Progress Energy 2007 Annual Report Download - page 32

MANAGEMENT’S DISCUSSION AND ANALYSIS
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of $347 million, which represents the net cost to assign
the Georgia Contracts and other related contracts. In the
year ended December 31, 2007, we recorded a charge
associated with the costs to exit the Georgia Contracts,
and other related contracts, of $349 million after-tax. We
used the net proceeds from these transactions for general
corporate purposes.
CCO’s operations generated net losses from discontinued
operations of $283 million, $57 million and $54 million in 2007,
2006 and 2005, respectively. Net losses from discontinued
operations in 2007 primarily represent the $349 million after-
tax charge associated with exit costs, partially offset by
unrealized mark-to-market gains related to dedesignated
natural gas hedges. These hedges were dedesignated
because management determined that it was no longer
probable that the forecasted transactions underlying
certain derivative contracts covering approximately
95 billion cubic feet of natural gas would be fulfilled.
Therefore, cash flow hedge accounting was discontinued.
The increase in loss for 2006 compared to 2005 is primarily
due to the $64 million pre-tax impairment loss ($42 million
after-tax) on goodwill recognized in the first quarter of 2006
(See Note 8) and an increase in realized mark-to-market
losses on gas hedges due to gas price volatility. This was
partially offset by a higher gross margin related to serving
the fixed price full requirements contracts that began in
April 2005 and serving an increased load on a pre-existing
contract in Georgia, and $66 million pre-tax of unrealized
mark-to-market gains related to the dedesignated natural
gas hedges.
CCO – DeSoto and Rowan Generation Facilities
On May 2, 2006, our board of directors approved a plan
to divest of two subsidiaries of PVI, DeSoto and Rowan.
DeSoto owned a 320 MW dual-fuel combustion turbine
electric generation facility in DeSoto County, Fla., and
Rowan owned a 925 MW dual-fuel combined cycle
and combustion turbine electric generation facility in
Rowan County, N.C. On May 8, 2006, we entered into
definitive agreements to sell DeSoto and Rowan, including
certain existing power supply contracts, to Southern
Power Company, a subsidiary of Southern Company, for
a gross purchase price of approximately $80 million and
$325 million, respectively. We used the proceeds from the
sales to reduce debt and for other corporate purposes
(See Note 3D).
The sale of DeSoto closed in the second quarter of 2006
and the sale of Rowan closed during the third quarter
of 2006. Based on the gross proceeds associated with
the sales, we recorded an after-tax loss on disposal of
$67 million during the year ended December 31, 2006.
DeSoto and Rowan operations generated combined net
earnings from discontinued operations of $10 million and
$3 million for the years ended December 31, 2006 and
2005, respectively.
TERMINALS OPERATIONS AND SYNTHETIC FUELS
BUSINESSES
On December 24, 2007, we signed an agreement to sell
coal terminals and docks in West Virginia and Kentucky
(Terminals) for $71 million in gross cash proceeds.
Terminals was previously reported as a component of
our former Coal and Synthetic Fuels operating segment.
The terminals have a total annual capacity in excess
of 40 million tons for transloading, blending and storing
coal and other commodities. Proceeds from the sale are
expected to be used for general corporate purposes
(See Note 3B).
Historically, we have had substantial operations associated
with the production of coal-based solid synthetic fuels as
defined under Section 29 of the Internal Revenue Code.
The production and sale of these products qualified for
federal income tax credits under Section 29/45K so long as
certain requirements were satisfied (See “Other Matters
– Synthetic Fuels Tax Credits”). On September 14, 2007,
we idled production of synthetic fuels at our majority-
owned fuels facilities due to the high level of oil prices.
On October 12, 2007, based upon the continued high level
of oil prices, unfavorable oil price projections through
the end of 2007 and the expiration of the synthetic fuels
tax credit program at the end of 2007, we permanently
ceased production of synthetic fuels at our majority-
owned facilities. As a result of the expiration of the
tax credit program, all of our synthetic fuels businesses
were “abandoned” and all operations ceased as of
December 31, 2007. In accordance with the provisions
of Statement of Financial Accounting Standards (SFAS)
No. 144, “Accounting for Impairment or Disposal of Long-
Lived Assets,” a long-lived asset is abandoned when
it ceases to be used. All periods have been restated to
reflect the abandoned operations of our synthetic fuels
businesses as discontinued operations.
Terminals and synthetic fuels businesses generated net
earnings from discontinued operations of $83 million
and $198 million for the years ended December 31, 2007
and 2005, respectively. Net losses from discontinued
operations for Terminals and synthetic fuels businesses
were $37 million for the year ended December 31, 2006.
The change in net loss from discontinued operations of
$37 million for the year ended December 31, 2006, to net