Duke Energy 2011 Annual Report Download - page 142

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
decision on Duke Energy Ohio’s ESP filed by Columbus Southern
Power and Ohio Power Company.
The ESP effectively separates the generation of electricity from
Duke Energy Ohio’s retail load obligation. As a result Duke Energy
Ohio’s generation assets no longer serve retail load customers or
receive negotiated pricing under the ESP. The generation assets
began dispatching all of their electricity into unregulated markets in
January 2012. Duke Energy Ohio’s retail load obligation is satisfied
through competitive auctions, the costs of which are recovered from
customers. As a result, Duke Energy Ohio earns margin on the
transmission and distribution of electricity only and not on the cost of
the underlying energy.
Duke Energy Carolinas North Carolina Rate Case.
On July 1, 2011, Duke Energy Carolinas filed a rate case with
the NCUC to request an average 15% increase in retail revenues, or
approximately $646 million, with a rate of return on equity of
11.5%. The increase is designed to recover the cost of the ongoing
generation fleet modernization program, environmental compliance
and other capital investments made since 2009.
On November 22, 2011, Duke Energy Carolinas entered into a
settlement agreement with the North Carolina Utilities Public Staff
(Public Staff). The terms of the agreement include an average 7.2%
increase in retail revenues, or approximately $309 million beginning
in February 2012. The proposed settlement includes a 10.5% return
on equity and a capital structure of 53% equity and 47% long-term
debt. In order to mitigate the impact of the increase on customers, the
agreement provides for (i) Duke Energy to waive its right to increase
the amount of construction work in progress in rate base for any
expenditures associated with Cliffside Unit 6 above the North
Carolina retail portion included in the 2009 North Carolina Rate
Case, (ii) the accelerated return of certain regulatory liabilities, related
to accumulated EPA sulfur dioxide auction proceeds, to customers,
which lowered the total impact to customer bills to an increase of
approximately 7.2% in the near-term; and (iii) a one-time $11
million shareholder contribution to agencies that provide energy
assistance to low income customers. In exchange for waiving the
right to increase the amount of construction work in process for
Cliffside Unit 6, Duke Energy will continue to capitalize AFUDC on all
expenditures associated with Cliffside Unit 6 not included in rate base
as a result of the 2009 North Carolina Rate Case.
The NCUC approved the settlement agreement in full by order
dated January 27, 2012.
Duke Energy Carolinas South Carolina Rate Case.
On August 5, 2011, Duke Energy Carolinas filed a rate case
with the PSCSC to request an average 15% increase in retail
revenues, or approximately $216 million, with a rate of return on
equity of 11.5%. The increase is designed to recover the cost of the
ongoing generation fleet modernization program, environmental
compliance and other capital investments made since 2009.
On December 7, 2011, Duke Energy Carolinas filed a revised
settlement agreement with the Office of Regulatory Staff (ORS),
Wal-Mart Stores East, LP (“Wal-Mart”), and Sam’s East, Inc
(“Sam’s”). The Commission of Public Works for the city of
Spartanburg, S.C. and the Spartanburg Sanitary Sewer District were
not parties to the agreement; however, did not object to the
agreement. The terms of the agreement include an average 5.98%
increase in retail and commercial revenues, or approximately $93
million beginning February 6, 2012. The proposed settlement
includes a 10.5% return on equity, a capital structure of 53% equity
and 47% long-term debt, and a one-time contribution of $4 million
to Advance SC.
The PSCSC approved the settlement agreement in full by order
dated January 25, 2012.
Duke Energy Indiana Energy Efficiency.
On September 28, 2010, Duke Energy Indiana filed a petition
for new energy efficiency programs to enable meeting the IURC’s
energy efficiency mandates. Duke Energy Indiana’s proposal requests
recovery of costs through a rider including lost revenues and
incentives for “core plus” energy efficiency programs and lost
revenues and cost recovery for “core” energy efficiency programs. The
hearing occurred in July 2011 and an order is expected in the first
quarter of 2012.
Duke Energy Indiana Storm Cost Deferrals.
On July 14, 2010, the IURC approved Duke Energy Indiana’s
deferral of $12 million of retail jurisdictional storm expense until the
next retail rate proceeding. This amount represents a portion of costs
associated with a January 27, 2009 ice storm, which damaged
Duke Energy Indiana’s distribution system. On August 12, 2010, the
Indiana Office of Utility Consumer Counselor (OUCC) filed a notice of
appeal with the IURC. On December 7, 2010, the IURC issued an
order reopening this proceeding for review in consideration of the
evidence presented as a result of an internal audit performed as part
of an IURC investigation of Duke Energy Indiana’s hiring of an
attorney from the IURC staff which resulted in the IURC’s termination
of the employment of the Chairman of the IURC. The audit did not
find that the order conflicted with the staff report; however, it did note
that the staff report offered no specific recommendation to either
approve or deny the requested relief, and that the original order was
appealed. The IURC set a new procedural schedule to take
supplemental testimony and an evidentiary hearing was held in June
2011. On October 19, 2011, the IURC issued an order denying
Duke Energy Indiana the right to defer the storm expense discussed
above. In November 2011, Duke Energy Indiana submitted notice of
its intent to appeal the IURC order to the Indiana Court of Appeals.
Duke Energy Ohio Storm Cost Recovery.
On December 11, 2009, Duke Energy Ohio filed an application
with the PUCO to recover Hurricane Ike storm restoration costs of
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