Duke Energy 2015 Annual Report Download - page 155

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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)
Two shareholder Derivative Complaints, filed in 2012 in federal district
court in Delaware, were consolidated as Tansey v. Rogers, et al. The case
alleges claims for breach of fiduciary duty and waste of corporate assets, as
well as claims under Section 14(a) and 20(a) of the Exchange Act. Duke Energy
is named as a nominal defendant. On December 21, 2015, Plaintiff filed a
Consolidated Amended Complaint asserting the same claims contained in the
original complaints. Duke Energy filed a Motion to Dismiss on February 19,
2016.
It is not possible to predict whether Duke Energy will incur any liability or
to estimate the damages, if any, it might incur in connection with the remaining
litigation.
Price Reporting Cases
Duke Energy Trading and Marketing, LLC (DETM), a non-operating Duke
Energy affiliate, is a defendant, along with numerous other energy companies,
in four class-action lawsuits and a fifth single-plaintiff lawsuit pending in
a consolidated federal court proceeding in Nevada. Each of these lawsuits
contains similar claims that defendants allegedly manipulated natural gas
markets by various means, including providing false information to natural gas
trade publications and entering into unlawful arrangements and agreements in
violation of the antitrust laws of the respective states. Plaintiffs seek damages
in unspecified amounts.
On July 18, 2011, the judge granted a defendant’s motion for summary
judgment in two of five cases. The U.S. Court of Appeals for the Ninth Circuit
subsequently reversed the lower court’s decision. On April 21, 2015, the
Supreme Court affirmed the U.S. Court of Appeals decision. The case has been
reassigned to the same consolidated federal court proceeding in Nevada for
further proceedings. In February 2016, DETM reached agreements in principle to
settle all of the pending lawsuits. The class-action settlements will be subject
to court approval, which is pending. The settlement amount is not material to
Duke Energy.
Brazil Expansion Lawsuit
On August 9, 2011, the State of São Paulo sued Duke Energy International
Geracao Paranapenema S.A. (DEIGP) in Brazilian state court. The lawsuit
claims DEIGP is under a continuing obligation to expand installed generation
capacity in the State of São Paulo by 15 percent pursuant to a stock purchase
agreement under which DEIGP purchased generation assets from the state.
On August 10, 2011, a judge granted an ex parte injunction ordering DEIGP to
present a detailed expansion plan in satisfaction of the 15 percent obligation.
DEIGP has previously taken a position that the expansion obligation is no longer
viable given changes that have occurred in the electric energy sector since
privatization. DEIGP submitted its proposed expansion plan on November 11,
2011, but reserved objections regarding enforceability. In January 2013, DEIGP
filed appeals in the federal courts, which are still pending, regarding various
procedural issues. A decision on the merits in the first instance court is also
pending. It is not possible to predict whether Duke Energy will incur any liability
or to estimate the damages, if any, it might incur in connection with this matter.
Brazil Generation
Record drought conditions in Brazil continue to impact Duke Energy
International, Geracao Paranapanema S.A. (DEIGP). A number of electric
generators have filed lawsuits seeking relief in the Brazilian courts to mitigate
hydrological exposure and diminishing dispatch levels. Some courts have
granted injunction orders to limit the financial exposure of certain generators.
The implication of these orders is that other electricity market participants not
covered by the injunctions may be required to compensate for the financial
impact of the liability limitations. The Independent Power Producer Association
(APINE) filed one such lawsuit on behalf of DEIGP and other hydroelectric
generators against the Brazilian electric regulatory agency. On July 2, 2015, an
injunction was granted in favor of APINE limiting the financial exposure of DEIGP
and the other plaintiff generators, until the merits of the lawsuit are determined.
The APINE decision is subject to appeal and the outcome of these lawsuits
is uncertain. It is not possible to predict the impact to Duke Energy from the
outcome of these matters.
Duke Energy Carolinas and Duke Energy Progress
NCDEQ Notice of Violation (NOV)
In August 2014, NCDEQ issued an NOV for alleged groundwater violations
at Duke Energy Progress’ L.V. Sutton Plant. On March 10, 2015, NCDEQ
issued a civil penalty of approximately $25 million to Duke Energy Progress
for environmental damages related to the groundwater contamination at the
L.V. Sutton Plant. On April 9, 2015, Duke Energy Progress filed a Petition for
Contested Case hearing in the Office of Administrative Hearings. In February
2015, NCDEQ issued an NOV for alleged groundwater violations at Duke Energy
Progress’ Asheville Plant. Duke Energy Progress responded to NCDEQ regarding
this NOV.
On September 29, 2015, Duke Energy Progress and Duke Energy Carolinas
entered into a settlement agreement with NCDEQ resolving all former, current
and future groundwater penalties at all Duke Energy Carolinas and Duke
Energy Progress coal facilities in North Carolina. Under the agreement, Duke
Energy Progress paid approximately $6 million and Duke Energy Carolinas paid
approximately $1 million. In addition to these payments, Duke Energy Progress
and Duke Energy Carolinas will accelerate remediation actions at the Sutton,
Asheville, Belews Creek and H.F. Lee plants. The court entered a consent order
resolving the contested case relating to the Sutton Plant and NCDEQ rescinded
the NOVs relating to alleged groundwater violations at both the Sutton and
Asheville plants.
On October 13, 2015, the Southern Environmental Law Center (SELC),
representing multiple conservation groups, filed a lawsuit in North Carolina
Superior Court seeking judicial review of the order approving the settlement
agreement with NCDEQ. The conservation groups contend that the Administrative
Law Judge exceeded his statutory authority in approving a settlement that
provided for past, present, and future resolution of groundwater issues at
facilities which were not at issue in the penalty appeal. On December 18, 2015,
Duke Energy Carolinas and Duke Energy Progress filed a Motion to Dismiss the
complaint. At a hearing held on February 12, 2016, Duke Energy Carolinas and
Duke Energy Progress stated that a proposed revised order would be submitted
to the Administrative Law Judge to address the court’s and SELC’s concerns. It is
not possible to predict the outcome of this matter.
NCDEQ State Enforcement Actions
In the first quarter of 2013, SELC sent notices of intent to sue Duke
Energy Carolinas and Duke Energy Progress related to alleged groundwater
violations and CWA violations from coal ash basins at two of their coal-fired
power plants in North Carolina. NCDEQ filed enforcement actions against Duke
Energy Carolinas and Duke Energy Progress alleging violations of water discharge
permits and North Carolina groundwater standards. The cases have been
consolidated and are being heard before a single judge.
On August 16, 2013, NCDEQ filed an enforcement action against Duke
Energy Carolinas and Duke Energy Progress related to their remaining plants in
North Carolina, alleging violations of the CWA and violations of the North Carolina