Progress Energy 2007 Annual Report Download - page 56

MANAGEMENT’S DISCUSSION AND ANALYSIS
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construction costs and removes the requirement that
a public utility prove financial distress before it may
include construction work in progress in rate base and
adjust rates, accordingly, in a general rate case while
a baseload generating plant is under construction (See
“Other Matters – Regulatory Environment”).
Environmental Matters
We are subject to regulation by various federal, state and
local authorities in the areas of air quality, water quality,
control of toxic substances and hazardous and solid
wastes, and other environmental matters. We believe that
we are in substantial compliance with those environmental
regulations currently applicable to our business and
operations and believe we have all necessary permits
to conduct such operations. Environmental laws and
regulations frequently change and the ultimate costs of
compliance cannot be precisely estimated.
HAZARDOUS AND SOLID WASTE MANAGEMENT
The provisions of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as
amended (CERCLA), authorize the EPA to require the
cleanup of hazardous waste sites. This statute imposes
retroactive joint and several liabilities. Some states,
including North Carolina, South Carolina and Florida,
have similar types of statutes. We are periodically
notified by regulators, including the EPA and various state
agencies, of our involvement or potential involvement in
sites that may require investigation and/or remediation.
There are presently several sites with respect to which
we have been notified of our potential liability by the
EPA, the state of North Carolina, the state of Florida or
potentially responsible parties (PRP) groups. Various
organic materials associated with the production of
manufactured gas, generally referred to as coal tar,
are regulated under federal and state laws. PEC and
PEF are each PRPs at several manufactured gas plant
(MGP) sites. We are also currently in the process of
assessing potential costs and exposures at other sites.
These costs are eligible for regulatory recovery through
either base rates or cost-recovery clauses (See Notes
7 and 21). Both PEC and PEF evaluate potential claims
against other PRPs and insurance carriers and plan to
submit claims for cost recovery where appropriate. The
outcome of these potential claims cannot be predicted.
No material claims are currently pending. Hazardous and
solid waste management matters are discussed in detail
in Note 21A.
We accrue costs to the extent our liability is probable and
the costs can be reasonably estimated in accordance
with GAAP. Because the extent of environmental
impact, allocation among PRPs for all sites, remediation
alternatives (which could involve either minimal or
significant efforts), and concurrence of the regulatory
authorities have not yet reached the stage where a
reasonable estimate of the remediation costs can be
made, we cannot determine the total costs that may be
incurred in connection with the remediation of all sites
at this time. It is probable that current estimates could
change and additional losses, which could be material,
may be incurred in the future.
AIR QUALITY AND WATER QUALITY
We are, or may ultimately be, subject to various current
and proposed federal, state and local environmental
compliance laws and regulations, which would likely result
in increased capital expenditures and O&M expenses.
Additionally, Congress is considering legislation that
would require additional reductions in air emissions of
nitrogen oxides (NOx), SO2, CO2 and mercury. Some of
these proposals establish nationwide caps and emission
rates over an extended period of time. This national
multipollutant approach to air pollution control could
involve significant capital costs that could be material
to our financial position or results of operations. Control
equipment that will be installed pursuant to the provisions
of the Clean Smokestacks Act, CAIR, CAVR and mercury
regulation, which are discussed below, may address
some of the issues outlined above. CAVR requires the
installation of best available retrofit technology (BART)
on certain units. However, the outcome of these matters
cannot be predicted.
The following table contains information about our
current estimates of capital expenditures to comply with
environmental laws and regulations described below.
These costs are eligible for regulatory recovery through
either base rates or cost-recovery clauses. The outcome
of future petitions for recovery cannot be predicted.
PEC has completed installation of controls to meet the
NOx SIP Call Rule under Section 110 of the Clean Air
Act (NOx SIP Call) requirements. The NOx SIP Call is
not applicable to Florida. Expenditures for the NO x SIP
Call include the cost to install NOx controls under North
Carolina’s and South Carolina’s programs to comply with
the federal eight-hour ozone standard. The air quality
controls installed to comply with the NOx SIP Call and Clean
Smokestacks Act will result in a reduction of the costs to
meet the CAIR requirements for our North Carolina units
at PEC. Our estimates of capital expenditures to comply