Duke Energy Carolinas LLC and the public staff of the North Carolina Utilities Commission have reached a partial settlement in the utility's rate case but have not reached a resolution on the recovery of $336 million in coal ash costs.
The Duke Energy Corp. subsidiary in August 2017 filed for an overall $647 million electric rate increase premised upon a 10.75% return on equity, or an average rate increase of 13.6% across all customer groups, and a 53% equity component of the capital structure.
Duke Energy Carolinas, or DEC, and the public staff filed their partial settlement Feb. 28 with the commission. The agreement includes an ROE of 9.9% based upon a capital structure of 52% equity and 48% debt.
Under the agreed upon terms, the DEC estimates an annual rate increase of $105 million minus the return of its state excess deferred income tax liability. When adjusted for the return of excess deferred income taxes, the average annual retail rate increase drops to $45 million for the first four years of the proposed revenue requirement.
The DEC, however, also requested approval to recover $135 million annually for previously incurred coal ash management expenses. The utility is requesting that this recovery be spread out over five years. The DEC also wants to recover $201 million annually for ongoing coal ash expenses.
The public staff recommends a 25-year amortization of deferred coal ash expenses as part of its belief that these costs should be shared equally by Duke Energy's customers and shareholders.
Outside of coal ash, $36 million of the DEC's annual increase is tied to a proposed Grid Reliability and Resiliency Rider. This revenue requirement reflects $309 million of capital investment in 2018 associated with improving reliability and upgrading the DEC's grid infrastructure, along with $20 million in operations and maintenance costs, the company said in a Form 8-K filing with the SEC.
The DEC also asked the commission for approval to terminate the 2,234-MW William States Lee III Nuclear Station and establish a regulatory asset to recover about $53 million per year in development costs over 12 years.
The utility and public staff have not reached an agreement on the recovery of the grid and nuclear development costs.
In addition, the DEC and the public staff have not reached a compromise on how to address the impacts of federal tax reform. In a separate filing, the DEC indicated the reduction in the corporate income tax rate to 21% from 35% would result in a $216 million reduction in revenue requirements. (NCUC docket M-100, Sub 148)
The company proposes that the commission incorporate this revenue reduction and $96 million in total revenue reductions tied to returning federal excess accumulated deferred income taxes to customers. However, the DEC also requested a $200 million increase in proposed revenue requirements to accelerate the collection of certain expenses.
"The reduction in federal income tax rate has a dual effect on customer rates — a decrease in operating expense and an increase in rate base," DEC wrote in its tax filing with the NCUC. "This accelerated return of excess deferred income taxes to customers creates a rate reduction that is followed by a rate increase. The company's proposal would smooth out this rate volatility."
The DEC asked the commission to explore the possibility of allowing the utility to record $200 million annually for accelerated depreciation of automated meters and/or certain coal-fired plants or to use the reduction in the federal income tax rate to offset the ongoing investments in coal ash basin closures.
"If the commission were to deny DEC's request for ongoing recovery of annual coal ash basin closure expense ... in DEC's pending rate case, DEC would propose to record $200 million amortization expense per year to the same regulatory asset to which the ongoing compliance costs are recorded, thereby reducing customers' future obligation," the utility wrote.
The DEC said the net effect of its proposed adjustments is a $72 million reduction in base rates, plus an annual $40 million revenue reduction through a five-year rider, for a total benefit of $112 million annually for five years.
The company is asking for its new rates to take effect no later than May 1. (NCUC docket E-7, Sub 1146)
