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NC regulators slash Duke Energy Progress rate bid, impose $30M coal ash penalty

The North Carolina Utilities Commission on Feb. 23 approved a rate increase for Duke Energy Progress LLC that slashes the utility's revised $419.5 million revenue request to less than half while allowing the recovery of approximately $232 million in coal ash costs spread out over five years.

The Duke Energy Corp. subsidiary is allowed to recover coal ash pond closure costs incurred from Jan. 1, 2015, through Aug. 31, 2017, less a disallowance of $9.5 million, after the commission found the utility "paid too much" for coal ash removal at its Asheville coal plant. The commission also imposed a $30 million penalty against Duke Energy Progress, or DEP, tied to its mismanagement of coal ash.

"DEP admits to pervasive, system-wide shortcomings such as improper communication among those responsible for oversight of coal ash management," the order states.

"The penalty will be paid for by the company and not by the company's customers," the commission added in a news release.

Regulators denied DEP's request to recover approximately $129 million annually for ongoing coal ash expenses. "Instead, DEP is authorized to record these coal ash remediation costs [from Sept. 1, 2017] in a deferral account until its next general rate case, at which point these costs will be carefully scrutinized to determine the extent to which recovery is appropriate," the commission wrote.

The order also decreases DEP's deferred storm recovery costs, including those costs tied to restoring service following Hurricane Matthew in fall 2016, to about $51 million from about $80 million. These costs will be amortized over a five-year period dating back to October 2016.

The commission said it will address tax reform and its impact on customer rates in a separate proceeding.

In a Form 8-K filing with the SEC, Duke Energy said it will take a $100 million pretax charge in the first quarter, primarily tied to the disallowance of coal ash costs and the related penalty as well as deferred storm cost adjustments.

DEP in June 2017 initially requested a $477.5 million rate hike, or 14.9% overall rate increase, with $195 million in annual revenue tied to coal ash pond closure costs. The utility requested a return on common equity of 10.75% and a capital structure of 47% debt and 53% equity. In November 2017, DEP notified regulators that it agreed to lower its ROE to 9.9% and amend the capital structure for its revenue request through a partial settlement reached with commission staff.

The commission also allowed DEP to increase its basic customer service charge to $14 from the current $11.13. In its initial request, DEP had asked to raise the monthly charge to $19.50.

The utility, which has 30 days to file new rate schedules with the NCUC, now estimates a tentative revenue increase of $151 million for the first four years, increasing to $193 million.

"This transparent and thorough process with the NCUC and other stakeholders appears to have produced a result that balances the needs of customers and the company," Duke Energy spokeswoman Meredith Archie said in an email. "Our investments over the past several years have helped transition to cleaner energy sources, while we safely close ash basins in ways that protect people and the environment." (NCUC docket E-2, Sub 1142)