Duke Energy 2015 Annual Report Download - page 148

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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)
East Bend Station
On December 30, 2014, Duke Energy Ohio acquired The Dayton Power
and Light Company’s (DP&L) 31 percent interest in the jointly owned East Bend
Station for approximately $12.4 million. The purchase price, in accordance with
FERC guidelines, was reflected with the net purchase amount as an increase to
property, plant and equipment as of December 31, 2014 and with the DP&L’s
historical original cost as an increase to property, plant and equipment and
accumulated depreciation as of December 31, 2015. On August 20, 2015,
the KPSC approved Duke Energy Kentucky’s application to use the purchase
price as the value of the newly acquired interest in the East Bend Station for
depreciation purposes and ratemaking.
2014 Electric Security Plan (ESP)
In April 2015, the PUCO modified and approved Duke Energy Ohio’s
proposed ESP, with a three-year term and an effective date of June 1, 2015. The
PUCO approved a competitive procurement process for SSO load, a distribution
capital investment rider and a tracking mechanism for incremental distribution
expenses caused by major storms. The PUCO order also approved a placeholder
tariff for a price stabilization rider, but denied Duke Energy Ohio’s specific
request to include Duke Energy Ohio’s entitlement to generation from OVEC in
the rider at this time; however, the order allows Duke Energy Ohio to submit
additional information to request recovery in the future. On May 4, 2015, Duke
Energy Ohio filed an application for rehearing requesting the PUCO to modify
or amend certain aspects of the order. On May 28, 2015, the PUCO granted all
applications for rehearing filed in the case for future consideration. Duke Energy
Ohio cannot predict the outcome of the appeals in this matter.
During May and November 2015, Duke Energy Ohio completed two
competitive bidding processes with results approved by the PUCO to procure a
portion of the supply for its SSO load for the term of the ESP.
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. 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 five-year period. On March 31, 2014,
Duke Energy Ohio filed an application with the PUCO to adjust the MGP rider for
investigation and remediation costs incurred in 2013.
Certain consumer groups appealed the PUCO’s decision authorizing
the MGP rider to the Ohio Supreme Court and asked the court to stay
implementation of the PUCO’s order and collections under the MGP rider
pending their appeal. The Ohio Supreme Court granted the motion to stay
and subsequently required the posting of a bond to effectuate the stay. When
the bond was not posted, the PUCO approved Duke Energy Ohio’s request, in
January 2015, to reinstate collections under the MGP rider and Duke Energy
Ohio resumed billings. Amounts collected prior to the suspension of the rider
were immaterial. On March 31, 2015, Duke Energy Ohio filed an application to
adjust the MGP rider to recover remediation costs incurred in 2014. Duke Energy
Ohio cannot predict the outcome of the appeal of this matter.
Regional Transmission Organization (RTO) Realignment
Duke Energy Ohio, including Duke Energy Kentucky, transferred control of
its transmission assets from MISO to PJM Interconnection, LLC (PJM), effective
December 31, 2011.
On December 22, 2010, the KPSC approved Duke Energy Kentucky’s
request to effect the RTO realignment, subject to a commitment not to seek
double recovery in a future rate case of the transmission expansion fees that
may be charged by MISO and PJM in the same period or overlapping periods.
On May 25, 2011, the PUCO approved a settlement between Duke
Energy Ohio, Ohio Energy Group, the Office of Ohio Consumers’ Counsel and
the PUCO Staff related to Duke Energy Ohio’s recovery of certain costs of the
RTO realignment via a non-bypassable rider. Duke Energy Ohio is allowed to
recover all MISO Transmission Expansion Planning (MTEP) costs, including but
not limited to Multi Value Project (MVP) costs, directly or indirectly charged to
Ohio customers. Duke Energy Ohio also agreed to vigorously defend against any
charges for MVP projects from MISO.
Upon its exit from MISO on December 31, 2011, Duke Energy Ohio
recorded a liability for its exit obligation and share of MTEP costs, excluding
MVP. This liability was recorded within Other in Current liabilities and Other
in Deferred credits and other liabilities on Duke Energy Ohio’s Consolidated
Balance Sheets.
The following table provides a reconciliation of the beginning and ending
balance of Duke Energy Ohio’s recorded obligations related to its withdrawal
from MISO. As of December 31, 2015, $72 million is recorded as a Regulatory
asset on Duke Energy Ohio’s Consolidated Balance Sheets.
(in millions)
December 31,
2014
Provision /
Adjustments
Cash
Reductions
December 31,
2015
Duke Energy Ohio $ 94 $ 3 $ (5) $ 92
MVP. MISO approved 17 MVP proposals prior to Duke Energy Ohio’s exit
from MISO on December 31, 2011. Construction of these projects is expected
to continue through 2020. Costs of these projects, including operating and
maintenance costs, property and income taxes, depreciation and an allowed
return, are allocated and billed to MISO transmission owners.
On December 29, 2011, MISO filed a tariff with the FERC providing for
the allocation of MVP costs to a withdrawing owner based on monthly energy
usage. The FERC set for hearing (i) whether MISO’s proposed cost allocation
methodology to transmission owners who withdrew from MISO prior to
January 1, 2012 is consistent with the tariff at the time of their withdrawal
from MISO and, (ii) if not, what the amount of and methodology for calculating
any MVP cost responsibility should be. In 2012, MISO estimated Duke Energy
Ohio’s MVP obligation over the period from 2012 to 2071 at $2.7 billion, on an
undiscounted basis. On July 16, 2013, a FERC Administrative Law Judge (ALJ)
issued an initial decision. Under this initial decision, Duke Energy Ohio would
be liable for MVP costs. Duke Energy Ohio filed exceptions to the initial decision,
requesting FERC to overturn the ALJ’s decision.
On October 29, 2015, the FERC issued an order reversing the ALJ’s
decision. The FERC ruled the cost allocation methodology is not consistent
with the MISO tariff and that Duke Energy Ohio has no liability for MVP costs
after its withdrawal from MISO. On November 30, 2015, MISO filed with the
FERC a request for rehearing. Duke Energy Ohio cannot predict the outcome of
this matter.