Duke Energy 2011 Annual Report Download - page 8

Indiana
Cost pressures have challenged our Edwardsport IGCC
project in Indiana during construction. A proposal pending
with the Indiana Utility Regulatory Commission would
cap our recoverable construction costs at $2.72 billion,
excluding financing costs. This is more than the
$2.35 billion previously approved, but less than our
current project estimate of $2.98 billion (also excluding
financing costs).
Though interveners to the cost increase proceedings
have alleged the company concealed information and
mismanaged the project, we presented a strong case on
the company’s behalf at extensive hearings before the
Indiana commission that concluded in January, including
extensive testimony from independent experts.
We believe the costs of the Edwardsport project were
reasonable, prudent and necessary. We do not expect a
commission decision before the end of the third quarter
of this year.
Ohio
We have spent the last year seeking longer-term clarity
on the regulatory mechanisms for generation in Ohio. The
returns from our Ohio retail electric business have declined
over the past several years, as customers switched to other
generation suppliers with lower market-based prices.
On November 22, 2011, the Public Utilities
Commission of Ohio (PUCO) approved a new ESP
for Duke Energy Ohio. This ESP, which extends
through May 2015, balances the needs of customers
and investors, while also recognizing Ohio’s preference
for competitive markets. It ensures that our customers
will be better able to take advantage of today’s low market
rates, and it also gives the company strategic flexibility.
Key terms of the ESP include a three-year non-bypassable
stability charge totaling $330 million that will be collected
through 2014, market-based customer rates established
through competitive auctions, and the ability to transfer
Duke Energy Ohio generating assets to a non-regulated
affiliate or subsidiary no later than the end of 2014.
The first wholesale generation auction under the
new ESP resulted in a 17.5 percent lower rate for
a typical Duke Energy Ohio customer. Additionally,
on January 1, 2012, we completed the move of
the Duke Energy Ohio and Duke Energy Kentucky
transmission systems from the Midwest Independent
System Operator (MISO) to the PJM Interconnection
regional transmission organization, connecting us
with new market opportunities.
Positioned for commercial success
In 2011, our domestic and international commercial
businesses contributed $984 million, or approximately
27 percent of our total adjusted segment EBIT, due in
large part to exceptional earnings from our international
business. In 2012, we expect our Commercial Power
and International businesses will deliver approximately
25 percent of our adjusted segment net income.
In October I visited our Duke Energy International
operations in Peru and Brazil. I can confirm that the
people and assets there are every bit as impressive
as their 2011 earnings results. It was clear to me that
our corporate culture of safety, customer service and
operational excellence translates seamlessly across
our company’s international operations.
We have invested more than $2.5 billion in our
commercial renewable energy business since 2007.
This will be a record year for wind energy development at
Duke Energy, as we are on schedule to complete a total of
five large-scale wind farms located in Kansas, Pennsylvania
and Texas. By the end of 2012, Duke Energy Renewables
will own and operate more than 1,800 MW of wind and
solar power, virtually all of which is underpinned by long-
term power purchase agreements with other utilities.
In 2011, we advanced our commercial transmission
business through formation of a joint venture with
American Transmission Company to develop critically
needed long-distance transmission projects across
North America. Pioneer Transmission, a Duke and
AEP joint venture, aims to build and operate 240 miles
CHAIRMAN’S LETTER TO STAKEHOLDERS
6 DUKE ENERGY CORPORATION 2011 ANNUAL REPORT