Progress Energy 2004 Annual Report Download - page 77

In conjunction with the FPC merger, PEC reached a
settlement with the Public Staff of the NCUC in which it
agreed to provide credits to its nonreal time pricing
customers in the amounts of $3 million in 2002, $5 million
in 2003 and $6 million in both 2004 and 2005.
In conjunction with the acquisition of NCNG in 1999, PEC
agreed not to seek a base retail electric rate increase in
North Carolina and South Carolina through December
2004. The agreement not to seek a base retail electric
rate increase in South Carolina was extended to
December 2005 in conjunction with regulatory approval
to form a holding company.
C. PEF Retail Rate Matters
On November 9, 2004, the FPSC approved PEF’s
underrecovered fuel costs of $156 million for 2004, of
which PEF plans to defer $79 million until 2006 to mitigate
the impact on customers resulting from the need to also
recover hurricane-related costs. Therefore, $79 million of
deferred fuel costs has been classified as a long-term
asset. As of December 31, 2004, PEF was underrecovered
in fuel costs by $168 million. The additional $12 million over
and above the $156 million approved by the FPSC will be
included in PEF’s 2005 fuel filing.
On June 29, 2004, the FPSC approved a Stipulation and
Settlement Agreement, executed on April 29, 2004, by
PEF, the Office of Public Counsel and the Florida
Industrial Power Users Group. The stipulation and
settlement resolved the issue pending before the FPSC
regarding the costs PEF will be allowed to recover
through its Fuel and Purchased Power Cost Recovery
clause in 2004 and beyond for waterborne coal deliveries
by the Company’s affiliated coal supplier, Progress Fuels
Corporation. The settlement sets fixed per ton prices
based on point of origin for all waterborne coal deliveries
in 2004, and establishes a market-based pricing
methodology for determining recoverable waterborne
coal transportation costs through a competitive
solicitation process or market price proxies in 2005 and
thereafter. The settlement reduces the amount that PEF
will charge to the Fuel and Purchased Power Cost
Recovery clause for waterborne transportation by
approximately $11 million beginning in 2004.
On November 3, 2004, the FPSC approved PEF’s petition
for Determination of Need for the construction of a fourth
unit at PEF’s Hines Energy Complex. Hines Unit 4 is
needed to maintain electric system reliability and
integrity and to continue to provide adequate electricity
to its ratepayers at a reasonable cost. Hines Unit 4 will be
a combined cycle unit with a generating capacity of
461 MW (summer rating). The estimated total in-service
cost of Hines Unit 4 is $286 million, and the unit is planned
for commercial operation in December 2007. If the actual
cost is less than the estimate, customers will receive the
benefit of such cost underruns. Any costs that exceed
this estimate will not be recoverable absent
extraordinary circumstances as found by the FPSC in
subsequent proceedings.
See Note 3 for information on PEF’s petition for storm
cost recovery.
PEF RATE CASE SETTLEMENT
The FPSC initiated a rate proceeding in 2001 regarding
PEF’s future base rates. In March 2002, the parties in
PEF’s rate case entered into a Stipulation and Settlement
Agreement (the Agreement) related to retail rate matters.
The Agreement was approved by the FPSC in April 2002.
The Agreement is generally effective from May 2002
through December 2005, provided, however, that if PEF’s
base rate earnings fall below a 10% return on equity, PEF
may petition the FPSC to amend its base rates.
The Agreement provides that PEF will reduce its retail
revenues from the sale of electricity by an annual amount
of $125 million. The Agreement also provides that PEF will
operate under a Revenue Sharing Incentive Plan (the
Plan) through 2005, and thereafter until terminated by the
FPSC, that establishes annual revenue caps and sharing
thresholds. The Plan provides that retail base rate
revenues between the sharing thresholds and the retail
base rate revenue caps will be divided into two shares –
a 1/3share to be received by PEF’s shareholders, and a
2/3share to be refunded to PEF’s retail customers,
provided, however, that for the year 2002 only, the refund
to customers was limited to 67.1% of the 2/3customer
share. The retail base rate revenue sharing threshold
amounts for 2004, 2003 and 2002 were $1.370 billion,
$1.333 billion and $1.296 billion, respectively, and will
increase $37 million in 2005. The Plan also provides that
all retail base rate revenues above the retail base rate
revenue caps established for each year will be refunded
to retail customers on an annual basis. For 2002, the
refund to customers was limited to 67.1% of the retail
base rate revenues that exceeded the 2002 cap. The
retail base revenue caps for 2004, 2003 and 2002 were
$1.430 billion, $1.393 billion and $1.356 billion,
respectively, and will increase $37 million in 2005. Any
amounts above the retail base revenue caps will be
refunded 100% to customers. At December 31, 2004,
$9 million has been accrued and will be refunded to retail
customers by March 2005. The 2003 revenue sharing
amount was $18 million, and was refunded to customers
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Progress Energy Annual Report 2004