Progress Energy 2004 Annual Report Download - page 74

Agency (Power Agency), which holds an undivided
ownership interest in the Brunswick and Harris nuclear
generating facilities. NRC operating licenses held by PEC
currently expire in December 2014 and September 2016
for Brunswick Units 2 and 1, respectively. An application
to extend these licenses 20 years was submitted in
October 2004. The NRC operating license held by PEC for
the Harris Plant currently expires in October 2026. An
application to extend this license 20 years is expected to
be submitted in the fourth quarter of 2006. On April 19,
2004, the NRC announced that it has renewed the
operating license for PEC’s Robinson Nuclear Plant
(Robinson) for an additional 20 years through July 2030.
PEF’s most recent site-specific estimate of
decommissioning costs for the Crystal River Nuclear
Unit 3 (CR3) was developed in 2000 based on prompt
dismantlement decommissioning. The estimate, in 2000
dollars, is $491 million and is subject to change based on
the same factors as discussed above for PEC’s
estimates. The cost estimate excludes the portion
attributable to other co-owners of CR3. The NRC
operating license held by PEF for CR3 currently expires
in December 2016. An application to extend this license
20 years is expected to be submitted in the first quarter
of 2009.
The Company has identified but not recognized AROs
related to electric transmission and distribution and
telecommunications assets as the result of easements over
property not owned by the Company. These easements are
generally perpetual and require retirement action only
upon abandonment or cessation of use of the property for
the specified purpose. The ARO is not estimable for such
easements, as the Company intends to utilize these
properties indefinitely. In the event the Company decides to
abandon or cease the use of a particular easement, an ARO
would be recorded at that time.
The Company’s nonregulated AROs relate to coal mine
operations, synthetic fuel operations and gas production
of Progress Fuels. The related asset retirement costs, net
of accumulated depreciation, totaled $10 million and
$5 million at December 31, 2004 and 2003, respectively.
The following table shows the changes to the asset
retirement obligations. Additions relate primarily to
additional reclamation obligations at coal mine
operations of Progress Fuels. The deductions to
regulated ARO related to PEC re-measuring the nuclear
decommissioning costs of irradiated plants to take into
account updated site-specific decommissioning cost
studies, which are required by the NCUC every five years.
The cumulative effect of initial adoption of this statement
related to nonregulated operations was $1 million
of income, which is included in cumulative effect of
change in accounting principles, net of tax on the
Consolidated Statements of Income for the year ended
December 31, 2003. Pro forma net income has not been
presented for prior years because the pro forma
application of SFAS No. 143 to prior years would result in
pro forma net income not materially different from the
actual amounts reported.
E. Insurance
PEC and PEF are members of Nuclear Electric Insurance
Limited (NEIL), which provides primary and excess
insurance coverage against property damage to
members’ nuclear generating facilities. Under the primary
program, each company is insured for $500 million at each
of its respective nuclear plants. In addition to primary
coverage, NEIL also provides decontamination,
premature decommissioning and excess property
insurance with limits of $2.0 billion on the Brunswick
and Harris plants, and $1.1 billion on the Robinson Plant
and CR3.
Insurance coverage against incremental costs of
replacement power resulting from prolonged accidental
outages at nuclear generating units is also provided
through membership in NEIL. Both PEC and PEF are
insured under NEIL, following a 12-week deductible
period, for 52 weeks in the amount of $3 million per week
at the Brunswick and Harris plants, $2.5 million per week
at the Robinson Plant and $4.5 million per week at CR3.
An additional 110 weeks (71 weeks for CR3) of coverage
is provided at 80% of the above weekly amounts.
For the current policy period, the companies are
subject to retrospective premium assessments of
up to approximately $29.3 million with respect to the
primary coverage, $32.4 million with respect to the
decontamination, decommissioning and excess property
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Notes to Consolidated Financial Statements
(in millions) Regulated Nonregulated
Asset retirement obligations
as of January 1, 2003 $ 1,183 $10
Additions – 11
Accretion expense 68 1
Deductions – (2)
Asset retirement obligations
as of December 31, 2003 1,251 20
Additions – 6
Accretion expense 73 2
Deductions (63) (7)
Asset retirement obligations
as of December 31, 2004 $ 1,261 $21