Progress Energy 2007 Annual Report Download - page 115

Progress Energy Annual Report 2007
113
18. RELATED PARTY TRANSACTIONS
As a part of normal business, we enter into various
agreements providing financial or performance assurances
to third parties. These agreements are entered into primarily
to support or enhance the creditworthiness otherwise
attributed to a subsidiary on a stand-alone basis, thereby
facilitating the extension of sufficient credit to accomplish
the subsidiaries’ intended commercial purposes. Our
guarantees include performance obligations under
power supply agreements, transmission agreements, gas
agreements, fuel procurement agreements and trading
operations. Our guarantees also include standby letters of
credit and surety bonds. At December 31, 2007, the Parent
had issued $433 million of guarantees for future financial or
performance assurance on behalf of its subsidiaries. This
includes $300 million of guarantees of certain payments of
two wholly owned indirect subsidiaries (See Note 23). We do
not believe conditions are likely for significant performance
under the guarantees of performance issued by or on behalf
of affiliates. To the extent liabilities are incurred as a result
of the activities covered by the guarantees, such liabilities
are included in the Consolidated Balance Sheet.
Our subsidiaries provide and receive services, at cost, to
and from the Parent and its subsidiaries, in accordance
with agreements approved by the SEC pursuant to Section
13(b) of PUHCA 1935. The repeal of PUHCA 1935 effective
February 8, 2006, and subsequent regulation by the FERC
did not change our current intercompany services. Services
include purchasing, human resources, accounting,
legal, transmission and delivery support, engineering
materials, contract support, loaned employees payroll
costs, construction management and other centralized
administrative, management and support services.
The costs of the services are billed on a direct-charge
basis, whenever possible, and on allocation factors
for general costs that cannot be directly attributed.
Billings from affiliates are capitalized or expensed
depending on the nature of the services rendered.
PESC provides the majority of the affiliated services
under the approved agreements. Services provided by
PESC during 2007, 2006 and 2005 to PEC amounted to
$182 million, $188 million and $202 million, respectively,
and services provided to PEF were $174 million, $165 million
and $169 million, respectively.
Progress Fuels sold coal to PEF at cost in 2007 and 2006
and for an insignificant profit in 2005. These intercompany
revenues and expenses are eliminated in consolidation;
however, in accordance with SFAS No. 71, profits on
intercompany sales to regulated affiliates are not eliminated
if the sales price is reasonable and the future recovery of
sales price through the ratemaking process is probable.
Sales, net of insignificant profits, if any, of $2 million,
$321 million and $402 million for the years ended
December 31, 2007, 2006 and 2005, respectively, are included
in fuel used in electric generation on the Consolidated
Statements of Income. In 2006, PEF began entering into
coal contracts on its own behalf.
19. FINANCIAL INFORMATION BY BUSINESS
SEGMENT
Our reportable PEC and PEF business segments are primarily
engaged in the generation, transmission, distribution and
sale of electricity in portions of North Carolina, South
Carolina and Florida. These electric operations also
distribute and sell electricity to other utilities, primarily in
the eastern United States.
In addition to the reportable operating segments, the
Corporate and Other segment includes the operations of
the Parent and PESC and other miscellaneous nonregulated
businesses that do not separately meet the quantitative
disclosure requirements of SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information,”
as a separate business segment. The profit or loss of our
reportable segments plus the profit or loss of Corporate
and Other represents our total income from continuing
operations.
Our former Coal and Synthetic Fuels segment was previously
involved in the production and sale of coal-based solid
synthetic fuels as defined under the Code, the operation of
synthetic fuels facilities for third parties and coal terminal
services. In 2007, we reclassified the operations of our
synthetic fuels businesses and coal terminal services as
discontinued operations (See Note 3B). For comparative
purposes, prior year results have been restated to conform
to the current segment presentation.
The postretirement and severance charges incurred in
2005 resulted from a workforce restructuring and voluntary
enhanced retirement program that was approved in February
2005 and concluded in December 2005. Postretirement and
severance charges reclassified to discontinued operations
are not included in the table below.
Products and services are sold between the various
reportable segments. All intersegment transactions are at
cost except for transactions between PEF and the former
Coal and Synthetic Fuels segment, which are at rates set
by the FPSC. In accordance with SFAS No. 71, profits on
intercompany sales between PEF and the former Coal and