On June 8, 2018, FERC approved a Stipulation and Consent Agreement (“Settlement”) between the Office of Enforcement (“OE”) and Duke Energy Corporation and its public utility operating subsidiaries (“Duke”). OE claimed that Duke violated FERC regulations when it failed to accurately describe certain information in the transmission studies submitted in support of its merger with Progress Energy, Inc. (collectively, “Applicants”). FERC determined that the Settlement was fair and reasonable and resolved all outstanding claims and proceedings between OE and Duke.
On April 4, 2011, Applicants filed an application with FERC requesting authorization for the entities to merge. In the initial merger application, Applicants addressed concerns about the potential competitive effects of the merger, due to the proximity of Duke Energy Carolinas, LLC and Progress Energy Carolina’s (“PEC”; collectively, “Subsidiaries”) respective utility operations. In a September 30, 2011 order, FERC determined that without mitigation, the merger would have an undesirable effect on competition in the Subsidiaries’ balancing authority areas (“BAAs”). Applicants proposed to virtually divest generation in response to the September order, but in a December 4, 2011 order, FERC rejected this approach and ordered the parties to propose alternative mitigation.
On March 26, 2012, Applicants submitted a compliance filing that proposed permanent mitigation in the amount of $110 million in the form of transmission expansion projects. The projects were intended to bolster competition in the Subsidiaries’ BAAs. To study the market concentration effects of these transmission expansion projects, Applicants conducted a Delivered Price Test (“DPT”). The DPT included two calculations. First, it calculated the Simultaneous Transmission Import Limit (“SIL”), which is a calculation of the aggregated, transfer capacity into the BAA being studied from each of the adjacent first-tier control areas. Second, it calculated the Available Transfer Capacity (“ATC”) impacts of the transmission expansion projects over specific interfaces with the Subsidiaries’ BAAs. On April 10, 2012, FERC’s Office of Energy Market Regulation issued a deficiency letter directing Applicants to submit additional information about the SIL studies. Applicants filed their response to the deficiency letter on April 13, 2012, and FERC subsequently approved the mitigation proposal and the merger on June 8, 2012.
Soon after the FERC approved the merger, Duke commissioned an independent review of its transmission studies and found that there were issues in the assumptions underlying the transmission studies. Among other things, the review found that PEC modeled two phase shifters on its system as operational in the SIL calculation, but non-operational in the ATC calculation, which made Applicants’ share of the PEC-East market in the DPT analysis lower than it would have been if the phase shifters were modeled as operational in both calculations. Duke presented its investigation results to FERC staff and proposed additional mitigation to remedy the market screen failure. FERC accepted Duke’s proposal for additional mitigation in an October 29, 2014 rehearing order and referred Duke’s handling of the phase shifters to OE.
OE concluded that Applicants violated FERC regulations by “failing to fully and accurately describe to the Commission the condition of the phase shifters and their modeling in PEC’s transmission studies.” OE further determined that Applicants failed to “fully and accurately describe the methodology for calculating ATC at the Duke to PEC-East interface.” In the Settlement, Duke stipulated to certain acts but did not admit or deny that it violated FERC regulations, relating to providing accurate and factual information to FERC. Duke did, however, agree to pay a civil penalty of $3.5 million and to submit compliance monitoring reports for two years. In approving the Settlement in its June 8, 2018 Order, FERC stated it “is a fair and equitable resolution of the matters concerned and is in the public interest, as it reflects the nature and seriousness of the conduct.”
FERC’s order approving the Settlement can be found here.