Duke Energy 2014 Annual Report Download - page 145

125
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)
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. In April 2014, the FPSC
approved Duke Energy Florida’s petition 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
The 2013 Settlement establishes a recovery mechanism for additional
generation needs. This recovery mechanism, the Generation Base Rate
Adjustment, 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 May 27, 2014, Duke Energy Florida petitioned the FPSC for a
Determination of Need to (i) construct a 1,640 MW combined cycle natural gas
plant in Citrus County, Florida to be in service in 2018 with an estimated cost
of $1.5 billion, (ii) construct a 320 MW combustion turbine plant at its existing
Suwannee generating facility (Suwannee project) with an estimated cost of
$197 million, and (iii) add inlet chilling to its existing Hines Energy Complex
(Hines) combined cycle units which will increase the output of those units by
220 MW at an estimated cost of $160 million. These cost estimates include
AFUDC. On August 26, 2014, Duke Energy Florida requested the FPSC withdraw
consideration for the Suwannee project so that Duke Energy Florida could pursue
further negotiations on an alternative power plant acquisition. On October 2,
2014, the FPSC approved the requests for the Citrus County plant and the uprate
project at the Hines facility. Additional environmental and governmental approvals
will be sought for the Citrus County project. The Hines uprate project is expected
to be completed no later than 2017.
In December 2014, Duke Energy Florida and Osprey Energy Center, LLC, a
wholly owned subsidiary of Calpine Corporation (Calpine) entered into an Asset
Purchase and Sale Agreement for the purchase of a 599 MW combined cycle
natural gas plant in Auburndale, Florida (Osprey Plant acquisition) for approximately
$166 million. Closing is subject to the approval of FERC, FPSC and the expiration of
the Hart Scott Rodino waiting period and is expected to occur by the fi rst quarter of
2017 upon the expiration of an existing Power Purchase Agreement between Calpine
and Duke Energy Florida. On January 30, 2015, Duke Energy Florida fi led a petition
with the FPSC requesting a determination that the Osprey Plant acquisition or,
alternatively, the Suwannee project is the most cost effective generation alternative
to meet Duke Energy Florida’s remaining need prior to 2018.
Cost of Removal Reserve
The 2012 Settlement and the 2013 Settlement provide Duke Energy
Florida the discretion to reduce cost of removal amortization expense for a
certain portion of 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, and $178 million for the years ended December 31, 2013, and
2012 respectively. Duke Energy Florida had no cost of removal reserves eligible
for amortization to income remaining at December 31, 2013.
Duke Energy Ohio
W.C. Beckjord Fuel Release
On August 18, 2014, approximately 9,000 gallons of fuel oil were
inadvertently discharged into the Ohio River during a fuel oil transfer at the W.C.
Beckjord generating plant. The Ohio Environmental Protection Agency (Ohio
EPA) issued a Notice of Violation related to the discharge. Duke Energy Ohio is
cooperating with the Ohio EPA, the EPA and the U.S. Attorney for the Southern
District of Ohio, responding to a Request for Information from the EPA. No Notice
of Violation has been issued by the EPA and no civil or criminal penalty amount
has been established. Total repair and remediation costs related to the release
are not expected to be material. Other costs related to the release, including
state or federal civil enforcement proceedings, cannot be reasonably estimated
at this time.
2014 Electric Security Plan (ESP)
On May 29, 2014, Duke Energy Ohio fi led an application for approval of an
SSO in the form of an ESP, effective June 1, 2015. The proposed ESP includes a
competitive procurement process for SSO load, a distribution capital investment
rider, a tracking mechanism for incremental distribution costs caused by
major storms, and a cost-based recovery of Duke Energy Ohio’s contractual
entitlement in OVEC. The proposed plan also seeks rate design modifi cations
and continuance, revision, or termination of existing riders. An evidentiary
hearing in this case concluded in November 2014 and fi nal briefs were
submitted in December 2014. Duke Energy Ohio cannot predict the outcome of
this matter.
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 entity. The charge, which was consistent with
Ohio’s state compensation mechanism, was estimated to be approximately
$729 million, and refl ected 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 between
Duke Energy Ohio and all intervening parties (the Electric Settlement) related
to Duke Energy Ohio’s electric distribution rate case. 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 November 13, 2013, the PUCO issued an order approving a settlement
among Duke Energy Ohio, the PUCO Staff and intervening parties (the Gas
Settlement). The Gas Settlement provided for (i) no increase in base rates
for natural gas distribution service and (ii) a return on equity of 9.84 percent.
The Gas Settlement provided for a subsequent hearing on Duke Energy Ohio’s
request for rider recovery of environmental remediation costs associated with
its former MGP sites. After the conclusion of the evidentiary hearing and briefs,
the PUCO authorized Duke Energy Ohio to recover $56 million, excluding carrying
costs, of environmental remediation costs. The MGP rider became effective in
April 2014 for a fi ve-year period. On March 31, 2014, Duke Energy Ohio fi led