Progress Energy 2007 Annual Report Download - page 123

Progress Energy Annual Report 2007
121
In 2005, PEF entered into an agreement for a capital lease
for a building completed during 2006. The lease term
expires March 2047 and provides for annual payments of
approximately $5 million from 2007 through 2026 for a total
of approximately $103 million. The lease term provides for no
payments during the last 20 years of the lease, during which
period approximately $51 million of rental expense will be
recorded in the Consolidated Statements of Income.
In 2006, PEF extended the terms of an agreement for
purchased power, which is classified as a capital lease,
for an additional 10 years. The agreement calls for minimum
annual payments of approximately $21 million from 2007
through 2024 for a total of approximately $348 million. Due to
the conditions of the agreement, the capital lease was not
recorded on our Consolidated Balance Sheets until 2007.
In 2006, PEF entered into an agreement for purchased power,
which is classified as a capital lease. Due to the conditions
of the agreement, the capital lease will not be recorded on
the Consolidated Balance Sheets until approximately 2011.
Therefore, this capital lease is not included in the table
above. The agreement calls for minimum annual payments
of approximately $8 million from 2012 through 2036 for a total
of approximately $208 million.
Excluding the Utilities, we are also a lessor of land, buildings
and other types of properties we own under operating leases
with various terms and expiration dates. The leased buildings
are depreciated under the same terms as other buildings
included in diversified business property. Minimum rentals
receivable under noncancelable leases are approximately
$8 million, $7 million, $5 million, $4 million and $2 million for
2008 through 2012, respectively. Rents received under these
operating leases totaled $8 million, $9 million and $8 million
for 2007, 2006 and 2005, respectively.
The Utilities are lessors of electric poles, streetlights and
other facilities. PEC’s minimum rentals receivable under
noncancelable leases are $10 million for 2008 and none
thereafter. PEC’s rents received are contingent upon usage
and totaled $33 million for 2007 and $31 million each for 2006
and 2005. PEF’s rents received are based on a fixed minimum
rental where price varies by type of equipment or contingent
usage and totaled $78 million, $72 million and $63 million for
2007, 2006 and 2005, respectively. PEF’s minimum rentals
receivable under noncancelable leases are not material
for 2008 and thereafter.
C. Guarantees
As a part of normal business, we enter into various
agreements providing future financial or performance
assurances to third parties, which are outside the scope
of FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (FIN 45). Such
agreements include guarantees, standby letters of credit
and surety bonds. At December 31, 2007, we do not believe
conditions are likely for significant performance under these
guarantees. To the extent liabilities are incurred as a result
of the activities covered by the guarantees, such liabilities
are included in the accompanying Balance Sheets.
At December 31, 2007, we have issued guarantees and
indemnifications of and for certain asset performance,
legal, tax and environmental matters to third parties,
including indemnifications made in connection with sales
of businesses, and for timely payment of obligations
in support of our nonwholly owned synthetic fuels
operations, which are within the scope of FIN 45. Related
to the sales of businesses, the latest notice period extends
until 2012 for the majority of legal, tax and environmental
matters provided for in the indemnification provisions.
Indemnifications for the performance of assets extend to
2016. For certain matters for which we receive timely notice,
our indemnity obligations may extend beyond the notice
period. Certain indemnifications have no limitations as to
time or maximum potential future payments. In 2005, PEC
entered into an agreement with the joint owner of certain
facilities at the Mayo and Roxboro plants to limit their
aggregate costs associated with capital expenditures to
comply with the Clean Smokestacks Act and recognized
a liability related to this indemnification (See Note 21B). PEC’s
maximum exposure cannot be determined. At December 31,
2007, the estimated maximum exposure for guarantees
and indemnifications for which a maximum exposure is
determinable was $427 million. At December 31, 2007 and
2006, we have recorded liabilities related to guarantees and
indemnifications to third parties of approximately $80 million
and $60 million, respectively. As current estimates change, it
is possible that additional losses related to guarantees and
indemnifications to third parties, which could be material,
may be recorded in the future.
In addition, the Parent has issued $300 million of guarantees
of certain payments of two wholly owned indirect
subsidiaries (See Note 23).