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Progress Energy Annual Report 2007
83
a non-recourse note receivable of $54 million. Payments
on the note are due as we produce and sell qualifying
synthetic fuels on behalf of the buyer. In accordance with
the terms of the agreement, we received payments on the
note related to 2007 production of $49 million in 2007 and
$5 million in 2008. The total amount of proceeds is subject
to adjustment once the final value of the 2007 Section
29/45K credits is known. The note bears interest at a rate
equal to the three-month London Inter Bank Offering Rate
(LIBOR) rate plus 1%. The estimated fair value of the note
at the inception of the transaction was $48 million.
Pursuant to the terms of the disposal agreement, the
buyer had the right to unwind the transaction if an
Internal Revenue Service (IRS) reconfirmation private
letter ruling was not received by November 9, 2007,
or if certain adverse changes in tax law, as defined
in the agreement, occurred before November 19, 2007.
The IRS reconfirmation private letter ruling was received
on October 29, 2007, and no adverse change in tax
law occurred prior to November 19, 2007. As of
December 31, 2007, due to indemnification provisions
discussed below, we recorded losses on disposal of
$3 million based on the estimated value of the 2007 Section
29/45K tax credits. The operations of Ceredo have been
reclassified to discontinued operations for all periods
presented. See discussion of the abandonment of our
synthetic fuels operations at Note 3B.
On the date of the transaction, the carrying value of the
disposed ownership interest totaled $37 million, which
consisted primarily of the fair value of crude oil call
options purchased in January 2007. Subsequent to the
disposal, we remained the primary beneficiary of Ceredo
and continued to consolidate Ceredo in accordance with
FIN 46R, but recorded a 100 percent minority interest. In
connection with the disposal, Progress Fuels and Progress
Energy provided guarantees and indemnifications for
certain legal and tax matters to the buyer. The ultimate
resolution of these matters could result in adjustments
to the loss on disposal in future periods. See general
discussion of guarantees at Note 22C.
K. Winter Park Distribution Assets
As discussed in Note 7C, PEF sold certain electric
distribution assets to Winter Park, Fla. (Winter Park), on
June 1, 2005.
L. Synthetic Fuels Partnership Interests
In two June 2004 transactions, Progress Fuels sold a
combined 49.8 percent partnership interest in Colona
Synfuel Limited Partnership, LLLP (Colona), one of its
synthetic fuels facilities. Substantially all proceeds from
the sales were received over time, which is typical of
such sales in the industry. Gains from the sales were
recognized on a cost-recovery basis. The book value of
the interests sold totaled approximately $5 million. We
recognized gains on these transactions of $4 million and
$30 million in the years ended December 31, 2006, and
2005, respectively. In 2007, due to the increase in the
price of oil that limits synthetic fuels tax credits, we did
not record any additional gains. The operations of Colona
have been reclassified to discontinued operations for all
periods presented. See discussion of the abandonment of
our synthetic fuels operations at Note 3B.
4. ACQUISITIONS
In May 2005, Winchester Production, an indirectly wholly
owned subsidiary of Progress Fuels, acquired a 50 percent
interest in 11 natural gas producing wells and proven
reserves of approximately 25 billion cubic feet equivalent
from a privately owned company headquartered in
Texas. In addition to the natural gas reserves, the
transaction also included a 50 percent interest in the
gas gathering systems related to these reserves. The
total cash purchase price for the transaction was
$46 million. The pro forma results of operations reflecting
the acquisition would not be materially different than the
reported results of operations for 2005. In 2006, we sold our
50 percent interest in the wells, reserves and gas gathering
system as part of our transaction with EXCO Resources,
Inc. (See Note 3C).
5. PROPERTY, PLANT AND EQUIPMENT
A. Utility Plant
The balances of electric utility plant in service at
December 31 are listed below, with a range of depreciable
lives (in years) for each:
(in millions) Depreciable Lives 2007 2006
Production plant 7-43 $13,765 $12,685
Transmission plant 17-75 2,684 2,509
Distribution plant 13-55 7,676 7,351
General plant and other 5-35 1,202 1,198
Utility plant in service $25,327 $23,743