Notes to Financial Statements
Note 1. Description of the Plan
The following description of Piedmont Natural Gas Company, Inc. (the Company) 401(k) Plan (the Plan) is provided for general
information purposes only. Participants should refer to the Plan document for more complete information.
General
: The Plan is a defined
contribution plan sponsored by the Company providing benefits to participating employees or their beneficiaries upon retirement, death or termination of employment (following a break in service, as defined in the Plan).
Employees become eligible to participate in the Plan after they have completed thirty days of continuous service with the Company and have attained age 18.
The Plan is administered by the Duke Energy Benefits Committee (Benefits Committee or Plan Administrator). Wells Fargo Bank, N.A. (Wells Fargo) serves as the trustee and recordkeeper of the Plan. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
On October 3, 2016, the acquisition of the
Company by Duke Energy Corporation (Duke Energy) and its affiliates was consummated. Under the terms of the Merger Agreement, each share of Piedmont common stock issued and outstanding immediately prior to the closing (other than shares
owned by Duke Energy or its wholly owned subsidiaries) was converted automatically into the right to receive $60 in cash per share, without interest, less any applicable withholding taxes. As a result of the merger, the legacy Piedmont common stock
outstanding was canceled, and Piedmonts common stock was delisted from the NYSE.
Contributions
: Employees are able to contribute up to 50%
of eligible pay to the Plan on a pre-tax basis, up to the Tax Code annual contribution limit. Employees are able to receive a company match of 100% up to the first 5% of eligible pay contributed. The Company automatically enrolls all newly eligible
employees in the Plan at a 2% contribution rate unless the employee chooses not to participate by notifying the Plan trustee. For employees who are automatically enrolled in the Plan, the Company will automatically increase their contributions by 1%
each year to a maximum of 5% unless the employee chooses to opt out of the automatic increase by contacting the trustee. If the employee does not make an investment election, employee contributions and matches are automatically invested in
designated Qualified Default Investment Alternative (QDIA) funds. Prior to the transaction with Duke Energy, participants were able to invest in Company common stock up to a maximum of 20% of their account. Employees may change their contribution
rate and investments at any time. Additional amounts may be contributed by the Company at the discretion of the Companys Board of Directors. There were no discretionary Company contributions during the year ended December 31, 2016.
Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans.
Participant
accounts
: Individual accounts are maintained for each Plan participant. Each participants account is credited with the participants contribution, the Companys matching contribution, and allocations of Company discretionary
contributions, if applicable, and Plan earnings, and charged with any benefit payments, and allocations of Plan losses and expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the participants vested account.
Investments
: Participants direct the investment of their
contributions into various investment options offered by the Plan. Currently, the Plan offers eleven mutual funds and two collective investment trust funds as investment options for participants.
4
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 1. Description of the Plan (Continued)
Vesting
: All participant contributions and earnings thereon are fully vested and non-forfeitable upon
allocation to the participants accounts. A participant will become 100% vested in his employer matching contributions after the participant completes six months of service.
Notes receivable from participants
: Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of $50,000 or 50% of their
account balances, whichever is less. Loans must be entirely repaid within 5 years unless the loan is for the purchase of a primary residence. Effective September 2014, the loan policy was amended to allow for only one loan to be outstanding at a
time. The loans are secured by the balance in the participants account. Principal and interest are paid ratably through payroll deductions. Interest rates on loans ranged from 5.25% to 6.77% at December 31, 2016.
Payment of benefits
: The Plan allows distributions for retirement, long-term disability, termination of employment, hardship or death. The vested
balance of a participants account will be paid to the participant, or, in the case of death, to the spouse or beneficiary, if any, in a single, lump sum of cash or common stock as permitted by the Plan.
The Plan was amended on December 15, 2014 to allow for Age 59
1
⁄
2
in-service withdrawals, effective January 1, 2015.
Note 2. Summary of Significant Accounting Policies
Basis of accounting
: The accompanying financial statements of the Plan are prepared under the accrual method of accounting.
Use of estimates
: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the financial statements and accompanying notes. Actual results could differ from those estimates.
Investment
valuation and income recognition
: Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. See Note 7 for disclosure of the Plans fair value measurements.
The Plan utilizes market data or assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally observable. The Plan primarily applies the market approach for recurring fair value measurements and endeavor to utilize the
best available information. Accordingly, the Plan uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Plan is able to classify fair value balances based on the observance of those
inputs into the fair value hierarchy levels as set forth in the fair value accounting guidance.
In the 2015 financial statements, the Wells Fargo Stable
Return Fund was shown at fair value with an adjustment to contract value on the face of the financial statements. This fund is now shown at its net asset value, which represents its fair value, on the face of the financial statements. There was no
impact to the actual value of the fund.
5
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 2. Summary of Significant Accounting Policies (Continued)
Investment valuation and income recognition
(continued):
Following is a description of the valuation methodologies used for the Plans investment assets measured at fair value. There have been no changes in the
methodologies used at December 31, 2016 and 2015.
Common stock fund
: Calculated based on the closing price reported on the active
market on which the securities in the fund are traded.
Mutual funds
: Valued at the NAV of shares held by the Plan at year-end.
Collective investment trust funds
: Valued at NAV based on information provided by the trustee and using the audited financial statements of the
collective investment trust funds at year-end.
Level 1 inputs are quoted prices (unadjusted) or NAVs in active markets that can be accessed as of the
reporting date and consist of investments in common stock and mutual funds. Level 2 inputs are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly corroborated or observable as of
the reporting date and generally use valuation methodologies. Level 3 inputs include significant pricing inputs that are generally less observable from objective sources.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement at the reporting date.
The Plans Benefits Committee determines the Plans valuation policies utilizing
information provided by its investment advisor and custodian.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plans gains and losses on investments bought and sold as well as held during the year.
Management fees and operating expenses charged to the Plan for investments in the mutual funds and collective investment trust funds are deducted from income
earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments. Additionally, the Plan received revenue sharing income of $97,299
during 2016. This income is reflected as an addition to the investment return for such investments.
New accounting pronouncements
: In July 2015,
the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic
965) (I) Fully Benefit-Responsive Investment Contracts, (II) Plan Investment Disclosures, and (III) Measurement Date Practical Expedient (a consensus of the FASB Emerging Issues Task Force). The purpose of this Update is to simplify
plan accounting.
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The amendments in Part I of this Update designate contract value as the only required measure for direct investments in fully benefit-responsive investment contracts. Fully benefit-responsive investment contracts will
be presented at contract value; accordingly, there will no longer be an adjustment from fair value to contract value on the face of the financial statements.
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6
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 2. Summary of Significant Accounting Policies (Continued)
New accounting pronouncements (continued)
:
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|
The amendments in Part II of this Update will eliminate the requirements for plans to disclose (1) individual investments that represent 5 percent or more of net assets available for benefits and (2) the net
appreciation or depreciation for investments by general type for both participant-directed investments and nonparticipant-directed investments. The net appreciation or depreciation in investments for the period will still be required to be presented
in the aggregate. In addition, if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820 and that investment is in a fund that files a U.S. Department of Labor Form 5500,
Annual
Return/Report of Employee Benefit Plan,
as a direct filing entity, disclosure of that investments strategy will no longer be required.
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The amendments in Part III of this Update reduce complexity in employee benefit plan accounting by providing a practical expedient that permits plans to measure investments and investment-related accounts as of a
month-end date that is closest to the plans fiscal year-end, when the fiscal period does not coincide with month-end.
|
The amendments
in this Update are effective for fiscal years beginning after December 15, 2015. Upon adoption, the amendments in Parts I and II shall be applied retrospectively to all periods presented; the amendments in Part III shall be applied
prospectively. The Plan adopted this Update for the 2016 plan year. The impact of adopting these amendments is reflected in the financial statement disclosures.
In May 2015, the FASB issued ASU 2015-7, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent). The ASU
removes certain investments that are valued at their net asset value as a practical expedient from the fair value hierarchy. The ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The impact of
adopting this ASU is reflected in the investment disclosures.
Contributions
: Contributions from employees of the Plan Sponsor and matching
contributions from the Plan Sponsor are recorded in the year in which the employee contributions are withheld along with the applicable matching contribution. All employee and employer contributions are participant-directed.
Notes from participants
: Notes from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income
is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed as they are incurred. No allowance for credit losses has been recorded as of December 31, 2016 or 2015. Delinquent notes from participants
are treated as distributions based upon the terms of the plan document.
Payment of benefits
: Benefit payments to participants are recorded when
paid.
Expenses
: As provided by the Plan document, administrative expenses of the Plan are paid by the Plan.
Subsequent events
: The Plan monitors significant events occurring after the statement of net assets available for benefits date and prior to the
issuance of the financial statements to determine the impact, if any, of events on the financial statements to be issued. All subsequent events of which the Plan is aware were evaluated through the filing date of this Form 11-K.
7
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 3. Risks and Uncertainties
The Plans participants invest in various investment securities offered by the Plan. These investment securities are exposed to various risks such as
interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur and that such changes could materially affect
participants account balances and the amounts reported in the financial statements.
Note 4. Federal Income Tax Status
The Internal Revenue Service has determined and informed the Company by a letter dated November 25, 2014, that the Plan was designed in accordance with
the applicable regulations of the Internal Revenue Code (IRC). The Benefits Committee believes the Plan is currently designed and is being operated in compliance with the applicable requirements of the IRC and that the Plan and related
trust continue to be tax exempt.
Accounting principles generally accepted in the United States of America require Plan management to evaluate tax
positions taken by the Plan. Management evaluated the Plans tax positions and concluded that the Plan had maintained its tax exempt status and had taken no uncertain tax positions that require recognition or disclosure in the financial
statements. With few exceptions, the Plan is no longer subject to income tax examinations by the U.S. federal, state, or local tax authorities for years before 2013.
Note 5. Plan Termination
Although it has not expressed
any intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.
Note 6. Exempt Party-in-Interest Transactions
Certain
plan investments are units of participation in collective investment trust funds managed by Wells Fargo. Wells Fargo is the trustee as defined by the Plan, and therefore, these transactions qualify as exempt party-in-interest transactions. Fees paid
by the Plan to Wells Fargo for investment management services amounted to $214,329 for the year ended December 31, 2016 and are included in the expenses line item in the Statement of Changes in Net Assets Available for Benefits. Additional
expenses not paid to Wells Fargo include investment advisory fees and other various expenses.
At December 31, 2016 and 2015, the Plan held zero and
388,919 units, respectively, of common stock of the Company, the sponsoring employer, with a cost basis of $0 and $7,837,818, respectively, and fair value of $0 and $14,208,966, respectively.
Note 7. Fair Value
The investments reported in the
Statement of Net Assets Available for Benefits, are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Plans assessment of the significance of a particular input to the fair
value measurement requires judgment and may affect the valuation of fair value assets and their consideration within the fair value hierarchy levels.
8
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 7. Fair Value (Continued)
The following tables set forth, by level within the fair value hierarchy, the assets measured at fair
value as of December 31, 2016 and 2015:
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|
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|
|
|
|
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|
December 31, 2016
|
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|
|
Quoted Prices
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
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|
(Level 2)
|
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|
(Level 3)
|
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|
Total
|
|
Investments subject to the fair value hierarchy:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
170,672,371
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
170,672,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments subject to the fair value hierarchy
|
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$
|
170,672,371
|
|
|
$
|
|
|
|
$
|
|
|
|
|
170,672,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments not subject to the fair value hierarchy:
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Collective investment trust funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,258,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value:
|
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|
|
|
|
|
|
|
|
|
|
|
$
|
250,930,902
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
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Quoted Prices
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
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in Active
|
|
|
Other Observable
|
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Unobservable
|
|
|
|
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
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(Level 2)
|
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|
(Level 3)
|
|
|
Total
|
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Investments subject to the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
152,561,598
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,561,598
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Common stock fund
|
|
|
14,208,966
|
|
|
|
|
|
|
|
|
|
|
|
14,208,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments subject to the fair value hierarchy
|
|
$
|
166,770,564
|
|
|
$
|
|
|
|
$
|
|
|
|
|
166,770,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments not subject to the fair value hierarchy:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective investment trust funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,895,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments, at fair value:
|
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|
|
|
|
|
|
|
|
|
|
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$
|
235,666,459
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|
|
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|
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|
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9
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 8. Net Asset Value Per Share
The following table sets forth additional disclosures of the investments whose fair value is estimated using net asset value per share (or its equivalent)
as of December 31, 2016 and 2015 for the Plan:
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|
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|
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|
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Fair Value Estimated Using Net Asset Value per Share
|
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December 31, 2016
|
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|
|
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Other
|
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Redemption
|
|
|
|
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Unfunded
|
|
|
Redemption
|
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Redemption
|
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Notice
|
Investment
|
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Fair Value
|
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Commitment
|
|
|
Frequency
|
|
Restrictions
|
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Period
|
|
|
|
|
|
|
Collective investment trustfund-Stable
|
|
$
|
44,683,564
|
|
|
$
|
|
|
|
Daily
|
|
Written notice
|
|
12 months
|
Collective investment trust fund-Enhanced Stock
|
|
$
|
35,574,967
|
|
|
$
|
|
|
|
Daily
|
|
None
|
|
None
|
|
|
|
|
Fair Value Estimated Using Net Asset Value per Share
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Redemption
|
|
|
|
|
|
Unfunded
|
|
|
Redemption
|
|
Redemption
|
|
Notice
|
Investment
|
|
Fair Value
|
|
|
Commitment
|
|
|
Frequency
|
|
Restrictions
|
|
Period
|
|
|
|
|
|
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Collective investment trustfund-Stable
|
|
$
|
37,835,131
|
|
|
$
|
|
|
|
Daily
|
|
Written notice
|
|
12 months
|
Collective investment trust fund-Enhanced Stock
|
|
$
|
31,060,764
|
|
|
$
|
|
|
|
Daily
|
|
None
|
|
None
|
Note 9. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
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|
|
|
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|
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December 31
|
|
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2016
|
|
|
2015
|
|
Net assets available for benefits as presented in these financial statements
|
|
$
|
256,705,721
|
|
|
$
|
242,190,136
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Adjustment from NAV to fair value on Wells Fargo
|
|
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|
|
|
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Stable Return Fund
|
|
|
|
|
|
|
189,199
|
|
|
|
|
|
|
|
|
|
|
Net assets per the Form 5500
|
|
$
|
256,705,721
|
|
|
$
|
242,379,335
|
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10
Piedmont Natural Gas Company, Inc. 401(k) Plan
Notes to Financial Statements
Note 9. Reconciliation of Financial Statements to Form 5500 (Continued)
The following is a reconciliation of the net increase in net assets available for benefits per the financial
statements to the Form 5500:
|
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|
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Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
Total net increase per the financial statements
|
|
$
|
14,515,585
|
|
Net adjustment from NAV to fair value on Wells Fargo Stable Return Fund
|
|
|
(189,199
|
)
|
|
|
|
|
|
Total net income per the Form 5500
|
|
$
|
14,326,386
|
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|
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11
Piedmont Natural Gas Company, Inc. 401(k) Plan
Form 5500, Schedule H, Part IV, Line 4iSchedule of Assets (Held at End of Year)
December 31, 2016
Plan #007
EIN: 56-0556998