Duke Energy 2012 Annual Report Download - page 44

PART I
24
of replacement power, and the degree of recoverability of these costs, are all
subject to signifi cant uncertainties. Additional developments with respect to
Crystal River Unit 3, costs that are greater than anticipated and recoverability
that is less than anticipated could adversely affect Duke Energy’s, Progress
Energy’s and Progress Energy Florida’s fi nancial condition, results of operations
and cash fl ows.
Duke Energy Ohio’s and Duke Energy Indiana’s membership in a RTO
presents risks that could have a material adverse effect on their results of
operations, fi nancial condition and cash fl ows.
The price at which Duke Energy Ohio can sell its generation capacity
and energy is dependent on a number of factors, which include the overall
supply and demand of generation and load, other state legislation or regulation,
transmission congestion, and its business rules. As a result, the prices in
day–ahead and real–time energy markets and RTO capacity markets are subject
to price volatility. Administrative costs imposed by RTOs, including the cost of
administering energy markets, are also subject to volatility. PJM Interconnection,
LLC (PJM) conducts Reliability Pricing Model (RPM) base residual auctions for
capacity on an annual planning year basis. The results of the PJM RPM base
residual auction are impacted by the supply and demand of generation and
load and also may be impacted by congestion and PJM rules relating to bidding
for Demand Response and Energy Effi ciency resources. Auction prices could
fl uctuate substantially over relatively short periods of time. Duke Energy Ohio
cannot predict the outcome of future auctions, but if the auction prices are
sustained at low levels, its results of operations, fi nancial condition and cash
fl ows could be adversely impacted.
The rules governing the various regional power markets may also change,
which could affect Duke Energy Ohio’s and Duke Energy Indiana’s costs and/
or revenues. To the degree Duke Energy Ohio and Duke Energy Indiana incur
signifi cant additional fees and increased costs to participate in an RTO, their
results of operations may be impacted. Duke Energy Ohio and Duke Energy
Indiana may be allocated a portion of the cost of transmission facilities built
by others due to changes in RTO transmission rate design. Duke Energy Ohio
and Duke Energy Indiana may be required to expand their transmission system
according to decisions made by an RTO rather than their own internal planning
process. While RTO transmission rates were initially designed to be revenue
neutral, various proposals and proceedings currently taking place by the FERC
may cause transmission rates to change from time to time. In addition, RTOs
has been developing rules associated with the allocation and methodology of
assigning costs associated with improved transmission reliability, reduced
transmission congestion and fi rm transmission rights that may have a fi nancial
impact on Duke Energy Ohio and Duke Energy Indiana. Duke Energy Ohio and
Duke Energy Indiana may also incur fees and costs to participate in RTOs.
As a members of an RTO, Duke Energy Ohio and Duke Energy Indiana are
subject to certain additional risks, including those associated with the allocation
among RTO members, of losses caused by unreimbursed defaults of other
participants in the RTO markets and those associated with complaint cases fi led
against an RTO that may seek refunds of revenues previously earned by RTO
members, including Duke Energy Ohio and Duke Energy Indiana.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.