Duke Energy 2015 Annual Report Download - page 145

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PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
requests consolidation with a similar complaint filed against Duke Energy
Carolinas on the same day. Duke Energy Progress cannot predict the outcome of
this matter.
Sutton Black Start Combustion Turbine CPCN
On April 15, 2015, Duke Energy Progress filed a Certificate of Public
Convenience and Necessity (CPCN) application with the NCUC for approval to
construct an 84 MW black start combustion turbine (CT) project at the existing
Sutton Plant (Sutton Black Start CT Project). The Sutton Black Start CT Project
would replace three existing CTs with total capacity of 61 MW with two new 42
MW CT units with black start and fast start capability. In addition to peaking
system capacity, the Sutton Black Start CT Project will provide regional black
start capability and tertiary backup power services for the Brunswick Nuclear
Plant. In June 2015, the Public Staff of the NCUC recommended the NCUC
approve Duke Energy Progress’ application. On August 3, 2015, the NCUC
issued an order granting the application and requiring annual construction and
cost progress reports. The new units are expected to be commercially available
in the summer of 2017.
Western Carolinas Modernization Plan
In May 2015, Duke Energy Progress announced a $1.1 billion plan to
modernize the Western Carolinas energy system. The plan included retirement
of the Asheville coal-fired plant, building a 650 MW combined-cycle natural gas
power plant, installing solar generation at the site, building new transmission
lines, a new substation and upgrades to area substations. On June 24, 2015,
the North Carolina governor signed into law the North Carolina Mountain Energy
Act of 2015 (Mountain Energy Act) which provides for an expedited CPCN
process for the proposed Asheville combined-cycle project and extends certain
North Carolina Coal Ash Management Act of 2014 (Coal Ash Act) deadlines for
the coal ash basin at the Asheville Plant site.
On November 4, 2015, in response to community feedback, Duke Energy
Progress announced a revised plan. The revised plan replaces the planned 650
MW plant with two 280 MW combined-cycle natural gas plants having dual
fuel capability, with the option to build a third natural gas simple cycle unit
in 2023 based upon the outcome of initiatives to reduce the region’s power
demand. The revised plan includes upgrades to existing transmission lines and
substations, but eliminates the need for a new transmission line and a new
substation associated with the project in South Carolina. The revised plan has
the same overall project cost as the original plan, and the plans to install solar
generation remain unchanged. Duke Energy Progress has also proposed to
add a pilot battery storage project. These investments will be made within the
next seven years. Duke Energy Progress is also working with the local natural
gas distribution company to upgrade an existing natural gas pipeline to serve
the natural gas plant. The plan requires various approvals including regulatory
approvals in North Carolina. Duke Energy Progress filed for a CPCN with the
NCUC for the new gas units on January 15, 2016. At the NCUC’s staff
conference on February 22, 2016, the Public Staff recommended approval of the
CPCN for the two combined-cycle natural gas plants and recommended that the
NCUC not issue a CPCN for the simple cycle unit at this time. The NCUC also
heard arguments from intervenors and Duke Energy Progress. Pursuant to the
Mountain Energy Act, the NCUC’s deadline to issue a decision on the CPCN is
February 29, 2016.
The carrying value of the 376 MW Asheville coal-fired plant, including
associated ash basin closure costs, of $548 million is included in Generation
facilities to be retired, net on Duke Energy Progress’ Consolidated Balance Sheet
as of December 31, 2015.
Shearon Harris Nuclear Plant 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 filed 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 filed 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. The NCUC and PSCSC have approved deferral for $48 million of retail
costs recorded in Regulatory assets on Duke Energy Progress’ Consolidated
Balance Sheets.
Duke Energy Florida
FERC Transmission Return on Equity Complaint
Seminole Electric Cooperative, Inc. and Florida Municipal Power Agency
filed multiple complaints with the FERC alleging Duke Energy Florida’s current
rate of return on equity in transmission formula rates of 10.8 percent is
unjust and unreasonable. The latest complaint, filed on August 12, 2014,
claims the rate of return on equity should be reduced to 8.69 percent. The
FERC consolidated all complaints for the purposes of settlement, hearing and
decision. On July 21, 2015, the parties filed with the FERC for approval of a
settlement agreement under which (i) Duke Energy Florida will pay a total of
$14.1 million as refunds for all periods through December 31, 2014, (ii) the rate
of return on equity will be 10 percent effective January 1, 2015, and (iii) none
of the parties will seek a change in the rate of return on equity prior to January
1, 2018. On November 19, 2015, the FERC approved the settlement agreement
resolving all complaints. Duke Energy Florida paid $14.1 million in refunds
during December 2015.
Citrus County Combined Cycle Facility
On October 2, 2014, the FPSC granted Duke Energy Florida a
Determination of Need for the construction of a 1,640 MW combined-cycle
natural gas plant in Citrus County, Florida. On May 5, 2015, the Florida
Department of Environmental Protection approved Duke Energy Florida’s Site
Certification Application. The facility is expected to be commercially available
in 2018 at an estimated cost of $1.5 billion, including AFUDC. The project
has received all required permits and approvals and construction began in
October 2015.
Purchase of Osprey Energy Center
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. On January 30, 2015, Duke Energy Florida
petitioned the FPSC requesting a determination that the Osprey Plant acquisition
or, alternatively, the construction of a 320 MW combustion turbine at its existing
Suwannee generating facility (Suwannee project) with an estimated cost of $197
million, is the most cost-effective generation alternative to meet Duke Energy
Florida’s remaining generation need prior to 2018. On July 21, 2015, the FPSC
approved the Osprey Plant acquisition as the most cost-effective alternative and
issued an order of approval on July 31, 2015. On July 24, 2015, the FERC issued