Duke Energy 2012 Annual Report Download - page 157

137
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.
Cost of Removal Reserve.
The 2012 and 2010 FPSC Settlement Agreements (Settlement
Agreements) provide Progress Energy Florida the discretion to reduce cost
of removal amortization expense by up to the balance in the cost of removal
reserve until the earlier of (a) its applicable cost of removal reserve reaches
zero, or (b) the expiration of the 2012 FPSC Settlement Agreement. Progress
Energy Florida may not reduce amortization expense if the reduction would
cause it to exceed the appropriate high point of the return on equity range,
as established in the Settlement Agreements. Pursuant to the Settlement
Agreements, Progress Energy Florida recognized a reduction in amortization
expense of $178 million and $250 million for the years ended December 31,
2012 and 2011, respectively. Duke Energy recognized a reduction in
amortization expense of $120 million for the year ended December 31, 2012.
Progress Energy Florida had eligible cost of removal reserves of $110 million
remaining at December 31, 2012, which is impacted by accruals in accordance
with its latest depreciation study, removal costs expended and reductions in
amortization expense as permitted by the Settlement Agreements.
Anclote Units 1 and 2.
On March 29, 2012, Progress Energy Florida announced plans to convert
the 1,010 MW Anclote Units 1 and 2 (Anclote) from oil and natural gas fi red
to 100 percent natural gas fi red and requested that the FPSC permit recovery
of the estimated $79 million conversion cost through the Environmental Cost
Recovery Clause (ECRC). Progress Energy Florida believes this conversion is the
most cost-effective alternative for Anclote to achieve and maintain compliance
with applicable environmental regulations. On September 13, 2012, the FPSC
approved Progress Energy Florida’s request to seek cost recovery through the
ECRC. Progress Energy Florida anticipates that both converted units will be
placed in service by the end of 2013.
Duke Energy Ohio
Capacity Rider Filing.
On August 29, 2012, Duke Energy Ohio fi led an application with the
PUCO for the establishment of a charge, pursuant to Ohio’s state compensation
mechanism, for capacity provided consistent with its obligations as a Fixed
Resource Requirement (FRR) entity. The application included a request for
deferral authority and for a new tariff to implement the charge. The deferral
being sought is the difference between its costs and market-based prices for
capacity. The requested tariff would implement a charge to be collected via a
rider through which such deferred balances will subsequently be recovered.
24 parties moved to intervene. Hearings have been set for April 2, 2013. Under
the current procedural schedule, Duke Energy Ohio expects an order in 2013.
2012 Electric Rate Case.
On July 9, 2012, Duke Energy Ohio fi led an application with the PUCO
for an increase in electric distribution rates of approximately $87 million. On
average, total electric rates would increase approximately 5.1% under the fi ling.
The rate increase is designed to recover the cost of investments in projects
to improve reliability for customers and upgrades to the distribution system.
Pursuant to a stipulation in another case, Duke Energy Ohio will continue
recovering its costs associated with grid modernization in a separate rider.
Duke Energy Ohio expects revised rates, if approved, to go into effect in
the fi rst half of 2013.
2012 Natural Gas Rate Case.
On July 9, 2012, Duke Energy Ohio fi led an application with the PUCO
for an increase in natural gas distribution rates of approximately $45 million.
On average, total natural gas rates would increase approximately 6.6% under
the fi ling. The rate increase is designed to recover the cost of upgrades to the
distribution system, as well as environmental cleanup of manufactured gas
plant sites. In addition to the recovery of costs associated with MGP sites, the
rate request includes a proposal for an accelerated service line replacement
program and a new rider to recover the associated incremental cost. The fi ling
also requests that the PUCO renew the rider recovery of Duke Energy Ohio’s
accelerated main replacement program and grid modernization program.
On January 4, 2013, the PUCO Staff fi led a staff report recommending that
Duke Energy Ohio only be allowed to recover costs related to MGP sites which
are currently used and useful in the provision of natural gas distribution service.
Duke Energy Ohio fi led its objection to the staff report on February 4, 2013.
Duke Energy Ohio expects revised rates, if approved, to go into effect in
the fi rst half of 2013.
Generation Asset Transfer.
On April 2, 2012 and amended on June 22, 2012, Duke Energy Ohio and
various affi liated entities fi led an Application for Authorization for Disposition
of Jurisdictional Facilities with FERC. The application seeks to transfer, from
Duke Energy Ohio’s rate-regulated Ohio utility company, the legacy coal-fi red
and combustion gas turbine assets to a nonregulated affi liate, consistent
with the ESP stipulation approved by the PUCO on November 22, 2011. The
application outlines a potential additional step in the reorganization that
would result in a transfer of all of Duke Energy Ohio’s Commercial Power
business to an indirect wholly owned subsidiary of Duke Energy. The process
of determining the optimal corporate structure is an ongoing evaluation of
factors, such as tax considerations, that may change between now and the
transfer date. In conjunction with the transfer, Duke Energy Ohio’s capital
structure will be restructured to refl ect appropriate debt and equity ratios for its
regulated Franchised Electric and Gas operations. The transfer could instead be
accomplished within a wholly owned nonregulated subsidiary of Duke Energy Ohio
depending on fi nal tax structuring analysis. The FERC approved the application on
September 5, 2012. Duke Energy Ohio has agreed to transfer the legacy coal-fi red
and combustion gas turbine assets on or before December 31, 2014.
Standard Service Offer (SSO).
The PUCO approved Duke Energy Ohio’s current Electric Security Plan (ESP)
on November 22, 2011. The ESP effectively separates the generation of
electricity from Duke Energy Ohio’s retail load obligation and requires Duke
Energy Ohio to transfer its generation assets to a nonregulated affi liate on
or before December 31, 2014. The ESP includes competitive auctions for
electricity supply whereby the energy price is recovered from retail customers.
As a result, Duke Energy Ohio now earns retail margin on the transmission and
distribution of electricity only and not on the cost of the underlying energy. New
rates for Duke Energy Ohio went into effect for SSO customers on January 1,
2012. The ESP also includes a provision for a non-bypassable stability
charge of $110 million per year to be collected from January 1, 2012 through
December 31, 2014.
On January 18, 2012, the PUCO denied a request for rehearing of its
decision on Duke Energy Ohio’s ESP fi led by Columbus Southern Power and Ohio
Power Company.