Progress Energy 2007 Annual Report Download - page 59

Progress Energy Annual Report 2007
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this decision are uncertain until the court’s mandate is
issued. The three states in which the Utilities operate
have adopted mercury regulations implementing CAMR
and submitted their state implementation rules to the EPA.
It is uncertain how the vacation of the federal CAMR will
affect the state rules.
On June 15, 2005, the EPA issued the final CAVR. The EPA’s
rule requires states to identify facilities, including power
plants, built between August 1962 and August 1977 with
the potential to produce emissions that affect visibility in
156 specially protected areas, including national parks
and wilderness areas. To help restore visibility in those
areas, states must require the identified facilities to
install BART to control their emissions. The reductions
associated with BART begin in 2013. CAVR included the
EPA’s determination that compliance with the NO x and SO
2
requirements of CAIR may be used by states as a BART
substitute. Plans for compliance with CAIR and mercury
regulation may fulfill BART obligations, but the states could
require the installation of additional air quality controls if
they do not achieve reasonable progress in improving
visibility. On December 4, 2007, the Florida Department
of Environmental Protection finalized a Regional Haze
implementation rule that requires sources significantly
impacting visibility in Class I areas to install additional
controls by December 31, 2017. PEC’s BART-eligible
units are Asheville Units No. 1 and No. 2, Roxboro Units
No. 1, No. 2 and No. 3, and Sutton Unit No. 3. PEF’s
BART-eligible units are Anclote Units No. 1 and No. 2,
Bartow Unit No. 3 and Crystal River Units No. 1 and No.
2. The outcome of this matter cannot be predicted. On
December 12, 2006, the D.C. Court of Appeals decided in
favor of the EPA in a case brought by the National Parks
Conservation Association that alleges the EPA acted
improperly by substituting the requirements of CAIR for
BART for NOx and SO
2
from electric generating units in
areas covered by CAIR.
PEC and PEF are each developing an integrated compliance
strategy to meet all the requirements of the CAIR, CAVR
and mercury regulation. We are evaluating various design,
technology and new generation options that could change
PEC’s and PEF’s costs to meet the requirements of CAIR,
CAVR and mercury regulation.
The integrated compliance strategy PEF anticipates
implementing should provide most, but not all, of the NOx
reductions required by CAIR. Therefore, PEF anticipates
utilizing the cap-and-trade feature of CAIR by purchasing
annual and seasonal NOx allowances. Because the
emission controls cannot be installed in time to meet CAIR’s
NOx requirements in 2009, PEF anticipates purchasing a
higher level of annual and seasonal allowances in that
year. The costs of these allowances would depend on
market prices at the time these allowances are purchased.
PEF expects to recover the costs of these allowances
through its ECRC.
On October 14, 2005, the FPSC approved PEF’s petition for
the recovery of costs associated with the development
and implementation of an integrated strategy to comply
with the CAIR, CAMR and CAVR through the ECRC (see
discussion above regarding CAMR). On March 31, 2006,
PEF filed a series of compliance alternatives with the
FPSC to meet these federal environmental rules. At the
time, PEF’s recommended proposed compliance plan
included approximately $740 million of estimated capital
costs expected to be spent through 2016, to plan, design,
build and install pollution control equipment at our Anclote
and Crystal River plants. On November 6, 2006, the FPSC
approved PEF’s petition for its integrated strategy to
address compliance with CAIR, CAMR and CAVR. They
also approved cost recovery of prudently incurred costs
necessary to achieve this strategy. On June 1, 2007, PEF
filed a supplemental petition for approval of its compliance
plan and associated contracts and recovery of costs for air
pollution control projects, which included approximately
$1.0 billion to $2.3 billion of estimated capital costs for
the range of alternative plans. The estimated capital
cost for the recommended plan, which was $1.26 billion
in the June 1, 2007 filing, represents the low end of the
range in the table of estimated required environmental
expenditures shown above. The difference in costs
between the recommended plan and the high end of the
range represents the additional costs that may be incurred
if pollution controls are required on Crystal River Units
No. 1 and No. 2 in order to comply with the requirements
of CAVR beyond BART, should reasonable progress in
improving visibility not be achieved, as discussed above.
The increase from the estimates filed in March 2006 is
primarily due to the higher cost of labor and construction
materials, such as concrete and steel, and refinement
of cost and scope estimates for the current projects.
These costs will continue to change depending upon
the results of the engineering and strategy development
work and/or increases in the underlying material, labor
and equipment costs. Subsequent rule interpretations,
equipment availability, or the unexpected acceleration
of the initial NOx or other compliance dates, among other
things, could require acceleration of some projects. The
outcome of this matter cannot be predicted.