Duke Energy 2014 Annual Report Download - page 142

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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)
Duke Energy Kentucky is required to pay dividends solely out of retained
earnings and to maintain a minimum of 35 percent equity in its capital
structure.
Duke Energy Indiana
Duke Energy Indiana must limit cumulative distributions subsequent
to the merger between Duke Energy and Cinergy to (i) the amount of retained
earnings on the day prior to the closing of the merger, plus (ii) any future
earnings recorded. In addition, Duke Energy Indiana will not declare and pay
dividends out of capital or unearned surplus without prior authorization of the
IURC.
The restrictions discussed above were less than 25 percent of Duke
Energy’s net assets at December 31, 2014.
RATE RELATED INFORMATION
The NCUC, PSCSC, FPSC, IURC, PUCO and KPSC approve rates for
retail electric and natural gas services within their states. The FERC approves
rates for electric sales to wholesale customers served under cost-based rates
(excluding Ohio and Indiana), as well as sales of transmission service.
Duke Energy Carolinas
2013 North Carolina Rate Case
On September 24, 2013, the NCUC approved a settlement agreement
related to Duke Energy Carolinas’ request for a rate increase with minor
modifi cations. The NCUC Public Staff (Public Staff) was a party to the
settlement. The settling parties agreed to a three-year step-in rate increase,
with the fi rst two years providing for $204 million, or a 4.5 percent average
increase in rates, and the third year providing for rates to be increased by an
additional $30 million, or 0.6 percent. The agreement is based upon a return
on equity of 10.2 percent and an equity component of the capital structure of
53 percent. The settlement agreement (i) allows for the recognition of nuclear
outage expenses over the refueling cycle rather than when the outage occurs,
(ii) a $10 million shareholder contribution to agencies that provide energy
assistance to low-income customers, and (iii) an annual reduction in the
regulatory liability for costs of removal of $30 million for each of the fi rst two
years. Duke Energy Carolinas has agreed not to request additional base rate
increases to be effective before September 2015. New rates went into effect on
September 25, 2013.
On October 23, 2013, the North Carolina Attorney General (NCAG)
appealed the rate of return and capital structure approved in the agreement.
The NC Waste Awareness and Reduction Network (NC WARN) appealed various
matters in the settlement on October 24, 2013. The North Carolina Supreme
Court (NCSC) denied a motion to consolidate these appeals with other North
Carolina rate case appeals involving Duke Energy Carolinas and Duke Energy
Progress on March 13, 2014. Briefi ng concluded in this matter and oral
argument occurred on September 8, 2014. On January 23, 2015, the NCSC
affi rmed the NCUC’s September 24, 2013 order.
2013 South Carolina Rate Case
On September 11, 2013, the PSCSC approved a settlement agreement
related to Duke Energy Carolinas’ request for a rate increase. Parties to the
settlement agreement were the Offi ce of Regulatory Staff, Wal-Mart Stores East,
LP and Sam’s East, Incorporated, the South Carolina Energy Users Committee,
Public Works of the City of Spartanburg, South Carolina and the South Carolina
Small Business Chamber of Commerce. The parties agreed to a two-year step-
in rate increase, with the fi rst year providing for approximately $80 million, or a
5.5 percent average increase in rates, and the second year providing for rates
to be increased by an additional $38 million, or 2.6 percent. The settlement
agreement is based upon a return on equity of 10.2 percent and a 53 percent
equity component of the capital structure. The settlement agreement (i) allows
for the recognition of nuclear outage expenses over the refueling cycle rather
than when the outage occurs, (ii) approximately $4 million of contributions
to agencies that provide energy assistance to low-income customers and for
economic development, and (iii) a reduction in the regulatory liability for costs of
removal of $45 million for the fi rst year. Duke Energy Carolinas has agreed not
to request additional base rate increases to be effective before September 2015.
New rates went into effect on September 18, 2013.
2011 North Carolina Rate Case
On January 27, 2012, the NCUC approved a settlement agreement related
to Duke Energy Carolinas’ request for a rate increase. On October 23, 2013,
the NCUC issued a second order in the case reaffi rming the rate of return
approved in the settlement agreement, in response to an appeal by the NCAG.
On November 21, 2013, the NCAG appealed the NCUC’s October 2013 order.
On December 19, 2014, the NCSC affi rmed the NCUC’s October 2013 order
concluding the appeal.
William States Lee Combined Cycle Facility
On April 9, 2014, the PSCSC granted Duke Energy Carolinas and NCEMC
a Certifi cate of Environmental Compatibility and Public Convenience and
Necessity (CECPCN) for the construction and operation of a 750 MW combined
cycle natural gas-fi red generating plant at its existing William States Lee
Generating Station in Anderson, South Carolina. On May 16, 2014, Duke Energy
Carolinas announced its intention to begin construction in summer 2015 and
estimated a cost to build of $600 million for its share of the facility, including
AFUDC. The project is expected to be commercially available in late 2017.
NCEMC will own approximately 13 percent of the project. On July 3, 2014,
the South Carolina Coastal Conservation League and Southern Alliance for
Clean Energy jointly fi led a Notice of Appeal with the Court of Appeals of South
Carolina seeking the court’s review of the PSCSC’s decision. Duke Energy
Carolinas’ initial brief in support of the PSCSC’s order granting the CECPCN was
fi led on January 12, 2015. Duke Energy Carolinas cannot predict the outcome of
this matter.
William States Lee III Nuclear Station
In December 2007, Duke Energy Carolinas applied to the NRC for a COL
for two Westinghouse AP1000 (advanced passive) reactors for the proposed
William States Lee III Nuclear Station (Lee Nuclear Station) at a site in Cherokee
County, South Carolina. Submitting the COL application did not commit Duke
Energy Carolinas to build nuclear units. Through several separate orders,
the NCUC and PSCSC concurred with the prudency of Duke Energy Carolinas
incurring certain project development and pre-construction costs, although
recovery of costs is not guaranteed. Duke Energy Carolinas has incurred
approximately $427 million, including AFUDC through December 31, 2014.
This amount is included in Net property, plant and equipment on Duke Energy
Carolinas’ Consolidated Balance Sheets.
Design changes have been identifi ed in the Westinghouse AP1000
certifi ed design that must be addressed before NRC can complete its review of