Duke Energy 2014 Annual Report Download - page 62

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PART II
Year Ended December 31, 2014 as Compared to 2013
Operating Revenues. The variance was driven primarily by:
• A $104 million increase in fuel revenues (including emission allowances)
driven primarily by increased demand from wholesale and retail
customers, partially resulting from favorable weather conditions, and
higher fuel rates for wholesale customers refl ective of higher fuel costs.
Fuel revenues represent sales to retail and wholesale customers;
• An $82 million increase (net of fuel revenue) in electric sales to retail
customers due to favorable weather conditions. Heating degree days in
2014 were 11 percent above normal compared to 2 percent above normal
in 2013 and cooling degree days were 2 percent below normal compared
to 13 percent below normal in 2013; and
• An $80 million increase in retail pricing, which primarily refl ects the
impact of the 2013 North Carolina retail rate case.
Partially offset by:
• A $60 million decrease in gross receipts tax revenue due to the North
Carolina Tax Simplifi cation and Rate Reduction Act which terminated the
collection of the North Carolina gross receipts tax effective July 1, 2014;
and
• A $19 million decrease in weather-normal sales volumes to retail
customers refl ecting decreased demand.
Operating Expenses. The variance was driven primarily by:
• A $111 million increase in fuel expenses (including purchased power)
primarily due to increased sales volumes;
• A $113 million increase in operations and maintenance expenses
primarily due to a litigation reserve related to the criminal investigation
of the management of North Carolina coal ash basins (See Note 5 to the
Consolidated Financial Statements, “Commitments and Contingencies,”
for additional information), the impacts of amortization on nuclear
levelization outage deferrals and higher storm costs, partially offset
by prior year donations for low-income customers and job training in
accordance with the 2013 NCUC rate case order and lower costs to
achieve the merger with Duke Energy including severance and employee
relocation expenses; and
• A $48 million increase in depreciation and amortization expenses
primarily due to higher depreciation as a result of additional plant in
service and amortization of certain regulatory assets and a prior year
reversal of a portion of cost of removal reserves in accordance with the
2013 NCUC rate case order.
Partially offset by:
• A $49 million decrease in property and other tax expenses primarily
due to lower revenue related taxes driven by the elimination of
North Carolina gross receipts tax effective July 1, 2014, partially offset
by higher property tax expense; and
• A $40 million decrease due to a current year $18 million reduction to
a 2012 impairment charge related to the disallowance of transmission
project costs, which are a portion of the Long-Term FERC Mitigation and
a $22 million prior-year impairment charge resulting from the decision
to suspend the application for two proposed nuclear units at the Harris
nuclear station.
Interest Expense. The variance was primarily due to a new debt
issuance, no longer recording post in-service debt returns on projects now
refl ected in customer rates and lower AFUDC – debt due to projects placed in
service.
Income Tax Expense. The variance was primarily due to a decrease in
pretax income. The effective tax rate for the years ended December 31, 2014
and 2013 was 37.9 percent and 36.5 percent, respectively. The increase in the
effective tax rate is primarily due to the non-deductible litigation reserve related
to the criminal investigation of the management of North Carolina coal ash
basins.
Matters Impacting Future Results
On February 2, 2014, a break in a stormwater pipe beneath an ash basin
at Duke Energy Carolinas’ retired Dan River steam station caused a release of
ash basin water and ash into the Dan River. On February 8, 2014, a permanent
plug was installed in the stormwater pipe, stopping the release of materials
into the river. Duke Energy is a party to multiple lawsuits fi led in regards to the
Dan River coal ash release and operations at other North Carolina facilities
with ash basins. The outcome of these lawsuits could have an adverse impact
to Duke Energy Progress’ fi nancial position, results of operations and cash
fl ows. See Note 5 to the Consolidated Financial Statements, “Commitments and
Contingencies,” for additional information.
An order from regulatory authorities disallowing recovery of costs related
to closure of ash basins could have an adverse impact to Duke Energy Progress’
fi nancial position, results of operations and cash fl ows. See Notes 5 and 9 to
the Consolidated Financial Statements, “Commitments and Contingencies” and
“Asset Retirement Obligations,” respectively, for additional information.