Progress Energy 2007 Annual Report Download - page 119

Progress Energy Annual Report 2007
117
In September 2005, the EPA advised PEC that it had been
identified as a PRP at the Carolina Transformer site located
in Fayetteville, N.C. The EPA offered PEC and a number of
other PRPs the opportunity to share in the reimbursement
to the EPA of past expenditures in addressing conditions
at the site, which are currently approximately $33 million.
During the year ended December 31, 2007, a settlement
was reached between the PRPs and the EPA, and PEC
recorded and paid an immaterial amount for its share of
the settlement.
PEF
PEF has received approval from the FPSC for recovery
of the majority of costs associated with the remediation
of distribution and substation transformers through the
Environmental Cost Recovery Clause (ECRC). Under
agreements with the Florida Department of Environmental
Protection, PEF is in the process of examining distribution
transformer sites and substation sites for mineral oil-impacted
soil remediation caused by equipment integrity issues. PEF
has reviewed a number of distribution transformer sites and
all substation sites. Based on changes to the estimated time
frame for inspections of distribution transformer sites, PEF
currently expects to have completed this review by the end
of 2008. Should further sites be identified, PEF believes that
any estimated costs would also be recovered through the
ECRC. For the year ended December 31, 2007, PEF accrued
approximately $10 million due to an increase in estimated
remediation costs and spent approximately $22 million
related to the remediation of transformers. For the year ended
December 31, 2006, PEF accrued approximately $42 million
due to additional sites expected to require remediation and
spent approximately $19 million related to the remediation
of transformers. At December 31, 2007, PEF has recorded a
regulatory asset for the probable recovery of these costs
through the ECRC (See Note 7A).
The amounts for MGP and other sites, in the table above,
relate to two former MGP sites and other sites associated
with PEF that have required or are anticipated to require
investigation and/or remediation. The amounts include
approximately $12 million in insurance claim settlement
proceeds received in 2004, which are restricted for use in
addressing costs associated with environmental liabilities.
For the year ended December 31, 2007, PEF made no
accruals and spent approximately $1 million. For the year
ended December 31, 2006, PEF made no accruals and PEF’s
expenditures were not material to our results of operations
or financial condition.
B. Air and Water Quality
We are subject to various current federal, state and local
environmental compliance laws and regulations governing
air and water quality, resulting in capital expenditures
and increased O&M expenses. These compliance laws
and regulations include the Clean Air Interstate Rule
(CAIR), the Clean Air Visibility Rule (CAVR), the NOx SIP
Call Rule under Section 110 of the Clean Air Act (NOx
SIP Call), the Clean Smokestacks Act and mercury
regulation (see “Other Matters – Environmental Matters”
for discussion regarding Clean Air Mercury Rule (CAMR)).
At December 31, 2007, cumulative environmental
compliance capital expenditures to date with regard to
these environmental laws and regulations were
$1.567 billion, including $1.244 billion at PEC and $323 million
at PEF. At December 31, 2006, cumulative environmental
compliance capital expenditures to date with regard to
these environmental laws and regulations were $932 million,
including $904 million at PEC and $28 million at PEF.
As discussed in Note 7A, in June 2002, the Clean
Smokestacks Act was enacted in North Carolina requiring
the state’s electric utilities to reduce the emissions of NOx
and SO
2
from their North Carolina coal-fired power plants in
phases by 2013. Two of PEC’s largest coal-fired generating
units (the Roxboro No. 4 and Mayo Units) impacted by the
Clean Smokestacks Act are jointly owned. Pursuant to joint
ownership agreements, the joint owners are required to
pay a portion of the costs of owning and operating these
plants. PEC has determined that the most cost-effective
Clean Smokestacks Act compliance strategy is to maximize
the SO
2
removal from its larger coal-fired units, including
Roxboro No. 4 and Mayo, so as to avoid the installation of
expensive emission controls on its smaller coal-fired units.
In order to address the joint owner’s concerns that such
a compliance strategy would result in a disproportionate
share of the cost of compliance for the jointly owned units,
PEC entered into an agreement with the joint owner to limit
its aggregate costs associated with capital expenditures to
comply with the Clean Smokestacks Act to approximately
$38 million. PEC recorded a related liability for the joint
owner’s share of estimated costs in excess of the contract
amount. At December 31, 2007, and 2006, the amount of
the liability was $30 million and $29 million, respectively,
based upon the respective current estimates for Clean
Smokestacks Act compliance. Because PEC has taken a
system-wide compliance approach, its North Carolina retail
ratepayers have significantly benefited from the strategy
of focusing emission reduction efforts on the jointly owned
units, and, therefore, PEC believes that any costs in excess
of the joint owner’s share should be recovered from North
Carolina retail ratepayers, consistent with other capital