Duke Energy 2011 Annual Report Download - page 155

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
Energy, Diamond Acquisition Corporation and Directors of Progress
Energy. The lawsuits allege that the individual defendants breached
their fiduciary duties to Progress Energy shareholders and that Duke
Energy and Diamond Acquisition Corporation, aided and abetted the
individual defendants. The plaintiffs seek damages and to enjoin the
merger. One of the state court cases was voluntarily dismissed. On
July 11, 2011, the parties to the remaining nine state court cases
entered into a Memorandum of Understanding for a disclosure-based
settlement of the litigation. The court’s final order approving the
settlement was issued on November 29, 2011. The time period for
appeal ended on January 18, 2012.
The plaintiff in one of the federal court lawsuits filed a motion for
voluntary withdrawal, leaving one federal case pending. The
complaint in the federal action includes allegations that defendants
violated federal securities laws in connection with the statements
contained in Duke Energy’s Registration Statement on Form S-4, as
amended, and is now subject to the notice requirements of the
Private Securities Litigation Reform Act. Plaintiff’s counsel in the
federal case have sent a total of four derivative demand letters to
Progress Energy demanding that Progress Energy’s board of directors
make certain disclosures, desist from moving forward with the merger
and engage in an auction of the company. Progress Energy has
indicated that it is evaluating those demands. On August 3, 2011,
the Court issued a scheduling order granting the plaintiffs’ unopposed
motion for preliminary approval of the proposed settlement. On
December 8, 2011, the Plaintiff filed a Notice of Voluntary Dismissal
terminating the litigation.
Federal Advanced Clean Coal Tax Credits.
Duke Energy Carolinas has been awarded $125 million of
federal advanced clean coal tax credits associated with its
construction of Cliffside Unit 6 and Duke Energy Indiana has been
awarded $134 million of federal advanced clean coal tax credits
associated with its construction of the Edwardsport IGCC plant. In
March, 2008, two environmental groups, Appalachian Voices and
the Canary Coalition, filed suit against the Federal government
challenging the tax credits awarded to incentivize certain clean coal
projects. Although Duke Energy was not a party to the case, the
allegations center on the tax incentives provided for the Cliffside and
Edwardsport projects. The initial complaint alleged a failure to comply
with the National Environmental Policy Act. The first amended
complaint, filed in August 2008, added an Endangered Species Act
claim and also sought declaratory and injunctive relief against the
DOE and the U.S. Department of the Treasury. In 2008, the District
Court dismissed the case. On September 23, 2009, the District Court
issued an order granting plaintiffs’ motion to amend their complaint
and denying, as moot, the motion for reconsideration. Plaintiffs have
filed their second amended complaint. The Federal government has
moved to dismiss the second amended complaint; the motion is
pending. On July 26, 2010, the District Court denied plaintiffs’
motion for preliminary injunction seeking to halt the issuance of the
tax credits.
Duke Energy Carolinas
Duke Energy Carolinas Cliffside Unit 6 Permit.
On July 16, 2008, the Southern Alliance for Clean Energy,
Environmental Defense Fund, National Parks Conservation
Association, Natural Resources Defenses Council, and Sierra Club
(collectively referred to as Citizen Groups) filed suit in U.S District
Court for the Western District of North Carolina alleging that Duke
Energy Carolinas violated the CAA when it commenced construction
of Cliffside Unit 6 without obtaining a determination that the MATS
emission limits will be met for all prospective hazardous air emissions
at that plant. The Citizen Groups claim the right to injunctive relief
against further construction at the plant as well as civil penalties in
the amount of up to $32,500 per day for each alleged violation. In
July 2008, Duke Energy Carolinas voluntarily performed a MATS
assessment of air emission controls planned for Cliffside Unit 6 and
submitted the results to the Department of Environment and Natural
Resources (DENR). On December 2, 2008, the Court granted
summary judgment in favor of the Plaintiffs and entered judgment
ordering Duke Energy Carolinas to initiate a MATS process before the
DAQ. The court did not issue an injunction against further
construction, but retained jurisdiction to monitor the MATS
proceedings. On December 4, 2008, Duke Energy Carolinas
submitted its MATS filing and supporting information to the DAQ
specifically seeking DAQ’s concurrence as a threshold matter that
construction of Cliffside Unit 6 is not a major source subject to
section 112 of the CAA and submitting a MATS determination
application. Concurrent with the initiation of the MATS process, Duke
Energy Carolinas filed a notice of appeal to the Fourth Circuit Court of
Appeals of the Court’s December 2, 2008 order to reverse the Court’s
determination that Duke Energy Carolinas violated the CAA. The DAQ
issued the revised permit on March 13, 2009, finding that Cliffside
Unit 6 is a minor source of hazardous air pollutants (HAPs) and
imposing operating conditions to assure that emissions stay below
the major source threshold. Based upon DAQ’s minor-source
determination, Duke Energy Carolinas filed a motion requesting that
the court abstain from further action on the matter and dismiss the
plaintiffs’ complaint. The court granted Duke Energy Carolinas motion
to abstain and dismissed the plaintiffs’ complaint without prejudice,
but also ordered Duke Energy Carolinas to pay the plaintiffs’ attorneys’
fees. On August 3, 2009, plaintiffs filed a notice of appeal of the
court’s order and Duke Energy Carolinas likewise appealed on the
grounds, among others, that the dismissal should have been with
prejudice and the court should not have ordered payment of
attorneys’ fees. The appeals have been consolidated. On April 14,
2011, the Fourth Circuit Court of Appeals affirmed the district court’s
ruling awarding fees to defendants. Duke Energy Carolinas filed a
request for rehearing, which was denied, on May 10, 2011. A
settlement was reached in January 2012. Duke Energy Carolinas has
paid the attorneys fees and this matter is resolved.
The revised permits, issued by DAQ on January 29, 2008 and
March 13, 2009, were appealed by seven different organizations and
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