STATE OF NORTH CAROLINA
UTILITIES COMMISSION
RALEIGH
DOCKET NO.
DOCKET NO.
DOCKET NO.
DOCKET NO.

E-7, SUB
E-7, SUB
E-7, SUB
E-7, SUB

1146
819
1110
1152

BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
DOCKET NO. E-7, SUB 1146
Application of Duke Energy Carolinas, LLC
for Adjustment of Rates and Charges
Applicable to Electric Utility Service in North
Carolina

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DOCKET NO. E-7, SUB 819
Amended Application of Duke Energy
Carolinas, LLC for Approval of Decision to
Incur Nuclear Generation Project
Development Costs
DOCKET NO. E-7, SUB 1110
Joint Petition of Duke Energy Progress,
LLC and Duke Energy Carolinas, LLC for
an Accounting Order to Defer
Environmenta l Compl iance Costs
DOCKET NO. E-7, SUB 1152
Petition of Duke Energy Carolinas, LLC for
an Order Approving a Job Retention Rider

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) AGREEMENT AND STIPULATION
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OF PARTIAL SETTLEMENT
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Duke Energy Carolinas, LLC ("DEC" or the "Company") and the Public Staff,
North Carol inas Utilities Commission (the "Public Staff''), collectively referred to
herein as the "Stipulating Parties," through counsel and pursuant to G .S. 62-69,

 respectfully submit the following Agreement and Stipulation of Partial Settlement
("Stipulation") for consideration by the North Carolina Utilities Commission
("Commission") in the above captioned docket.

I. BACKGROUND
A.

On August 25, 2017, DEC filed an application ("Application") for a

general rate increase, pursuant to G.S. 62-133 and -134 and Commission Rule
R1-17, along with direct testimony and exhibits requesting a non-fuel base rate
increase of approximately 12.8 percent in retail revenues, or approximately $611
million. The Company also requested a Grid Reliability and Resiliency Rider to
recover an additional $36 million, which has the effect of an additional 0.8 percent
increase. The filing was based upon a 10.75 percent return on equity ("ROE") and
a 53 percent equity component of the capital structure.
B.

On October 18, 2017, the Commission issued an order consolidating

the general rate proceeding in Docket No. E-7, Sub 1146, with DEC's request to
cancel the Lee Nuclear Project in Docket No. E-7, Sub 819, and DEC's request to
implement a job retention rider in Docket No. E-7, Sub 1152. On July 1O, 2017, the
Commission issued an order holding that DEC's request to defer certain
environmental compliance costs regarding coal combustion residuals in Docket
No. E-7, Sub 1110, shall be consolidated with DEC's next general rate case.
C.

On December 15, 2017, the Company filed supplemental direct

testimony and exhibits.

On December 18, 2017, the Company filed Revised

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 Supplemental testimony.

On January 16, 2018, the Company filed second

supplemental direct testimony and exhibits. On January 23, 2018, the intervenors
in this proceeding, including the Public Staff, filed testimony. On February 6, 2018,
the Company filed rebuttal testimony and exhibits.

The Pubic Staff filed

supplemental and revised testimony on February 20, 2018 and corrections to
supplemental testimony on February 22, 2018.
D.

The parties to th is proceeding have conducted substantial discovery

on the issues raised in the Application, as well as on the direct, supplemental and
rebuttal testimonies of the Company and the direct testimony of the Public Staff.
Prior to the evidentiary hearing scheduled to begin March 5, 2018, the Stipulating
Parties reached a partial settlement with respect to some of the revenue
requirement issues presented by the Company's Application, including those
arising from the supplemental and rebuttal testimonies and exhibits.

The

Stipulating Parties agree and stipulate as follows:

II. UNRESOLVED ISSUES
The Stipulating Parties have not reached a compromise on the fo llowing
issues ("Unresolved Issues"):
a.

Coal ash costs - Cost recovery of the Company's coal ash

costs, recovery amortization

period

and

return during

the

amortization period, allocation issues associated with coal ash costs,
and ongoing costs to be included in rates.

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 b.

Lee Nuclear - Whether it is appropriate

to allow a return on

the unamortized balance during the amortization period.
c.

Job Retention Rider - As described in more detail below, the

Stipulating Parties agree that the Company's proposed Job
Retention Rider generally complies with the Commission's guidelines
adopted in Docket No. E-100, Sub 73, but two issues remain to be
decided upon by the Commission: (1) whether companies involved
in the transportation or preservation of a raw material or a finished
product (e.g., pipeline customers) should qualify; and (2) how or if
the Job Retention Rider should be funded after the expiration of the
initial year's $4.5 million shareholder contribution.
d.

Nuclear Decommissioning Expense - The status of the

Company's Nuclear Decommissioning Trust Fund and the Public
Staff's proposal to adjust nuclear decommissioning expense.
e.

Updates - The final update month to be used for ratemaking

in this case and what should be included in the update.
f.

The methodology for calculating customer usage through

December 2017.
g.

Federal Tax Cuts and Jobs Act - The manner in which the

Federal Tax Cuts and Jobs Act (the Tax Act) should be addressed in
this case.

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 h.

Depreciation - The amount of annual depreciation expense

and associated accumulated depreciation to be used for ratemaking
in this case.

i.

Grid Reliability and Resiliency Rider ("GRR") - Whether a

GRR should be adopted in this proceeding, and if so, which costs
would be included in the GRR and the structure of a GRR.
j.

Basic Facilities Charge - The amount of the Basic Facilities

Charge.
k.

Any other revenue requirement or non-revenue requirement

issue other than those issues specifically addressed in this
Stipulation or agreed upon in the testimony of the Stipulat!ng Parties.

Ill. REVENUE REQUIREMENT ISSUES RESOLVED BETWEEN THE PARTIES
The Stipulating Parties have reached an agreement regarding the following
revenue requirement issues. The actual amount of the agreed-upon adjustments
may differ due to the effects of the Unresolved Issues. The revenue requirement
effects of the agreed-upon issues are shown on Boswell Stipulation Exhibit 1 and
McManeus Stipulation Exhibit 1, attached to their respective testimonies
supporting this Stipulation. 1 The revenue requirement effects of this Stipulation
provide sufficient support for the annual revenue required on the issues agreed to

1 The total increase in base rate revenues and the resulting average increase, if any will not
be determined until the Commission rules on the Unresolved Issues.

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 in this Stipulation. No Stipulating Party waives any right to assert a position in any
future proceeding or docket before the Commission or in any court, as the
adjustments agreed to in this Stipulation are strictly for purposes of compromise
and are intended to show a rational basis for reaching the agreed-upon revenue
requirement adjustments without either party conceding any specific adjustment.
The Stipulating Parties agree that settlement on these issues will not be used as
a rationale for future arguments on contested issues brought before the
Commission. The areas of agreement are as follows:
A.

The Company should be allowed to recover distribution vegetation

management costs in an annual amount of $62.6 million, for purposes of
settlement, on a total system basis, and this figure includes acceptance of the
Public Staff's downward adjustment related to untrimmed, back-log miles as
described by Public Staff witnesses Williamson and Boswell. For the purpose of
complying with the Company's current vegetation management program, the
Company commits to eliminate completely the 13,467 miles of existing back-log
as of December 31, 2017 (as identified in the testimony of Public Staff witness
Williamson) ("Existing Backlog") within five years after the date rates go into effect
in this proceeding, and the Company additionally commits to spending the
necessary amount on an annual basis to trim its annual target distribution miles
under its 5/7/9 Plan. Notwithstanding the Company's obligation to provide safe,
adequate, and reliable electricity service to its customers, fulfilling these
commitments will be sufficient to return the Company's distribution line miles to a
state so that thereafter vegetation can be trimmed on the following schedule:

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 trimming all 2, 180 old urban miles every five years, all 7,831 mountain miles every
seven years, and all 41,603 other miles every nine years. In addition, DEC agrees
to provide a report annually to the Commission with the following information: (1)
actual 517/9 and Existing Backlog miles maintained in the previous calendar year;
(2) current level of Existing Backlog miles; (3) vegetation management
maintenance dollars budgeted for the previous calendar year for 51719 and Existing
Backlog; and (4) vegetation management maintenance dollars expended in the
previous calendar year for 5/7/9 and Existing Backlog. All data reported will be
categorized by circuit type (e.g., old urban, mountain, other). The Company further
agrees that any accelerated amount of expenditures to eliminate the Existing
Backlog miles shall not be used to increase the level of vegetation management
expenses in future proceedings, but shall not prohibit the Company from seeking
adjustments for vegetation management contractor rate increases. Th is provision
shall not be construed to prohibit the Parties from presenting evidence or
arguments concerning vegetation management in the context of the Company's
request for the GRR, which is an Unresolved Issue.
B.

The State excess deferred income taxes (EDIT) that the Company

collected pursuant to the Commission's May 13, 2014 order in Docket No. M-100,
Sub 138 should be returned to customers through a levelized rider that will expire
at the end of a four-year period.

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 C.

The incremental operating expenses for the Customer Connect

project should be removed from the Company's revenue requirement as
recommended by the Public Staff. Instead, the Company should be authorized to
establish a regulatory asset to defer and amortize expenses associated with the
Customer Connect project.

The Company should be allowed to accrue and

recover AFUDC on the regulatory asset until the DEC Core Meter-to-Cash release
(Releases 5-8) of the Customer Connect project goes into service or January 1,
2023, whichever is sooner, at which time a 15-year amortization shall begin. In
order to provide the Commission and other interested parties with information
concerning the status of development, spending, and the accomplishments to
date, the Stipulating Parties will develop the reporting format and the content of
that report within 90 days of the Commission's order approving the Stipulation, with
the reports to be filed in this docket for the next five years on December 31 of each
year or until Customer Connect is fully implemented, whichever is later.
D.

The Stipulating Parties agree to remove 50 percent of the corporate

aviation O&M expense requested in this case.

E.

The Company accepts the Public Staff's proposed adjustment to

executive compensation to remove 50 percent of the compensation of the five
Duke Energy executives with the highest amounts of compensation, and to remove
50 percent of the benefits associated with those five executives.
F.

The Company has agreed to remove certain costs associated with

outside services in its rebuttal filing, as recommended by the Public Staff. This

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 amount does not include costs incurred for certain legal services related to coal
ash, which are included in the Unresolved Issues.
G.

The Company accepts the Public Staff's proposed adjustment to

remove costs to achieve the Duke-Piedmont merger.
H.

Company employee incentives should be adjusted to remove the

cost of the Short Term Incentive Plan based on the Company's earnings per share
for employees who qualify for the Company's Long Term Incentive Plan.

I.

The Company shall reduce the amount of coal inventory included in

working capital. Further, an increment rider should be approved to manage the
transition, effective on the same date as new base rates approved in this
proceeding and continuing until inventory levels reach a 35-day supply to allow the
Company to recover the additional costs of carrying coal inventory in excess of a
35-day supply (priced at $73.23 per ton). The rider will terminate the earlier of (a)
May 31, 2020, or (b) the last day of the month in which the Company's actual coal
inventory levels return to a 35-day supply on a sustained basis. For this purpose,
three consecutive months of total coal inventory of 37 days or below will constitute
a sustained basis. The Company reserves the right to request an extension of the
May 31, 2020, date. The Company will adjust this rider annually, concurrently with
DEC's DSM/EE Rider, REPS Rider, and Fuel Adjustment Rider, and any over- or
under-collection of costs experienced as a result of this rider shall be trued up in
that annual rider filing. For purposes of the coal inventory rider, the Stipulating
Parties agree that interest on any under- or over-collection shall be set at the

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 Company's net-of-tax overall rate of return, as approved by the Commission in this
proceeding. In addition, the Company will conduct an analysis in consultation with
the Public Staff demonstrating the appropriate coal inventory level given market
and generation changes since the Company's rate case in Docket No. E-7, Sub
1026. The analysis shall be completed by March 31, 2019.

J.

The Public Staff agrees to accept the Company's rebuttal position on

sponsorships and donations expense, which removed amounts paid to the U.S.
Chamber of Commerce and certain other expenses.
K.

The Company accepts the Public Staff's recommended adjustments

to lobbying and Board of Directors' expenses.
L.

The Lee CC is almost complete, but is not anticipated to come on line

until later in March. The parties agree to the following:
1.

The Company withdraws its adjustment to include

incremental O&M expenses for the Lee CC and the Public Staff
withdraws its displacement adjustment for Lee CC. The Parties therefore
agree that the appropriate level of ongoing O&M expense is $0.
2.

The appropriate amortization period for the deferred

expenses is four years.
3.

It is appropriate to hold the record open until March 23,

2018, for the sole purpose of allowing Company to provide the Public
Staff and the Commission with the final cost amounts to be included in
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 this proceeding for determining the impact of the Lee CC on the overall
revenue increase or decrease approved by the Commission. The Public
Staff will utilize these amounts to work with the Company to file with the
Commission, by April 6, 2018, the Parties' final recommendation with
regard to the Lee CC-related revenue requirement, including Lee CC
deferred costs, using the methodology recommended by the Public Staff
in this proceeding, excluding the appropriate amortization period for Lee
CC deferred costs.
4.

It is appropriate to hold the record open until April 22, 2018

for the sole purpose of allowing the filing by the Company of an affidavit
indicating that the plant has closed to service for operational and
accounting purposes and that is used and useful far the benefit of
customers.
M.

The Company accepts the Public Staff's recommended adjustment

regarding DEBS to DEC allocation as set forth in the supplemental testimony of
Public Staff witness Michelle Boswell.
N.

The Company accepts the Public Staffs methodology as to how to

calculate salaries and wages as set forth in the supplemental testimony of Public
Staff witness Boswell.

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 0.

Revenues approved for DEC in this proceeding should be adjusted

to provide DEC, through sound management, the opportunity to earn an ROE of
9.9 percent. This ROE will be applied to the common equity component of the
Company's ratemaking capital structure consisting of 52% equity and 48% long
term debt. The embedded cost of debt agreed to by the Parties as appropriate and
reasonable for purposes of this proceeding is 4.59%. The weighted overall rate of
return resulting from the above inputs is 7.35%.
P.

Given the Commission's Findings of Fact Nos. 57-59 and associated

conclusions in its Order entered February 23, 2018 in Docket No. E-2, Sub 1142,
the Company hereby withdraws its request to recover certain coal combustion
residuals ("CCR") costs through the fuel adjustment clause related to the
excavation and movement of CCRs from the Riverbend Plant in Gaston County,
North Carolina to the Brickhaven facility in Chatham County, North Carolina. The
effect of this is that the Stipulating Parties agree that the recovery of these costs
are left in the Company's deferred CCR balance for consideration of recovery in
the Company's base rates.

IV. OTHER AREAS OF AGREEMENT
The parties also agree to the following:
A.

The Parties have reached agreement on the Company's proposal for

a Job Retention Rider as described by Company witness Pirro in his direct
testimony, except for the Unresolved Issues.

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 B.

BASE FUEL AND FUEL-RELATED COST FACTORS. The total of

the approved base fuel and fuel related cost factors, by customer class, will be as
set forth in the following table (amounts are ¢/kWh excluding regulatory fee):

Residential
Total Base Fuel (matches
approved fuel rate
effective September 1,
2017, in Sub 1129)
C.

1.7828

General
Service/LiahtinQ
1.9163

Industrial
2.0207

DEC has based its filing in this docket on the Summer Coincident

Peak ("SCP") methodology for cost allocation between jurisdictions and among
customer classes. The Public Staff does not oppose the Company's cost of service
study and allocation methodology for purposes of settlement in this case only, with
the exception of allocation of coal ash costs, which is included within the
Unresolved Issues.
D.

The Public Staff and the Company agree that DEC shall prepare and

file a lead·lag study in its next general rate case.
E.

The Stipulating Parties agree on the following with regard to

assignment of the revenue requirement and the accompanying rate schedules to
be filed by the Company in compliance with the Commission's order and other rate
design matters proposed by DEC:

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 1.

To the extent possible, the Company shall assign the

approved revenue requirement consistent with the principles regarding
revenue apportionment described in the testimony of Public Staff
witness Floyd.
2.

Except for the amount of the Basic Facilities Charge, which

is an Unresolved Issue, the Parties agree that the Company shall
implement the rate design proposed by Company witness Pirro within
his direct testimony, filed contemporaneously with the Company's
Application in this docket, as adjusted by this Stipulation.
F.

The Stipulating Parties will cooperate in providing pre-filed testimony

to explain and support this Stipulation. The Parties agree that DEC's Application
and the testimony and exhibits of the Stipulating Parties will provide sufficient
support for the annual revenue requirement amounts agreed to in this Stipulation,
subject to the revenue requirement effect of the Commission's decisions on the
Unresolved Issues.
G.

With in 30 days after the Commission 's issuance of an order

approving this Stipulation, but no later than ten business days after the Effective
Date of the new rates, DEC will file for Commission approval five copies of all rate
schedules designed to comply with the paragraphs above, accompanied by
calculations showing the revenues that will be produced by the rates for each
schedule. These calculations shall include a schedule comparing the revenue
produced by the filed schedules during the test period with the revenue that will be

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 produced under the proposed settlement schedules (in the format of Company
witness Pirro Exhibit 2), and a schedule illustrating the rates of return by class
based on the revenues produced by the rates for each schedule (in the format of
Company witness Pirro Exhibit 4).
H.

The effective date of the rate change ("Effective Date") shall be the

date the Commission issues an order regarding the requested rate increase
("Approval Order"), provided the Commission issues the Approval Order by May 1,
2018.

If the Approva l Order is issued later than May 1, 2018, the Company

reserves its rights to implement temporary rates under bond pursuant to G.S. 62135 on or after May 1, 2018. Any temporary rates the Company could implement
under G.S. 62-135 will be designed to produce revenues no more than the revenue
requirement agreed upon in this Stipulation using the Company's calculated
amounts as set forth in McManeus Stipulation Exhibit 1.
I.

The Stipulating Parties further agree that JRR revenue credits shall

be recovered through a rider from all retail customers concurrent with JRR
implementation, which is anticipated to occur approximately six months following
the Commission's decision. Rider JRR and the JRR Recovery Rider revenues
shall be reported to the Commission annually and the Recovery Rider shall be
reviewed and will be subject to adjustment annually coincident with the September
fuel adjustment to match anticipated recovery revenues and true-up any past overor under-recovery. Due to the uncertain date of implementation, compliance tariffs
shall be filed prior to implementation of the JRR Recovery Rider and customers

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 shall be notified by bill insert or message upon implementation.

J.

The Stipulating Parties agree that the overall quality of electric

service provided by DEC is adequate.
V. AGREEMENT IN SUPPORT OF SETTLEMENT; NON-WAIVER.

A.

The Stipulating Parties shall act in good faith and use their best

efforts to recommend to the Commission that this Stipulation be accepted and
approved . The Stipulating Parties further agree that th is Stipulation is in the public
interest because it reflects a give-and-take of contested issues and results in rates
that are just and reasonable.

The Stipulation reasonably balances customer

interests in mitigating rate impacts with investor interests in providing for
reasonable recovery of investments, thereby providing the necessary level of
revenue requirement (as to the stipulated issues) to allow the Company to maintain
its financial strength and credit quality and continue to provide high quality electric
utility services to its customers. The Stipulating Parties intend to support the
reasonableness of this Stipulation in any hearing before the Commission and any
proposed order or brief in this docket.
B.

Neither this Stipulation nor any of the terms shall be admissible in

any court or Commission except insofar as the Commission is addressing litigation
arising out of the implementation of the terms herein or the approval of this
Stipulation. This Stipulation shall not be cited as precedent by any of the Parties
with regard to any issue in any other proceeding or docket before th is Commission

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 or in any court.
C.

The provisions of this Stipulation do not reflect any position asserted

by any of the Stipulating Parties, but reflect instead the compromise and settlement
between the Stipulating Parties as to all of the issues covered hereby. No
Stipulating Party waives any right to assert any position in any future proceeding
or docket before this or any other Commission and in any court.
D.

This Stipulation is a product of negotiation among the Stipulating

Parties, and no provision of this Stipulation shall be strictly construed in favor of or
against any Party.

VI. RECEIPT OF TESTIMONY ANO WAIVER OF CROSS- EXAMINATION
Except for testimony and exhibits related to the Unresolved Issues, the prefiled testimony and exhibits of the Stipulating Parties may be received in evidence
without objection, and each Party waives all right to cross examine any witness
with respect to such pre-filed testimony and exhibits. If, however, questions are
asked by any Commissioner, or if questions are asked or positions are taken by
any person who is not a Party, then any Party may respond to such questions by
presenting testimony or exhibits and cross-examining any witness with respect to
such testimony and exhibits.

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 VII.

STIPULATION BINDING ONLY IF ACCEPTED IN ITS ENTIRETY
This Stipulation is the product of negotiation and compromise of a complex

set of issues, and no portion of this Stipulation is or will be binding on any of the
Parties unless the entire Agreement and Stipulation of Settlement is accepted by
the Commission. If the Commission rejects any part of this Stipulation or approves
this Stipulation subject to any change or condition, or if the Commission's approval
of this Stipulation is rejected or conditioned by a reviewing court, the Stipulating
Parties agree to meet and discuss the applicable Commission or court order within
five business days of its issuance and to attempt in good faith to determine if they
are willing to modify the Stipulation consistent with the order.

No Party shall

withdraw from the Stipulation prior to complying with the foregoing sentence. If
any Party withdraws from the Stipulation, each Party retains the right to seek
additional procedures before the Commission, including cross~examination of
witnesses, with respect to issues addressed by the Stipulation and shall not be
bound or prejudiced by the terms and conditions of the Stipulation.
VIII. COUNTERPARTS

This Stipulation may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute on and
the same instrument. Execution by facsimile signature shall be deemed to be, and
shall have the same effect as, execution by original signature.

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 The foregoing is agreed and stipulated this the 2att1 day of February, 2018.

Duke Ene:zrolinas, LLC

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By;-1).'
David B. Fountain
North Carolina President

Public Staff - North Carolina Utilities
Commission

By:~-~-Christopher J. Ayers
Executive Director

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 CERTIFICATE OF SERVICE

I certify that I have served a copy of the foregoing Agreement and
Stipulation of Partial Settlement on all parties of record in accordance with
Commission Rule R1-39, by United States mail, postage prepaid, first class; by
hand delivery; or by means of facsimile or electronic delivery upon agreement of

the receiving party.
This the 281h day of February, 2018.
Electronically submitted

Isl Dianna Downey

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