Duke Energy 2011 Annual Report Download - page 147

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
Other Matters.
Duke Energy Ohio and Duke Energy Kentucky Regional
Transmission Organization Realignment.
Duke Energy Ohio, which includes its wholly-owned subsidiary
Duke Energy Kentucky, transferred control of its transmission assets
to effect a Regional Transmission Organization (RTO) realignment
from the Midwest Independent Transmission System Operator, Inc.
(Midwest ISO) to PJM, effective December 31, 2011.
On December 16, 2010, FERC issued an order related to the
Midwest ISO’s cost allocation methodology surrounding Multi-Value
Projects (MVP), a type of Midwest ISO Transmission Expansion
Planning (MTEP) project cost. The Midwest ISO expects that MVP
will fund the costs of large transmission projects designed to bring
renewable generation from the upper Midwest to load centers in the
eastern portion of the Midwest ISO footprint. The Midwest ISO
approved MVP proposals with estimated project costs of
approximately $5.2 billion prior to the date of Duke Energy Ohio’s exit
from the Midwest ISO on December 31, 2011. These projects are
expected to be undertaken by the constructing transmission owners
from 2012 through 2020 with costs recovered through the Midwest
ISOovertheusefullifeoftheprojects.TheFERCorderdidnotclearly
and expressly approve the Midwest ISO’s apparent interpretation that
a withdrawing transmission owner is obligated to pay its share of
costs of all MVP projects approved by the Midwest ISO up to the date
of the withdrawing transmission owners’ exit from the Midwest ISO.
Duke Energy Ohio, including Duke Energy Kentucky, has historically
represented approximately five-percent of the Midwest ISO system.
The impact of this order is not fully known, but could result in a
substantial increase in the Midwest ISO transmission expansion costs
allocated to Duke Energy Ohio and Duke Energy Kentucky
subsequent to a withdrawal from the Midwest ISO. Duke Energy Ohio
and Duke Energy Kentucky, among other parties, sought rehearing of
the FERC MVP order. On October 21, 2011, the FERC issued an
order on rehearing in this matter largely affirming its original MVP
order and conditionally accepting Midwest ISO’s compliance filing as
well as determining that the MVP allocation methodology is
consistent with cost causation principles and FERC precedent. The
FERC also reiterated that it will not prejudge any settlement
agreement between an RTO and a withdrawing transmission owner
for fees that a withdrawing transmission owner owes to the RTO. The
order further states that any such fees that a withdrawing
transmission owner owes to an RTO are a matter for those parties to
negotiate, subject to review by the FERC. The FERC also ruled that
Duke Energy Ohio and Duke Energy Kentucky’s challenge of the
Midwest ISO’s ability to allocate MVP costs to a withdrawing
transmission owner is beyond the scope of the proceeding. The Order
further stated that Midwest ISO’s tariff withdrawal language
establishes that once cost responsibility for transmission upgrades is
determined, withdrawing transmission owners retain any costs
incurred prior to the withdrawal date. In order to preserve their rights,
Duke Energy Ohio and Duke Energy Kentucky filed an appeal of the
FERC order in the D.C. Circuit Court of Appeals. The case was
consolidated with appeals of the FERC order by other parties in the
Seventh Circuit Court of Appeals.
Duke Energy Ohio and Duke Energy Kentucky have entered into
settlements or have received state regulatory approvals associated
with the RTO realignment if ultimately allocated to Duke Energy Ohio
and Duke Energy Kentucky. On December 22, 2010, the KPSC
issued an order granting approval of Duke Energy Kentucky’s request
to effect the RTO realignment, subject to several conditions. The
conditions accepted by Duke Energy Kentucky include a commitment
to not seek to double-recover in a future rate case the transmission
expansion fees that may be charged by the Midwest ISO and PJM in
the same period or overlapping periods. On January 25, 2011, the
KPSC issued an order stating that the order had been satisfied and is
now unconditional.
On April 26, 2011, Duke Energy Ohio, Ohio Energy Group, The
Office of Ohio Consumers’ Counsel and the Commission Staff filed an
Application and a Stipulation with the PUCO regarding Duke Energy
Ohio’s recovery via a non-bypassable rider of certain costs related to
its proposed RTO realignment. Under the Stipulation, Duke Energy
Ohio would recover all MTEP costs, including but not limited to MVP
costs, directly or indirectly charged to Duke Energy Ohio retail
customers. Duke Energy Ohio would not seek to recover any portion
of the Midwest ISO exit obligation, PJM integration fees, or internal
costs associated with the RTO realignment and the first $121 million
of PJM transmission expansion costs from Ohio retail customers.
Duke Energy Ohio also agreed to vigorously defend against any
charges for MVP projects from Midwest ISO. On May 25, 2011, the
Stipulation was approved by the PUCO. An application for rehearing
filed by Ohio Partners for Affordable Energy was denied by the PUCO
on July 15, 2011.
On October 14, 2011, Duke Energy Ohio and Duke Energy
Kentucky filed an application with the FERC to establish new
wholesale customer rates for transmission service under PJM’s Open
Access Transmission Tariff. In this filing, Duke Energy Ohio and Duke
Energy Kentucky are seeking recovery of their legacy MTEP costs.
The new rates went into effect, subject to refund, on January 1,
2012. Protests were filed by certain transmission customers. The
matter is pending response from FERC.
On November 2, 2011, the Midwest ISO, the Midwest ISO
Transmission Owners, Duke Energy Ohio and Duke Energy Kentucky
jointly submitted to the FERC a filing that addresses the treatment of
MTEP costs, excluding MVP costs. The November 2, 2011 filing,
which was accepted by the FERC on December 30, 2011, provides
that the MISO Transmission Owners will continue to be obligated to
construct the non-MVP MTEP projects, for which Duke Energy Ohio
and Duke Energy Kentucky will continue to be obligated to pay a
portion of the costs. Likewise, transmission customers serving load in
the Midwest ISO will continue to be obligated to pay a portion of the
costs of a previously identified non-MVP MTEP project that Duke
Energy Ohio has constructed.
127