Duke Energy 2011 Annual Report Download - page 156

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
the appeals were consolidated in the North Carolina Office of
Administrative Hearings. Through rulings on motions to dismiss and
motions for summary judgment, the administrative law judge
narrowed the issues for hearing and two of the parties appealing were
dismissed. A hearing was scheduled in October 2011. On October 5,
2011, petitioners and Duke Energy Carolinas agreed to a settlement
in principle. The settlement agreement was executed on January 3,
2012. Pursuant to this agreement and existing requirements in the
air permit, Duke Energy Carolinas will retire 1667 MWs of older coal-
fired units between May 2011 and December 2020. Petitioners
moved to dismiss their petitions on January 17, 2012, and the
administrative law judge granted the motion to dismiss on
January 18, 2012. This matter is now resolved.
Asbestos-related Injuries and Damages Claims.
Duke Energy Carolinas has experienced numerous claims for
indemnification and medical cost reimbursement relating to damages
for bodily injuries alleged to have arisen from the exposure to or use
of asbestos in connection with construction and maintenance
activities conducted on its electric generation plants prior to 1985. As
of December 31, 2011, there were 181 asserted claims for
non-malignant cases with the cumulative relief sought of up to $38
million, and 32 asserted claims for malignant cases with the
cumulative relief sought of up to $8 million. Based on Duke Energy
Carolinas’ experience, it is expected that the ultimate resolution of
most of these claims likely will be less than the amount claimed.
Amounts recognized as asbestos-related reserves related to
Duke Energy Carolinas in the respective Consolidated Balance Sheets
totaled $801 million and $853 million as of December 31, 2011
2010, respectively, and are classified in Other within Deferred Credits
and Other Liabilities and Other within Current Liabilities. These
reserves are based upon the minimum amount in Duke Energy
Carolinas’ best estimate of the range of loss for current and future
asbestos claims through 2030. Management believes that it is
possible there will be additional claims filed against Duke Energy
Carolinas after 2030. In light of the uncertainties inherent in a longer-
term forecast, management does not believe that they can reasonably
estimate the indemnity and medical costs that might be incurred after
2030 related to such potential claims. Asbestos-related loss estimates
incorporate anticipated inflation, if applicable, and are recorded on an
undiscounted basis. These reserves are based upon current estimates
and are subject to greater uncertainty as the projection period
lengthens. A significant upward or downward trend in the number of
claims filed, the nature of the alleged injury, and the average cost of
resolving each such claim could change our estimated liability, as
could any substantial or favorable verdict at trial. A federal legislative
solution, further state tort reform or structured settlement transactions
could also change the estimated liability. Given the uncertainties
associated with projecting matters into the future and numerous other
factors outside our control, management believes that it is possible
Duke Energy Carolinas may incur asbestos liabilities in excess of the
recorded reserves.
Duke Energy Carolinas has a third-party insurance policy to
cover certain losses related to asbestos-related injuries and damages
above an aggregate self insured retention of $476 million. Duke
Energy Carolinas’ cumulative payments began to exceed the self
insurance retention on its insurance policy in 2008. Future payments
up to the policy limit will be reimbursed by Duke Energy Carolinas’
third party insurance carrier. The insurance policy limit for potential
future insurance recoveries for indemnification and medical cost
claim payments is $968 million in excess of the self insured
retention. Insurance recoveries of $813 million and $850 million
related to this policy are classified in the respective Consolidated
Balance Sheets in Other within Investments and Other Assets and
Receivables as of December 31, 2011 and December 31, 2010,
respectively. Duke Energy Carolinas is not aware of any uncertainties
regarding the legal sufficiency of insurance claims. Management
believes the insurance recovery asset is probable of recovery as the
insurance carrier continues to have a strong financial strength rating.
Duke Energy Ohio
Antitrust Lawsuit.
In January 2008, four plaintiffs, including individual, industrial
and nonprofit customers, filed a lawsuit against Duke Energy Ohio in
federal court in the Southern District of Ohio. Plaintiffs alleged that
Duke Energy Ohio (then The Cincinnati Gas & Electric Company),
conspired to provide inequitable and unfair price advantages for
certain large business consumers by entering into non-public option
agreements with such consumers in exchange for their withdrawal of
challenges to Duke Energy Ohio’s pending Rate Stabilization Plan
(RSP), which was implemented in early 2005. On March 31, 2009,
the District Court granted Duke Energy Ohio’s motion to dismiss.
Plaintiffs filed a motion to alter or set aside the judgment, which was
denied by an order dated March 31, 2010. In April 2010, the
plaintiffs filed their appeal of that order with the U.S. Court of Appeals
for the Sixth Circuit, which heard argument on that appeal on
January 11, 2012. It is not possible to predict at this time whether
Duke Energy Ohio will incur any liability or to estimate the damages,
if any, that Duke Energy Ohio might incur in connection with this
lawsuit.
Asbestos-related Injuries and Damages Claims.
Duke Energy Ohio has been named as a defendant or
co-defendant in lawsuits related to asbestos at its electric generating
stations. The impact on Duke Energy Ohio’s consolidated results of
operations, cash flows or financial position of these cases to date has
not been material. Based on estimates under varying assumptions
concerning uncertainties, such as, among others: (i) the number of
contractors potentially exposed to asbestos during construction or
maintenance of Duke Energy Ohio generating plants; (ii) the possible
incidence of various illnesses among exposed workers, and (iii) the
potential settlement costs without federal or other legislation that
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