Duke Energy 2011 Annual Report Download - page 145

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
During 2010, Duke Energy Indiana filed petitions for its fifth and
sixth semi-annual IGCC riders. Evidentiary hearings are set for
April 24, 2012 and April 25, 2012, respectively.
The CAC, Sierra Club, Inc., Save the Valley, Inc., and Valley
Watch, Inc. filed motions for two subdocket proceedings alleging
improper communications, undue influence, fraud, concealment and
gross mismanagement, and a request for field hearing in this
proceeding. Duke Energy Indiana opposed the requests. On
February 25, 2011, the IURC issued an order which denied the
request for a subdocket to investigate the allegations of improper
communications and undue influence at this time, finding there were
other agencies better suited for such investigation. The IURC also
found that allegations of fraud, concealment and gross
mismanagement related to the IGCC project should be heard in a
Phase II proceeding of the cost estimate subdocket and set
evidentiary hearings on both Phase I (cost estimate increase) and
Phase II beginning in August 2011. After procedural delays, hearings
began on Phase I on October 26, 2011 and on Phase II on
November 21, 2011.
On March 10, 2011, Duke Energy Indiana filed testimony with
the IURC proposing a framework designed to mitigate customer rate
impacts associated with the Edwardsport IGCC project. Duke Energy
Indiana’s filing proposed a cap on the project’s construction costs,
(excluding financing costs), which can be recovered through rates at
$2.72 billion. It also proposed rate-related adjustments that will lower
the overall customer rate increase related to the project from an
average of 19% to approximately 16%. The proposal is subject to the
approval of the IURC in the Phase I hearings.
On November 30, 2011, Duke Energy Indiana filed a petition
with the IURC in connection with its eighth semi-annual rider request
for the Edwardsport IGCC project. Evidentiary hearings for the seventh
and eight semi-annual rider requests are scheduled for August 6-7,
2012.
On June 27, 2011, Duke Energy Indiana filed testimony with
the IURC in connection with its seventh semi-annual rider request
which included an update on the current cost forecast of the
Edwardsport IGCC project. The updated forecast excluding AFUDC
increased from $2.72 billion to $2.82 billion, not including any
contingency for unexpected start-up events. On June 30, 2011, the
OUCC and intervenors filed testimony in Phase I recommending that
Duke Energy Indiana be disallowed cost recovery of any of the
additional cost estimate increase above the previously approved cost
estimate of $2.35 billion. Duke Energy Indiana filed rebuttal
testimony on August 3, 2011.
In the subdocket proceeding, on July 14, 2011, the OUCC and
certain intervenors filed testimony in Phase II alleging that Duke
Energy Indiana concealed information and grossly mismanaged the
project, and therefore Duke Energy Indiana should only be permitted
to recover from customers $1.985 billion, the original IGCC project
cost estimate approved by the IURC. Other intervenors recommended
that Duke Energy Indiana not be able to rely on any cost recovery
granted under the CPCN or the first cost increase order. Duke Energy
Indiana believes it has diligently and prudently managed the project.
On September 9, 2011, Duke Energy defended against the
allegations in its responsive testimony. The OUCC and intervenors
filed their final rebuttal testimony in Phase II on or before October 7,
2011, making similar claims of fraud, concealment and gross
mismanagement and recommending the same outcome of limiting
Duke Energy Indiana’s recovery to the $1.985 billion initial cost
estimate. Additionally, the CAC parties recommended that recovery
belimitedtothecostsincurredontheIGCCprojectasof
November 30, 2009 (Duke Energy Indiana estimates it had
committed costs of $1.6 billion), with further IURC proceedings to be
held to determine the financial consequences of this
recommendation.
On October 19, 2011, Duke Energy revised its project cost
estimate from approximately $2.82 billion, excluding financing costs,
to approximately $2.98 billion, excluding financing costs. The revised
estimate reflects additional cost pressures resulting from quantity
increases and the resulting impact on the scope, productivity and
schedule of the IGCC project. Duke Energy Indiana previously
proposed to the IURC a cost cap of approximately $2.72 billion, plus
the actual AFUDC that accrues on that amount. As a result, Duke
Energy Indiana recorded a pre-tax impairment charge of
approximately $222 million in the third quarter of 2011 related to
costsexpectedtobeincurredabovethecostcap.Thischargeisin
addition to a pre-tax impairment charge of approximately $44 million
recorded in the third quarter of 2010 as discussed above. These
charges are recorded in Goodwill and other impairment charges on
Duke Energy’s Consolidated Statement of Operations, and in
Impairment charges on Duke Energy Indiana’s Consolidated
Statements of Operations. The cost cap, if approved by the IURC,
limits the amount of project construction costs that may be
incorporated into customer rates in Indiana. As a result of the
proposed cost cap, recovery of these cost increases is not considered
probable. Additional updates to the cost estimate could occur through
the completion of the plant in 2012.
Phase I and Phase II hearings concluded on January 24, 2012.
Final orders from the IURC on Phase I and Phase II of the subdocket
and the pending IGCC rider proceedings are expected no sooner than
the end of the third quarter 2012.
Duke Energy is unable to predict the ultimate outcome of these
proceedings. In the event the IURC disallows a portion of the plant
costs, including financing costs, or if cost estimates for the plant
increase, additional charges to expense, which could be material,
could occur.Construction of the Edwardsport IGCC plant is ongoing
and is currently expected to be completed and placed in-service in
2012.
Duke Energy Indiana Carbon Sequestration.
Duke Energy Indiana filed a petition with the IURC requesting
approval of its plans for studying carbon storage, sequestration and/or
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