Progress Energy 2004 Annual Report Download - page 63

and $226 million, respectively. Other investments in debt
and equity securities are included in miscellaneous
other property and investments in the Consolidated
Balance Sheets. At December 31, 2004 and 2003, the fair
value of these other investments was $39 million and
$39 million, respectively.
Other investments are stated principally at cost. These cost
method investments are included in miscellaneous other
property and investments in the Consolidated Balance
Sheets. At December 31, 2004, and 2003, the Company has
approximately $14 million and $14 million, respectively, of
cost method investments.
The results of operations of Rail are reported one month in
arrears. During 2003, the Company ceased recording
portions of the Fuels’ segment operations one month in
arrears. The net impact of this action increased net income
by $2 million for the year.
Certain amounts for 2003 and 2002 have been
reclassified to conform to the 2004 presentation.
Reclassifications include the reclassification of
instruments used in PEC’s cash management program
from cash and cash equivalents to short-term
investments of $226 million at December 31, 2003, in the
Consolidated Balance Sheets. In the Consolidated
Statements of Cash Flow for each of the three years in
the period ended December 31, 2004, total cash
balances and total cash flows used in investing activities
were revised to reflect the reclassification of these
instruments from cash and cash equivalents to short-
term investments.
C. Consolidation of Variable Interest Entities
The Company consolidates all voting interest entities in
which it owns a majority voting interest and all variable
interest entities for which it is the primary beneficiary in
accordance with FASB Interpretation No. 46R,
“Consolidation of Variable Interest Entities – An Interpretation
of ARB No. 51” (FIN No. 46R). The Company is the primary
beneficiary of and consolidates two limited partnerships
that qualify for federal affordable housing and historic tax
credits under Section 42 of the Internal Revenue Code
(Code). As of December 31, 2004, the total assets of the two
entities were $37 million, the majority of which are
collateral for the entities’ obligations and are included in
other current assets and miscellaneous other property and
investments in the Consolidated Balance Sheets.
The Company is the primary beneficiary of a limited
partnership that invests in 17 low-income housing
partnerships that qualify for federal and state tax credits.
The Company has requested but has not received all the
necessary information to determine the primary
beneficiary of the limited partnership’s underlying 17
partnership investments, and has applied the information
scope exception in FIN No. 46R, paragraph 4(g) to the 17
partnerships. The Company has no direct exposure to loss
from the 17 partnerships; the Company’s only exposure to
loss is from its investment of less than $1 million in the
consolidated limited partnership. The Company will
continue its efforts to obtain the necessary information to
fully apply FIN No. 46R to the 17 partnerships. The Company
believes that if the limited partnership is determined to be
the primary beneficiary of the 17 partnerships, the effect of
consolidating the 17 partnerships would not be significant
to the Company’s Consolidated Balance Sheets.
The Company has variable interests in two power plants
resulting from long-term power purchase contracts. The
Company has requested the necessary information to
determine if the counterparties are variable interest
entities or to identify the primary beneficiaries. Both
entities declined to provide the Company with the
necessary financial information, and the Company has
applied the information scope exception in FIN No. 46R,
paragraph 4(g). The Company’s only significant exposure
to variability from these contracts results from
fluctuations in the market price of fuel used by the two
entities’ plants to produce the power purchased by the
Company. The Company is able to recover these fuel
costs under PEC’s fuel clause. Total purchases from these
counterparties were approximately $58 million, $53 million
and $53 million in 2004, 2003 and 2002, respectively. The
Company will continue its efforts to obtain the necessary
information to fully apply FIN No. 46R to these contracts.
The combined generation capacity of the two entities’
power plants is approximately 880 MW. The Company
believes that if it is determined to be the primary
beneficiary of these two entities, the effect of
consolidating the entities would result in increases to
total assets, long-term debt and other liabilities, but would
have an insignificant or no impact on the Company’s
common stock equity, net earnings or cash flows.
However, because the Company has not received any
financial information from these two counterparties, the
impact cannot be determined at this time.
The Company also has interests in several other variable
interest entities for which the Company is not the
primary beneficiary. These arrangements include
investments in approximately 28 limited partnerships,
limited liability corporations and venture capital funds
and two building leases with special-purpose entities.
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Progress Energy Annual Report 2004