Agenda Package - 11-19-12 Reg. Meeting

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P2. DOCKET NO. E -2 SUB 1023 — APPLICATION OF PROGRESS ENERGY CAROLINAS INC. FOR ADJUSTMENT OF ITS RATES AND CHARGES EXPLANATION: On October 12, 2012, Progress Energy Carolinas, Inc. (PEC or the Company), filed an application with the Commission requesting authority to adjust and increase its rates and charges for retail electric service in North Carolina. The Company serves approximately 1.5 million retail customers in North and South Carolina. In its application, PEC requests authority to increase its rates and charges to produce additional overall North Carolina annual retail revenues of approximately $387 million, an increase of approximately 12% over current revenues. PEC is seeking approval of a return on common equity of 11.25 %. PEC states that approximately $257 million, or over 70 %, of its requested rate increase is attributable to the approximately $2.3 billion of capital invested in the Company's modernization program that consists of replacing, upgrading, and retiring generation plants and transmission and distribution systems. PEC indicates that the remainder of the request is generally the result of increased expenses relating to nuclear operations, the Company's adoption of a cyclical -based vegetation management program, lower usage per customer and slower growth, increased pension costs, and other miscellaneous costs. PEC has offset $9 million of its additional revenue requirements requested with net savings expected from its merger with Duke Energy Carolinas, LLC. Additionally, PEC proposes to transfer the costs of its Distribution System Demand Response (DSDR) program from its Demand -Side Management and Energy Efficiency (DSM /EE) rider into its base rates. The increase to the Company's base rates associated with the transfer will be offset by a corresponding reduction to PEC's DSM /EE rider in the amount of $28 million. When this transfer of the DSDR program costs into base rates is considered in conjunction with the application for an increase in base rates, the net additional overall annual North Carolina retail revenues requested by PEC are approximately $359 million, a net average increase of 11 %. To allow for this transfer prior to the expiration of the 12 -month rate period established in PEC's pending DSM /EE rider proceeding, Docket No. E -2, Sub 1019, the Company requests a waiver from Commission Rules R8- 69(a)(4) and R8- 69(e)(3). The Company also requests approval for a proposed levelization methodology for its nuclear refueling outage expenses and authorization from the Commission, pursuant to Commission Rule RB -27, to defer in a regulatory asset account and amortize certain expenses over the operating cycle between refueling for its nuclear units. 043 The Public Staff recommends that PEC's application be declared a general rate case, that the proposed rates and charges be suspended, and that the Commission establish deadlines for the filing of petitions to intervene and expert testimony, establish appropriate discovery rules, require public notice, and set the matter for public hearing.