Duke Energy 2015 Annual Report Download - page 149

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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)
FERC Transmission Return on Equity and MTEP Cost Settlement
On October 14, 2011, Duke Energy Ohio and Duke Energy Kentucky
submitted with the FERC proposed modifications to the PJM Interconnection
Open Access Transmission Tariff pertaining to recovery of the transmission
revenue requirement as PJM transmission owners. The filing was made in
connection with Duke Energy Ohio’s and Duke Energy Kentucky’s move from
MISO to PJM effective December 31, 2011. On April 24, 2012, the FERC issued
an order accepting the proposed filing effective January 1, 2012, except that the
order denied a request to recover certain costs associated with the move from
MISO to PJM without prejudice to the right to submit another filing seeking such
recovery and including certain additional evidence, and set the rate of return
on equity of 12.38 percent for settlement and hearing. On April 16, 2015, the
FERC approved a settlement agreement between Duke Energy Ohio, Duke Energy
Kentucky and six PJM transmission customers with load in the Duke Energy
Ohio and Duke Energy Kentucky zone. The principal terms of the settlement
agreement are that, effective upon the date of FERC approval, (i) the return on
equity for wholesale transmission service is reduced to 11.38 percent, (ii) the
settling parties agreed not to seek a change in the return on equity that would
be effective prior to June 1, 2017, and (iii) Duke Energy Ohio and Duke Energy
Kentucky will recover 30 percent of the wholesale portion of costs arising from
their obligation to pay any portion of the costs of projects included in any MTEP
that was approved prior to the date of Duke Energy Ohio’s and Duke Energy
Kentucky’s integration into PJM.
Duke Energy Indiana
Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant
On November 20, 2007, the IURC granted Duke Energy Indiana a CPCN
for the construction of the Edwardsport IGCC Plant. 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. The Edwardsport IGCC Plant was placed in
commercial operation in June 2013. Costs for the Edwardsport IGCC Plant
are recovered from retail electric customers via a tracking mechanism, the
IGCC rider.
The ninth semi-annual IGCC rider order was appealed by the Joint
Intervenors. 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
findings. On February 25, 2015, the IURC issued a new order upholding its prior
decision and provided additional detailed findings. Joint Intervenors appealed
this remand order to the Indiana Court of Appeals. On September 23, 2015, the
Indiana Court of Appeals affirmed the IURC remand decision on one of the key
financial issues. The Indiana Court of Appeals found that there was sufficient
evidence for the IURC to find that the three-month delay in construction for this
time period was not unreasonable and therefore the costs of such delay should
be borne by Duke Energy Indiana customers. The Indiana Court of Appeals found
that the IURC did not support its findings regarding the ratemaking impact of
the tax in-service declaration and reversed and remanded this issue back to the
IURC, with direction to hold further proceedings and issue additional findings
on the issue. On December 10, 2015, the Indiana Court of Appeals denied a
request for rehearing by Joint Intervenors, and the decision was not further
appealed. The proceeding will be remanded to the IURC for further proceedings
and additional findings on the tax in-service issue.
The 10th semi-annual IGCC rider order was also appealed by the Joint
Intervenors. On August 21, 2014, the Indiana Court of Appeals affirmed the
IURC order in the 10th IGCC rider proceeding and on October 29, 2014, denied
the Joint Intervenors’ request for rehearing. The Joint Intervenors requested the
Indiana Supreme Court to review the decision, which was denied on April 23,
2015, concluding the appeal.
Duke Energy Indiana has filed the 14th and 15th semi-annual IGCC rider
proceedings. The 11th through 15th semi-annual IGCC riders and a subdocket
to Duke Energy Indiana’s fuel adjustment clause are currently in various stages
of approval by the IURC in the filing process. Issues in these filings include
the determination whether the IGCC plant was properly declared in service for
ratemaking purposes in June 2013 and a review of the operational performance
of the plant. On September 17, 2015, Duke Energy Indiana, the Office of Utility
Consumer Counselor, the Industrial Group and Nucor Steel Indiana reached a
settlement agreement to resolve these pending issues. On January 15, 2016,
The Citizens Action Coalition of Indiana, Inc., Sierra Club, Save the Valley and
Valley Watch joined the settlement. The proposed settlement will result in
customers not being billed for previously incurred operating costs of
$87.5 million and for additional Duke Energy Indiana payments and
commitments of $5.5 million for attorneys’ fees and amounts to fund consumer
programs. Attorneys’ fees and expenses for the new settling parties will be
addressed in a separate proceeding. Duke Energy Indiana recorded $87.5
million within Impairment charges and $5.5 million within Other Income and
Expenses, net in the Consolidated Statements of Operations and Comprehensive
Income for the 12 months ended December 31, 2015. Duke Energy Indiana
also recorded an $80.3 million reduction of Regulatory assets within Regulatory
Assets and Deferred Debits, an additional $7.2 million of Other within Deferred
Credits and Other Liabilities and $5.5 million of Accounts payable within
Current Liabilities on the Consolidated Balance Sheets at December 31, 2015.
Additionally, under the proposed settlement, the operating and maintenance
expenses and ongoing maintenance capital at the plant are subject to certain
caps during the years of 2016 and 2017. The revised settlement includes a
commitment to either retire or stop burning coal by December 31, 2022, at
the Gallagher Station. Pursuant to the settlement, the in-service date used for
accounting and ratemaking will remain as June 2013. Remaining deferred costs
will be recovered over eight years and not earn a carrying cost. The settlement
is subject to IURC approval which is expected in the first half of 2016. As of
December 31, 2015, deferred costs related to the project are approximately
$128 million. Future IGCC riders will be filed annually, rather than every six
months, with the next filing scheduled for first quarter 2017.
Duke Energy Indiana cannot predict the outcome of the settlement of
these matters or future IGCC rider proceedings.
FERC Transmission Return on Equity Complaint
Customer groups have filed with the FERC complaints 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. The
latest complaint, filed on February 12, 2015, claims the base rate of return
on equity should be reduced to 8.67 percent and requests a consolidation of
complaints. The motion to consolidate complaints was denied. On January 5,
2015, the FERC issued an order accepting the MISO transmission owners 0.50
percent adder to the base rate of return on equity based on participation in an
RTO subject to it being applied to a return on equity that is shown to be just
and reasonable in the pending return on equity complaint. A hearing in the base
return on equity proceeding was held in August 2015. On December 22, 2015,
the presiding FERC ALJ issued an Initial Decision in which he set the base rate
of return on equity at 10.32 percent. The Initial Decision will be reviewed by
the FERC. Duke Energy Indiana currently believes these matters will have an
immaterial impact on its results of operations, cash flows and financial position.