Electric Price Outlook for Indiana High Load Factor (HLF) customers September 2015

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1 Electric Price Outlook for Indiana High Load Factor (HLF) customers September 2015 Price projection Duke Energy Indiana s prices continue to drop for the fourth quarter of Depending on your total average cost per kilowatt-hour (kwh), we project our prices to be 8 to 13 percent lower in 2015 compared to While prices are expected to increase between 5 to 8 percent in 2016 compared to 2015, we still expect them to remain lower than Fuel costs, purchased power costs The Fuel Adjustment Charge Rider, which includes purchased power costs, is the largest bill rider, comprising 42 percent of total rider charges for For HLF customers, this rider is expected to decrease an average of 33 percent in 2015 compared to 2014, due largely to a favorable price reopener arbitration settlement with a large coal supplier. We anticipate this rider to decline another 8 percent in 2016 compared to The settlement translates into significant savings for our customers. HLF customers received an electric bill reduction of 4 to 6 percent due to the settlement beginning in April Although coal prices have softened somewhat in the last three months, we foresee continued coal price volatility based on: Deterioration in the financial health of coal suppliers More retirements of older coal-fired electric generating units due to more stringent federal regulations governing air toxics emissions and coal ash Continued low natural gas prices Increasingly stringent safety regulations for mining operations, which increases costs and lowers production Indiana grid modernization By the end of this year, we plan to file a revised seven-year plan with the Indiana Utility Regulatory Commission to modernize our aging electric grid in Indiana. In May, the commission denied our first request, saying the original plan lacked sufficient detail and that some proposed projects fell outside the scope of the enabling legislation passed in We are revising the plan based on the commission s guidance, and we remain committed to making critically needed investments to our system. A modernized electric grid will enable us to pinpoint power outages, speed service restoration and provide better, faster communication to you. Edwardsport plant The Edwardsport IGCC plant began commercial operation in June 2013 and has been serving our Indiana customers using both coal and natural gas. This past winter and

2 summer, we have seen strong performance on gasified coal; production was reduced in April and May due to planned maintenance outages. A coalition of environmental and consumer groups has asked the Indiana Utility Regulatory Commission to investigate whether certain operational costs at Edwardsport, since the plant went into commercial service, should be included in rates. The commission consolidated IGCC rider filings 12 and 13 to review those costs. That hearing occurred in February 2015 and a decision is pending. A decision is also pending on the IGCC 11 rider filing. In this price communication, we have used the proposed IGCC 13 rates in the forecast beginning in October 2015 (instead of August 2015 as communicated in our last quarterly price update). Environmental costs The installation of selective catalytic reduction systems on units 1 and 2 at Cayuga Station, north of Terre Haute, is complete, with testing well underway. We installed the equipment to comply with the U.S. Environmental Protection Agency s (EPA) Utility Mercury and Air Toxics Standard, which regulates air pollution emissions from new and existing coal- and oil-fired electric generating units. Rider projections began to reflect the rate impact from this new pollution control equipment in August In August 2014, state regulators approved Phase 3 of our environmental compliance plan to complete our work to meet the requirements of the federal mercury emission rules. The average rate increase for all customers is expected to be less than 1 percent by Clean Power Plan On Aug. 3, 2015, the EPA issued its final regulations for limits on carbon dioxide emissions for existing fossil-fueled power plants, known as the Clean Power Plan. The EPA has made substantial changes from the proposed rule it released in June 2014, and Indiana s goals are stricter than those originally proposed. By 2030, Indiana must now reduce its carbon dioxide emissions by 39 percent from 2012 levels. States can craft their own compliance plan, which must be approved by the EPA. If a state chooses not to establish its own plan, the EPA will impose a federal plan. To date, various states have initiated legal challenges, including Indiana, and more are expected when the final rule is published in the Federal Register. The effect of these new regulations will depend on how the state responds to the Clean Power Plan; therefore, it is too early to say what the ultimate impact will be. As we work with the state and other stakeholders to determine the appropriate path forward, our priority is minimizing the cost of the rule on our customers while also delivering a reliable, clean source of energy.

3 Energy efficiency In late May, we filed an updated three-year energy efficiency plan for 2016 through 2018 under the provisions of Senate Enrolled Act 412, which was passed by the 2015 Indiana General Assembly. While the three-year plan will be similar to the existing energy efficiency programs, two new energy efficiency programs for commercial and industrial customers have been added: Small Business Energy Saver and Power Manager for Business. The energy efficiency rider will remain unchanged for 2015 at $ per kwh. The 2015 rate was unusually low because of a large one-time credit that was included to reconcile lower than forecasted program expenditures from In 2016, we anticipate the rider will increase to $ per kwh; in 2017, we anticipate an increase to $ These increases reflect both the inclusion of the new programs and the removal of the large one-time reconciliation credit for 2013 that was included in 2015 rates. Critical infrastructure protection Earlier this year, we filed a request with Indiana state utility regulators to recover our costs for federally mandated cybersecurity projects under Rider 72. The Federal Energy Regulatory Commission established Critical Infrastructure Reliability Standards to safeguard important utility assets, and utilities are required to comply. The estimated rate impact from this phase is less than 0.1 percent for all customers. Bills will not include costs for this program until Duke Energy rider projections In Indiana, Duke Energy has rate adjustment riders that have an impact on billings beyond the base rate. The attached table reflects Rate HLF adjustment riders for previous months, as well as changes filed with and pending before the Indiana Utility Regulatory Commission, which are highlighted and marked "filed." Changes marked "projected" have not yet been filed with the commission and reflect projected future filings. These are not approved and may not be approved as filed. The following information is subject to change, depending on the outcome of pending and future commission proceedings.

4 Color Code Approved Filed Projected Month Rate HLF Rider Projections as of Sept. 3, 2015 Quarterly Biannually Biannually Biannually Biannually Annually Annually Quarterly Annually Biannually Annually Qualified Pollution Control Emission Transmission Merger Federally FCR (Fuel) IGCC (CWIP) Allowance and Energy Amortization Clean Coal Mandated Charge) Rider 61 Rider 62 Charge Rider Distribution Efficiency Credit MISO Reliability Rider 71 Costs Rider Rider 60 See Note (1) See Note (1) 63 Rider 65 Rider 66-A Rider 67 Rider 68 Rider 70 See Note (1) 72 Total Rider Cost including Energy Efficiency Rider Total Rider Cost with Energy Efficiency Opt-out See Note (2) Actual 2014 Average $ $ Jan-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Feb-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Mar-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Apr-15 $ $ $ $ $ $ ( ) $ $ $ $ $ May-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Jun-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Jul-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Aug-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Sep-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Oct-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Nov-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Dec-15 $ $ $ $ $ $ ( ) $ $ $ $ $ Projected 2015 Average $ $ Jan-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Feb-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Mar-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Apr-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ May-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Jun-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Jul-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Aug-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Sep-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Oct-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Nov-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Dec-16 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Projected 2016 Average $ $ Jan-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Feb-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Mar-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Apr-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ May-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Jun-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Jul-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Aug-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Sep-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Oct-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Nov-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Dec-17 $ $ $ $ $ $ ( ) $ $ $ $ $ $ Projected 2017 Average $ $

5 Actual and projected total rider costs are represented graphically below. *Does not include base rates, and includes Energy Efficiency Rider

6 Annual Rider Impacts Estimates Based on Average kwh Cost (includes Energy Efficiency Rider)