Duke Energy CORP 8-K, filed Apr 1, 2021
Duke Energy CORP (DUK)
About this 8-K
Duke Energy CORP filed this 8-K on April 1, 2021, reporting on events of March 31, 2021.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
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IRS Employer Identification Number |
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240. 13e-4(c)) |
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Registrant | Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | |||
| Duke Energy | ||||||
| Duke Energy | ||||||
| Duke Energy | ||||||
| Duke Energy | each representing a 1/1,000th interest in a share of 5.75% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 7.01. Regulation FD Disclosure.
On March 31, 2021, the North Carolina Utilities Commission (the “NCUC”) issued an order approving without modification previous settlements reached by Duke Energy Carolinas, LLC (“DEC”), the North Carolina Public Staff (the “Public Staff”) and other parties on March 25, 2020, and July 31, 2020, which resolved certain issues in DEC’s base rate case proceeding originally filed with the NCUC on September 31, 2019. These issues include a return on equity of 9.6% based upon a capital structure of 52% equity and 48% debt, deferral treatment for approximately $0.8 billion of grid improvement projects with a return, Unprotected Federal Excess Deferred Income Taxes flow back period of 5 years, and the reasonableness and prudence of $213 million of deferred storm costs which were removed from the rate case and for which DEC filed a petition seeking to securitize the costs in October 2020. DEC expects a financing order from the NCUC in May and the securitization transaction to close in the third quarter of 2021.
In addition, the March 31, 2021 NCUC order approved without modification the Agreement and Stipulation of Partial Settlement of DEC and Duke Energy Progress, LLC, the Public Staff, the North Carolina Attorney General’s Office and the Sierra Club, filed with the NCUC on January 25, 2021, which resolved all coal ash prudence and cost recovery issues through early 2030, including in DEC’s 2019 base rate case proceeding, as well as the equitable sharing issue on remand from DEC’s 2017 North Carolina rate case as a result of the December 11, 2020, North Carolina Supreme Court opinion.
The order denied DEC’s proposal to shorten the remaining depreciable lives of certain of DEC’s coal-fired generating plants, indicating that DEC’s integrated resource planning proceeding was the appropriate proceeding for the review of generating plant retirements.
An overview providing additional detail on the order is attached to this Form 8-K as Exhibit 99.1. The information in Exhibit 99.1 is being furnished pursuant to this Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.
Item 9.01. Financial Statements and Exhibits.
| (d) | Exhibits. |
| 99.1 | Duke Energy Carolinas Summary of Order Issued by the North Carolina Utilities Commission |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DUKE ENERGY CORPORATION | ||
| Date: April 1, 2021 | By: | /s/ David S. Maltz |
| Name: | David S. Maltz | |
| Title: | Vice President, Legal, Chief Governance Officer and Assistant Corporate Secretary | |
| DUKE ENERGY CAROLINAS, LLC | ||
| Date: April 1, 2021 | By: | /s/ David S. Maltz |
| Name: | David S. Maltz | |
| Title: | Vice President, Legal, Chief Governance Officer and Assistant Secretary | |
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| Co-Registrant PreCommencement Tender Offer | |
| Co-Registrant PreCommencement Issuer Tender Offer | |
| Co-Registrant Emerging Growth Company |
Exhibit 99.1
Duke Energy Carolinas
Summary of Order Issued by the North Carolina Utilities Commission
(Docket E-7 Sub 1214)
Background on rate case filings
| · | On September 30, 2019, Duke Energy Carolinas (“DEC”) filed a rate case (“2019 Rate Case”) with the North Carolina Utilities Commission (“NCUC”) and originally requested an approximate $291 million increase in annualized retail revenues. The original rate case filing requested a 10.3% return on equity (“ROE”) and a 53% equity component of the capital structure. |
| · | An NCUC order in DEC’s prior rate case, filed in 2017, allowed DEC to recover deferred coal ash costs of $554 million (NC retail allocation) over 5 years with a weighted average cost of capital (“WACC”) return. The order was subsequently appealed to the North Carolina Supreme Court (the “Court”). On December 11, 2020, the Court issued an opinion on the consolidated appeals, which upheld the NCUC’s decision to include coal ash costs in the cost of service, and the NCUC’s discretion to allow a return on the unamortized balance of coal ash costs. The opinion also remanded to the NCUC a single issue – to consider the assessment of support for the North Carolina Public Staff’s (“Public Staff”) equitable sharing argument. |
Background on settlements reached
| · | On March 25, 2020, DEC and the Public Staff filed an Agreement and Stipulation of Partial Settlement (“First Partial Stipulation”) resolving certain issues in the base rate proceeding, the most significant of which would result in the removal of storm costs from the rate case and an agreement to file a petition seeking to securitize the costs. |
| · | On July 31, 2020, DEC and the Public Staff filed documents in support of an agreement in principle reached on additional issues related to the base rate proceeding (“Second Partial Stipulation”), primarily ROE, capital structure, deferral of grid projects, and tax reform. |
| o | On August 1, 2020, DEC implemented interim rates consistent with the Second Partial Stipulation. The incorporation of EDIT flowback in the interim rates kept most customers rates unchanged. |
| · | On January 22, 2021, DEC, Duke Energy Progress, the NC Attorney General’s Office (“AGO”), the Public Staff and Sierra Club entered into a Settlement Agreement (“Coal Ash Settlement”) which addresses all historical coal ash prudence and cost recovery issues, including the 2019 Rate Case, and provides clarity on coal ash cost recovery for the next decade in North Carolina. |
On March 31, 2021, the NCUC issued an order approving the First Partial Stipulation, the Second Partial Stipulation and the Coal Ash Settlement without modification. The order also addresses other outstanding items in the case.
Major Components of the Order
Approves the First Partial Stipulation and the Second Partial Stipulation including:
| · | ROE of 9.6% based upon a capital structure of 52% equity and 48% debt |
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| · | Deferral treatment for approximately $0.8 billion of Grid Improvement Plan projects including a return |
| · | Unprotected Federal Excess Deferred Income Taxes (“EDIT”) flow back period of 5 years. See additional EDIT discussion below. |
| · | Determination of the reasonableness and prudence of $213 million of deferred storm costs, which have been removed from the rate case. DEC filed a petition seeking to securitize the costs on October 26, 2020, and expects a financing order from the NCUC in May and the securitization transaction to close in Q3 2021. |
| · | Inclusion of plant in service and other revenue requirement updates through May 31, 2020 |
Approves the Coal Ash Settlement without modification, including:
| · | The term of the Coal Ash Settlement goes through early 2030 and resolves all coal ash issues in: (1) the remand of the 2017 rate case; and (2) the 2019 rate case. It also provides much greater certainty on the recovery of coal ash costs incurred through Jan. 2030. |
| · | Limits the scope of future rate case proceedings in NC: for the term of the Coal Ash Settlement, the Parties waive all rights to (1) Assert that coal ash costs be shared between DEC and customers through “equitable sharing” or any other rate base or return adjustment, and (2) Challenge the reasonableness and prudence of DEC’s historical coal ash management practices and costs prior to Feb. 2020. |
| · | DEC agrees to not seek recovery of approximately $500 million of system-wide deferred coal ash expenditures, including $224 million related to the 2019 Rate Case. As a result of the Coal Ash Settlement, DEC incurred a pre-tax charge of approximately $500 million in Q4 2020, which was treated as a “special item” and excluded from adjusted earnings per share. |
| · | Affirms prudency and cost recovery of coal ash costs in the 2017 rate case, including 5-year amortization with a full WACC return and the previously assessed cost of service penalty. |
| · | Allows a return at a reduced ROE during the amortization period on coal ash costs in the 2019 Rate Case and through Jan. 2030. The reduced ROE will be 150 basis points lower than the prevailing ROE over the settlement period (e.g. coal ash costs in the 2019 Rate Case will earn a reduced ROE of 8.1%), with a capital structure composed of 48% debt and 52% equity. |
| o | DEC retains the ability to earn a full WACC return during the deferral period. |
| · | The amortization period for coal ash costs in the 2019 Rate Case will be 5 years. The amortization periods for future deferred costs will be set by the NCUC in future rate case proceedings. |
Denies accelerated coal plant depreciation:
| · | Denies DEC’s proposal to shorten the remaining depreciable lives of five coal-fired power plants. Instead, the Commission stated that the ongoing Integrated Resource Plan docket was the more appropriate venue to decide these issues. |
Rate reductions as a result of federal and state tax reform as agreed to in the Second Partial Stipulation include:
| · | Protected federal EDIT: $1.1 billion returned to customers through base rates; annual rate reduction is in accordance with specific IRS requirements governing the flowback period (approximately 39 years) |
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| · | Unprotected federal EDIT: $1.0 billion returned to customers through the combination of interim rates and a levelized rider over a five-year period |
| · | N.C. state EDIT related to the reduction of the N.C. state income tax rate from 3% to 2.5%: $34 million returned to customers through a levelized rider over a two-year period |
| · | Deferred revenues from January through July 2018 related to the change in the federal statutory tax rate from 35% to 21%: $121 million returned to customers through a levelized rider over a two-year period |
| · | DEC reserves the ability to reflect a future increase or decrease in the federal tax rate during the five-year unprotected EDIT flow back period |
Additional Information
| · | The estimated rate base for DEC NC retail addressed in the case is approximately $17 billion |
| · | Once new tariff schedules are approved by the NCUC, a date will be set for new rates to go into effect. Due to the deployment of the Customer Connect system beginning in April, DEC expects new rates to go into effect in June 2021. |
Reconciliation of Request to Order and Estimated Annual Rate Impacts to Customer Bills
| · | Original request: $446 million increase, less $155 million EDIT rider give-back, for a net requested increase of $291 million |
| · | Estimate per Order (Year 1): $325 million increase, less $294 million EDIT rider give-back, for an estimated net increase of $29 million |
| ($ in millions) | Years 1-2 | Years 3-5 | ||||||
| Request per original filing | $ | 291 | $ | 291 | ||||
| Reduced ROE1 | $ | (76 | ) | $ | (76 | ) | ||
| Reduced equity component of capital structure1 | $ | (13 | ) | $ | (13 | ) | ||
| Reduced debt rate (4.51% to 4.27%)1 | $ | (24 | ) | $ | (24 | ) | ||
| Remove storm costs for securitization1 | $ | (39 | ) | $ | (39 | ) | ||
| Other Stipulation adjustments, including accelerated EDIT flow back and updating to May cut off1 | $ | (23 | ) | $ | 60 | |||
| Coal Ash Settlement impacts (write-off and lower ROE)2 | $ | (55 | ) | $ | (55 | ) | ||
| Remove accelerated depreciation of coal plants | $ | (27 | ) | $ | (27 | ) | ||
| Other impacts of the order, primarily changes to depreciation rates | $ | (5 | ) | $ | (5 | ) | ||
| Estimated cumulative net annualized revenue increase, subject to NCUC review and approval | $ | 29 | $ | 112 | ||||
| Estimated cumulative net annualized customer increase (%) | 0.6 | % | 2.4 | % | ||||
1 As agreed to in the First Partial Stipulation and Second Partial Stipulation
2 As agreed to in the Coal Ash Settlement
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