Progress Energy 2004 Annual Report Download - page 71

D. Westchester Acquisition
In April 2002, Progress Fuels, a subsidiary of Progress
Energy, acquired 100% of Westchester Gas Company
(Westchester). During 2004 the name of the company was
changed to Winchester Energy Co. Ltd. The acquisition
included approximately 215 natural gas-producing wells,
52 miles of intrastate gas pipeline and 170 miles of gas-
gathering systems located within a 25-mile radius of
Jonesville, Texas, on the Texas-Louisiana border.
The aggregate purchase price of approximately
$153 million consisted of cash consideration of
approximately $22 million and the issuance of 2.5 million
shares of Progress Energy common stock then valued at
approximately $129 million. The purchase price included
approximately $2 million of direct transaction costs. The
final purchase price was allocated to oil and gas
properties, intangible assets, diversified business
property, net working capital and deferred tax liabilities for
approximately $152 million, $9 million, $32 million, $5 million
and $45 million, respectively. The $9 million intangible
assets relates to customer contracts (See Note 9).
The acquisition has been accounted for using the
purchase method of accounting and, accordingly, the
results of operations for Westchester have been included
in Progress Energy’s Consolidated Financial Statements
since the date of acquisition. The pro forma results of
operations reflecting the acquisition would not be
materially different from the reported results of
operations for the year ended December 31, 2002.
E. Generation Acquisition
In February 2002, PVI acquired 100% of two electric
generating projects located in Georgia from LG&E Energy
Corp., a subsidiary of Powergen plc. The two projects
consist of 1) Walton County Power, LLC, in Monroe,
Georgia, a 460 MW natural gas-fired plant placed in
service in June 2001 and 2) Washington County Power,
LLC, in Washington County, Georgia, a 600 MW natural
gas-fired plant placed in service in June 2003. The
Walton and Washington projects have been accounted
for using the purchase method of accounting and,
accordingly, have been included in the Consolidated
Financial Statements since the acquisition date.
In the final allocation, the aggregate cash purchase price
of approximately $348 million was allocated to diversified
business property, intangibles and goodwill for $228 million,
$56 million and $64 million, respectively (See Note 9). Of
the acquired intangible assets, $33 million was assigned
to tolling and power sale agreements with LG&E Energy
Marketing, Inc., for each project and $23 million was
assigned to interconnection contracts. Goodwill was
assigned to the CCO segment and will be deductible for
tax purposes.
The pro forma results of operations reflecting the
acquisition would not be materially different from the
reported results of operations for the year ended
December 31, 2002.
6. PROPERTY, PLANT AND EQUIPMENT
A. Utility Plant
The balances of electric utility plant in service at
December 31 are listed below, with a range of depreciable
lives for each:
Generally, electric utility plant at PEC and PEF, other than
nuclear fuel, is pledged as collateral for the first
mortgage bonds of PEC and PEF, respectively.
AFUDC represents the estimated debt and equity costs
of capital funds necessary to finance the construction of
new regulated assets. As prescribed in the regulatory
uniform systems of accounts, AFUDC is charged to the
cost of the plant. The equity funds portion of AFUDC is
credited to other income, and the borrowed funds
portion is credited to interest charges. Regulatory
authorities consider AFUDC an appropriate charge for
inclusion in the rates charged to customers by the
utilities over the service life of the property. The
composite AFUDC rate for PEC’s electric utility plant was
7.2% in 2004, 4.0% in 2003 and 6.2% in 2002, respectively.
The composite AFUDC rate for PEF’s electric utility plant
was 7.8% in 2004, 2003 and 2002.
Depreciation provisions on utility plant, as a percent of
average depreciable property other than nuclear fuel, were
2.2%, 2.5% and 2.6% in 2004, 2003 and 2002, respectively.
The depreciation provisions related to utility plant were
$463 million, $517 million and $488 million in 2004, 2003 and
2002, respectively. In addition to utility plant depreciation
provisions, depreciation and amortization expense also
includes decommissioning cost provisions, asset
retirement obligation (ARO) accretion, cost of removal
69
Progress Energy Annual Report 2004
(in millions) 2004 2003
Production plant (7-33 years) $11,966 $12,044
Transmission plant (30-75 years) 2,282 2,167
Distribution plant (12-50 years) 6,749 6,432
General plant and other (8-75 years) 1,106 1,037
Utility plant in service $22,103 $21,680