Duke Energy 2013 Annual Report Download - page 138

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PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, INC. • DUKE ENERGY FLORIDA, INC. • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
On January 28, 2014, Duke Energy Florida terminated the EPC. Duke
Energy Florida may be required to pay for work performed under the EPC
and to bring existing work to an orderly conclusion, including but not limited
to, costs to demobilize and cancel certain equipment and material orders
placed. Duke Energy Florida is allowed to recover reasonable and prudent EPC
cancellation costs from its retail customers. If Duke Energy Florida, at its own
discretion, decides not to pursue the COL prior to March 31, 2015, it agrees to
credit customers $10 million as a reduction to fuel costs.
In accordance with the 2013 Settlement, Duke Energy Florida ceased
amortization of the wholesale allocation of Levy investments against retail rates.
In the second quarter of 2013, Duke Energy Florida recorded a pretax charge
of $65 million to write-off the wholesale portion of Levy investments. This
amount is included in Impairment charges on the Statements of Operations and
Comprehensive Income.
Recovery of the remaining retail portion of the project costs will occur
over ve years from 2013 through 2017. Duke Energy Florida has an ongoing
responsibility to demonstrate prudency related to the wind down of the Levy
investment and the potential for salvage of Levy assets. As of December 31,
2013, Duke Energy Florida has a net uncollected investment in Levy of
approximately $264 million, including AFUDC. Of this amount, $50 million
is included in Regulatory assets, $117 million related to land and the COL is
included in Net, property, plant and equipment, and $97 million is included in
Regulatory assets within Current Assets on the Balance Sheets.
Crystal River 1 and 2 Coal Units
Duke Energy Florida has evaluated Crystal River 1 and 2 coal units for
retirement in order to comply with certain environmental regulations. Based on
this evaluation, those units will likely be retired by 2018. Once those units are
retired Duke Energy Florida will continue recovery of existing annual depreciation
expense through the end of 2020. Beginning in 2021, Duke Energy Florida will
be allowed to recover any remaining net book value of the assets from retail
customers through the Capacity Cost Recovery Clause. On December 31, 2013
Duke Energy Florida led a petition with the FPSC to allow for the recovery of
prudently incurred costs to comply with the Mercury and Air Toxics Standard
through the Environmental Cost Recovery Clause.
New Generation
Duke Energy Florida currently projects a signicant need for additional
generation to offset the impact of retirement of Crystal River Unit 3 as well as
the possible retirement of Crystal River 1 and 2 coal units. The 2013 Settlement
establishes a recovery mechanism for additional generation needs. This recovery
mechanism, the Generation Base Rate Adjustment (GBRA), will apply to (i) the
construction, uprate of existing generation, and/or purchase of up to 1,150 MW
of combustion turbine and/or combined cycle generating capacity prior to the end
of 2017, and (ii) the construction of additional generation of up to 1,800 MW to
be placed in service in 2018 upon FPSC approval of a need determination. The
GBRA allows recovery of prudent costs of these items through an increase in base
rates, upon the in-service date of such assets, without a general rate case at a
10.5 percent return on equity. On October 8, 2013, Duke Energy Florida issued a
request for proposals to evaluate alternatives for an additional generation facility.
Duke Energy Florida is currently reviewing bids received on December 9, 2013.
Cost of Removal Reserve
The 2012 Settlement and the 2013 Settlement provide Duke Energy
Florida the discretion to reduce cost of removal amortization expense up to
the balance in the cost of removal reserve until the earlier of its applicable
cost of removal reserve reaches zero or the expiration of the 2013 Settlement.
Duke 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. Duke Energy Florida recognized a reduction in amortization expense of
$114 million, $178 million, and $250 million for the years ended December 31,
2013, 2012, and 2011 respectively. Duke Energy Florida had no cost of removal
reserves eligible for amortization to income remaining at December 31, 2013.
Duke Energy Ohio
Capacity Rider Filing
On August 29, 2012, Duke Energy Ohio applied to the PUCO for the
establishment of a charge for capacity provided pursuant to its obligations as
a Fixed Resource Requirement (FRR) entity. The charge, which is consistent
with Ohio’s state compensation mechanism, is estimated to be approximately
$729 million, and reects Duke Energy Ohio’s embedded cost of capacity. On
February 13, 2014, the PUCO denied Duke Energy Ohio’s request.
2012 Electric Rate Case
On May 1, 2013, the PUCO approved a settlement agreement (the Electric
Settlement) related to Duke Energy Ohio’s electric distribution rate case. All
intervening parties signed the Electric Settlement. The Electric Settlement
provides for a net increase in electric distribution revenues of $49 million, or an
average increase of 2.9 percent, based upon a return on equity of 9.84 percent.
Revised rates were effective in May 2013.
2012 Natural Gas Rate Case
On April 2, 2013, Duke Energy Ohio, the PUCO Staff, and intervening
parties led a settlement (the Gas Settlement) with the PUCO related to a gas
distribution case. The Gas Settlement provides for no increase in base rates
for gas distribution service. The Gas Settlement left unresolved the recovery
of environmental remediation costs associated with former manufactured
gas plants (MGP). The Gas Settlement is based upon a return on equity of
9.84 percent.
On November 13, 2013, the PUCO issued an order approving the Gas
Settlement and allowing for the recovery of $56 million of MGP costs, excluding
carrying costs, to be recovered over a ve-year period beginning in 2014. On
February 19, 2014, the PUCO denied intervening consumer groups’ motion to
stay implementation of its order, or, in the alternative, to implement the MGP
rider subject to refund. Intervening groups have provided notice of their intent
to appeal the PUCO’s decision to the Ohio Supreme Court. Duke Energy Ohio
cannot predict the outcome of this matter.
Generation Asset Transfer
On April 2, 2012 and amended on June 22, 2012, Duke Energy Ohio and
various afliated entities 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-red
and combustion gas turbine assets to a nonregulated af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