1. ORGANIZATION AND BASIS OF PRESENTATION
BASIS OF PRESENTATION
These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all information and notes required by GAAP for annual financial statements and should be read in conjunction with the Consolidated Financial Statements in the Duke Energy Registrants’ combined Annual Report on Form 10-K for the year ended December 31, 2021.
The information in these combined notes relates to each of the Duke Energy Registrants as noted in the Index to Combined Notes to Condensed Consolidated Financial Statements. However, none of the registrants make any representations as to information related solely to Duke Energy or the subsidiaries of Duke Energy other than itself.
These Condensed Consolidated Financial Statements, in the opinion of the respective companies’ management, reflect all normal recurring adjustments necessary to fairly present the financial position and results of operations of each of the Duke Energy Registrants. Amounts reported in Duke Energy’s interim Condensed Consolidated Statements of Operations and each of the Subsidiary Registrants’ interim Condensed Consolidated Statements of Operations and Comprehensive Income are not necessarily indicative of amounts expected for the respective annual periods due to effects of seasonal temperature variations on energy consumption, regulatory rulings, timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices and other factors.
In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
These Condensed Consolidated Financial Statements include, after eliminating intercompany transactions and balances, the accounts of the Duke Energy Registrants and subsidiaries or VIEs where the respective Duke Energy Registrants have control. See Note 11 for additional information on VIEs. These Condensed Consolidated Financial Statements also reflect the Duke Energy Registrants’ proportionate share of certain jointly owned generation and transmission facilities.
NONCONTROLLING INTEREST
Duke Energy maintains a controlling financial interest in certain less than wholly owned nonregulated subsidiaries. As a result, Duke Energy consolidates these subsidiaries and presents the third-party investors' portion of Duke Energy's net income (loss), net assets and comprehensive income (loss) as noncontrolling interest. Noncontrolling interest is included as a component of equity on the Condensed Consolidated Balance Sheets.
Several operating agreements of Duke Energy's subsidiaries with noncontrolling interest are subject to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements that vary throughout the lives of the subsidiaries. Therefore, Duke Energy and the other investors' (the owners) interests in the subsidiaries are not fixed, and the subsidiaries apply the Hypothetical Liquidation at Book Value (HLBV) method in allocating income or loss and other comprehensive income or loss (all measured on a pretax basis) to the owners. The HLBV method measures the amounts that each owner would hypothetically claim at each balance sheet reporting date, including tax benefits realized by the owners over the IRS recapture period, upon a hypothetical liquidation of the subsidiary at the net book value of its underlying assets. The change in the amount that each owner would hypothetically receive at the reporting date compared to the amount it would have received on the previous reporting date represents the amount of income or loss allocated to each owner for the reporting period.
During September 2021, Duke Energy completed the initial minority interest investment in a portion of Duke Energy Indiana to an affiliate of GIC. GIC's ownership interest in Duke Energy Indiana represents a noncontrolling interest. See Note 2 for additional information on the sale.
Other operating agreements of Duke Energy's subsidiaries with noncontrolling interest allocate profit and loss based on their pro rata shares of the ownership interest in the respective subsidiary. Therefore, Duke Energy allocates net income or loss and other comprehensive income or loss of these subsidiaries to the owners based on their pro rata shares.
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FINANCIAL STATEMENTS | ORGANIZATION AND BASIS OF PRESENTATION |
The following table presents allocated losses to noncontrolling interest for the three months ended March 31, 2022, and 2021.
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| Three Months Ended March 31, | | |
(in millions) | 2022 | | 2021 | | | | |
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Noncontrolling Interest Allocation of Income | | | | | | | |
Allocated losses to noncontrolling tax equity members utilizing the HLBV method | $ | 24 | | | $ | 43 | | | | | |
Allocated losses to noncontrolling members based on pro rata shares of ownership | 13 | | | 8 | | | | | |
Total Noncontrolling Interest Allocated Losses | $ | 37 | | | $ | 51 | | | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Duke Energy, Duke Energy Carolinas, Progress Energy, Duke Energy Progress and Duke Energy Florida have restricted cash balances related primarily to collateral assets, escrow deposits and VIEs. See Notes 9 and 11 for additional information. Restricted cash amounts are included in Other within Current Assets and Other Noncurrent Assets on the Condensed Consolidated Balance Sheets. The following table presents the components of cash, cash equivalents and restricted cash included in the Condensed Consolidated Balance Sheets.
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| March 31, 2022 | | December 31, 2021 |
| | Duke | | Duke | Duke | | | Duke | | Duke | Duke |
| Duke | Energy | Progress | Energy | Energy | | Duke | Energy | Progress | Energy | Energy |
| Energy | Carolinas | Energy | Progress | Florida | | Energy | Carolinas | Energy | Progress | Florida |
Current Assets | | | | | | | | | | | |
Cash and cash equivalents | $ | 853 | | $ | 4 | | $ | 63 | | $ | 42 | | $ | 13 | | | $ | 343 | | $ | 7 | | $ | 70 | | $ | 35 | | $ | 23 | |
Other | 151 | | 4 | | 28 | | 13 | | 13 | | | 170 | | — | | 39 | | — | | 39 | |
Other Noncurrent Assets | | | | | | | | | | | |
Other | 16 | | 1 | | 4 | | 4 | | — | | | 7 | | 1 | | 4 | | 4 | | — | |
Total cash, cash equivalents and restricted cash | $ | 1,020 | | $ | 9 | | $ | 95 | | $ | 59 | | $ | 26 | | | $ | 520 | | $ | 8 | | $ | 113 | | $ | 39 | | $ | 62 | |
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INVENTORY
Provisions for inventory write-offs were not material at March 31, 2022, and December 31, 2021. The components of inventory are presented in the tables below.
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| March 31, 2022 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Materials and supplies | $ | 2,455 | | | $ | 810 | | | $ | 1,089 | | | $ | 744 | | | $ | 345 | | | $ | 89 | | | $ | 320 | | | $ | 14 | |
Coal | 469 | | | 196 | | | 149 | | | 93 | | | 56 | | | 16 | | | 108 | | | — | |
Natural gas, oil and other fuel | 247 | | | 34 | | | 165 | | | 103 | | | 62 | | | 9 | | | 2 | | | 37 | |
Total inventory | $ | 3,171 | | | $ | 1,040 | | | $ | 1,403 | | | $ | 940 | | | $ | 463 | | | $ | 114 | | | $ | 430 | | | $ | 51 | |
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| December 31, 2021 |
| | | Duke | | | | Duke | | Duke | | Duke | | Duke | | |
| Duke | | Energy | | Progress | | Energy | | Energy | | Energy | | Energy | | |
(in millions) | Energy | | Carolinas | | Energy | | Progress | | Florida | | Ohio | | Indiana | | Piedmont |
Materials and supplies | $ | 2,397 | | | $ | 793 | | | $ | 1,067 | | | $ | 729 | | | $ | 338 | | | $ | 80 | | | $ | 311 | | | $ | 14 | |
Coal | 486 | | | 195 | | | 167 | | | 94 | | | 73 | | | 19 | | | 105 | | | — | |
Natural gas, oil and other fuel | 316 | | | 38 | | | 164 | | | 98 | | | 66 | | | 17 | | | 2 | | | 95 | |
Total inventory | $ | 3,199 | | | $ | 1,026 | | | $ | 1,398 | | | $ | 921 | | | $ | 477 | | | $ | 116 | | | $ | 418 | | | $ | 109 | |
NEW ACCOUNTING STANDARDS
No new accounting standards were adopted by the Duke Energy Registrants in 2022.
2. BUSINESS SEGMENTS
Duke Energy
Duke Energy's segment structure includes the following segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure and Commercial Renewables.
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FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
The Electric Utilities and Infrastructure segment primarily includes Duke Energy's regulated electric utilities in the Carolinas, Florida and the Midwest. On January 28, 2021, Duke Energy executed an agreement providing for an investment by an affiliate of GIC in Duke Energy Indiana in exchange for a 19.9% minority interest issued by Duke Energy Indiana Holdco, LLC, the holding company for Duke Energy Indiana. The transaction will be completed following two closings for an aggregate purchase price of approximately $2 billion. The first closing, which occurred on September 8, 2021, resulted in Duke Energy Indiana Holdco, LLC issuing 11.05% of its membership interests in exchange for approximately $1,025 million or 50% of the purchase price. Duke Energy retained indirect control of these assets, and, therefore, no gain or loss was recognized on the Condensed Consolidated Statements of Operations. Duke Energy has the discretion to determine the timing of the second closing, but it will occur no later than January 2023. At the second closing, Duke Energy will issue and sell additional membership interests such that GIC will own 19.9% of the membership interests for the remaining 50% of the purchase price.
The Gas Utilities and Infrastructure segment includes Piedmont, Duke Energy's natural gas local distribution companies in Ohio and Kentucky and Duke Energy's natural gas storage, midstream pipeline and renewable natural gas investments.
The Commercial Renewables segment is primarily comprised of nonregulated utility-scale wind and solar generation assets located throughout the U.S. Duke Energy continues to monitor recoverability of its renewable merchant plants located in the ERCOT West market and in the PJM West market due to fluctuating market pricing and long-term forecasted energy prices. The assets were not impaired as of March 31, 2022, because the carrying value of approximately $200 million continues to approximate the aggregate estimated future undiscounted cash flows. Duke Energy has a 51% ownership interest in these assets. A continued decline in energy market pricing or other factors unfavorably impacting the economics would likely result in a future impairment.
The remainder of Duke Energy’s operations is presented as Other, which is primarily comprised of interest expense on holding company debt, unallocated corporate costs, Duke Energy’s wholly owned captive insurance company, Bison, and Duke Energy's ownership interest in National Methanol Company.
Business segment information is presented in the following tables. Segment assets presented exclude intercompany assets.
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| Three Months Ended March 31, 2022 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
Unaffiliated revenues | $ | 5,995 | | | $ | 1,009 | | | $ | 121 | | | $ | 7,125 | | | $ | 7 | | | $ | — | | | $ | 7,132 | |
Intersegment revenues | 7 | | | 23 | | | — | | | 30 | | | 23 | | | (53) | | | — | |
Total revenues | $ | 6,002 | | | $ | 1,032 | | | $ | 121 | | | $ | 7,155 | | | $ | 30 | | | $ | (53) | | | $ | 7,132 | |
Segment income (loss)(a) | $ | 723 | | | $ | 254 | | | $ | 11 | | | $ | 988 | | | $ | (170) | | | $ | — | | | $ | 818 | |
Less: Noncontrolling interests | | | | | | | | | | | | | 37 | |
Add: Preferred stock dividend | | | | | | | | | | | | | 39 | |
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Net Income | | | | | | | | | | | | | $ | 820 | |
Segment assets | $ | 144,790 | | | $ | 15,170 | | | $ | 7,021 | | | $ | 166,981 | | | $ | 4,251 | | | $ | (12) | | | $ | 171,220 | |
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| Three Months Ended March 31, 2021 |
| Electric | | Gas | | | | Total | | | | | | |
| Utilities and | | Utilities and | | Commercial | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Renewables | | Segments | | Other | | Eliminations | | Total |
Unaffiliated revenues | $ | 5,273 | | | $ | 752 | | | $ | 119 | | | $ | 6,144 | | | $ | 6 | | | $ | — | | | $ | 6,150 | |
Intersegment revenues | 8 | | | 23 | | | — | | | 31 | | | 20 | | | (51) | | | — | |
Total revenues | $ | 5,281 | | | $ | 775 | | | $ | 119 | | | $ | 6,175 | | | $ | 26 | | | $ | (51) | | | $ | 6,150 | |
Segment income (loss)(b) | $ | 820 | | | $ | 245 | | | $ | 27 | | | $ | 1,092 | | | $ | (139) | | | $ | — | | | $ | 953 | |
Less: Noncontrolling interests | | | | | | | | | | | | | 51 | |
Add: Preferred stock dividend | | | | | | | | | | | | | 39 | |
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Net Income | | | | | | | | | | | | | $ | 941 | |
(a)Electric Utilities and Infrastructure includes $211 million recorded within Impairment of assets and other charges, $46 million within Operating revenues and $22 million within Noncontrolling Interests related to the Duke Energy Supreme Court ruling on the Condensed Consolidated Statements of Operations. See Note 3 for additional information.
(b)Commercial Renewables includes a $35 million loss related to Texas Storm Uri, of which $8 million is recorded within Nonregulated electric and other revenues, $2 million within Operation, maintenance and other, $29 million within Equity in earnings (losses) of unconsolidated affiliates and $12 million within Net Loss Attributable to Noncontrolling Interests on the Condensed Consolidated Statements of Operations. See Note 4 for additional information. Gas Utilities and Infrastructure includes $6 million, recorded within Equity in earnings (losses) of unconsolidated affiliates on the Condensed Consolidated Statements of Operations, related to gas pipeline investments.
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FINANCIAL STATEMENTS | BUSINESS SEGMENTS |
Duke Energy Ohio
Duke Energy Ohio has two reportable segments, Electric Utilities and Infrastructure and Gas Utilities and Infrastructure. The remainder of Duke Energy Ohio's operations is presented as Other.
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| Three Months Ended March 31, 2022 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | Eliminations | | Total |
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Total revenues | $ | 412 | | | $ | 226 | | | $ | 638 | | | $ | — | | | $ | — | | | $ | 638 | |
Segment income/Net (loss) income | $ | 41 | | | $ | 38 | | | $ | 79 | | | $ | (2) | | | $ | — | | | $ | 77 | |
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Segment assets | $ | 7,101 | | | $ | 3,784 | | | $ | 10,885 | | | $ | 14 | | | $ | (168) | | | $ | 10,731 | |
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| Three Months Ended March 31, 2021 |
| Electric | | Gas | | Total | | | | | | |
| Utilities and | | Utilities and | | Reportable | | | | | | |
(in millions) | Infrastructure | | Infrastructure | | Segments | | Other | | | | Total |
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Total revenues | $ | 363 | | | $ | 169 | | | $ | 532 | | | $ | — | | | | | $ | 532 | |
Segment income/Net (loss) income | $ | 50 | | | $ | 43 | | | $ | 93 | | | $ | (2) | | | | | $ | 91 | |
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3. REGULATORY MATTERS
RATE-RELATED INFORMATION
The NCUC, PSCSC, FPSC, IURC, PUCO, TPUC and KPSC approve rates for retail electric and natural gas services within their states. The FERC approves rates for electric sales to wholesale customers served under cost-based rates (excluding Ohio and Indiana), as well as sales of transmission service. The FERC also regulates certification and siting of new interstate natural gas pipeline projects.
Duke Energy Carolinas and Duke Energy Progress
HB 951
The NCUC is required by North Carolina House Bill 951 (HB 951) to adopt an initial Carbon Plan on or before December 31, 2022. The NCUC has directed Duke Energy Carolinas and Duke Energy Progress to file a proposed Carbon Plan on or before May 16, 2022. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
On February 10, 2022, the NCUC adopted rules to govern the application and review process for the PBR authorized under HB 951. On April 5, 2022, the NCUC adopted rules to govern the securitization of 50% of the North Carolina retail portion of the remaining net book value of retiring coal plants pursuant to HB 951. The rules are constructive and consistent with the policy objectives of HB 951.
Duke Energy Carolinas
Oconee Nuclear Station Subsequent License Renewal
On June 7, 2021, Duke Energy Carolinas filed a subsequent license renewal (SLR) application for the Oconee Nuclear Station (ONS) with the U.S. Nuclear Regulatory Commission (NRC) to renew ONS’s operating license for an additional 20 years. The SLR would extend operations of the facility from 60 to 80 years. The current licenses for units 1 and 2 expire in 2033 and the license for unit 3 expires in 2034. By a Federal Register Notice dated July 28, 2021, the NRC provided a 60-day comment period for persons whose interest may be affected by the issuance of a subsequent renewed license for ONS to file a request for a hearing and a petition for leave to intervene. On September 27, 2021, Beyond Nuclear and Sierra Club (Petitioners) filed a Hearing Request and Petition to Intervene (Hearing Request) and a Petition for Waiver. The Hearing Request proposed three contentions purporting to challenge Duke Energy Carolinas’ environmental report (ER). In general, the proposed contentions claimed that the ER did not consider certain information regarding the environmental aspects of severe accidents caused by a hypothetical failure of the Jocassee Dam, and therefore did not satisfy the National Environmental Policy Act (NEPA) of 1969, as amended, or the NRC’s NEPA-implementing regulations. Duke Energy Carolinas filed its answer to the proposed contentions on October 22, 2021, and the Petitioners filed their reply to Duke Energy Carolinas’ answer on November 5, 2021. On February 11, 2022, the Atomic Safety and Licensing Board (ASLB) issued its decision on the Hearing Request and found that the Petitioners failed to establish that the proposed contentions are litigable. The ASLB also denied the Petitioners' Petition for Waiver and terminated the proceeding.
On February 24, 2022, the NRC issued a decision in the Turkey Point SLR appeal and ruled that the NRC’s license renewal Generic Environmental Impact Statement (GEIS) does not apply to SLR because the GEIS does not address SLR. The decision overturned a 2020 NRC decision that found the GEIS applies to SLR. While Turkey Point is not owned or operated by a Duke Energy Registrant, the NRC’s order applies to all SLR applicants, including ONS. The NRC order also indicated no subsequent renewed licenses will be issued until the NRC staff has completed an adequate NEPA review for each application. On April 5, 2022, the NRC approved a 24-month rulemaking plan that will enable the NRC staff to complete an adequate NEPA review. Although an SLR applicant may wait until the rulemaking is completed, the NRC also noted that an applicant may submit a revised environmental report providing information on environmental impacts during the SLR period prior to the rulemaking being completed. Duke Energy Carolinas is evaluating the two options to determine which is preferable for ONS. Although the NRC’s decision will delay completion of the SLR proceeding, Duke Energy Carolinas does not believe it changes the probability that the ONS subsequent renewed licenses will ultimately be issued, though Duke Energy Carolinas cannot guaranty the outcome of the license application process.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Duke Energy Carolinas and Duke Energy Progress intend to seek renewal of operating licenses and 20-year license extensions for all of their nuclear stations. New depreciation rates were implemented for all of the nuclear facilities during the second quarter of 2021. Duke Energy Carolinas and Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Progress
FERC Return on Equity Complaint
On October 16, 2020, North Carolina Electric Membership Corporation (NCEMC) filed a complaint at the FERC against Duke Energy Progress pursuant to Section 206 of the Federal Power Act (FPA), alleging that the 11% stated return on equity (ROE) component in the demand formula rate in the Power Supply and Coordination Agreement between NCEMC and Duke Energy Progress is unjust and unreasonable. Under FPA Section 206, the earliest refund effective date that the FERC can establish is the date of the filing of the complaint. A series of responses and answers were filed at FERC. The complaint proceeding is currently held in abeyance until June 1, 2022, based on representations that the parties have reached an agreement in principle and need additional time to finalize the filing. Duke Energy Progress cannot predict the outcome of this matter.
Duke Energy Florida
2021 Settlement Agreement
On January 14, 2021, Duke Energy Florida filed a Settlement Agreement (the “2021 Settlement”) with the FPSC. The parties to the 2021 Settlement include Duke Energy Florida, the Office of Public Counsel (OPC), the Florida Industrial Power Users Group, White Springs Agricultural Chemicals, Inc. d/b/a PCS Phosphate and NUCOR Steel Florida, Inc. (collectively, the “Parties”).
Pursuant to the 2021 Settlement, the Parties agreed to a base rate stay-out provision that expires year-end 2024; however, Duke Energy Florida is allowed an increase to its base rates of an incremental $67 million in 2022, $49 million in 2023 and $79 million in 2024, subject to adjustment in the event of tax reform during the years 2021, 2022 and 2023. The Parties also agreed to an ROE band of 8.85% to 10.85% with a midpoint of 9.85% based on a capital structure of 53% equity and 47% debt. The ROE band can be increased by 25 basis points if the average 30-year U.S. Treasury rate increases 50 basis points or more over a six-month period in which case the midpoint ROE would rise from 9.85% to 10.10%. Duke Energy Florida will also be able to retain the retail portion of the DOE award of approximately $173 million for spent nuclear fuel, which is expected to be received in 2022, in order to mitigate customer rates over the term of the 2021 Settlement. In return, Duke Energy Florida will be able to recognize the $173 million into earnings from 2022 through 2024.
In addition to these terms, the 2021 Settlement contained provisions related to the accelerated depreciation of Crystal River Units 4-5, the approval of approximately $1 billion in future investments in new cost-effective solar power, the implementation of a new Electric Vehicle Charging Station Program and the deferral and recovery of costs in connection with the implementation of Duke Energy Florida’s Vision Florida program, which explores various emerging non-carbon emitting generation technology, distributed technologies and resiliency projects, among other things. The 2021 Settlement also resolved remaining unrecovered storm costs for Hurricane Michael and Hurricane Dorian.
The FPSC approved the 2021 Settlement on May 4, 2021, issuing an order on June 4, 2021. Revised customer rates became effective January 1, 2022, with subsequent base rate increases effective January 1, 2023, and January 1, 2024.
Clean Energy Connection
On July 1, 2020, Duke Energy Florida petitioned the FPSC for approval of a voluntary solar program. The program consists of 10 new solar generating facilities with combined capacity of approximately 750 MW. The program allows participants to support cost-effective solar development in Florida by paying a subscription fee based on per kilowatt-subscriptions and receiving a credit on their bill based on the actual generation associated with their portion of the solar portfolio. The estimated cost of the 10 new solar generation facilities is approximately $1 billion over the next three years, and this investment will be included in base rates offset by the revenue from the subscription fees. The credits will be included for recovery in the fuel cost recovery clause. The FPSC approved the program in January 2021.
On February 24, 2021, the League of United Latin American Citizens (LULAC) filed a notice of appeal of the FPSC’s order approving the Clean Energy Connection to the Supreme Court of Florida. LULAC's initial brief was filed on May 26, 2021, and Appellees' response briefs were filed on July 26, 2021. LULAC's reply brief was filed on September 24, 2021, and its request for oral argument was filed on September 28, 2021. The Supreme Court of Florida heard the oral argument on February 9, 2022. The FPSC approval order remains in effect pending the outcome of the appeal. Duke Energy Florida cannot predict the outcome of this matter.
Storm Protection Plan
On April 11, 2022, Duke Energy Florida filed a Storm Protection Plan for approval with the FPSC. The plan, which covers investments for the 2023-2032 time frame, reflects approximately $7 billion of capital investment in transmission and distribution meant to strengthen its infrastructure, reduce outage times associated with extreme weather events, reduce restoration costs and improve overall service reliability. The FPSC has scheduled a hearing to begin on August 2, 2022. Duke Energy Florida cannot predict the outcome of this matter.
Duke Energy Ohio
Duke Energy Ohio Electric Base Rate Case
Duke Energy Ohio filed with the PUCO an electric distribution base rate case application on October 1, 2021, with supporting testimony filed on October 15, 2021, requesting an increase in electric distribution base rates of approximately $55 million and an ROE of 10.3%. This is an approximate 3.3% average increase in the customer's total bill across all customer classes. The drivers for this case are capital invested since Duke Energy Ohio's last electric distribution base rate case in 2017. Duke Energy Ohio is also seeking to adjust the caps on its Distribution Capital Investment Rider (DCI Rider). Duke Energy Ohio anticipates the PUCO will rule on the request in 2022. Duke Energy Ohio cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Energy Efficiency Cost Recovery
In response to changes in Ohio law that eliminated Ohio's energy efficiency mandates, the PUCO issued an order on February 26, 2020, directing utilities to wind down their demand-side management programs by September 30, 2020, and to terminate the programs by December 31, 2020. Duke Energy Ohio took the following actions:
•On March 27, 2020, Duke Energy Ohio filed an application for rehearing seeking clarification on the final true up and reconciliation process after 2020. On November 18, 2020, the PUCO issued an order replacing the cost cap previously imposed upon Duke Energy Ohio with a cap on shared savings recovery. On December 18, 2020, Duke Energy Ohio filed an additional application for rehearing challenging, among other things, the imposition of the cap on shared savings. On January 13, 2021, the application for rehearing was granted for further consideration.
•On October 9, 2020, Duke Energy Ohio filed an application to implement a voluntary energy efficiency program portfolio to commence on January 1, 2021. The application proposed a mechanism for recovery of program costs and a benefit associated with avoided transmission and distribution costs. The application remains under review.
•On November 18, 2020, the PUCO issued an order directing all utilities to set their energy efficiency riders to zero effective January 1, 2021, and to file a separate application for final reconciliation of all energy efficiency costs prior to December 31, 2020. Effective January 1, 2021, Duke Energy Ohio suspended its energy efficiency programs.
•On June 14, 2021, the PUCO issued an entry for each utility to file by July 15, 2021, a proposal to reestablish low-income programs through December 31, 2021. Duke Energy Ohio filed its application on July 14, 2021.
•On February 23, 2022, the PUCO issued its Fifth Entry on Rehearing that 1) affirmed its reduction in Duke Energy Ohio's shared savings cap; 2) denied rehearing/clarification regarding lost distribution revenues and shared savings recovery for periods after December 31, 2020; and 3) directed Duke Energy Ohio to submit an updated application with exhibits.
•On March 25, 2022, Duke Energy Ohio filed its Amended Application consistent with the PUCO's order.
Duke Energy Ohio cannot predict the outcome of this matter.
Natural Gas Pipeline Extension
Duke Energy Ohio installed a new natural gas pipeline (the Central Corridor Project) in its Ohio service territory to increase system reliability and enable the retirement of older infrastructure. Construction of the pipeline extension was completed and placed in service on March 14, 2022. Duke Energy Ohio expects the final cost for the pipeline development and construction activities to be approximately $185 million (excluding overheads and AFUDC).
MGP Cost Recovery
In an order issued in 2013, the PUCO approved Duke Energy Ohio's deferral and recovery of costs related to environmental remediation at two sites (East End and West End) that housed former MGP operations. Duke Energy Ohio made annual applications with the PUCO to recover its incremental remediation costs consistent with the PUCO’s directive in Duke Energy Ohio’s 2012 natural gas base rate case. The Staff of the PUCO (Staff) issued reports recommending a disallowance of MGP remediation costs incurred that the Staff believes are not eligible for recovery. The Staff interprets the PUCO’s 2013 order granting Duke Energy Ohio recovery of MGP remediation as limiting the recovery to work directly on the East End and West End sites. Duke Energy Ohio filed reply comments objecting to the Staff’s recommendations and explaining, among other things, the obligation Duke Energy Ohio has under Ohio law to remediate all areas impacted by the former MGPs and not just physical property that housed the former plants and equipment. Additionally, the Staff recommended that any discussion pertaining to Duke Energy Ohio's recovery of ongoing MGP costs should be directly tied to or netted against insurance proceeds collected by Duke Energy Ohio. An evidentiary hearing concluded on November 21, 2019. Initial briefs were filed on January 17, 2020, and reply briefs were filed on February 14, 2020.
The 2013 PUCO order also contained conditional deadlines for completing the MGP environmental remediation and the deferral of related remediation costs. Subsequent to the order, the deadline was extended to December 31, 2019. On May 10, 2019, Duke Energy Ohio filed an application requesting a continuation of its existing deferral authority for MGP remediation that must occur after December 31, 2019. On July 12, 2019, the Staff recommended the commission deny the deferral authority request. On September 13, 2019, intervenor comments were filed opposing Duke Energy Ohio's request for continuation of existing deferral authority and on October 2, 2019, Duke Energy Ohio filed reply comments.
A Stipulation and Recommendation was filed jointly by Duke Energy Ohio, the Staff, the Office of the Ohio Consumers' Counsel and the Ohio Energy Group on August 31, 2021, which was approved without modification by the PUCO on April 20, 2022. The Stipulation and Recommendation resolved all open issues regarding MGP remediation costs incurred between 2013 and 2019, Duke Energy Ohio’s request for additional deferral authority beyond 2019 and the pending issues related to the Tax Act described below as it related to Duke Energy Ohio’s natural gas operations. As a result of the approval of the Stipulation and Recommendation, Duke Energy Ohio recognized pretax charges of approximately $15 million to Operating revenues, regulated natural gas and $58 million to Operation, maintenance and other and a tax benefit of $72 million to Income Tax (Benefit) Expense in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022. The Stipulation and Recommendation further acknowledged Duke Energy Ohio’s ability to file a request for additional deferral authority in the future related to environmental remediation of any MGP impacts in the Ohio River if necessary, subject to specific conditions. Intervenors have 30 days to file for rehearing. Duke Energy Ohio cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Tax Act – Ohio
On December 21, 2018, Duke Energy Ohio filed an application to change its base rate tariffs and establish a new rider to implement the benefits of the Tax Act for natural gas customers. Duke Energy Ohio requested commission approval to implement the tariff changes and rider effective April 1, 2019. The new rider would flow through to customers the benefit of the reduction in the statutory federal tax rate from 35% to 21% since January 1, 2018, all future benefits of the lower tax rates and a full refund of deferred income taxes collected at the higher tax rates in prior years. Deferred income taxes subject to normalization rules would be refunded consistent with federal law and deferred income taxes not subject to normalization rules will be refunded over a 10-year period. The PUCO established a procedural schedule and testimony was filed on July 31, 2019. An evidentiary hearing occurred on August 7, 2019. The Stipulation and Recommendation filed on August 31, 2021, and approved on April 20, 2022, disclosed in the MGP Cost Recovery matter above, resolves the outstanding issues in this proceeding by providing customers a one-time bill credit for the reduction in the statutory federal tax rate from 35% to 21% since January 1, 2018, through June 1, 2022, and reducing base rates going forward. Deferred income taxes subject to normalization rules will be refunded consistent with federal law through a new rider. Deferred income taxes not subject to normalization rules were written off. Intervenors have 30 days to file for rehearing. Duke Energy Ohio cannot predict the outcome of this matter.
Midwest Propane Caverns
Duke Energy Ohio used propane stored in caverns to meet peak demand during winter. Because the Central Corridor Project is complete and placed in service, the propane peaking facilities will no longer be necessary and have been retired. On October 7, 2021, Duke Energy Ohio requested deferral treatment of the property, plant and equipment as well as costs related to propane inventory and decommissioning costs. On January 6, 2022, the Staff issued a report recommending deferral authority for costs related to propane inventory and decommissioning costs, but not for the net book value of the remaining plant assets. As a result of the Staff's report, Duke Energy Ohio recorded a $19 million charge to Impairment of assets and other charges on the Consolidated Statements of Operations and Comprehensive Income in the fourth quarter of 2021. A Stipulation and Recommendation was filed jointly by Duke Energy Ohio and the Staff on April 27, 2022, recommending, among other things, approval of deferral treatment of a portion of the net book value of the property, plant and equipment prior to the 2021 impairment at the time of the next natural gas base rate case, excluding operations and maintenance savings, decommissioning costs not to exceed $7 million and costs related to propane inventory. The Stipulation and Recommendation states that Duke Energy Ohio will seek recovery of the deferral through its next gas base rate case proceeding with a proposed amortization period of at least ten years and include an independent engineering study analyzing the necessity and prudency of the incremental investments made at the facilities since March 31, 2012. Duke Energy Ohio will not seek a return on the deferred amounts. Duke Energy Ohio cannot predict the outcome of this matter.
Duke Energy Indiana
2019 Indiana Rate Case
On July 2, 2019, Duke Energy Indiana filed a general rate case with the IURC for a rate increase for retail customers of approximately $395 million. The rebuttal case, filed on December 4, 2019, updated the requested revenue requirement to result in a 15.6% or $396 million average retail rate increase, including the impacts of the Utility Receipts Tax. Hearings concluded on February 7, 2020. On June 29, 2020, the IURC issued an order in the rate case approving a revenue increase of $146 million before certain adjustments and ratemaking refinements. The order approved Duke Energy Indiana’s requested forecasted rate base of $10.2 billion as of December 31, 2020, including the Edwardsport Integrated Gasification Combined Cycle (IGCC) Plant. The IURC reduced Duke Energy Indiana’s request by slightly more than $200 million, when accounting for the utility receipts tax and other adjustments. Approximately 50% of the reduction was due to a prospective change in depreciation and use of regulatory asset for the end-of-life inventory at retired generating plants, approximately 20% is due to the approved ROE of 9.7% versus the requested ROE of 10.4% and approximately 20% was related to miscellaneous earnings neutral adjustments. Step one rates were estimated to be approximately 75% of the total and became effective on July 30, 2020. Step two rates are estimated to be the remaining 25% of the total rate increase. Step two rates were approved on July 28, 2021, and implemented in August 2021. Step two rates are based on an ROE of 9.7% and actual December 31, 2020 capital structure with a 54% equity component. Step two rates were reconciled to January 1, 2021.
Several groups appealed the IURC order to the Indiana Court of Appeals. Appellate briefs were filed on October 14, 2020, focusing on three issues: wholesale sales allocations, coal ash basin cost recovery and the Edwardsport IGCC operating and maintenance expense level approved. The appeal was fully briefed in January 2021 and an oral argument was held on April 8, 2021. The Indiana Court of Appeals affirmed the IURC decision on May 13, 2021. The Indiana Office of Utility Consumer Counselor (OUCC) and the Duke Industrial Group filed a joint petition to transfer the rate case appeal to the Indiana Supreme Court on June 28, 2021. Response briefs were filed July 19, 2021. The Indiana Supreme Court issued its opinion on March 10, 2022, finding that the IURC erred in allowing Duke Energy Indiana to recover coal ash costs incurred before the IURC’s rate case order in June 2020. The Indiana Supreme Court found that allowing Duke Energy Indiana to recover coal ash costs incurred between rate cases that exceeded the amount built into base rates violated the prohibition against retroactive ratemaking. The IURC’s order has been remanded to the IURC for additional proceedings consistent with the Indiana Supreme Court’s opinion. As a result of the court's opinion, Duke Energy Indiana recognized pretax charges of approximately $211 million to Impairment of assets and other charges and $46 million to Operating revenues in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022. Duke Energy Indiana filed a request for rehearing with the Supreme Court on April 11, 2022. Until the Indiana Supreme Court acts on the petition for rehearing, the IURC may not act on the Supreme Court's initial remedy. Duke Energy Indiana cannot predict the outcome of this matter.
2020 Indiana Coal Ash Recovery Case
In Duke Energy Indiana’s 2019 rate case, the IURC also opened a subdocket for post-2018 coal ash related expenditures. Duke Energy Indiana filed testimony on April 15, 2020, in the coal ash subdocket requesting recovery for the post-2018 coal ash basin closure costs for plans that have been approved by the Indiana Department of Environmental Management (IDEM) as well as continuing deferral, with carrying costs, on the balance. An evidentiary hearing was held on September 14, 2020. Briefing was completed by mid-September 2021. On November 3, 2021, the IURC issued an order allowing recovery for post-2018 coal ash basin closure costs for the plans that have been approved by IDEM, as well as continuing deferral, with carrying costs, on the balance. The OUCC filed a notice of appeal to the Indiana Court of Appeals on December 3, 2021. Duke Energy Indiana cannot predict the outcome of this matter.
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FINANCIAL STATEMENTS | REGULATORY MATTERS |
Piedmont
2022 South Carolina Rate Case
On April 1, 2022, Piedmont filed an application with the PSCSC for a rate increase for retail customers of approximately $7 million, which represents an approximate 3.4% increase in retail revenues. The rate increase is driven by customer growth and infrastructure upgrade investments (plant additions) since Piedmont’s last proceeding in 2021 under South Carolina’s Rate Stabilization Act. In addition, Piedmont agreed with the South Carolina Office of Regulatory Staff in 2019 to file a general rate case no later than April 1, 2022, to conduct a more comprehensive review of rates including the allocation of costs to residential, commercial and industrial customers. The PSCSC has scheduled an evidentiary hearing for the week of August 15, 2022. Piedmont cannot predict the outcome of this matter.
OTHER REGULATORY MATTERS
Potential Coal Plant Retirements
The Subsidiary Registrants periodically file IRPs with their state regulatory commissions. The IRPs provide a view of forecasted energy needs over a long term (10 to 20 years) and options being considered to meet those needs. IRPs filed by the Subsidiary Registrants included planning assumptions to potentially retire certain coal-fired generating facilities in North Carolina and Indiana earlier than their current estimated useful lives. Duke Energy continues to evaluate the potential need to retire these coal-fired generating facilities earlier than the current estimated useful lives and plans to seek regulatory recovery for amounts that would not be otherwise recovered when any of these assets are retired.
The table below contains the net carrying value of generating facilities planned for retirement or included in recent IRPs as evaluated for potential retirement. Dollar amounts in the table below are included in Net property, plant and equipment on the Condensed Consolidated Balance Sheets as of March 31, 2022, and exclude capitalized asset retirement costs.
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| | | | | | | | | Remaining Net | | | | |
| Capacity | | | | | | | | Book Value | | | | |
| (in MW) | | | | | | | | (in millions) | | | | |
Duke Energy Carolinas | | | | | | | | | | | | | |
Allen Steam Station Units 1(a) | 167 | | | | | | | | | $ | 12 | | | | | |
Allen Steam Station Units 5(b) | 259 | | | | | | | | | 265 | | | | | |
Cliffside Unit 5(b) | 546 | | | | | | | | | 358 | | | | | |
Duke Energy Progress | | | | | | | | | | | | | |
Mayo Unit 1(b) | 713 | | | | | | | | | 621 | | | | | |
Roxboro Units 3-4(b) | 1,409 | | | | | | | | | 450 | | | | | |
Duke Energy Florida | | | | | | | | | | | | | |
Crystal River Units 4-5(c) | 1,442 | | | | | | | | | 1,636 | | | | | |
Duke Energy Indiana | | | | | | | | | | | | | |
Gibson Units 1-5(d) | 2,845 | | | | | | | | | 2,076 | | | | | |
Cayuga Units 1-2(d) | 1,005 | | | | | | | | | 676 | | | | | |
Total Duke Energy | 8,386 | | | | | | | | | $ | 6,094 | | | | | |
(a)As part of the 2015 resolution of a lawsuit involving alleged New Source Review violations, Duke Energy Carolinas must retire Allen Steam Station Unit 1 by December 31, 2024. The long-term energy options considered in the IRP could result in retirement of this unit earlier than its current estimated useful live.
(b)These units were included in the IRP filed by Duke Energy Carolinas and Duke Energy Progress in North Carolina and South Carolina on September 1, 2020. The long-term energy options considered in the IRP could result in retirement of these units earlier than their current estimated useful lives.
(c)On January 14, 2021, Duke Energy Florida filed the 2021 Settlement agreement with the FPSC, which proposed depreciation rates reflecting retirement dates for Duke Energy Florida's last two coal-fired generating facilities, Crystal River Units 4-5, eight years ahead of schedule in 2034 rather than in 2042. The FPSC approved the 2021 Settlement on May 4, 2021.
(d)The rate case filed July 2, 2019, included proposed depreciation rates reflecting retirement dates from 2026 to 2038. The depreciation rates reflecting these updated retirement dates were approved by the IURC as part of the rate case order issued on June 29, 2020.
4. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Duke Energy Registrants are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal, coal ash and other environmental matters. These regulations can be changed from time to time, imposing new obligations on the Duke Energy Registrants. The following environmental matters impact all Duke Energy Registrants.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
Remediation Activities
In addition to AROs recorded as a result of various environmental regulations, the Duke Energy Registrants are responsible for environmental remediation at various sites. These include certain properties that are part of ongoing operations and sites formerly owned or used by Duke Energy entities. These sites are in various stages of investigation, remediation and monitoring. Managed in conjunction with relevant federal, state and local agencies, remediation activities vary based upon site conditions and location, remediation requirements, complexity and sharing of responsibility. If remediation activities involve joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Duke Energy Registrants could potentially be held responsible for environmental impacts caused by other potentially responsible parties and may also benefit from insurance policies or contractual indemnities that cover some or all cleanup costs. Liabilities are recorded when losses become probable and are reasonably estimable. The total costs that may be incurred cannot be estimated because the extent of environmental impact, allocation among potentially responsible parties, remediation alternatives and/or regulatory decisions have not yet been determined at all sites. Additional costs associated with remediation activities are likely to be incurred in the future and could be significant. Costs are typically expensed as Operation, maintenance and other on the Condensed Consolidated Statements of Operations unless regulatory recovery of the costs is deemed probable.
The following table contains information regarding reserves for probable and estimable costs related to the various environmental sites. These reserves are recorded in Other within Other Noncurrent Liabilities on the Condensed Consolidated Balance Sheets.
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(in millions) | March 31, 2022 | | December 31, 2021 | |
Reserves for Environmental Remediation | | | | |
Duke Energy | $ | 87 | | | $ | 88 | | |
Duke Energy Carolinas | 19 | | | 19 | | |
Progress Energy | 23 | | | 23 | | |
Duke Energy Progress | 11 | | | 11 | | |
Duke Energy Florida | 11 | | | 11 | | |
Duke Energy Ohio | 33 | | | 34 | | |
Duke Energy Indiana | 4 | | | 4 | | |
Piedmont | 8 | | | 9 | | |
Additional losses in excess of recorded reserves that could be incurred for the stages of investigation, remediation and monitoring for environmental sites that have been evaluated at this time are not material.
LITIGATION
Duke Energy
Michael Johnson et al. v. Duke Energy Corporation et al.
On September 23, 2020, plaintiff Michael Johnson, a former Duke Energy employee and participant in the Duke Energy Retirement Savings Plan (Plan) brought suit on his own behalf and on behalf of other participants and beneficiaries similarly situated against Duke Energy Corporation, the Duke Energy Benefits Committee, and other unnamed individual defendants. The complaint, which was subsequently amended to add a current participant as a plaintiff on November 23, 2020, alleges that the defendants breached their fiduciary duties with respect to certain fees associated with the Plan in violation of the Employee Retirement Income Security Act of 1974 and seeks certification of a class of all individuals who were participants or beneficiaries of the Plan at any time on or after September 23, 2014. The defendants filed a motion to dismiss the plaintiffs’ amended complaint on December 18, 2020. On January 31, 2022, the court denied the defendants' motion to dismiss. On February 28, 2022, Duke Energy responded to the amended complaint. Discovery commenced and the parties exchanged preliminary disclosures. After review of these disclosures, the parties filed a joint stipulation of dismissal with prejudice on April 28, 2022. If approved by the Court, this matter will be fully resolved. Duke Energy cannot predict the outcome of this matter.
Texas Storm Uri Tort Litigation
Several Duke Energy renewables project companies, located in the ERCOT market, were named in lawsuits arising out of Texas Storm Uri in mid-February 2021. Duke Energy Corporation, which had originally been named in several suits, was dismissed from the lawsuits. The lawsuits against the Duke Energy renewables project companies seek recovery for property damages, personal injury and for wrongful death allegedly caused by the power outages, which the plaintiffs claim was the result of collective failures of generators, transmission and distribution operators, retail energy providers and others, including ERCOT. The cases have been consolidated into a Texas state court multidistrict litigation (MDL) proceeding for discovery and pre-litigation purposes. Five MDL cases have been designated for motions to dismiss while all other cases are stayed. Duke Energy renewables projects are named as defendants in three of these five cases. The parties' briefing on omnibus motions to dismiss should be completed by July 2022 and will focus on lack of duty, tariff defenses and sovereign immunity. Decisions on these motions will be applicable to all of the stayed cases. Duke Energy cannot predict the outcomes of these matters.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
Duke Energy Carolinas
Ruben Villano, et al. v. Duke Energy Carolinas, LLC
On June 16, 2021, a group of nine individuals went over a low head dam adjacent to the Dan River Steam Station in Eden, North Carolina, while water tubing. Emergency personnel rescued four people and five others were confirmed deceased. On August 11, 2021, Duke Energy Carolinas was served with the complaint filed in Durham County Superior Court on behalf of four survivors, which was later amended to include all the decedents along with the survivors, except for one minor. The lawsuit alleges that Duke Energy Carolinas knew that the river was used for recreational purposes and that Duke Energy did not adequately warn about the dam, and that Duke Energy Carolinas created a dangerous and hidden hazard on the Dan River in building and maintaining the low head dam. On September 30, 2021, Duke Energy Carolinas filed its motion to dismiss and motion for transfer of venue from Durham County to Rockingham County, both of which were denied on November 15, 2021. On November 15, 2021, Duke Energy Carolinas was also served with Plaintiffs Second Amended Complaint, which added the final minor plaintiff and consolidated all the actions into one lawsuit. Duke Energy Carolinas has filed its Answer and Affirmative Defenses to the Second Amended Complaint. Mediation is scheduled for December 2022. Discovery has commenced and is scheduled to be completed on or before February 28, 2023. The case is scheduled to be trial-ready by April 24, 2023. Duke Energy Carolinas cannot predict the outcome of this matter.
NTE Carolinas II, LLC Litigation
In November 2017, Duke Energy Carolinas entered into a standard FERC large generator interconnection agreement (LGIA) with NTE Carolinas II, LLC (NTE), a company that proposed to build a combined-cycle natural gas plant in Rockingham County, North Carolina. On September 6, 2019, Duke Energy Carolinas filed a lawsuit in Mecklenburg County Superior Court against NTE for breach of contract, alleging that NTE's failure to pay benchmark payments for Duke Energy Carolinas' transmission system upgrades required under the interconnection agreement constituted a termination of the interconnection agreement. Duke Energy Carolinas is seeking a monetary judgment against NTE because NTE failed to make multiple milestone payments. The lawsuit was moved to federal court in North Carolina. NTE filed a motion to dismiss Duke Energy Carolinas’ complaint and brought counterclaims alleging anti-competitive conduct and violations of state and federal statutes. Duke Energy Carolinas filed a motion to dismiss NTE's counterclaims.
On May 21, 2020, in response to a NTE petition challenging Duke Energy Carolinas' termination of the LGIA, FERC issued a ruling that 1) it has exclusive jurisdiction to determine whether a transmission provider may terminate a LGIA; 2) FERC approval is required to terminate a conforming LGIA if objected to by the interconnection customer; and 3) Duke Energy may not announce the termination of a conforming LGIA unless FERC has approved the termination. FERC's Office of Enforcement also initiated an investigation of Duke Energy Carolinas into matters pertaining to the LGIA. Duke Energy Carolinas is cooperating with the Office of Enforcement but cannot predict the outcome of this investigation.
On August 17, 2020, the court denied both NTE’s and Duke Energy Carolinas’ motions to dismiss. In October 2021, NTE filed a Second Amended Counterclaim and Complaint, and in January 2022, NTE filed a Third Amended Counterclaim and Complaint. Duke Energy Carolinas has responded to these pleadings. On December 6, 2021, Duke Energy Carolinas filed an Amended Complaint. On March 1, 2022, the parties participated in mediation, which ended in an impasse. On April 4, 2022, Duke Energy Carolinas filed a motion for summary judgment seeking a ruling in its favor as to some of its affirmative claims against NTE and to all of NTE’s counterclaims. Duke Energy Carolinas' motion will be fully briefed on May 10, 2022. The case is scheduled to be trial-ready by August 1, 2022. Duke Energy Carolinas cannot predict the outcome of this matter.
Asbestos-related Injuries and Damages Claims
Duke Energy Carolinas has experienced numerous claims for indemnification and medical cost reimbursement related to asbestos exposure. These claims relate to damages for bodily injuries alleged to have arisen from exposure to or use of asbestos in connection with construction and maintenance activities conducted on its electric generation plants prior to 1985.
Duke Energy Carolinas has recognized asbestos-related reserves of $495 million at March 31, 2022, and $501 million at December 31, 2021. These reserves are classified in Other within Other Noncurrent Liabilities and Other within Current Liabilities on the Condensed Consolidated Balance Sheets. These reserves are based upon Duke Energy Carolinas' best estimate for current and future asbestos claims through 2041 and are recorded on an undiscounted basis. In light of the uncertainties inherent in a longer-term forecast, management does not believe they can reasonably estimate the indemnity and medical costs that might be incurred after 2041 related to such potential claims. It is possible Duke Energy Carolinas may incur asbestos liabilities in excess of the recorded reserves.
Duke Energy Carolinas has third-party insurance to cover certain losses related to asbestos-related injuries and damages above an aggregate self-insured retention. Receivables for insurance recoveries were $644 million at March 31, 2022, and $644 million at December 31, 2021. These amounts are classified in Other within Other Noncurrent Assets and Receivables within Current Assets on the Condensed Consolidated Balance Sheets. Any future payments up to the policy limit will be reimbursed by the third-party insurance carrier. Duke Energy Carolinas is not aware of any uncertainties regarding the legal sufficiency of insurance claims. Duke Energy Carolinas believes the insurance recovery asset is probable of recovery as the insurance carrier continues to have a strong financial strength rating.
The reserve for credit losses for insurance receivables is $12 million for Duke Energy and Duke Energy Carolinas as of March 31, 2022, and December 31, 2021. The insurance receivable is evaluated based on the risk of default and the historical losses, current conditions and expected conditions around collectability. Management evaluates the risk of default annually based on payment history, credit rating and changes in the risk of default from credit agencies.
Duke Energy Progress and Duke Energy Florida
Spent Nuclear Fuel Matters
On June 18, 2018, Duke Energy Progress and Duke Energy Florida sued the U.S. in the U.S. Court of Federal Claims for damages incurred for the period 2014 through 2018. The lawsuit claimed the DOE breached a contract in failing to accept spent nuclear fuel under the Nuclear Waste Policy Act of 1982 and asserted damages for the cost of on-site storage in the amount of $100 million and $200 million for Duke Energy Progress and Duke Energy Florida, respectively.
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FINANCIAL STATEMENTS | COMMITMENTS AND CONTINGENCIES |
On March 30, 2022, the DOE and Duke Energy Progress executed a settlement agreement, pursuant to which Duke Energy Progress will receive damages for costs incurred between 2014 and 2018, and will be able to submit future costs on a defined schedule. In April 2022, Duke Energy Progress received $87 million in proceeds that related to damages incurred in 2014 through 2018.
On May 2, 2022, the DOE and Duke Energy Florida executed a settlement agreement, pursuant to which Duke Energy Florida will receive approximately $180 million for costs incurred between 2014 and 2018, and will be able to submit costs incurred in 2019 and 2020 pursuant to an audit process.
Duke Energy Indiana
Coal Ash Basin Closure Plan Appeal
On January 27, 2020, Hoosier Environmental Council (HEC) filed a Petition for Administrative Review with the Indiana Office of Environmental Adjudication challenging the Indiana Department of Environmental Management’s (IDEM's) December 10, 2019, partial approval of Duke Energy Indiana’s ash pond closure plan at Duke Energy's Gallagher power station. After hearing oral arguments in early April 2021 on Duke Energy Indiana's and HEC's competing Motions for Summary Judgment, on May 4, 2021, the administrative court rejected all of HEC’s claims and issued a ruling in favor of Duke Energy Indiana. On June 3, 2021, HEC filed an appeal in Superior Court to seek judicial review of the order. On June 25, 2021, Duke Energy Indiana filed its response to the Petition to Review. On August 30, 2021, HEC served Duke Energy Indiana with its Brief in Support of Petition for Judicial Review. On October 29, 2021, Duke Energy Indiana and IDEM filed their response briefs. On December 13, 2021, HEC filed and served its Reply Brief.
On January 11, 2022, Duke Energy Indiana received a compliance obligation letter from the EPA notifying the company that the two basins at issue in the litigation are subject to requirements of the CCR Rule. The letter does not provide a deadline for compliance. Duke Energy Indiana is evaluating the EPA letter, its potential impacts on the litigation and the extent to which this letter could apply to CCR surface impoundments at its other Indiana sites.
Following the January 11, 2022 EPA notice of compliance letter, the parties filed a joint motion to stay the litigation for 45 days, which was approved by the court. As a result, the oral argument scheduled for February 1, 2022, was postponed. Duke Energy Indiana and HEC engaged in settlement discussions, but the parties were unable to reach resolution. On April 21, 2022, HEC filed a Motion to Lift Stay and Motion for Judicial Notice. HEC also requested that the court hold a hearing within 45 days and also take judicial notice of the EPA's January 11, 2022 letter. On April 22, 2022, Duke Energy Indiana sent IDEM a letter withdrawing the closure plans for the Gallagher North Ash Pond and Primary Pond Ash Fill. After acknowledgment by IDEM of withdrawal of these closure plans, Duke Energy Indiana filed a Motion to Dismiss the litigation as moot on April 28, 2022, and IDEM filed a separate brief on May 2, 2022, in support of this motion. Briefing is ongoing. Duke Energy Indiana cannot predict the outcome of this matter.