Progress Energy 2004 Annual Report Download - page 106

With certain modifications and additional approval by the
NRC, including the installation of onsite dry storage
facilities at Robinson and Brunswick, PEC’s spent nuclear
fuel storage facilities will be sufficient to provide storage
space for spent fuel generated on PEC’s system through
the expiration of the operating licenses for all of PEC’s
nuclear generating units.
With certain modifications and additional approval by the
NRC, including the installation of onsite dry storage
facilities at PEF’s nuclear unit, Crystal River Unit No. 3
(CR3), PEF’s spent nuclear fuel storage facilities will be
sufficient to provide storage space for spent fuel
generated on PEF’s system through the expiration of the
operating license for CR3.
In July 2002, Congress passed an override resolution to
Nevada’s veto of DOE’s proposal to locate a permanent
underground nuclear waste storage facility at Yucca
Mountain, Nevada. In January 2003, the State of Nevada,
Clark County, Nevada, and the City of Las Vegas petitioned
the U.S. Court of Appeals for the District of Columbia Circuit
for review of the Congressional override resolution. These
same parties also challenged EPA’s radiation standards for
Yucca Mountain. On July 9, 2004, the Court rejected the
challenge to the constitutionality of the resolution approving
Yucca Mountain, but ruled that the EPA was wrong to set a
10,000-year compliance period in the radiation protection
standard. EPA is currently reworking the standard but has
not stated when the work will be complete. DOE originally
planned to submit a license application to the NRC to
construct the Yucca Mountain facility by the end of 2004.
However, in November 2004, DOE announced it would not
submit the license application until mid-2005 or later. Also in
November 2004, Congressional negotiators approved
$577 million for fiscal year 2005 for the Yucca Mountain
project, approximately $300 million less than requested by
DOE but approximately the same as approved in 2004. The
DOE continues to state it plans to begin operation of the
repository at Yucca Mountain in 2010. PEC and PEF cannot
predict the outcome of this matter.
2. In 2001, PEC entered into a contract to purchase coal
from Dynegy Marketing and Trade (DMT). After DMT
experienced financial difficulties, including credit
ratings downgrades by certain credit reporting
agencies, PEC requested credit enhancements in
accordance with the terms of the coal purchase
agreement in July 2002. When DMT did not offer credit
enhancements, as required by a provision in the
contract, PEC terminated the contract in July 2002.
PEC initiated a lawsuit seeking a declaratory judgment
that the termination was lawful. DMT counterclaimed,
stating the termination was a breach of contract and an
unfair and deceptive trade practice. On March 23, 2004,
the United States District Court for the Eastern District of
North Carolina ruled that PEC was liable for breach of
contract, but ruled against DMT on its unfair and
deceptive trade practices claim. On April 6, 2004, the Court
entered a judgment against PEC in the amount of
approximately $10 million. The Court did not rule on DMT’s
request under the contract for pending legal costs.
On May 4, 2004, PEC authorized its outside counsel to file
a notice of appeal of the April 6, 2004, judgment, and on
May 7, 2004, the notice of appeal was filed with the
United States Court of Appeals for the Fourth Circuit. On
June 8, 2004, DMT filed a motion to dismiss the appeal on
the ground that PEC’s notice of appeal should have been
filed on or before May 6, 2004. On June 16, 2004, PEC filed
a motion with the trial court requesting an extension of
the deadline for the filing of the notice of appeal. By order
dated September 10, 2004, the trial court denied the
extension request. On September 15, 2004, PEC filed a
notice of appeal of the September 10, 2004, order, and by
order dated September 29, 2004, the appellate court
consolidated the first and second appeals. DMT’s motion
to dismiss the first appeal remains pending.
The consolidated appeal has been fully briefed, and the court
of appeals has indicated that it will hear arguments which
tentatively have been scheduled for the week of May 23, 2005.
In the first quarter of 2004, PEC recorded a liability for the
judgment of approximately $10 million and a regulatory
asset for the probable recovery through its fuel
adjustment clause in the first quarter of 2004. The
Company cannot predict the outcome of this matter.
3. On February 1, 2002, the Company filed a complaint
with the Surface Transportation Board (STB) challenging
the rates charged by Norfolk Southern Railway
Company (Norfolk Southern) for coal transportation to
certain generating plants. In a decision dated
December 23, 2003, the STB found that the rates were
unreasonable, awarded reparations and prescribed
maximum rates. Both parties petitioned the STB for
reconsideration of the December 23, 2003 decision. On
October 20, 2004, the STB reconsidered its
December 23, 2003 decision and concluded that the
rates charged by Norfolk Southern were not
unreasonable. Because the Company paid the maximum
rates prescribed by the STB in its December 23, 2003
decision for several months during 2004, which were
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Notes to Consolidated Financial Statements