Duke Energy 2012 Annual Report Download - page 140

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PART II
Combined Notes to Consolidated Financial Statements – (Continued)
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. • CAROLINA POWER & LIGHT COMPANY d/b/a PROGRESS ENERGY
CAROLINAS, INC. • FLORIDA POWER CORPORATION d/b/a PROGRESS ENERY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
in the service areas. The construction of these projects will occur over the next
two to three years. In conjunction with the Interim FERC Mitigation, Duke Energy
Carolinas and Progress Energy Carolinas entered into power sale agreements
with various counterparties that were effective with the consummation of the
merger. These agreements, or similar power sale agreements, will be in place
until the Long-term FERC Mitigation is operational. Under the agreements Duke
Energy will deliver around-the-clock power during the winter and summer in
quantities that vary by season and by peak period.
The FERC order requires an independent party to monitor whether the
power sale agreements remain in effect during construction of the transmission
projects and provide quarterly reports to the FERC regarding the status of
construction of the transmission projects.
On June 25, 2012, Duke Energy and Progress Energy accepted the
conditions imposed by the FERC.
On July 10, 2012, certain intervenors requested a rehearing seeking to
overturn the June 8, 2012 order by the FERC. On August 8, 2012, FERC granted
rehearing for further consideration.
North Carolina Utilities Commission and Public Service
Commission of South Carolina. In September 2011, Duke Energy and
Progress Energy reached settlements with the Public Staff of the North Carolina
Utilities Commission (NC Public Staff) and the South Carolina Offi ce of
Regulatory Staff (ORS) and certain other interested parties in connection with
the regulatory proceedings related to the merger, the JDA and the OATT that were
pending before the NCUC and PSCSC. These settlements were updated in May
2012 to refl ect the results of ongoing merger related applications pending before
the FERC.
On June 29, 2012, the NCUC approved the merger application and the JDA
application. On July 2, 2012, the PSCSC approved the JDA application subject
to Duke Energy Carolinas and Progress Energy Carolinas providing their South
Carolina retail customers pro rata benefi ts equivalent to those approved by the
NCUC in its merger approval order.
On July 6, 2012, the NCUC issued an order initiating investigation and
scheduling hearings on the Duke Energy Board of Directors’ decision on July 2,
2012, to replace William D. Johnson with James E. Rogers as President and
CEO of Duke Energy subsequent to the merger close, as well as other related
matters. On November 29, 2012, a settlement agreement was reached and
was subsequently approved by the NCUC on December 3, 2012. See Note 4
for further information.
As part of these settlements, approval of the merger by the NCUC and
PSCSC, and resolution of the subsequent investigation by the NCUC, Duke
Energy Carolinas and Progress Energy Carolinas agreed to the conditions and
obligations listed below.
• Guarantee of $687 million in system fuel and fuel-related savings
over 60 to 78 months for North Carolina and South Carolina retail
and wholesale customers. The savings are expected to be achieved
through coal blending, coal commodity and transportation savings, gas
transportation savings, and the joint dispatch of Duke Energy Carolinas
and Progress Energy Carolinas generation fl eets.
• Duke Energy Carolinas and Progress Energy Carolinas will not seek
recovery from retail customers for the cost of the Long-term FERC
Mitigation for fi ve years following merger consummation. After fi ve
years, Duke Energy Carolinas and Progress Energy Carolinas may seek
to recover the costs of the Long-term FERC Mitigation, but must show
that the projects are needed to provide adequate and reliable retail
service regardless of the merger.
• A $65 million rate reduction over the term of the Interim FERC
Mitigation to refl ect the cost of capacity not available to Duke Energy
Carolinas and Progress Energy Carolinas wholesale and retail
customers during the Interim FERC Mitigation. The rate reduction will
be achieved through retail decrement riders apportioned between Duke
Energy Carolinas and Progress Energy Carolinas retail customers.
• Duke Energy Carolinas and Progress Energy Carolinas will not seek
recovery from retail customers for any revenue shortfalls or fuel-related
costs associated with the Interim FERC Mitigation. The Interim FERC
Mitigation agreements were in a loss position for Duke Energy as of the
date of the merger consummation.
• Duke Energy Carolinas and Progress Energy Carolinas will not seek
recovery from retail customers for any revenue shortfalls or fuel-related
costs associated with the Interim FERC Mitigation.
• Duke Energy Carolinas and Progress Energy Carolinas will not seek
recovery from retail customers for any of their allocable share of merger
related severance costs.
• Duke Energy Carolinas and Progress Energy Carolinas will provide
community support and charitable contributions for four years,
workforce development, low income energy assistance, and funding for
green energy at a total cost of approximately $105 million, which cannot
be recovered from retail customers.
• Duke Energy Carolinas and Progress Energy Carolinas will abide by
revised North Carolina Regulatory Conditions and Code of Conduct
governing their operations.
• Duke Energy will make certain management personnel changes and
create a special committee of the Board of Directors to oversee the
recommendation of a successor to James E. Rogers, President and CEO,
and the search for two new members of the Board of Directors (see
Note 4 for further information).
Kentucky Public Service Commission. On June 24, 2011, Duke
Energy and Progress Energy fi led a settlement agreement with the Kentucky
Attorney General. On August 2, 2011, the KPSC issued an order conditionally
approving the merger and required Duke Energy and Progress Energy to accept
all conditions contained in the order. Duke Energy and Progress Energy requested
and were granted rehearing on the limited issue of the wording of one condition
relating to the composition of Duke Energy’s post-merger Board of Directors. On
October 28, 2011, the KPSC issued its order approving a settlement with the
Kentucky Attorney General on the revised condition relating to the composition
of the post-merger Duke Energy board. Duke Energy and Progress Energy fi led
their acceptance of the condition on November 2, 2011. Duke Energy Kentucky
agreed to (i) not fi le new gas or electric base rate applications for two years
from the date of the KPSC’s fi nal order in the merger proceedings, (ii) make
fi ve annual shareholder contributions of $165,000 to support low-income
weatherization efforts and economic development within Duke Energy Kentucky’s
service territory and (iii) not seek recovery from retail customers for any of their
allocable share of merger related costs.
Accounting Charges Related to the Merger Consummation
The following pre-tax consummation charges were recognized upon
closing of the merger and are included in the Duke Energy Registrant’s
Consolidated Statements of Operations and Comprehensive Income for the year
ended December 31, 2012.