01—Abstract
Summary
Summary of the 8-K filed July 8, 2024. Cited figures are marked; the original filing is the authoritative source.
On July 3, 2024, the Public Service Commission of South Carolina issued a written order approving a base rate increase for Duke Energy Carolinas (DEC) and approving nearly all components of a May 17, 2024 settlement with the South Carolina Office of Regulatory Staff and other intervening parties.
The order resolves DEC's first South Carolina base rate case since 2018. The approved base annual revenue increase is $234 milliona, down from the $323 million originally requested in January 2024, and the net increase for the first two years is about $150 million after accelerated return of federal unprotected excess deferred income tax (EDIT) balances to customers. The order sets a 9.94% return on equity, a 51.21% equity component of capital structure, and a South Carolina retail rate base of $7.4 billion, versus the 10.5% ROE and 53% equity originally requested.
Revised rates take effect August 1, 2024. For Duke Energy Corporation, the order produces a one-time net pre-tax accounting charge of approximately $30 to $40 millionb, to be recognized in the second quarter of 2024. The order also approves recovery of $184 million (South Carolina retail allocation) of coal ash compliance costs over seven years, includes about $188 million of grid improvement plan construction work in progress in rate base, and requires a $2 million one-time shareholder contribution for low-income and energy efficiency programs.
The company agreed to discuss the treatment of nuclear production tax credits under the Inflation Reduction Act with the ORS, or open a separate Commission docket on the issue. The 8-K is filed under Item 7.01 (Regulation FD Disclosure), and the detailed order summary in Exhibit 99.1 is furnished rather than filed. The disclosure indicates a constructive but reduced outcome relative to the original request, with the main near-term financial effect being the second-quarter accounting charge and the lower revenue increase relative to the request.
02—Key points
Key Highlights
- South Carolina PSC approved a base revenue increase of $234 million per year, down from the $323 million (15.5%) originally requested in January 2024, with a net increase of about $150 million for the first two years after accelerated EDIT refunds.
- Approved return on equity is 9.94% (vs. 10.5% requested) on a 51.21% equity / 48.79% debt capital structure, with an overall rate of return of 7.32%; South Carolina retail rate base is $7.4 billion.
- Duke Energy Corporation expects a one-time net pre-tax accounting charge of approximately $30 to $40 million, to be recognized in Q2 2024.
- Coal ash compliance cost recovery of $184 million (SC retail) approved over seven years, with a debt return during deferral and full WACC return during amortization; deferral treatment continues for ongoing basin closure costs.
- Approximately $188 million of grid improvement plan investments included in rate base as construction work in progress, in lieu of ongoing deferral treatment.
- Revised customer rates take effect August 1, 2024, and the company must make a $2 million one-time shareholder contribution for low-income and energy efficiency matters.
- The order resolves all issues in the base rate case, and the 8-K is furnished under Regulation FD, so the Exhibit 99.1 summary is not deemed filed for Section 18 liability purposes.
03—Questions
Frequently Asked Questions
How much of the original rate request did the South Carolina PSC approve?
The Commission approved a base annual revenue increase of $234 million, compared with the $323 million originally filed in January 2024. After accelerating the return of federal unprotected EDIT balances to customers over two years, the net increase for the first two years is about $150 million, or an average 7.2% increase in annual retail revenues, versus the 15.5% originally requested.
What is the financial impact on Duke Energy Corporation?
The order will result in a one-time net pre-tax accounting charge of approximately $30 to $40 million, to be recognized in the second quarter of 2024. The filing does not provide an estimate of the ongoing earnings impact beyond the stated return and capital structure parameters.
What returns and capital structure did the Commission approve?
The order approves a 9.94% return on equity, a 51.21% equity and 48.79% debt capital structure, and an overall rate of return of 7.32%, applied to a South Carolina retail rate base of $7.4 billion. The original request was a 10.5% ROE and a 53% equity component.
When do the new rates take effect and what other obligations were included?
Revised customer rates take effect August 1, 2024. The order also includes a $2 million one-time shareholder contribution for low-income and energy efficiency customer matters, and an agreement to discuss nuclear production tax credit treatment with the ORS within 30 days of U.S. Treasury guidance or open a separate Commission docket on the issue.
Why was the requested increase reduced?
Per the reconciliation in Exhibit 99.1, the reductions from the original $323 million request were a lower ROE (-$28 million), a lower equity component (-$13 million), reduced coal ash recovery (-$14 million), deferrals including extended amortization periods (-$22 million), and other revenue changes (-$6 million), with a further $6 million coal ash adjustment in the Order.
04—Continue