Duke Energy 2014 Annual Report Download - page 147

127
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)
assuming timely recovery of fi nancing costs related to the project. The Citizens
Action Coalition of Indiana, Inc., Sierra Club, Inc., Save the Valley, Inc., and
Valley Watch, Inc. (collectively, the Joint Intervenors) were intervenors in several
matters related to the Edwardsport IGCC Plant.
On December 27, 2012, the IURC approved a settlement agreement (the
2012 Edwardsport settlement) related to the cost increase for the construction
of the project, including subdockets before the IURC related to the project. The
Offi ce of Utility Consumer Counselor (OUCC), the Duke Energy Indiana Industrial
Group and Nucor Steel-Indiana were parties to the settlement. The settlement
agreement, as approved, capped costs to be refl ected in customer rates at
$2.595 billion, including estimated AFUDC through June 30, 2012. Duke Energy
Indiana is allowed to recover AFUDC after June 30, 2012, until customer rates
are revised, with such recovery decreasing to 85 percent on AFUDC accrued
after November 30, 2012.
Over the course of construction of the project to date, Duke Energy Indiana
has recorded pretax charges of approximately $897 million related to the
project and the settlement agreement discussed above. Of this amount, pretax
impairment and other charges of $631 million were recorded during the year
ended December 31, 2012. These charges were recorded in Impairment charges
and Operations, maintenance and other on Duke Energy Indiana’s Consolidated
Statements of Operations and Comprehensive Income.
The project was placed in commercial operation in June 2013. Costs for
the Edwardsport IGCC plant are recovered from retail electric customers through
a tracking mechanism, the IGCC rider. Updates to the IGCC rider are fi led
semi-annually. An order on the eleventh semi-annual IGCC rider is currently
pending. The twelfth and thirteenth semi-annual IGGC riders were combined
into one proceeding. In this proceeding, the OUCC, Duke Energy Indiana
Industrial Group and Joint Intervenors alleged the Edwardsport IGCC plant
was not properly placed in commercial operation in June 2013 and therefore
operating and maintenance costs for the time period June 2013 through March
2014 should not be recoverable. The Duke Energy Indiana Industrial Group and
Joint Intervenors also argued that the plant’s performance was unsatisfactory
during the fi rst ten months of operations and recommended cost recovery
disallowances. Evidentiary hearings concluded in February 2015 and an order is
expected in the second half of 2015.
On March 18, 2014, the Indiana Court of Appeals denied an appeal
fi led by the Joint Intervenors and affi rmed the IURC order approving the 2012
Edwardsport settlement and other related regulatory orders. On June 5, 2014,
the Indiana Court of Appeals affi rmed the decision on rehearing. The Joint
Intervenors requested to seek transfer to the Indiana Supreme Court. On
November 7, 2014, the Indiana Supreme Court denied the Joint Intervenors’
request to transfer the appeal of these proceedings. The ninth and tenth
semi-annual IGCC rider orders have also been appealed. On August 21, 2014,
the Indiana Court of Appeals affi rmed the IURC order in the tenth IGCC rider
proceeding, and on October 29, 2014, denied Joint Intervenors’ request for
rehearing. The Joint Intervenors have requested a transfer of the matter to the
Indiana Supreme Court. On September 8, 2014, the Indiana Court of Appeals
remanded the IURC order in the ninth IGCC rider proceeding back to the IURC for
further fi ndings concerning approximately $61 million of fi nancing charges Joint
Intervenors claimed were caused by construction delay and a ratemaking issue
concerning the in-service date determination for tax purposes. On February
25, 2015, the IURC issued an order on remand that upheld its prior order and
added additional fi ndings on the two issues as requested by the Indiana Court
of Appeals. First, the IURC concluded the schedule delays in the construction
of the IGCC plant were not the result of imprudence or unreasonable actions
by Duke Energy Indiana and therefore recovery of the fi nancing costs were
appropriate. On the second issue, the IURC determined the federal tax in-
service determination was to be made by the Internal Revenue Service, not the
IURC, and the IURC appropriately reviewed and accepted the impact of such
decision on customer rates in this and prior proceedings.
On April 2, 2014, the IURC established a subdocket to Duke Energy
Indiana’s current fuel adjustment clause proceeding. In this fuel adjustment
subdocket, the IURC intends to review underlying causes for net negative
generation amounts at the Edwardsport IGCC plant during the period September
through November 2013. Duke Energy Indiana contends the net negative
generation is related to the consumption of fuel and auxiliary power when
the plant was in start-up or off line. In addition to the OUCC, the Duke Energy
Indiana Industrial Group, Nucor Steel-Indiana, Steel Dynamics, Inc., and the
Joint Intervenors are parties to the subdocket. The IURC has deferred the fuel
adjustment subdocket until resolution of the twelfth and thirteenth semi-
annual IGCC rider proceedings. In addition, although the IURC approved fuel
adjustment clause recovery for the period December 2013 through March 2014,
it determined such fuel costs reasonably related to the operational performance
of the Edwardsport IGCC plant shall be subject to refund pending the outcome of
the twelfth and thirteenth semi-annual IGCC riders.
Duke Energy Indiana cannot predict the outcome of the fuel adjustment
clause proceedings or pending and future IGCC Rider proceedings.
FERC Transmission Return on Equity Complaint
On November 12, 2013, customer groups fi led with FERC a complaint
against MISO and its transmission-owning members, including Duke Energy
Indiana, alleging, among other things, that the current base rate of return on
equity earned by MISO transmission owners of 12.38 percent is unjust and
unreasonable and should be reduced to 9.15 percent. On October 16, 2014,
FERC issued an order setting the return on equity issue for settlement and
hearing and establishing a refund effective date of November 12, 2013. On
November 6, 2014, the MISO transmission owners submitted revisions to the
MISO tariff to implement a 0.50 percent adder to the base return on equity
based on participation in a RTO. On January 5, 2015, FERC issued an order
accepting the adder subject to it being applied to a base return on equity that is
shown to be just and reasonable in the pending base return on equity complaint.
On January 5, 2015, settlement procedures in the base return on equity
proceeding were terminated and a hearing was scheduled for August 17, 2015.
On February 12, 2015, certain MISO transmission customers fi led with FERC
a complaint alleging that the base return on equity should be 8.67 percent and
requesting consolidation with the pending base return on equity complaint. Duke
Energy Indiana cannot predict the outcome of this matter.
Grid Infrastructure Improvement Plan
On August 29, 2014, Duke Energy Indiana fi led a seven-year grid
infrastructure improvement plan with the IURC with an estimated cost of
$1.9 billion, focusing on the reliability, integrity and modernization of the
transmission and distribution system. If approved, 80 percent of the costs
will be recovered through a rate rider. The remaining 20 percent are subject to
recovery through future rate case proceedings. Hearings were held in January
2015 and Duke Energy Indiana expects a decision in the second quarter of 2015.
Other Regulatory Matters
Atlantic Coast Pipeline
On September 2, 2014, Duke Energy, Dominion Resources (Dominion),
Piedmont Natural Gas and AGL Resources announced the formation of a joint
venture, Atlantic Coast Pipeline, LLC, to build and own the proposed Atlantic
Coast Pipeline (ACP), a 550-mile interstate natural gas pipeline. The ACP is