Business Context and Reporting Period
This Form 8-K Current Report, dated March 1, 2018, is filed by Duke Energy Corporation and its subsidiary Duke Energy Carolinas, LLC (DEC). The report addresses regulatory developments in North Carolina, specifically a partial settlement reached with the Public Staff regarding a rate case filed on August 25, 2017, with the North Carolina Utilities Commission (NCUC).
Key Financial Metrics
The filing does not provide consolidated revenue, profit, cash flow, or debt metrics for the parent company. Specific financial terms within the partial settlement include:
- Return on Equity: 9.9% based on a capital structure of 52% equity and 48% debt.
- Rate Impact: An approximate $105 million annual customer rate increase prior to reductions, or approximately $45 million after applying reductions from the return of excess North Carolina state deferred income taxes.
- Deferred Taxes: Excess North Carolina state deferred income taxes to be returned to customers over four years.
Material Changes and Unresolved Issues
While a partial settlement was reached, several material items remain unresolved and subject to further negotiation or regulatory decision:
- Coal Ash Costs: Deferred costs to be recovered, amortization periods, and ongoing costs to be included in rates.
- Grid Reliability: Timing, costs, and structure of a Grid Reliability and Resiliency Rider.
- Tax Legislation: Impacts of the Federal Tax Cuts and Jobs Act of 2017.
- Nuclear Project: Allowance of a return on the unamortized balance of Lee Nuclear project development costs.
Outlook, Risks, and Management Commentary
DEC filed supplemental comments on March 1, 2018, proposing implementation methods for the Federal Tax Cuts and Jobs Act. An evidentiary hearing on the partial settlement and other outstanding issues is scheduled to commence on March 5, 2018. The partial settlement is not final and remains subject to the review and approval of the NCUC. The filing notes that the removal of recovery for Customer Connect project costs was agreed upon, though deferral treatment for these costs is permitted.
Investor Verification Checklist
- Verify the final NCUC approval status of the partial settlement and the $45 million net rate increase.
- Monitor the outcome of the evidentiary hearing commencing March 5, 2018, regarding unresolved coal ash and nuclear project costs.
- Review the final regulatory determination on the implementation of the Federal Tax Cuts and Jobs Act impacts.
- Assess the long-term financial impact of the 9.9% return on equity and the four-year tax refund schedule.