Progress Energy 2007 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
76
UNAMORTIZED DEBT PREMIUMS, DISCOUNTS
AND EXPENSES
Long-term debt premiums, discounts and issuance
expenses are amortized over the terms of the debt
issues. Any expenses or call premiums associated with
the reacquisition of debt obligations by the Utilities are
amortized over the applicable lives using the straight-
line method consistent with ratemaking treatment
(See Note 7A).
INCOME TAXES
Deferred income taxes have been provided for temporary
differences. These occur when there are differences
between the book and tax carrying amounts of assets
and liabilities. Investment tax credits related to regulated
operations have been deferred and are being amortized
over the estimated service life of the related properties.
Credits for the production and sale of synthetic fuels are
deferred credits to the extent they cannot be or have not
been utilized in the annual consolidated federal income tax
returns, and are included in income tax expense (benefit)
of discontinued operations in the Consolidated Statements
of Income. We accrue for uncertain tax positions when it
is determined that it is more likely than not that the benefit
will not be sustained on audit by the taxing authority,
including resolutions of any related appeals or litigation
processes, based solely on the technical merits of the
associated tax position. If the recognition threshold is
met, the tax benefit recognized is measured at the largest
amount of the tax benefit that, in our judgment, is greater
than 50 percent likely to be realized. Interest expense on
tax deficiencies and uncertain tax positions is included
in net interest charges, and tax penalties are included in
other, net on the Consolidated Statements of Income.
DERIVATIVES
We account for derivative instruments in accordance with
SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (SFAS No. 133), as amended by SFAS
No. 138, “Accounting for Certain Derivative Instruments
and Certain Hedging Activities – An Amendment of FASB
Statement No. 133,” and SFAS No. 149, “Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities.” SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities.
SFAS No. 133 requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet
and measure those instruments at fair value, unless the
derivatives meet the SFAS No. 133 criteria for normal
purchases or normal sales and are designated as
such. We generally designate derivative instruments as
normal purchases or normal sales whenever the SFAS
No. 133 criteria are met. If normal purchase or normal
sale criteria are not met, we will generally designate the
derivative instruments as cash flow or fair value hedges
if the related SFAS No. 133 hedge criteria are met. Certain
economic derivative instruments receive regulatory
accounting treatment, under which unrealized gains and
losses are recorded as regulatory liabilities and assets,
respectively, until the contracts are settled. See Note 17
for additional information regarding risk management
activities and derivative transactions.
LOSS CONTINGENCIES AND ENVIRONMENTAL
LIABILITIES
We accrue for loss contingencies in accordance with
SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5).
Under SFAS No. 5, contingent losses such as unfavorable
results of litigation are recorded when it is probable that
a loss has been incurred and the amount of the loss can
be reasonably estimated. Unless otherwise required by
GAAP, we do not accrue legal fees when a contingent loss
is initially recorded, but rather when the legal services
are actually provided.
As discussed in Note 21, we accrue environmental
remediation liabilities when the criteria for SFAS No. 5
have been met. Environmental expenditures that relate
to an existing condition caused by past operations and
that have no future economic benefits are expensed.
Accruals for estimated losses from environmental
remediation obligations generally are recognized no later
than completion of the remedial feasibility study. Such
accruals are adjusted as additional information develops
or circumstances change. Certain environmental expenses
receive regulatory accounting treatment, under which the
expenses are recorded as regulatory assets. Costs of future
expenditures for environmental remediation obligations
are not discounted to their present value. Recoveries of
environmental remediation costs from other parties are
recognized when their receipt is deemed probable or on
actual receipt of recovery. Environmental expenditures
that have future economic benefits are capitalized in
accordance with our asset capitalization policy.
IMPAIRMENT OF LONG-LIVED ASSETS AND
INVESTMENTS
As discussed in Note 9, we account for impairment of
long-lived assets in accordance with SFAS No. 144,