Duke Energy 2014 Annual Report Download - page 143

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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)
the Lee Nuclear Station COL application. These design changes set the schedule
for completion of the NRC COL application review and issuance of the Lee COL.
Receipt of the Lee Nuclear Station COL is currently expected by mid-2016.
Duke Energy Progress
2012 North Carolina Rate Case
On May 30, 2013, the NCUC approved a settlement agreement related
to Duke Energy Progress’ request for a rate increase. The Public Staff was a
party to the settlement agreement. The settling parties agreed to a two-year
step-in rate increase, with the fi rst year providing for a $147 million, or a 4.5
percent average increase in rates, and the second year providing for rates to
be increased by an additional $31 million, or a 1.0 percent average increase
in rates. 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 $20 million
shareholder contribution to agencies that provide energy assistance to low-
income customers, and (iii) a reduction in the regulatory liability for costs of
removal of $20 million for the fi rst year. The initial rate increase went into effect
on June 1, 2013 and the step-in rate increase went into effect in June 2013.
On July 1, 2013, the NCAG appealed the NCUC’s approval of the rate of
return and capital structure included in the agreement. NC WARN also appealed
various matters in the settlement. On August 20, 2014, the NCSC affi rmed
the NCUC’s order approving Duke Energy Progress’ rate of return and capital
structure concluding the appeal.
L.V. Sutton Combined Cycle Facility
Duke Energy Progress completed construction of a 625 MW combined
cycle natural gas-fi red generating facility at its existing L.V. Sutton Steam
Station (Sutton) in New Hanover County, North Carolina. Sutton began
commercial operations in the fourth quarter of 2013.
Shearon Harris Nuclear Station Expansion
In 2006, Duke Energy Progress selected a site at Harris to evaluate for
possible future nuclear expansion. On February 19, 2008, Duke Energy Progress
fi led its COL application with the NRC for two Westinghouse AP1000 reactors
at Harris, which the NRC docketed for review. On May 2, 2013, Duke Energy
Progress fi led a letter with the NRC requesting the NRC to suspend its review
activities associated with the COL at the Harris site. As a result of the decision
to suspend the COL applications, during the second quarter of 2013, Duke
Energy Progress recorded a pretax impairment charge of $22 million which
represented costs associated with the COL, which were not probable of recovery.
As of December 31, 2014, approximately $48 million is recorded in Regulatory
assets on Duke Energy Progress’ Consolidated Balance Sheets.
Wholesale Depreciation Rates
On April 19, 2013, Duke Energy Progress fi led an application with FERC
for acceptance of changes to generation depreciation rates and in August 2013
fi led for acceptance of additional changes. These changes affect the rates
of Duke Energy Progress’ wholesale power customers that purchase or will
purchase power under formula rates. Certain Duke Energy Progress wholesale
customers fi led interventions and protests. FERC accepted the depreciation
rate changes, subject to refund, and set the matter for settlement and hearing
in a consolidated proceeding. FERC further initiated an action with respect to
the justness and reasonableness of the proposed rate changes. Settlement was
reached in October 2014 for changes to the depreciation rates and conforming
changes to the wholesale formula rates. FERC approved the settlement in
December 2014. The agreement will have no material or adverse impact to the
rates originally proposed by Duke Energy Progress, and Duke Energy Progress
will receive cost recovery for early retired plants previously included in the
depreciation rates.
Duke Energy Florida
FERC Transmission Return on Equity Complaint
On February 12, 2012, Seminole Electric Cooperative, Inc. and Florida
Municipal Power Agency fi led with FERC a complaint against Duke Energy
Florida alleging that the current rate of return on equity in Duke Energy Florida’s
transmission formula rates of 10.8 percent is unjust and unreasonable and
should be reduced to 9.02 percent. The complainants further alleged that
return on equity adjustments should take effect retroactive to January 1, 2010
under the governing transmission formula rate protocols. On May 13, 2013,
the complainants fi led a second complaint alleging that the return on equity
should be reduced to 8.63 percent or 8.84 percent. On June 19, 2014, FERC
issued orders consolidating the two complaints, setting them for settlement
and hearing procedures, setting refund effective dates of February 29, 2012
for the fi rst complaint and May 13, 2013 for the second complaint, and setting
for settlement and hearing the issue of whether return on equity adjustments
should take effect prior to the refund effective date of the fi rst complaint. On
August 12, 2014, the complainants fi led a third complaint alleging that the
return on equity should be 8.69 percent. On December 5, 2014, FERC issued
an order consolidating the third complaint with the fi rst two complaints for
the purposes of settlement, hearing, and decision, and establishing a refund
effective date of August 12, 2014 for the third complaint. The parties are
engaged in settlement discussions. Duke Energy Florida cannot predict the
outcome of this matter.
FPSC Settlement Agreements
On February 22, 2012, the FPSC approved a settlement agreement (the
2012 Settlement) among Duke Energy Florida, the Florida Offi ce of Public
Counsel (OPC) and other customer advocates. The 2012 Settlement was to
continue through the last billing cycle of December 2016. On October 17, 2013,
the FPSC approved a settlement agreement (the 2013 Settlement) between
Duke Energy Florida, OPC, and other customer advocates. The 2013 Settlement
replaces and supplants the 2012 Settlement and substantially resolves issues
related to (i) Crystal River Unit 3, (ii) Levy, (iii) Crystal River 1 and 2 coal units,
and (iv) future generation needs in Florida. Refer to the remaining sections
below for further discussion of these settlement agreements.
Crystal River Unit 3
On February 5, 2013, Duke Energy Florida announced the retirement of
Crystal River Unit 3. On February 20, 2013, Duke Energy Florida fi led with the
NRC a certifi cation of permanent cessation of power operations and permanent
removal of fuel from the reactor vessel. In December 2013, and March 2014,
Duke Energy Florida fi led an updated site-specifi c decommissioning plan with
the NRC and FPSC, respectively. The plan, which was approved by the FPSC in
November 2014, included a decommissioning cost estimate of $1,180 million,
including amounts applicable to joint owners, under the SAFSTOR option. Duke