Electric price outlook for Indiana Low Load Factor (LLF) customers February 2013

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1 Electric price outlook for Indiana Low Load Factor (LLF) customers February 2013 Price projection The primary drivers impacting total rider costs continue to be fuel, environmental compliance and our Edwardsport integrated gasification combined cycle (IGCC) plant. For LLF customers, the total rider cost per kilowatt-hour (kwh) is projected to be $ for 2013 and $ for Depending on your total average cost per kwh, we project an increase of 5 to 8 percent in 2013 compared to 2012 and an increase of 4 to 6 percent in 2014 compared to Fuel costs, purchased power costs The Fuel Charge Rider, which includes purchased power costs, accounts for 49 percent of total HLF customer rider costs for 2013 and is the largest bill rider. On average, we expect the 2013 fuel rider to be similar to This is mainly due to flat coal market prices, driven by low natural gas prices and surplus amounts of coal inventories stockpiled at most U.S. power plants. Like many companies nationally, we are experiencing surplus coal inventories and continue to evaluate and pursue options for managing our supplies. We expect coal prices to be relatively stable in the near term; however, there is the potential for future volatility as market uncertainties continue and as coal suppliers continue to cut production to balance supply with demand. We also see potential volatility around purchased power costs due to changes in commodity prices, generation availability, weather and other operating conditions. Edwardsport plant update In December 2012, the Indiana Utility Regulatory Commission approved a cost settlement agreement, with some modifications, between Duke Energy Indiana and some of the state s key consumer groups regarding the company s Edwardsport coal gasification power plant. The decision caps the construction costs customers will pay at approximately $2.6 billion. In January, we updated rates to reflect approved costs through IGCC Rider 8. The plant s operating costs are expected to be reflected in the IGCC rider in two steps, beginning in approximately October The non-settling parties in the case have appealed the commission s decision. Meanwhile, construction is complete on the southwest Indiana plant and extensive start-up and testing activities are underway. The facility is due to begin commercial operation in mid Edwardsport uses integrated gasification combined cycle technology to gasify coal, strip out pollutants and then burn that cleaner gas to produce electricity. It is the first coal-fired plant built in Indiana in more than 20 years. The plant will help the company meet increasingly strict federal environmental regulations while still using an abundant local resource, Indiana coal. Environmental costs In January, the Indiana Utility Regulatory Commission held hearings on Duke Energy Indiana s plan for complying with the U.S. Environmental Protection Agency s Utility Mercury and Air Toxics Standard. The rule regulates air pollutant emissions from new and existing coal and oilfired electric generating units. The EPA requires compliance by April Under this rule we must comply on a unit-by-unit basis rather than across our system. This is a major change from the market-based programs of the 1990s and early 2000s, which allowed us to comply at the units where it was most economic on our system and buy and sell emission allowances in order to meet overall system compliance targets. Duke Energy Indiana s only options for each unit under the new rule are to lower its emission rate or shut the unit down.

2 We have proposed a combination of steps, including adding selective catalytic reduction equipment on our two units at Cayuga Station north of Terre Haute, Ind., and additional emission reduction equipment at Cayuga and Gibson stations. The Cayuga selective catalytic reduction projects are the centerpiece of our mercury control plan, and they will also help position us for compliance with tougher future regulations limiting nitrogen oxides and small particles. We also plan to retire four units at our Wabash River Station in West Terre Haute, Ind., as early as These are the oldest and smallest coal-fired units on our Indiana system, and it would not be economical to make the retrofits necessary to bring them into compliance with the new mercury rule. The new Edwardsport plant will help fill the power gap from the retired units. Construction costs for this phase of environmental compliance total about $400 million, plus financing costs. The average customer rate impact for construction and operating expenses is less than 1 percent in This will increase up to an average 5.9 percent impact in 2017 for LLF customers. Rider projections reflect the rate impact from new pollution-control infrastructure as early as mid-2013, although regulatory approval is pending for those additional infrastructure costs. We plan to file an additional environmental compliance plan to complete our mercury rule compliance and prepare for other regulations in mid We will update you on that plan as it is finalized. You can learn more about our compliance plan here. Energy efficiency update Duke Energy is one of several Indiana utilities participating in Energizing Indiana, a united effort to promote energy efficiency and bring savings to customers and communities across the state. On March 21, 2012, state utility regulators approved our request to offer additional energy efficiency programs. Costs for all programs began appearing in bills in April. The rider is currently $ per kwh and, if approved, will step up to $ per kwh in 2013 to ensure we meet mandated compliance targets. The increase, originally projected for January 2013, has been delayed until later in the year after a February 15 regulatory hearing in the case. You can find more information on programs available to you here. Duke Energy rider projections In Indiana, Duke Energy has several rate adjustment riders that impact billings beyond the base rate. The attached table reflects Rate LLF adjustment riders for previous months, as well as changes filed with and pending before the IURC, which are highlighted and marked "filed." Changes marked "projected" have not yet been filed with the IURC 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.

3 Duke Energy Indiana Rider Projections Color Code Approved Filed Projected Month Rate LLF Rider Projections as of Feb. 14, 2013 Quarterly Biannually Biannually Biannually Annually Annually Quarterly Annually Biannually Qualified Pollution Emission Merger FCR (Fuel) Control Allowance Energy Amortization Charge) IGCC (CWIP) Rider Charge Rider Efficiency Rider Credit Rider MISO Reliability Clean Coal Rider 60 Rider A 67 Rider 68 Rider 70 Rider 71 Total Rider Cost Jan-12 $ $ $ $ ($ ) $ $ $ $ Feb-12 $ $ $ $ ($ ) $ $ $ $ Mar-12 $ $ $ $ ($ ) $ $ $ $ Apr-12 $ $ $ $ $ ($ ) $ $ $ $ May-12 $ $ $ $ $ ($ ) $ $ $ $ Jun-12 $ $ $ $ $ ($ ) $ $ $ $ Jul-12 $ $ $ $ $ ($ ) $ $ $ $ Aug-12 $ $ $ $ $ ($ ) $ $ $ $ Sep-12 $ $ $ $ $ ($ ) $ $ $ $ Oct-12 $ $ $ $ $ ($ ) $ $ $ $ Nov-12 $ $ $ $ $ ($ ) $ $ $ $ Dec-12 $ $ $ $ $ ($ ) $ $ $ $ Actual 2012 Average $ Jan-13 $ $ $ $ $ ($ ) $ $ $ $ Feb-13 $ $ $ $ $ ($ ) $ $ $ $ Mar-13 $ $ $ $ $ ($ ) $ $ $ $ Apr-13 $ $ $ $ $ ($ ) $ $ $ $ May-13 $ $ $ $ $ ($ ) $ $ $ $ Jun-13 $ $ $ $ $ ($ ) $ $ $ $ Jul-13 $ $ $ $ $ ($ ) $ $ $ $ Aug-13 $ $ $ $ $ ($ ) $ $ $ $ Sep-13 $ $ $ $ $ ($ ) $ $ $ $ Oct-13 $ $ $ $ $ ($ ) $ $ $ $ Nov-13 $ $ $ $ $ ($ ) $ $ $ $ Dec-13 $ $ $ $ $ ($ ) $ $ $ $ Projected 2013 Average $ Jan-14 $ $ $ $ $ ($ ) $ $ $ $ Feb-14 $ $ $ $ $ ($ ) $ $ $ $ Mar-14 $ $ $ $ $ ($ ) $ $ $ $ Apr-14 $ $ $ $ $ ($ ) $ $ $ $ May-14 $ $ $ $ $ ($ ) $ $ $ $ Jun-14 $ $ $ $ $ ($ ) $ $ $ $ Jul-14 $ $ $ $ $ ($ ) $ $ $ $ Aug-14 $ $ $ $ $ ($ ) $ $ $ $ Sep-14 $ $ $ $ $ ($ ) $ $ $ $ Oct-14 $ $ $ $ $ ($ ) $ $ $ $ Nov-14 $ $ $ $ $ ($ ) $ $ $ $ Dec-14 $ $ $ $ $ ($ ) $ $ $ $ Projected 2014 Average $

4 Actual and projected total rider costs are represented graphically below. LLF HLF Monthly Total Rider Costs* $0.045 $0.040 $0.045 $0.040 $ Per kwh $0.035 $0.030 $0.025 $0.020 $0.015 $0.010 $0.005 $0.000 $0.035 $0.030 $0.025 $0.020 $0.015 $0.010 $0.005 $0.000 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Month - Year *Does not include base rates

5 LLF Annual Rider Impact Estimates Overview: The following chart shows estimates of the impacts of rate adjustment riders for the LLF Rate. The percent increase estimates comprise actual adjustments, filed adjustments and/or projections of future filings of the LLF rate adjustment riders. Remember that the percent increase estimates are not approved and may not be approved as filed; they are only projections. As previously stated, these projections are subject to change, depending on the outcome of pending and future IURC proceedings and the usage patterns of individual customers. Instructions: There are two ways to use the projection chart. The first is based on the projected increase in the cost per kilowatt-hour (kwh), and the second on percentage increases in your total average cost per kwh. Actual Cost per kwh Increase Step One: The left side of the chart shows actual cost per kwh increases from one budget or projection period to the next. Two year-to-year comparisons are provided. Step Two: Estimate your billed kwh usage for the period for which cost projections are needed, and apply the appropriate cost per kwh increases. Multiply the kwh by the projected increase, and add to your current actuals to determine the estimated cost or budget increase. Percent Increase in Total Average Cost per kwh Step One: Determine your average cost per kwh from your electric bill, by dividing "Total Current Electric Charges" by "Billed kwh Usage." Step Two: Find the number in the "Customer Specific Average Price/kWh" column that is closest to your specific average cost per kwh (as calculated in Step One). Then, use the respective column of the chart to determine the projected increase. Results: The percent increases represent our best projections for the coming months and years. Please understand that they are only projections and that actual costs will vary. Depending on your forecasted usage, budgeting process and planning requirements, you may need to adjust your final figures up or down to accommodate anticipated events, unforeseen situations or the inherent differences in any forecasting or budgeting process. Annual Rider Impacts Estimates Based on Average kwh Cost Annual Impacts Customer-specific Description $/kwh Average Price/kWh 2013 vs vs 2013 $ % 5.6% Projected 2013 Rider Average: $ $ % 5.4% Actual 2012 Rider Average: $ $ % 5.3% Projected 2013 Annual Rider Increase per kwh $ $ % 5.1% $ % 4.9% Projected 2014 Rider Average : $ $ % 4.8% Projected 2013 Rider Average: $ $ % 4.6% Projected 2014 Annual Rider Increase per kwh $ $ % 4.5% $ % 4.4% $ % 4.3% $ % 4.2% $ % 4.0% $ % 3.9% $ % 3.9% $ % 3.8% $ % 3.7% $ % 3.6%