Duke Energy 2012 Annual Report Download - page 154

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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.
V.C. Summer Nuclear Station Letter of Intent.
In July 2011, Duke Energy Carolinas signed a letter of intent with Santee
Cooper related to the potential acquisition by Duke Energy Carolinas of a 5% to
10% ownership interest in the V.C. Summer Nuclear Station being developed
by Santee Cooper and SCE&G near Jenkinsville, South Carolina. The letter of
intent provides a path for Duke Energy Carolinas to conduct the necessary due
diligence to determine if future participation in this project is benefi cial for its
customers. On November 7, 2012, the term of the letter of intent expired, though
Duke Energy Carolinas remains engaged in discussions at this time.
Progress Energy Carolinas
2012 North Carolina Rate Case.
On October 12, 2012, Progress Energy Carolinas fi led an application with
the NCUC for an increase in base rates of approximately $387 million, or an
average 12% increase in revenues. The request for increase is based upon
an 11.25% return on equity and a capital structure of 55% equity and 45%
long-term debt. The rate increase is designed primarily to recover the cost of
plant modernization and other capital investments in generation, transmission
and distribution systems, as well as increased expenditures for nuclear plants
and personnel, vegetation management and other operating costs. The rate
case includes a corresponding decrease in Progress Energy Carolinas’ energy
effi ciency and demand side management rider, resulting in a net requested
increase of $359 million, or 11% increase in retail revenues.
On February 25, 2013, the North Carolina Public Staff fi led with the
NCUC a Notice of Settlement in Principle (Settlement Notice). Pursuant to the
Settlement Notice between Progress Energy Carolinas and the Public Staff,
the parties have agreed to a two year step-in to a total agreed upon net rate
increase, with the fi rst year providing for a $151 million, or 4.7% average
increase in rates, and the second year providing for rates to be increased by
an additional $31 million, or 1.0% average increase in rates. This second year
increase is a result of Progress Energy Carolinas agreeing to delay collection of
fi nancing costs on the construction work in progress for the Sutton combined
cycle natural gas plant for one year. The Settlement Notice is based upon a
return on equity of 10.2% and a 53% equity component of the capital structure.
Once fi led, the actual settlement agreement will be subject to approval by
the NCUC. Progress Energy Carolinas expects revised rates, if approved, to go
into effect June 1, 2013.
HF Lee and L.V. Sutton Combined Cycle Facilities.
Progress Energy Carolinas has been constructing two new generating
facilities, which consist of an approximately 920 MW combined cycle natural
gas-fi red generating facility at the HF Lee Energy Complex (Lee) in Wayne
County, North Carolina, and an approximately 625 MW natural gas-fi red
generating facility at its existing L.V. Sutton Steam Station (Sutton) in
New Hanover County, North Carolina. The Lee project began commercial
operation in the fourth quarter of 2012. Total estimated costs at fi nal project
completion (including AFUDC) for the Sutton project, which is approximately
64% complete, are $600 million. Sutton is expected to be in service in the
fourth quarter of 2013.
Shearon Harris Nuclear Station Expansion.
In 2006, Progress Energy Carolinas selected a site at its existing Shearon
Harris Nuclear Station (Harris) to evaluate for possible future nuclear expansion.
On February 19, 2008, Progress Energy Carolinas fi led its COL application with
the NRC for two Westinghouse Electric AP1000 reactors at Harris, which the
NRC docketed on April 17, 2008. No petitions to intervene have been admitted
in the Harris COL application.
Progress Energy Florida
2012 FPSC Settlement Agreement.
On February 22, 2012, the FPSC approved a comprehensive settlement
agreement among Progress Energy Florida, the Florida Offi ce of Public Counsel
and other consumer advocates. The 2012 FPSC Settlement Agreement will
continue through the last billing cycle of December 2016. The agreement
addresses three principal matters: (i) Progress Energy Florida’s proposed Levy
Nuclear Station cost recovery, (ii) the Crystal River Nuclear Station — Unit 3
(Crystal River Unit 3) delamination prudence review then pending before the
FPSC, and (iii) certain customer rate matters. Refer to each of these respective
sections for further discussion.
Crystal River Unit 3.
In September 2009, Crystal River Unit 3 began an outage for normal
refueling and maintenance as well as an uprate project to increase its
generating capability and to replace two steam generators. During preparations
to replace the steam generators, workers discovered a delamination
(or separation) within the concrete at the periphery of the containment
building, which resulted in an extension of the outage. After analysis, it was
determined that the concrete delamination at Crystal River Unit 3 was caused
by redistribution of stresses in the containment wall that occurred when an
opening was created to accommodate the replacement of the unit’s steam
generators. In March 2011, the work to return the plant to service was suspended
after monitoring equipment identifi ed a new delamination that occurred in a different
section of the outer wall after the repair work was completed and during the late
stages of retensioning the containment building. Crystal River Unit 3 has remained
out of service while Progress Energy Florida conducted an engineering analysis and
review of the new delamination and evaluated possible repair options.
Subsequent to March 2011, monitoring equipment has detected additional
changes and further damage in the partially tensioned containment building
and additional cracking or delaminations could occur.
Progress Energy Florida developed a repair plan, which would entail
systematically removing and replacing concrete in substantial portions
of the containment structure walls, which had a preliminary cost estimate of
$900 million to $1.3 billion.
In March 2012, Duke Energy commissioned an independent review
team led by Zapata Incorporated (Zapata) to review and assess the Progress
Energy Florida Crystal River Unit 3 repair plan, including the repair scope,
risks, costs and schedule. In its fi nal report in late September, Zapata found
that the proposed repair scope appears to be technically feasible, but there
were signifi cant risks that need to be addressed regarding the approach,
construction methodology, scheduling and licensing. Zapata performed four
separate analyses of the estimated project cost and schedule to repair Crystal
River Unit 3, including; (i) an independent review of the proposed repair scope
(without existing assumptions or data), of which Zapata estimated costs of
$1.49 billion with a project duration of 35 months; (ii) a review of Progress
Energy Florida’s previous bid information, which included cost estimate data
from Progress Energy Florida, of which Zapata estimated costs of $1.55 billion
with a project duration of 31 months; (iii) an expanded scope of work scenario,
that included the Progress Energy Florida scope plus the replacement of the
containment building dome and the removal and replacement of concrete in the