Progress Energy 2004 Annual Report Download - page 50

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QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market risk represents the potential loss arising from
adverse changes in market rates and prices. Certain
market risks are inherent in the Company’s financial
instruments, which arise from transactions entered into
in the normal course of business. The Company’s primary
exposures are changes in interest rates with respect to
its long-term debt and commercial paper, and
fluctuations in the return on marketable securities with
respect to its nuclear decommissioning trust funds. The
Company manages its market risk in accordance with its
established risk management policies, which may
include entering into various derivative transactions.
These financial instruments are held for purposes other
than trading. The risks discussed below do not include
the price risks associated with nonfinancial instrument
transactions and positions associated with the
Company’s operations, such as purchase and sales
commitments and inventory.
Interest Rate Risk
The Company manages its interest rate risks through the
use of a combination of fixed and variable rate debt.
Variable rate debt has rates that adjust in periods ranging
from daily to monthly. Interest rate derivative instruments
may be used to adjust interest rate exposures and to
protect against adverse movements in rates.
The following tables provide information at
December 31, 2004 and 2003, about the Company’s interest
rate risk-sensitive instruments. The tables present
principal cash flows and weighted-average interest rates
by expected maturity dates for the fixed and variable rate
long-term debt and FPC obligated mandatorily
redeemable securities of trust. The tables also include
estimates of the fair value of the Company’s interest rate
risk-sensitive instruments based on quoted market prices
for these or similar issues. For interest rate swaps and
interest rate forward contracts, the tables present
notional amounts and weighted-average interest rates by
contractual maturity dates for 2005-2009 and thereafter
and the fair value of the related hedges. Notional amounts
are used to calculate the contractual cash flows to be
exchanged under the interest rate swaps and the
settlement amounts under the interest rate forward
contracts. See Note 18 for more information on interest
rate derivatives.
48
Market Risk Disclosures
(dollars in millions)
December 31, 2004 2005 2006 2007 2008 2009 Thereafter Total Fair Value
Fixed rate long-term debt $349 $908 $674 $827 $400 $5,399 $8,557 $9,454
Average interest rate 7.38% 6.78% 6.41% 6.27% 5.95% 6.55% 6.54%
Variable rate long-term debt – $55 – – $160 $861 $1,076 $1,077
Average interest rate – 2.95% – – 3.19% 1.70% 1.99%
Debt to affiliated trust(a) – – – – – $309 $309 $312
Interest rate – – – – – 7.10% 7.10%
Interest rate derivatives:
Pay variable/receive fixed – – – $(100) – $(50) $(150) $3
Average pay rate – – – (b) –(b) (b)
Average receive rate – – – 4.10% – 4.65% 4.28%
Interest rate forward contracts $200 – – – – $131 $331 $(2)
Average pay rate 3.07% – – – – 4.90% 3.79%
Average receive rate (c) ––– – (b) (b)(c)
(a) FPC Capital I – Quarterly Income Preferred Securities.
(b) Rate is 3-month LIBOR, which was 2.56% at December 31, 2004.
(c) Rate is 1-month LIBOR, which was 2.40% at December 31, 2004.