INTRODUCTION

Management's Discussion and Analysis should be read in conjunction with the Unaudited Consolidated Financial Statements.

Executive Overview

Net income attributable to Duke Energy Corporation was $109 million for the third quarter of 2009 as compared to $215 million for the third quarter of 2008. Diluted earnings per share decreased to $0.08 per share in the third quarter of 2009 from $0.17 per share in the third quarter of 2008 primarily due to the decrease in net income in the third quarter of 2009 as compared to the same period in 2008, primarily as a result of goodwill impairment charges in 2009 related to Commercial Power's non-regulated generation operations in the Midwest partially offset by other factors described further below. For additional information on these impairment charges, see Note 9 to the Consolidated Financial Statements, "Goodwill and Intangible Assets." Income from continuing operations was $107 million for the third quarter of 2009 as compared to $214 million for the same period in 2008. Total reportable segment EBIT (defined below in "Segment Results" section of Management's Discussion and Analysis of Financial Condition and Results of Operations) was $582 million for the third quarter of 2009 as compared to $695 million for the same period in 2008.

Net income attributable to Duke Energy Corporation was $729 million for the nine months ended September 30, 2009 as compared to $1,031 million for the same period in 2008. Diluted earnings per share decreased to $0.56 per share for the nine months ended September 30, 2009 from $0.81 per share in the same period in 2008 primarily due to the decrease in net income in the nine months ended September 30, 2009 as compared to the same period in 2008, primarily as a result of the impairment charges discussed above, partially offset by other factors described further below. Income from continuing operations was $737 million for the nine months ended September 30, 2009 as compared to $1,014 million for the same period in 2008. Total reportable segment EBIT was $1,993 million for the nine months ended September 30, 2009 as compared to $2,446 million for the same period in 2008.

See "Results of Operations" below for a detailed discussion of the consolidated results of operations, as well as a detailed discussion of EBIT results for each of Duke Energy's reportable business segments, as well as Other.

RESULTS OF OPERATIONS

Results of Operations and Variances (in millions)



                                               Three Months Ended                         Nine Months Ended
                                                  September 30,                             September 30,
                                                                 Increase                                 Increase
                                       2009         2008        (Decrease)        2009       2008        (Decrease)
                                                                      (in millions)
Operating revenues                    $ 3,396      $ 3,508      $      (112 )    $ 9,621   $ 10,074      $      (453 )
Operating expenses                      2,964        2,933               31        7,999      8,116             (117 )
Gains on sales of other assets and
other, net                                 13            2               11           32         53              (21 )

Operating income                          445          577             (132 )      1,654      2,011             (357 )
Other income and expenses, net             96          (55 )            151          243         76              167
Interest expense                          190          176               14          560        552                8

Income from continuing operations
before income taxes                       351          346                5        1,337      1,535             (198 )
Income tax expense from continuing
operations                                244          132              112          600        521               79

Income from continuing operations         107          214             (107 )        737      1,014             (277 )
(Loss) income from discontinued
operations, net of tax                     (1 )         (1 )              -            -         14              (14 )

Net income                                106          213             (107 )        737      1,028             (291 )
Less: Net income (loss)
attributable to noncontrolling
interests                                  (3 )         (2 )              1            8         (3 )             11

Net income attributable to Duke
Energy Corporation                    $   109      $   215      $      (106 )    $   729   $  1,031      $      (302 )

The following is a summary discussion of the consolidated results of operations and variances, which is followed by a discussion of results by segment.

Consolidated Operating Revenues

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated operating revenues for the three months ended September 30, 2009 decreased approximately $112 million, compared to the same period in 2008. This change was primarily driven by the following:

• An approximate $198 million decrease at U.S. Franchised Electric and Gas. See Operating Revenues discussion within "Segment Results" for U.S. Franchised Electric and Gas below for further information; and

• An approximate $19 million decrease at Other. See Operating Revenues discussion within "Segment Results" for Other below for further information.

Partially offsetting these decreases was:

• An approximate $111 million increase at Commercial Power. See Operating Revenues discussion within "Segment Results" for Commercial Power below for further information.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated operating revenues for the nine months ended September 30, 2009 decreased approximately $453 million, compared to the same period in 2008. This change was primarily driven by the following:

• An approximate $544 million decrease at U.S. Franchised Electric and Gas. See Operating Revenues discussion within "Segment Results" for U.S. Franchised Electric and Gas below for further information; and

• An approximate $101 million decrease at International Energy. See Operating Revenues discussion within "Segment Results" for International Energy below for further information.

Partially offsetting these decreases was:

• An approximate $191 million increase at Commercial Power. See Operating Revenues discussion within "Segment Results" for Commercial Power below for further information.

Consolidated Operating Expenses

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated operating expenses for the three months ended September 30, 2009 increased approximately $31 million, compared to the same period in 2008. This change was primarily driven by the following:

• An approximate $232 million increase at Commercial Power. See Operating Expenses discussion within "Segment Results" for Commercial Power below for further information.

Partially offsetting this increase was:

• An approximate $170 million decrease at U.S. Franchised Electric and Gas. See Operating Expenses discussion within "Segment Results" for U.S. Franchised Electric and Gas below for further information; and

• An approximate $42 million decrease at International Energy. See Operating Expenses discussion within "Segment Results" for International Energy below for further information.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated operating expenses for the nine months ended September 30, 2009 decreased approximately $117 million, compared to the same period in 2008. This change was primarily driven by the following:

• An approximate $442 million decrease at U.S. Franchised Electric and Gas. See Operating Expenses discussion within "Segment Results" for U.S. Franchised Electric and Gas below for further information.

• An approximate $122 million decrease at International Energy. See Operating Expenses discussion within "Segment Results" for International Energy below for further information; and

• An approximate $28 million decrease at Other. See Operating Expenses discussion within "Segment Results" for Other below for further information.

Partially offsetting these decreases was:

• An approximate $476 million increase at Commercial Power. See Operating Expenses discussion within "Segment Results" for Commercial Power below for further information.

Consolidated Gains on Sales of Other Assets and Other, Net

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated gains on sales of other assets and other, net was a gain of approximately $13 million and $2 million for the three months ended September 30, 2009 and 2008, respectively. The gain for the three months ended September 30, 2009 was due primarily to the sale of emission allowances by U.S. Franchised Electric and Gas and Commercial Power. The net gain for the three months ended September 30, 2008 was due primarily to Commercial Power's sale of emission allowances.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated gains on sales of other assets and other, net was a gain of approximately $32 million and $53 million for the nine months ended September 30, 2009 and 2008, respectively. The gain for the nine months ended September 30, 2009 was due primarily to the sale of emission allowances by U.S. Franchised Electric and Gas and Commercial Power. The net gain for the nine months ended September 30, 2008 was due primarily to Commercial Power's sale of emission allowances.

Consolidated Operating Income

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated operating income for the three months ended September 30, 2009 decreased approximately $132 million compared to the same period in 2008. Drivers to the decrease in operating income are discussed within "Segment Results" below.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated operating income for the nine months ended September 30, 2009 decreased approximately $357 million compared to the same period in 2008. Drivers to the decrease in operating income are discussed with "Segment Results" below.

Consolidated Other Income and Expenses, Net

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated other income and expenses, net for the three months ended September 30, 2009 increased approximately $151 million compared to the same period in 2008. The increase was driven primarily by an approximate $101 million increase in equity in earnings of unconsolidated affiliates due primarily to impairment charges recorded by the Crescent JV (Crescent) during 2008, of which Duke Energy's proportionate share was approximately $114 million, partially offset by decreased equity earnings at International Energy of approximately $14 million primarily related to its investment in National Methanol Company (NMC).

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated other income and expenses, net for the nine months ended September 30, 2009 increased approximately $167 million compared to the same period in 2008. The increase was driven primarily by an approximate $144 million increase in equity in earnings of unconsolidated affiliates due primarily to impairment charges recorded by Crescent during 2008, of which Duke Energy's proportionate share was approximately $238 million, partially offset by decreased equity earnings at International Energy of approximately $67 million primarily related to its investments in NMC and Attiki Gas Supply S.A. (Attiki) and an approximate $33 million charge in the first quarter of 2009 associated with guarantees issued on behalf of the Crescent.

Consolidated Interest Expense

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated interest expense for the three months ended September 30, 2009 increased approximately $14 million compared to the same period in 2008. This increase was due primarily to higher debt balances, partially offset by lower interest on floating rate debt and commercial paper.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated interest expense for the nine months ended September 30, 2009 increased approximately $8 million compared to the same period in 2008. This increase was due primarily to higher debt balances, partially offset by lower interest on floating rate debt and commercial paper.

Consolidated Income Tax Expense from Continuing Operations

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated income tax expense from continuing operations for the three months ended September 30, 2009 increased approximately $112 million compared to the same period in 2008. The increase is primarily the result of a higher effective tax rate for the three months ended September 30, 2009 (70%) compared to the same period in 2008 (38%). The increase in the effective tax rate is primarily due to an impairment of non-deductible goodwill in the three months ended September 30, 2009.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated income tax expense from continuing operations for the nine months ended September 30, 2009 increased approximately $79 million compared to the same period in 2008. The increase is the result of a higher effective tax rate for the nine months ended September 30, 2009 (45%) compared to the same period in 2008 (34%). The increase in the effective tax rate is primarily due to an impairment of non-deductible goodwill in the nine months ended September 30, 2009.

Consolidated (Loss) Income From Discontinued Operations, Net of tax

Three Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated (loss) income from discontinued operations, net of tax, for the three months ended September 30, 2009 was flat compared to the same period in 2008.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008. Consolidated (loss) income from discontinued operations, net of tax, for the nine months ended September 30, 2009 decreased approximately $14 million compared to the same period in 2008. The decrease primarily relates to Commercial Power's sale of its 480 megawatt (MW) natural gas-fired peaking generating station located near Brownsville, Tennessee to Tennessee Valley Authority (approximately $15 million after-tax gain) during the nine months ended September 30, 2008.

Segment Results

Management evaluates segment performance based on earnings before interest and taxes from continuing operations, after deducting expenses attributable to noncontrolling interests related to those profits (EBIT). On a segment basis, EBIT excludes discontinued operations, represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of the expenses attributable to noncontrolling interests related to those profits. Cash, cash equivalents and short-term investments are managed centrally by Duke Energy, so the gains and losses on foreign currency remeasurement and interest and dividend income on those balances are excluded from the segments' EBIT. Management considers segment EBIT to be a good indicator of each segment's operating performance from its continuing operations as it represents the results of Duke Energy's ownership interest in operations without regard to financing methods or capital structures.

Duke Energy's segment EBIT may not be comparable to a similarly titled measure of another company because other entities may not calculate EBIT in the same manner. Segment EBIT is summarized in the following table, and detailed discussions follow.

EBIT by Business Segment (in millions)



                                                    Three Months Ended             Nine Months Ended
                                                       September 30,                 September 30,
                                                    2009            2008          2009           2008
                                                                      (in millions)
U.S. Franchised Electric and Gas                  $     716        $  726       $   1,773       $ 1,866
Commercial Power                                       (234 )        (108 )           (41 )         273
International Energy                                    100            77             261           307

Total reportable segment EBIT                           582           695           1,993         2,446
Other                                                   (65 )        (195 )          (193 )        (460 )

Total reportable segment and other EBIT                 517           500           1,800         1,986
Interest expense                                       (190 )        (176 )          (560 )        (552 )
Interest income and other(a)                             25            21              83            93
Add back of noncontrolling interest component
of reportable segment and Other EBIT                     (1 )           1              14             8

Consolidated income from continuing operations
before income taxes                               $     351        $  346       $   1,337       $ 1,535

(a) Other within Interest Income and Other includes foreign currency transaction gains and losses and additional noncontrolling interest amounts not allocated to the reportable segment and Other EBIT.

The amounts discussed below include intercompany transactions that are eliminated in the Consolidated Financial Statements.

U.S. Franchised Electric and Gas

U.S. Franchised Electric and Gas includes the regulated operations of Duke
Energy Carolinas, LLC (Duke Energy Carolinas), Duke Energy Indiana, Inc. (Duke
Energy Indiana) and Duke Energy Kentucky, Inc. (Duke Energy Kentucky) and
certain regulated operations of Duke Energy Ohio, Inc. (Duke Energy Ohio).



                                           Three Months Ended                      Nine Months Ended
                                             September 30,                           September 30,
(in millions, except where                                 Increase                                Increase
noted)                               2009       2008      (Decrease)         2009       2008      (Decrease)
Operating revenues                 $  2,500   $  2,698   $       (198 )    $  7,157   $  7,701   $       (544 )
Operating expenses                    1,833      2,003           (170 )       5,499      5,941           (442 )
Gains on sales of other assets
and other, net                            8          1              7            21          4             17

Operating income                        675        696            (21 )       1,679      1,764            (85 )
Other income and expenses, net           41         30             11            94        102             (8 )

EBIT                               $    716   $    726   $        (10 )    $  1,773   $  1,866   $        (93 )

Duke Energy Carolinas GWh
sales(a)                             21,358     22,785         (1,427 )      60,650     65,875         (5,225 )
Duke Energy Midwest GWh
sales(a)(b)                          14,555     16,566         (2,011 )      42,476     47,860         (5,384 )
Net proportional MW capacity in
operation                                                                    26,977     27,487           (510 )

(a) Gigawatt-hours (GWh)

(b) Duke Energy Ohio, Duke Energy Indiana and Duke Energy Kentucky collectively referred to as Duke Energy Midwest

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Carolinas for the three and nine months ended September 30, 2009 compared to the same period in the prior year.

                                              Three Months Ended             Nine Months Ended
Increase (decrease) over prior year           September 30, 2009             September 30, 2009
Residential sales(a)                                        (1.5 )%                         0.8 %
General service sales(a)                                    (1.9 )%                        (0.9 )%
Industrial sales(a)                                        (15.0 )%                       (17.3 )%
Wholesale sales                                            (29.6 )%                       (37.0 )%
Total Duke Energy Carolinas sales(b)                        (6.3 )%                        (7.9 )%
Average number of customers                                  0.3 %                          0.5 %

(a) Major components of Duke Energy Carolinas' retail sales.

(b) Consists of all components of Duke Energy Carolinas' sales, including retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.

The following table shows the percent changes in GWh sales and average number of customers for Duke Energy Midwest for the three and nine months ended September 30, 2009 compared to the same period in the prior year.

                                      Three Months Ended       Nine Months Ended
Increase (decrease) over prior year   September 30, 2009       September 30, 2009
Residential sales(a)                                (8.2 )%                  (3.6 )%
General service sales(a)                            (4.3 )%                  (2.7 )%
Industrial sales(a)                                (14.3 )%                 (18.4 )%
Wholesale sales                                    (33.0 )%                 (27.5 )%
Total Duke Energy Midwest sales(b)                 (12.1 )%                 (11.2 )%
Average number of customers                         (0.4 )%                  (0.4 )%

(a) Major components of Duke Energy Midwest's retail sales.

(b) Consists of all components of Duke Energy Midwest's sales, including retail sales, and wholesale sales to incorporated municipalities and to public and private utilities and power marketers.

Three Months Ended September 30, 2009 as Compared to September 30, 2008:

Operating Revenues. The decrease was driven primarily by:

• A $111 million decrease in fuel revenues (including emission allowances) driven primarily by decreased demand from retail and near-term wholesale customers and lower natural gas fuel rates primarily in Ohio and Kentucky, partially offset by higher fuel rates for electric retail customers in all jurisdictions. Fuel revenues represent sales to retail and wholesale customers;

• A $46 million decrease in GWh sales to retail customers due to milder weather conditions in 2009 compared to the same period in 2008. For the Midwest, cooling degree days for the third quarter of 2009 were 32% below normal as compared to 3% above normal during the same period in 2008. For the Carolinas, cooling degree days for the third quarter of 2009 were approximately 4% below normal compared to 2% above normal during the same period in 2008;

• A $22 million decrease due to lower weather adjusted sales volumes to retail customers primarily in the Carolinas and Indiana largely reflecting the overall declining economic conditions, which are primarily impacting the industrial sector; and

• A $13 million net decrease in wholesale power revenues, net of sharing, primarily due to decreased sales volumes and lower prices on near-term sales as a result of weak market conditions, partially offset by increased sales volumes to customers served under long-term contracts.

Partially offsetting these decreases was:

• A $6 million net increase in rate riders and retail rates primarily due to increases in recoveries of Duke Energy Indiana's environmental compliance costs and the Integrated Gasification Combined Cycle (IGCC) rider, partially offset by the expiration of the one-time increment rider related to merger savings that was included in North Carolina retail rates in 2008.

Operating Expenses. The decrease was driven primarily by:

• A $120 million decrease in fuel expense (including purchased power and natural gas purchases for resale) primarily due to a lower volume of coal used in electric generation and lower volumes and prices for natural gas purchased for resale and used in electric generation, partially offset by higher coal prices;

• A $44 million decrease in operating and maintenance expense primarily due to lower storm costs primarily in the Midwest related to Hurricane Ike in September 2008, and lower maintenance costs at nuclear and fossil generating stations, partially offset by higher scheduled outage costs at nuclear generating stations due to timing; and

• A $5 million decrease in depreciation and amortization due primarily to lower depreciation rates in the Carolinas.

Gains on Sales of Other Assets and Other, net. The increase is due primarily to gains on the sale of nitrogen oxide (NO x) emission allowances in 2009.

Other Income and Expenses, net. The increase resulted primarily from a higher equity component of allowance for funds used during construction (AFUDC) due to additional capital spending for ongoing construction projects.

EBIT. The decrease resulted primarily from milder weather, lower weather adjusted sales volumes, higher scheduled outage costs at nuclear generating stations and lower wholesale power revenues. These negative impacts were partially offset by decreased operation and maintenance costs as a result of lower storm and maintenance costs, lower depreciation rates in the Carolinas and overall net higher retail rates and rate riders.

Nine Months Ended September 30, 2009 as Compared to September 30, 2008:

Operating Revenues. The decrease was driven primarily by:

• A $356 million decrease in fuel revenues (including emission allowances) driven primarily by decreased demand from retail and near-term wholesale customers and lower natural gas fuel rates primarily in Ohio and Kentucky, partially offset by higher fuel rates for electric retail customers in all jurisdictions. Fuel revenues represent sales to retail and wholesale customers;

• A $103 million decrease due to lower weather adjusted sales volumes to retail customers reflecting the overall declining economic conditions, which are primarily impacting the industrial sector;

• A $56 million decrease in GWh/Mcf sales to retail customers due to overall milder weather conditions in 2009 compared to the same period in 2008. Weather statistics for heating degree days in 2009 were unfavorable in the . . .