April 19, 2013

Update:  The evidentiary hearing began this week and has consisted of testimony and cross-examination of Duke’s witnesses.  Duke’s witnesses thus far include the following:

• B. Keith Trent: Executive Vice President and Chief Operating Officer of Duke Energy Business Services – testified generally regarding Duke’s request for cost-based capacity, arguing that Duke is not currently receiving just and reasonable compensation for the services that it is providing to customers.  Witness Trent further testified that Duke is receiving $66.06/MW-Day, which is lower than Duke’s embedded cost-based charge of $224/MW-Day.
• Scott Niemann: Economist and consultant for ESAI Power – testified regarding PJM’s capacity market and the fact that as a fixed resource requirement (FRR) entity, Duke is obligated to secure capacity outside of the centralized PJM auctions.  Further, witness Niemann argued that Duke is collecting well below the fully embedded cost of its resources.
• Stephen G. De May: Vice President and Treasurer of Duke Energy Business Services – testified regarding Duke’s financial objectives in which it seeks good credit ratings in order to meet the expectations of bond investors and maintain access to debt markets at reasonable rates; S&P currently has a BBB+ rating for Duke, which is negative.  Further, witness De May stated that Duke needs timely recovery of prudently incurred costs.
• Julie M. Cannell: Former securities analyst and current President of advisory firm, J.M. Cannell, Inc. – testified regarding the perspective of Duke’s investors, arguing that Duke’s most significant risk is a negative return earned on its generating assets, which is projected to range between 3.6 percent and 13.5 percent.
• Brian D. Savoy: Director of Financial Forecasting and Analysis for Duke Energy Business Services – testified regarding his pro forma financial projections.
• Ben Zhang: Vice President of Commercial Analytics for Duke Energy Commercial Enterprises – testified regarding Duke’s projected margins from the sales of energy and ancillary services derived from Duke’s generating assets.

The hearing will likely conclude by the end of next week, then the attorney examiners will issue a briefing schedule. We will provide updates accordingly.