Duke Energy 2015 Annual Report Download - page 146

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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)
an order approving the Osprey Plant acquisition. Closing of the acquisition is
contingent upon the expiration of the Hart-Scott-Rodino waiting period and is
expected to occur by the first quarter of 2017, upon the expiration of an existing
Power Purchase Agreement between Calpine and Duke Energy Florida.
FPSC Settlement Agreements
On February 22, 2012, the FPSC approved a settlement agreement (the
2012 Settlement) among Duke Energy Florida, the Florida Office 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 filed with the
NRC a certification of permanent cessation of power operations and permanent
removal of fuel from the reactor vessel. In December 2013, and March 2014,
Duke Energy Florida filed an updated site-specific 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 at that time, under the SAFSTOR
option. Duke Energy Florida’s decommissioning study assumes Crystal River
Unit 3 will be in SAFSTOR configuration, requiring limited staffing to monitor
plant conditions, until the eventual dismantling and decontamination activities
to be completed by 2074. This decommissioning approach is currently utilized at
a number of retired domestic nuclear power plants and is one of three accepted
approaches to decommissioning approved by the NRC.
Pursuant to the 2013 Settlement, Duke Energy Florida reclassified all
Crystal River Unit 3 investments, including property, plant and equipment,
nuclear fuel, inventory, and other assets, to regulatory assets. Portions of
the nuclear fuel balances that are under contract for sale were subsequently
moved to Other within Current Assets and Other within Investments and Other
Assets on the Consolidated Balance Sheets. Duke Energy Florida agreed to forgo
recovery of $295 million of regulatory assets and an impairment charge was
recorded in the second quarter of 2013 for this matter. Duke Energy Florida also
accelerated cash recovery of approximately $47 million, net of tax, of the Crystal
River Unit 3 regulatory asset from retail customers during 2014 and 2015,
through its fuel clause.
On May 22, 2015, Duke Energy Florida petitioned the FPSC for approval
to include in base rates the revenue requirement for the projected
$1.298 billion Crystal River Unit 3 regulatory asset as authorized by the 2013
Revised and Restated Stipulation and Settlement Agreement (2013 Agreement).
On September 15, 2015, the FPSC approved Duke Energy Florida’s motion for
approval of a settlement agreement with intervenors to reduce the value of the
projected Crystal River Unit 3 regulatory asset to be recovered to $1.283 billion
as of December 31, 2015. An impairment charge of $15 million was recognized
in the third quarter of 2015 to adjust the regulatory asset balance.
In June 2015, the governor of Florida signed legislation to allow utilities to
securitize certain retired nuclear generation assets, with approval of the FPSC.
On November 19, 2015, the FPSC issued a financing order approving Duke
Energy Florida’s request to securitize its unrecovered regulatory asset related
to Crystal River Unit 3 through a debt issuance at a wholly owned special
purpose entity. Securitization would replace the base rate recovery methodology
authorized by the 2013 Agreement and result in a lower rate impact to
customers with an approximately 20 year recovery period. On February 9,
2016, Duke Energy Florida filed a registration statement for the proposed initial
public offering of the bonds. Use of the registration statement for purposes of
the offering is subject to review and declaration of its effectiveness by the SEC.
Duke Energy Florida expects to issue securitization bonds in the first half of
2016.
In December 2014, the FPSC approved Duke Energy Florida’s decision to
construct an independent spent fuel storage installation (ISFSI) and approved
Duke Energy Florida’s request to defer amortization of the ISFSI pending
resolution of its litigation against the federal government as a result of the
Department of Energy’s breach of its obligation to accept spent nuclear fuel. The
return rate will be based on the currently approved AFUDC rate with a return
on equity of 7.35 percent, or 70 percent of the currently approved 10.5 percent.
The return rate is subject to change if the return on equity changes in the future.
Through December 31, 2015 Duke Energy Florida has deferred approximately
$60 million for recovery associated with building the ISFSI.
The regulatory asset associated with the original Crystal River Unit 3
power uprate project will continue to be recovered through the NCRC over an
estimated seven-year period that began in 2013 with a remaining uncollected
balance at December 31, 2015 of $169 million.
Customer Rate Matters
Pursuant to the 2013 Settlement, Duke Energy Florida will maintain base
rates at the current level through the last billing period of 2018, subject to
the return on equity range of 9.5 percent to 11.5 percent, with exceptions for
base rate increases for the recovery of the Crystal River Unit 3 regulatory asset
beginning no later than 2017, unless the regulatory asset is securitized as
discussed above, and base rate increases for new generation through 2018, per
the provisions of the 2013 Settlement. Duke Energy Florida is not required to file
a depreciation study, fossil dismantlement study or nuclear decommissioning
study until the earlier of the next rate case filing or March 31, 2019. The
2012 Settlement also provided for a $150 million increase in base revenue
effective with the first billing cycle of January 2013. If Duke Energy Florida’s
retail base rate earnings fall below the return on equity range, as reported on
a FPSC-adjusted or pro forma basis on a monthly earnings surveillance report,
it may petition the FPSC to amend its base rates during the term of the 2013
Settlement.
Duke Energy Florida agreed to refund $388 million to retail customers
through its fuel clause, as required by the 2012 Settlement. At December
31, 2015, $70 million remains to be refunded and is included in Regulatory
liabilities within Current Liabilities on the Consolidated Balance Sheets.
Levy Nuclear Project
On July 28, 2008, Duke Energy Florida applied to the NRC for a COL
for two Westinghouse AP1000 reactors at Levy. In 2008, the FPSC granted
Duke Energy Florida’s petition for an affirmative Determination of Need and
related orders requesting cost recovery under Florida’s nuclear cost-recovery
rule, together with the associated facilities, including transmission lines and
substation facilities. Design changes have been identified in the Westinghouse
AP1000 certified design that must be addressed before the NRC can complete
its review of the Levy COL application. These design changes set the schedule
for completion of the NRC COL application review and issuance of the Levy COL.
Based on the current review schedule, the Levy COL is currently expected by
late 2016.