Progress Energy 2004 Annual Report Download - page 104

are subject to several conditions precedent, which include
obtaining the Florida Public Service Commission’s
approval of the agreements, the completion and
commencement of operation of the necessary related
expansions to SNG’s and FGT’s respective natural gas
pipeline systems, and other standard closing conditions.
Due to the conditions precedent in the agreements, the
estimated costs associated with these agreements are not
included in the contractual cash obligations table above.
CONSTRUCTION OBLIGATIONS
The Company has purchase obligations related to various
capital construction projects. Total payments under
these contracts were $102 million, $158 million and
$143 million for 2004, 2003 and 2002, respectively.
OTHER PURCHASE OBLIGATIONS
The Company has entered into various other contractual
obligations primarily related to service contracts for
operational services entered into by PESC, a PVI parts
and services contract, and a PEF service agreement
related to the Hines Energy Complex. Payments under
these agreements were $69 million, $31 million and $420
million for 2004, 2003 and 2002, respectively.
On December 31, 2002, PEC and PVI entered into a
contractual commitment to purchase at least $13 million
and $4 million, respectively, of capital parts by
December 31, 2010. During 2004 and 2003, no capital parts
have been purchased under this contract.
B. Other Commitments
The Company has certain future commitments related to
four synthetic fuel facilities purchased that provide for
contingent payments (royalties). The related agreements
and their amendments require the payment of minimum
annual royalties of approximately $7 million for each plant
through 2007. The Company recorded a liability (included in
other liabilities and deferred credits on the Consolidated
Balance Sheets) and a deferred asset (included in other
assets and deferred debits in the Consolidated Balance
Sheets), each of approximately $73 million and $94 million at
December 31, 2004 and 2003, respectively, representing the
minimum amounts due through 2007, discounted at 6.05%.
At December 31, 2004 and 2003, the portions of the asset and
liability recorded that were classified as current were
approximately $26 million. The deferred asset will be
amortized to expense each year as synthetic fuel sales are
made. The maximum amounts payable under these
agreements remain unchanged. Actual amounts paid under
these agreements were none in 2004, $2 million in 2003 and
$51 million in 2002. Future expected minimum royalty
payments are approximately $26 million for 2005 through
2007. The Company has the right in the related agreements
and their amendments that allow the Company to escrow
those payments if certain conditions in the agreements are
met. The Company has exercised that right and retained
2004 and 2003 royalty payments of approximately $42 million
and $48 million, respectively, pending the establishment of
the necessary escrow accounts. Once established, those
funds will be placed into escrow.
During 2004 Progress Energy made the first installment of
$10 million for a contract dispute. The installments for
2005 and 2006, respectively, are $16 million and $17 million
(See Note 20).
C. Leases
The Company leases office buildings, computer equipment,
vehicles, railcars and other property and equipment with
various terms and expiration dates. Some rental payments
for transportation equipment include minimum rentals plus
contingent rentals based on mileage. These contingent
rentals are not significant. Rent expense under operating
leases totaled $65 million, $60 million and $71 million for
2004, 2003 and 2002, respectively. Purchased power
expense under agreements classified as operating leases
were approximately $24 million in 2004 and $5 million in 2003.
Assets recorded under capital leases at December 31
consist of:
Minimum annual payments, excluding executory costs
such as property taxes, insurance and maintenance, under
long-term noncancelable leases at December 31, 2004, are:
102
Notes to Consolidated Financial Statements
(in millions) 2004 2003
Buildings $30 $30
Equipment and other 23
Less: Accumulated amortization (11) (10)
$21 $23
(in millions)
Capital
Leases
Operating
Leases
2005 $4 $66
2006 4 55
2007 4 58
2008 4 58
2009 3 54
Thereafter 31 307
$50 $598
Less amount representing imputed interest (21)
Present value of net minimum lease payments
under capital leases $29