Duke Energy 2011 Annual Report Download - page 141

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
Restrictions on the Ability of Certain Subsidiaries to Make
Dividends, Advances and Loans to Duke Energy.
As a condition to the Duke Energy and Cinergy Corp. (Cinergy)
merger approval, the PUCO, the KPSC, the PSCSC, the IURC and the
NCUC imposed conditions (the Merger Conditions) on the ability of
Duke Energy Carolinas, Duke Energy Ohio, Duke Energy Kentucky
and Duke Energy Indiana to transfer funds to Duke Energy through
loans or advances, as well as restricted amounts available to pay
dividends to Duke Energy. Duke Energy’s public utility subsidiaries
may not transfer funds to the parent through intercompany loans or
advances; however, certain subsidiaries may transfer funds to the
parent by obtaining approval of the respective state regulatory
commissions. Additionally, the Merger Conditions imposed the
following restrictions on the ability of the public utility subsidiaries to
pay cash dividends:
Duke Energy Carolinas. Under the Merger Conditions, Duke
Energy Carolinas must limit cumulative distributions to Duke Energy
subsequent to the merger to (i) the amount of retained earnings on
the day prior to the closing of the merger, plus (ii) any future earnings
recorded by Duke Energy Carolinas subsequent to the merger.
Duke Energy Ohio. Under the Merger Conditions, Duke Energy
Ohio will not declare and pay dividends out of capital or unearned
surplus without the prior authorization of the PUCO. In September
2009, the PUCO approved Duke Energy Ohio’s request to pay
dividends out of paid-in capital up to the amount of the pre-merger
retained earnings and to maintain a minimum of 30% equity in its
capital structure. In November 2011, the FERC approved, with
conditions, Duke Energy Ohio’s request to pay dividends from its
equity accounts that are reflective of the amount that it would have in
its retained earnings account had push-down accounting for the
Cinergy merger not been applied to Duke Energy Ohio’s balance
sheet. The conditions include a commitment from Duke Energy Ohio
that equity, adjusted to remove the impacts of push-down
accounting, will not fall below 30% of total capital. In January 2012,
the PUCO issued an order approving the payment of dividends in a
manner consistent with the method approved in the November 2011
FERC order. Under the Merger Conditions, Duke Energy Kentucky is
required to pay dividends solely out of retained earnings and to
maintain a minimum of 35% equity in its capital structure.
Duke Energy Indiana. Under the Merger Conditions, Duke
Energy Indiana shall limit cumulative distributions paid subsequent to
the merger to (i) the amount of retained earnings on the day prior to
the closing of the merger plus (ii) any future earnings recorded by
Duke Energy Indiana subsequent tothemerger.Inaddition,Duke
Energy Indiana will not declare and pay dividends out of capital or
unearned surplus without prior authorization of the IURC.
Additionally, certain other subsidiaries of Duke Energy have
restrictions on their ability to dividend, loan or advance funds to Duke
Energy due to specific legal or regulatory restrictions, including, but
not limited to, minimum working capital and tangible net worth
requirements.
The following table includes information regarding the
Subsidiary Registrants and other Duke Energy subsidiaries’ restricted
net assets at December 31, 2011.
(in billions)
Duke
Energy
Carolinas
Duke
Energy
Ohio(a)
Duke
Energy
Indiana
Total
Duke
Energy
Subsidiaries
Amounts that may not
be transferred to
Duke Energy without
appropriate approval
based on above
mentioned Merger
Conditions $3.3 $3.9 $1.3 $8.6
(a) As of December 31, 2011, the equity balance available for payment of dividends,
based on the FERC and PUCO order discussed above, was $1.2 billion.
Rate Related Information.
The NCUC, PSCSC, IURC, PUCO and KPSC approve rates for
retail electric and gas services within their states. Non-regulated
sellers of gas and electric generation are also allowed to operate in
Ohio once certified by the PUCO. The FERC approves rates for
electric sales to wholesale customers served under cost-based rates,
as well as sales of transmission service.
Duke Energy Ohio Standard Service Offer (SSO).
Ohio law provides the PUCO authority to approve an electric
utility’s generation SSO. A SSO may include an ESP, which would
allow for the pricing structures used by Duke Energy Ohio from 2004
through 2011, or a Market Rate Offer (MRO), in which pricing is
determined through a competitive bidding process. On November 15,
2010, Duke Energy Ohio filed for approval of an SSO to replace the
then existing ESP that expired on December 31, 2011. The filing
requested approval of a MRO. On February 23, 2011, the PUCO
stated that Duke Energy Ohio did not file an application for a five-year
MRO as required under Ohio statute. On June 20, 2011, Duke
Energy Ohio filed an application with the PUCO for approval of an
ESP for its customers beginning January 1, 2012, with rates in effect
through May 31, 2021.
The PUCO approved Duke Energy Ohio’s new ESP on
November 22, 2011. The ESP includes competitive auctions for
electricity supply for a term of January 1, 2012 through May 31,
2015. The ESP also includes a provision for a non-bypassable
stability charge of $110 million per year to be collected from
January 1, 2012 through December 31, 2014 and requires Duke
Energy Ohio to transfer its generation assets to a non-regulated
affiliate on or before December 31, 2014. Duke Energy Ohio
conducted initial auctions on December 14, 2011 to serve SSO
customers effective January 1, 2012. New rates for Duke Energy
Ohio went into effect for SSO customers on January 1, 2012. On
January 18, 2012, the PUCO denied a request for rehearing of its
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