Progress Energy 2004 Annual Report Download - page 31

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Operations and Maintenance (O&M)
O&M expenses were $630 million in 2004, which
represents a $10 million decrease when compared to the
prior year. This decrease is primarily related to favorable
benefit-related costs of $16 million, primarily due to lower
pension costs, which resulted from improved pension
asset performance.
O&M expenses were $640 million in 2003, which
represents a $49 million increase when compared to the
prior year. The increase is largely related to increases in
certain benefit-related expenses of $36 million, which
consisted primarily of higher pension expense of
$27 million and higher operational costs related to the
Crystal River Unit 3 nuclear outage and plant maintenance.
Depreciation and Amortization
Depreciation and amortization expense was $281 million
for 2004, which represents a decrease of $26 million
when compared to the prior year, primarily due to the
amortization of the Tiger Bay regulatory asset in the prior
year. The Tiger Bay regulatory asset, for contract
termination costs, was recovered pursuant to an
agreement between PEF and the FPSC that was
approved in 1997. The amortization of the regulatory
asset was calculated using revenues collected under the
fuel adjustment clause; as such, fluctuations in this
expense did not have an impact on earnings. During 2003,
Tiger Bay amortization was $47 million. The Tiger Bay
asset was fully amortized in September 2003. The
decrease in Tiger Bay amortization was partially offset by
additional depreciation for assets placed in service,
including depreciation for Hines Unit 2, of approximately
$9 million. This depreciation expense is being recovered
through the fuel cost recovery clause as allowed by the
FPSC. See discussion of the return on Hines 2 in the
revenues analysis above.
Depreciation and amortization was $307 million in 2003,
which represents an increase of $12 million when
compared to 2002. Depreciation increased primarily as a
result of additional assets being placed into service that
were partially offset by lower amortization of the Tiger
Bay regulatory asset of $2 million, which was fully
amortized in September 2003.
Taxes Other than on Income
Taxes other than on income were $254 million in 2004,
which represents an increase of $13 million compared to
the prior year. This increase is due to increases in gross
receipts and franchise taxes of $8 million and $7 million,
respectively, related to an increase in revenues and an
increase in property taxes of $5 million due to increases
in property placed in service and tax rates. These
increases were partially offset by a reduction in payroll
taxes of $7 million.
Taxes other than on income were $241 million in 2003,
which represents an increase of $13 million compared to
prior year. This increase was due to increases in payroll
taxes of $10 million and increases in gross receipts and
franchise taxes of $4 million combined.
Interest Expense
Interest charges, net were $114 million in 2004, which
represents an increase of $23 million compared to the
prior year. Interest charges, net were $91 million in 2003,
which represents a $15 million decrease compared to
the prior year. The fluctuations were primarily due to
interest costs in 2003 being favorably impacted by the
reversal of interest expense due to the resolution of
certain tax matters.
Income Tax Expense
Income tax expense was $174 million, $147 million and
$163 million in 2004, 2003 and 2002, respectively. In 2004,
2003 and 2002, $14 million, $13 million and $20 million,
respectively, of the tax benefit that was previously held at
the Company’s holding company was allocated to PEF. As
required by an SEC order issued in 2002, certain holding
company tax benefits are allocated to profitable
subsidiaries. Other fluctuations in income taxes are
primarily due to changes in pre-tax income.
Diversified Businesses
The Company’s diversified businesses consist of
the Fuels segment, the CCO segment and the Rail
Services segment.
Fuels
The Fuels’ segment operations include synthetic fuel
production, natural gas production, coal extraction and
terminal operations. Beginning in the fourth quarter of
2003, the Company ceased recording portions of Fuels’
segment operations, primarily synthetic fuel facilities,
one month in arrears. As a result, earnings for the year
ended December 31, 2003, included 13 months of
operations, resulting in a net income increase of
$2 million for the year.
29
Progress Energy Annual Report 2004