Progress Energy 2004 Annual Report Download - page 105

In 2003, the Company entered into a new operating lease
for a building, for which minimum annual rental
payments are included in the table above. The lease
terms provide for no rental payments during the last
15 years of the lease, during which period $53 million of
rental expense will be recorded in the Consolidated
Statements of Income.
The Company, excluding PEC and PEF, is also a lessor of
land, buildings and other types of properties it owns
under operating leases with various terms and expiration
dates. The leased buildings are depreciated under the
same terms as other buildings included in diversified
business property. Minimum rentals receivable under
noncancelable leases for 2005 through 2009 are
approximately $32 million, $22 million, $14 million,
$9 million and $6 million, respectively, with $17 million
receivable thereafter. Rents received under these
operating leases totaled $63 million, $46 million and
$53 million for 2004, 2003 and 2002, respectively.
PEC is the lessor of electric poles, streetlights and other
facilities. Minimum rentals under noncancelable leases
are $9 million for 2005 and none thereafter. Rents
received totaled $32 million, $31 million and $28 million for
2004, 2003 and 2002, respectively.
PEF is the lessor of electric poles, streetlights and other
facilities. Rents received are based on a fixed minimum
rental where price varies by type of equipment and totaled
$63 million, $56 million and $52 million for 2004, 2003 and
2002, respectively. Minimum rentals receivable (excluding
streetlights) under noncancelable leases for 2005 is
$5 million, for 2006 through 2009 $1 million, and
$8 million thereafter. Streetlight rentals were $40 million,
$38 million and $34 million for 2004, 2003 and 2002
respectively. Future streetlight rentals would approximate
2004 revenues.
D. Guarantees
To facilitate commercial transactions of the Company’s
subsidiaries, Progress Energy and certain wholly owned
subsidiaries enter into agreements providing future
financial or performance assurances to third parties
(See Note 19).
At December 31, 2004, the Company had issued
guarantees on behalf of third parties with an estimated
maximum exposure of approximately $10 million. These
guarantees support synthetic fuel operations. At
December 31, 2004, management does not believe
conditions are likely for significant performance under
these agreements.
In connection with the sale of partnership interests in
Colona (See Note 4B), Progress Fuels indemnified the
buyers against any claims related to Colona resulting
from violations of any environmental laws. Although the
terms of the agreement provide for no limitation to the
maximum potential future payments under the
indemnification, the Company has estimated that the
maximum total of such payments would not be material.
E. Claims and Uncertainties
OTHER CONTINGENCIES
1. Pursuant to the Nuclear Waste Policy Act of 1982, the
predecessors to PEF and PEC entered into contracts with
the U.S. Department of Energy (DOE) under which the
DOE agreed to begin taking spent nuclear fuel by no later
than January 31, 1998. All similarly situated utilities were
required to sign the same standard contract.
DOE failed to begin taking spent nuclear fuel by
January 31, 1998. In January 2004, PEC and PEF filed a
complaint in the United States Court of Federal Claims
against the DOE, claiming that the DOE breached the
Standard Contract for Disposal of Spent Nuclear Fuel
(SNF) by failing to accept SNF from various Progress
Energy facilities on or before January 31, 1998. Damages
due to DOE’s breach will likely exceed $100 million.
Approximately 60 cases involving the Government’s
actions in connection with spent nuclear fuel are
currently pending in the Court of Federal Claims.
DOE and the PEC/PEF parties have agreed to a stay of the
lawsuit, including discovery. The parties agreed to, and the
trial court entered, a stay of proceedings, in order to allow
for possible efficiencies due to the resolution of legal and
factual issues in previously filed cases in which similar
claims are being pursued by other plaintiffs. These issues
may include, among others, so-called “rate issues,” or the
minimum mandatory schedule for the acceptance of SNF
and high level waste (HLW) by which the Government was
contractually obligated to accept contract holders’ SNF
and/or HLW, and issues regarding recovery of damages
under a partial breach of contract theory that will be
alleged to occur in the future. These issues have been or
are expected to be presented in the trials that are currently
scheduled to occur during 2005. Resolution of these issues
in other cases could facilitate agreements by the parties in
the PEC/PEF lawsuit, or at a minimum, inform the Court of
decisions reached by other courts if they remain
contested and require resolution in this case. The trial
court has continued this stay until June 24, 2005.
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Progress Energy Annual Report 2004