral of Manufactured Gas Plant Costs Accelerated Main Replacement Program (Rider AMRP) continues Grid Modernization (Rider AU) continues New Riders (Natural Gas Vehicles and Gas Generation IT)

Hearing held the week of April 29, 2013 to litigate the Manufactured Gas Plant environmental cleanup costs. All other issues in the case were settled. Revised base rates not yet approved by PUCO.

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Typical Bill Impacts (Total Bill Including Gas Cost)

Rate GS-Small and FT-Small – 0%

Rate GS-Large and FT-Large – 0%

Rate IT: 0%

Residential – 0%

Note: These impacts exclude any increases that might result from the separate MGP litigation (hearing conducted during the week of April 29).

CAPACITY CASE

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Capacity Case – Filed August 2012

Requests cost-based capacity pricing consistent with traditional ratemaking principles for Duke Energy Ohio’s provision of capacity of its load zone.

Requests deferral for three years of $258.8 million per year, and subsequent recovery. This amount represents the difference between the cost-based capacity price and the PJM auction-based capacity price.

Recovery through the proposed Rider DR-CO (Deferred Recovery – Capacity Obligation Rider).

Hearing held on April 15 through April 25, 2013. Rebuttal hearing held on May 20, 2013.

Price To CompareJan 2012 – May 2015

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Legend

Fully Bypassable

Non-Bypassable

Rider RTO• Various RTO costs

BTR• Base transmission incl.

NITS

Distribution rates and riders

SCR• Supplier Cost

ReconciliationAERR (RECs)• Alternative Energy

RecoveryRECON - WithdrawnReconciles ESP riders

UE-GENGeneration Uncollectibles

RC and RE• Retail Capacity and

Energy• Derived from auction

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Electric Security Plan Rate Structure

ESSC• Electric Security

Stabilization

LFA• Load Factor Adjustment

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How Do I Calculate My Price to Compare?

Compare:

DE OH’s Rider RC Charge

+ Rider RE Charge

+ Rider SCR Charge

+ Rider AERR Charge

+ Rider RTO Charge

vs.

The CRES Provider’s price for electricity

Note: Price To Compare varies based on load factor

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Price To Compare Calculation

Load Factor 72%Rate DP kWh 518,400

kW 1,000

Rider RC 1,649.53$ Rider RE 27,289.61 Rider SCR 818.55 Rider AERR 243.13 Rider RTO (204.25)

Total 29,796.58$

Billing kWh 518,400 Price To Compare (¢ per kWh) 5.7478

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Recommendations

Use twelve months of demand and energy to develop an “average annual price to compare” for the best price comparison

Compare competing offers using the same usage data

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Annual Price To Compare (Example)

Load Price To

kW kWh Factor AERR, RTO, SCR RC, RE Total Compare (¢)

1,000 518,665 72.0% 857.87 28,953.31 29,811.18 5.75

1,240 625,120 70.0% 1,033.95 34,896.63 35,930.57 5.75

1,450 650,000 62.3% 1,075.10 36,448.24 37,523.34 5.77

1,850 689,000 51.7% 1,139.61 38,955.23 40,094.83 5.82

2,200 750,000 47.3% 1,240.50 42,585.26 43,825.76 5.84

2,850 812,000 39.6% 1,343.05 46,528.18 47,871.23 5.90

3,458 518,000 20.8% 856.77 30,820.23 31,677.00 6.12

3,512 822,000 32.5% 1,359.59 47,509.96 48,869.55 5.95

1,888 651,030 47.9% 1,076.80 36,965.95 38,042.75 5.84

1,450 525,012 50.3% 868.37 29,767.88 30,636.25 5.84

1,100 518,665 65.5% 857.87 29,058.94 29,916.81 5.77

1,098 612,000 77.4% 1,012.25 34,045.39 35,057.64 5.73

7,691,492 12,721.73 436,535.19 449,256.91 5.84

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Duke Energy Ohio Tariffs

Duke Energy Ohio’s tariffs can be found online at:

www.duke-energy.com

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