Progress Energy 2007 Annual Report Download - page 45

Progress Energy Annual Report 2007
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storms deplete the reserve, PEF would be able to petition
the FPSC for implementation of an interim surcharge of
at least 80 percent and up to 100 percent of the claimed
deficiency of its storm reserve. Intervenors agreed not to
oppose the interim recovery of 80 percent of the future
claimed deficiency but reserved the right to challenge the
interim surcharge recovery of the remaining 20 percent.
The FPSC has the right to review PEF’s storm costs
for prudence.
Nuclear Cost Recovery
The FPSC approved new rules on February 13, 2007,
that allow PEF to recover prudently incurred siting,
preconstruction costs and AFUDC on an annual basis
through the capacity cost-recovery clause. The nuclear
cost-recovery rule also has a provision to recover costs
should the project be abandoned once the utility receives a
final order granting a Determination of Need. These costs
include any unrecovered construction work in progress
at the time of abandonment and any other prudent and
reasonable exit costs. Such amounts will not be included
in PEF’s rate base when the plant is placed in commercial
operation. In addition, the rule requires the FPSC to
conduct an annual prudence review of the reasonableness
and prudence of all such costs, including construction
costs, and such determination shall not be subject to
later review except upon a finding of fraud, intentional
misrepresentation or the intentional withholding of key
information by the utility.
Other Regulatory Matters
Additionally, on July 13, 2007, the governor of Florida issued
executive orders to address reduction of greenhouse
gas emissions. The FPSC has held meetings regarding
the renewable portfolio standard but no actions have
been taken or rules issued. The Energy and Climate
Action Team appointed by the governor submitted
its initial recommendations for implementation of the
governor’s executive orders on November 1, 2007. The
recommendations encourage the development and
implementation of energy-efficiency and conservation
measures, implementation of a climate registry, and
consideration of a cap-and-trade approach to reducing
the state’s greenhouse gas emissions. Additional
development and discussion of the recommendations will
occur through a stakeholder process in 2008. The Florida
Department of Environmental Protection held its first
rulemaking workshop on the greenhouse gas emissions
cap on August 22, 2007, and a second workshop on
December 5, 2007. We anticipate drafts of the rule will be
issued in 2008. We cannot currently predict the costs of
complying with the laws and regulations that may ultimately
result from these executive orders. Our balanced solution,
as described in “Increasing Energy Demand,” includes
greater investment in energy efficiency, renewable energy
and state-of-the-art generation and demonstrates our
commitment to environmental responsibility. In addition,
the Florida Energy Commission, which was established
by the Legislature in 2006, published its energy policy
and climate change recommendations on December 31,
2007. The report includes proposed legislative language
that would implement energy-efficiency and conservation
programs, participation in the multi-state Climate Registry,
and emissions reduction targets that are similar to those
contained in the governor’s executive orders. We cannot
currently predict the impacts to our liquidity of complying
with these executive orders and the Florida Energy
Commission’s recommendations.
EPACT, among other provisions, gave the FERC
accountability for system reliability and the authority to
impose civil penalties. On June 18, 2007, compliance with
83 FERC-approved reliability standards became mandatory
for all registered users, owners and operators of the bulk
power system, including PEC and PEF. On December 20, 2007,
the FERC approved three additional planning and operating
reliability standards. Additionally, on January 17, 2008,
the FERC approved eight mandatory critical infrastructure
protection reliability standards to protect the bulk
power system against potential disruptions from cyber
security breaches.
Based on FERC’s directive to revise 56 of the adopted
standards, we expect standards to migrate to more
definitive and enforceable requirements over time. We
are committed to meeting those standards. The financial
impact of mandatory compliance cannot currently be
determined. Failure to comply with the reliability standards
could result in the imposition of fines and civil penalties.
If we are unable to meet the reliability standards for the
bulk power system in the future, it could have a material
adverse effect on our cash flows.
CAPITAL EXPENDITURES
Total cash from operations and proceeds from long-
term debt issuances provided the funding for our capital
expenditures, including environmental compliance and
other utility property additions, nuclear fuel expenditures
and non-utility property additions during 2007.
As shown in the table below, we expect the majority of
our capital expenditures to be incurred at our regulated
operations. We expect to fund our capital requirements
primarily through a combination of internally generated