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i
Annual Report 04

Table of contents

  • Page 1
    Annual Report 04 i

  • Page 2
    ...Financial Data Operating revenues Net income Income from continuing operations Ongoing earnings per common share* Reported GAAP earnings per common share Average common shares outstanding $9,772 759 753 3.06 3.13 242 $8,741 782 811 3.56 3.30 237 $8,091 528 552 3.81 2.43 217 Common Stock Data Return...

  • Page 3
    ...And at Progress Energy, it keeps our sights set on balanced long- term performance. It's about having a sound strategy for the future as well as steady execution today. It's promoting successful economic development to create tomorrow's opportunities. And it's investing in community initiatives that...

  • Page 4
    focus sound strategy steady execution economic development community initiatives vision Robert B. McGehee - Chairman and Chief Executive Officer 2

  • Page 5
    ... that consistent dividend growth is a major reason investors buy our stock. Our strategy will help us maintain and enhance shareholder value as we make the transition beyond the federal synthetic-fuel tax program that expires at the end of 2007. In 2004, we resolved the federal tax audit issues with...

  • Page 6
    ... employees exemplary corporate citizenship As important as it is to meet financial objectives and investor expectations, we must pay close attention to all of these vital areas. For example, in finding ways to reduce costs, we will not take short-sighted actions that compromise safety or service...

  • Page 7
    ... rating Making progress on the Internal Revenue Service tax audit of the Earthco synthetic-fuel plants • Successfully resolving the Florida rate case and achieving timely recovery of our storm costs • Negotiating a reasonable bargaining-unit contract in Florida We're off to a good start in 2005...

  • Page 8
    ...our thriving territories. And we're well on our way to achieving our Progress Ventures earnings objectives through wholesale power contracts signed in 2004. We now serve 30 percent of the Georgia rural electrical cooperative market. That's 550,000 new end-use customers. At Progress Energy, we firmly...

  • Page 9
    Progress Energy's average annual total return to shareholders over the last decade, based on stock price and reinvested dividends, is 11.1 percent. In 2004, we improved our balance sheet by reducing our debt-tocapitalization ratio to 57.6 percent. We're on track to reach our goal of 55 percent debt....

  • Page 10
    ... 2004, 87 percent of Progress Energy customers gave us top ratings in measures of customer satisfaction and loyalty. Our fossil generation and combustion turbine employees improved an already excellent safety record by 26 percent. Nuclear 35% Gas/Oil 18% Hydro 1% Coal 46% 2004 Generation Fuel Mix...

  • Page 11
    ... sound strategy steady execution economic development community initiatives vision Recognizing the opportunity to make a lasting impression. A strategy is nothing without execution. That's where thousands of Progress Energy employees come in, turning our long-term focus into action today. We...

  • Page 12
    ... and increased value for our shareholders. That's why we've focused people and resources on the job of attracting new businesses and expanding existing ones. By all accounts, it's energy well spent. Our customer base is growing at a rate of 2 percent to 3 percent annually - that's an average of...

  • Page 13
    ... in Florida and the Carolinas named Progress Energy "Corporation of the Year." Our Supplier Diversity Program spending totaled $98 million in 2004. 2000 2,675,176 2001 2,737,337 2002 2,794,596 2003 2,853,494 2004 5-year Customer Growth Our economic development initiatives pave the way for...

  • Page 14
    ..., which will directly support programs in their local communities. Progress Energy employees also donated more than 50,000 hours of community service in 2004. In last year's Relay For Life, 60 teams of employees raised $150,000 to help fund cancer research. Economic Development & Vitality 37...

  • Page 15
    .... Whether it's supporting clean air or good teachers, creative partnerships or involved employees, we're investing in initiatives that will produce real returns, not just for communities, but for shareholders, too. Progress Energy is committed to putting our environmental policy into practice every...

  • Page 16
    focus sound strategy steady execution economic development community initiatives vision Lloyd Yates - senior vice president, Energy Delivery, Progress Energy Carolinas Robert B. McGehee - chairman and chief executive officer Sarah Rogers - vice president, Transmission

  • Page 17
    Our vision for Progress Energy in 2005 is simple. We'll focus on our proven strengths to deliver proven value. And we'll settle for nothing less than excellence. 15

  • Page 18
    ... committees: Audit and Corporate Performance; Operations, Environmental, Health and Safety Issues. William O. McCoy Partner, Franklin Street Partners (investment management), formerly Vice Chairman of the Board, BellSouth Corp. and President and Chief Executive Officer, BellSouth Enterprises...

  • Page 19
    ... McGehee Chairman and Chief Executive Officer, Progress Energy, Inc. Raleigh, N.C. Elected to the board in 2004. Serves as Chairman, Progress Energy Service Company, LLC, and Chairman, Progress Energy Ventures, Inc. E. Marie McKee Senior Vice President, Corning, Inc. (developer of technologies for...

  • Page 20
    ... options and recommends changes in the company's dividend policy. Operations, Environmental, Health and Safety Issues Committee This committee reviews the company's load forecasts and plans for generation, transmission and distribution, fuel production and transportation, customer service, energy...

  • Page 21
    ... Progress Energy Florida, Inc. John R. McArthur Senior Vice President - Corporate Relations, General Counsel and Secretary E. Michael Williams Senior Vice President - Power Operations Lloyd M. Yates Senior Vice President - Energy Delivery Progress Energy Carolinas, Inc. FINANCIAL REPORT Management...

  • Page 22
    ... debt after funding capital expenditures and common dividends, obtaining a reasonable rate agreement in Florida at the expiration of the current agreement in December 2005 and the outcome of the ongoing Internal Revenue Service (IRS) audit of the Company's synthetic fuel facilities. The Company...

  • Page 23
    ... capital in new generation, transmission and distribution facilities to support this load growth. Subject to regulatory approval, these investments are expected to increase the utilities' rate base, upon which additional return can be realized that creates the basis for long-term financial growth in...

  • Page 24
    ... of synthetic fuel tax credits in Note 23E. In February 2005, Progress Energy signed a definitive agreement to sell its Progress Rail subsidiary to subsidiaries of One Equity Partners LLC for a sales price of $405 million. Proceeds from the sale are expected to be used to reduce debt. See Note...

  • Page 25
    ... Increase in retail customer growth at the utilities. • Growth in natural gas production and sales. • Higher synthetic fuel sales. • Absence of severe storm costs incurred in 2002 in the Carolinas. • Lower loss recorded in 2003 related to the sale of North Carolina Natural Gas Company (NCNG...

  • Page 26
    ... retirement program. In connection with the cost-management initiative, the Company expects to incur one-time pre-tax charges of approximately $130 million. Approximately $30 million of that amount relates to payments for severance benefits, and will be recognized in the first quarter of 2005...

  • Page 27
    ... to customer growth, strong wholesale sales during the first quarter of 2003, lower Service Company allocations and lower interest costs, which were offset by unfavorable weather in 2003, higher depreciation expense and increased benefit-related costs. REVENUES PEC Electric's electric revenues and...

  • Page 28
    ... restoration efforts after severe storms increased O&M expense $18 million. Storm costs for 2004 included costs related to an ice storm and Hurricanes Charley and Ivan in the North Carolina service territory. PEC Electric also incurred storm costs in 2003; however, the Company requested and the NCUC...

  • Page 29
    ... as the impact of the rate case settlement on revenue, are as follows: (in millions) Customer Class Residential Commercial Industrial Governmental Revenue sharing refund Retroactive retail rate refund Total retail revenues Wholesale Unbilled Miscellaneous Total electric revenues 2004 % Change $1,806...

  • Page 30
    ... related to the 2002 revenue sharing provision as ordered by the Florida Public Service Commission (FPSC) in July 2003. In addition, improved wholesale sales increased revenues by $11 million. Included in fuel revenues is the recovery of depreciation and capital costs associated with the Hines Unit...

  • Page 31
    Progress Energy Annual Report 2004 Operations and Maintenance (O&M) O&M expenses were $630 million in 2004, which represents a $10 million decrease when compared to the prior year. This decrease is primarily related to favorable benefit-related costs of $16 million, primarily due to lower pension ...

  • Page 32
    ... of storm costs in 2005, there could be a material impact on the amount of 2005 synthetic fuel production and results of operations. Synthetic fuels' net profits for 2003 increased as compared to 2002 due to higher sales, improved margins and a higher tax credit per ton. The 2003 tax credits also...

  • Page 33
    ..., 2004, the carrying value of long-lived assets of the coal mining business was $66 million. The Company cannot currently predict the outcome of this matter. Competitive Commercial Operations CCO generates and sells electricity to the wholesale market from nonregulated plants. These operations also...

  • Page 34
    ... 2005, Progress Energy signed a definitive agreement to sell its Progress Rail subsidiary to subsidiaries of One Equity Partners LLC for a sales price of $405 million. Proceeds from the sale are expected to be used to reduce debt. See Note 24 for more information. Rail Services Rail Services...

  • Page 35
    ...institutional customers to help manage energy costs primarily in the southeastern United States. During 2004, SRS sold its subsidiary, Progress Energy Solutions (PES). With the disposition of PES, the Company exited this business area. Telecommunication operations provide broadband capacity services...

  • Page 36
    ... critical accounting policies with the Audit Committee of the Company's Board of Directors. Utility Regulation As discussed in Note 8, the Company's regulated utilities segments are subject to regulation that sets the prices (rates) the Company is permitted to charge customers based on the costs...

  • Page 37
    .... Synthetic Fuels Tax Credits As discussed in Note 23E, Progress Energy, through the Fuels business unit, owns facilities that produce synthetic fuels as defined under the Internal Revenue Code. The production and sale of the synthetic fuels from these facilities qualifies for tax credits under...

  • Page 38
    ...) debt securities, which are used as the benchmark for setting the discount rate used to present value future benefit payments, the Company lowered the discount rate to 5.9% at December 31, 2004, which will increase the 2005 benefit costs recognized, all other factors remaining constant. Plan assets...

  • Page 39
    ... uses of liquid resources include debt interest and principal payments, capital expenditures and dividends on preferred and common stock. As a registered holding company under PUHCA, Progress Energy obtains approval from the SEC for the issuance and sale of securities as well as the establishment...

  • Page 40
    ... December 30, 2005. This facility was added to provide additional liquidity during 2005 due in part to the uncertainty of the timing of storm restoration cost recovery from the hurricanes in Florida during 2004. The credit agreement includes a defined maximum total debt to total capital ratio of 68...

  • Page 41
    ... paper outstanding or backing letters of credit, they are not available for additional borrowings. • On December 17, 2004, the Company used proceeds from the sale of natural gas assets to extinguish Progress Genco Ventures, LLC's $241 million bank facility (See Note 13D). • Progress Energy took...

  • Page 42
    ... strong customer growth. If the FPSC does not approve PEF's request to increase base rates, the Company's results of operations and financial condition could be negatively impacted. The Company cannot predict the outcome of this matter. In addition, Fuels' synthetic fuel operations do not currently...

  • Page 43
    ... of December 31, 2004, on a consolidated basis, the Company had $349 million of long-term debt maturing in 2005. Progress Energy expects to pay these maturities using funds from operations, issuance of new long-term debt, commercial paper borrowings and/or issuance of new equity securities. In 2006...

  • Page 44
    ... regarding the timing of the recovery of hurricane costs, the Company's debt reduction plans and the IRS audit of the Company's Earthco synthetic fuels facilities as the reasons for the change in outlook. On October 25, 2004, S&P reduced the short-term debt rating of Progress Energy, PEC and...

  • Page 45
    ..., certain Progress Energy guarantees and various types of third-party purchase agreements. transmission agreements, gas agreements, fuel procurement agreements and trading operations. The Company's guarantees also include standby letters of credit, surety bonds and guarantees in support of nuclear...

  • Page 46
    ... represent the majority of the Company's remaining future commitments after its debt obligations. Essentially all of the Company's fuel and purchased power costs are recovered through pass-through clauses in accordance with North Carolina, South Carolina and Florida regulations and therefore do not...

  • Page 47
    ... level over a reasonable time period. PEC does not have an ongoing regulatory mechanism to recover storm costs; therefore, hurricane restoration costs recorded in the third quarter of 2004 were charged to operations and maintenance expenses or capital expenditures based on the nature of the work...

  • Page 48
    ...' triennial market-based wholesale power rate authorization updates required certain mitigation actions that those utilities would need to take for sales/purchases within their control areas and required those utilities to post information on their Web sites regarding their power systems' status. As...

  • Page 49
    Progress Energy Annual Report 2004 on June 1, 2005, or at such time when the City is able to provide retail service. At this time, whether and when there will be further proceedings regarding the City of Winter Park cannot be determined. Arbitration with the 2,500-customer Town of Belleair was ...

  • Page 50
    ... are changes in interest rates with respect to its long-term debt and commercial paper, and fluctuations in the return on marketable securities with respect to its nuclear decommissioning trust funds. The Company manages its market risk in accordance with its established risk management policies...

  • Page 51
    ...addition, many of the Company's long-term power sales contracts shift substantially all fuel responsibility to the purchaser. The Company also has oil price risk exposure related to synfuel tax credits. See discussion in Note 23E. 49 Contingent Value Obligations Market Value Risk In connection with...

  • Page 52
    ... future sales price of the Company's natural gas. In addition, the Company may engage in limited economic hedging activity using natural gas and electricity financial instruments. In 2004, PEF entered into derivative instruments related to its exposure to price fluctuations on fuel oil purchases. At...

  • Page 53
    ... of business by the Company; investment performance of pension and benefit plans; the Company's ability to control costs, including pension and benefit expense, and achieve its cost-management targets for 2007; the availability and use of Internal Revenue Code Section 29 (Section 29) tax credits by...

  • Page 54
    ... Energy's internal control over financial reporting as of December 31, 2004, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report. Robert B. McGehee Chairman and Chief Executive Officer Geoffrey S. Chatas Executive Vice President...

  • Page 55
    Progress Energy Annual Report 2004 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Progress Energy, Inc. We have audited management's assessment, included in the accompanying Management's Report of Internal Controls, that Progress Energy, Inc., ...

  • Page 56
    ... We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control - Integrated Framework...

  • Page 57
    ... Energy Annual Report 2004 CONSOLIDATED STATEMENTS OF INCOME (in millions except per share data) Years ended December 31 Operating Revenues Electric Diversified business Total Operating Revenues Operating Expenses Utility Fuel used in electric generation Purchased power Operation and maintenance...

  • Page 58
    ... service, net Held for future use Construction work in progress Nuclear fuel, net of amortization Total Utility Plant, Net Current Assets Cash and cash equivalents Short-term investments Receivables Inventory Deferred fuel cost Deferred income taxes Prepayments and other current assets Total Current...

  • Page 59
    ...-term obligations Customer deposits Other current liabilities Total Current Liabilities Deferred Credits and Other Liabilities Noncurrent income tax liabilities Accumulated deferred investment tax credits Regulatory liabilities Asset retirement obligations Accrued pension and other benefits Other...

  • Page 60
    ... Depreciation and amortization Deferred income taxes Investment tax credit Deferred fuel credit Cash provided (used) by changes in operating assets and liabilities Receivables Inventory Prepayments and other current assets Accounts payable Other current liabilities Regulatory assets and liabilities...

  • Page 61
    Progress Energy Annual Report 2004 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY Common Stock Outstanding Shares 219 Common Stock Outstanding Amount $4,121 Unearned Restricted Shares $(14) Unearned ESOP Shares $(114) Accumulated Other Comprehensive Income (Loss) $(32) (206) 19 815 (16) ...

  • Page 62
    ... generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. The Progress Ventures business unit consists of the Fuels business segment (Fuels) and Competitive Commercial Operations (CCO) operating segments. The Fuels segment is involved...

  • Page 63
    ... $14 million, respectively, of cost method investments. The results of operations of Rail are reported one month in arrears. During 2003, the Company ceased recording portions of the Fuels' segment operations one month in arrears. The net impact of this action increased net income by $2 million for...

  • Page 64
    ...excise taxes on a gross basis. For the years ended December 31, 2004, 2003 and 2002, gross receipts tax, franchise taxes and other 62 10 $749 11 $771 8 $520 See Note 2 for a discussion of newly issued accounting guidance related to stock-based compensation. UTILITY PLANT Utility plant in service...

  • Page 65
    ...the regulatory uniform system of accounts, AFUDC is charged to the cost of the plant. The equity funds portion of AFUDC is credited to other income and the borrowed funds portion is credited to interest charges. ASSET RETIREMENT OBLIGATIONS Effective January 1, 2003, the Company adopted the guidance...

  • Page 66
    ... estimated service life of the 64 related properties. Credits for the production and sale of synthetic fuel are deferred as AMT 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) in...

  • Page 67
    ... is the Company's policy to write-down these investments to fair value. Under the full-cost method of accounting for oil and gas properties, total capitalized costs are limited to a ceiling based on the present value of discounted (at 10%) future net revenues using current prices, plus the lower of...

  • Page 68
    ... time period (See Note 8C). PEC does not have an ongoing regulatory mechanism to recover storm costs; therefore, hurricane restoration costs recorded in the third quarter of 2004 were charged to operations and maintenance expenses or capital expenditures based on the nature of the work performed...

  • Page 69
    ... an increase in the price of oil that could limit or eliminate synthetic fuel tax credits, the amount of proceeds realized from the sale could be significantly impacted. E. NCNG Divestiture On September 30, 2003, the Company completed the sale of North Carolina Natural Gas Corporation (NCNG...

  • Page 70
    ... amortized based on the economic benefit of the contract (See Note 9). The power supply agreement terminates in 2015, with a first refusal right to extend for five years. The agreement includes the use of 640 megawatts (MW) of contracted Georgia System generation comprised of nuclear, coal, gas and...

  • Page 71
    ... million shares of Progress Energy common stock then valued at approximately $129 million. The purchase price included approximately $2 million of direct transaction costs. The final purchase price was allocated to oil and gas properties, intangible assets, diversified business property, net working...

  • Page 72
    ..., and are included in fuel used for electric generation in the Consolidated Statements of Income. The synthetic fuel facilities are being depreciated through 2007 when the Section 29 tax credits will expire. The Company's nonregulated businesses capitalize interest costs under SFAS No. 34...

  • Page 73
    ...to the Shearon Harris Nuclear Plant (Harris Plant). D. Asset Retirement Obligations At December 31, 2004 and 2003, the asset retirement costs related to nuclear decommissioning of irradiated plant, net of accumulated depreciation, totaled $277 million and $354 million, respectively. Funds set aside...

  • Page 74
    ... to abandon or cease the use of a particular easement, an ARO would be recorded at that time. The Company's nonregulated AROs relate to coal mine operations, synthetic fuel operations and gas production of Progress Fuels. The related asset retirement costs, net of accumulated depreciation, totaled...

  • Page 75
    Progress Energy Annual Report 2004 coverage, and $20.2 million for the incremental replacement power costs coverage, in the event covered losses at insured facilities exceed premiums, reserves, reinsurance and other NEIL resources. Pursuant to regulations of the NRC, each company's property damage ...

  • Page 76
    ... consider the impacts of other factors on its regulatory return on equity when setting the amortization amount for each year. PEC recognized $174 million and $74 million of clean air amortization during 2004 and 2003, respectively. This legislation freezes PEC's base rates in North Carolina for five...

  • Page 77
    ... Purchased Power Cost Recovery clause in 2004 and beyond for waterborne coal deliveries by the Company's affiliated coal supplier, Progress Fuels Corporation. The settlement sets fixed per ton prices based on point of origin for all waterborne coal deliveries in 2004, and establishes a market-based...

  • Page 78
    ... retail customers related to the 2002 revenue sharing calculation. PEF recorded this refund in the second quarter of 2003 as a charge against electric operating revenue and refunded this amount by October 2003. The Agreement also provides that beginning with the in-service date of PEF's Hines Unit...

  • Page 79
    ...that the current operations of PEC or PEF would be impacted materially if they were unable to sell power at market-based rates in their respective control areas. F. Energy Delivery Capitalization Practice The Company has reviewed its capitalization policies for its Energy Delivery business units in...

  • Page 80
    ... synthetic fuel technology. These intangibles are being amortized on a straight-line basis until the expiration of tax credits under Section 29 of the Internal Revenue Code (Section 29) in December 2007 (See Note 23E). The intangibles related to power agreements acquired are being amortized based on...

  • Page 81
    Progress Energy Annual Report 2004 B. Investments The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. In 2003, PEC's affordable housing investment (AHI) portfolio was reviewed and deemed to be impaired based on ...

  • Page 82
    ... the Company had accounted for its employee stock options under SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 2004 Risk-free interest rate Dividend yield Volatility factor...

  • Page 83
    ... expense, which is based on the fair value of common stock at the grant date, is recognized over the applicable vesting period, with corresponding increases in common stock equity. The weighted-average price of restricted shares at the grant date was $46.95, $39.53 and 81 $44.27 in 2004, 2003 and...

  • Page 84
    ... All of the Company's preferred stock was issued by its subsidiaries and was not subject to mandatory redemption. Preferred stock outstanding at December 31, 2004 and 2003 consisted of the following: (in millions, except share data and par value) Progress Energy Carolinas, Inc. Authorized - 300...

  • Page 85
    ...- 19 (27) 4,792 2004 2003 At December 31, 2004, the Company had committed lines of credit used to support its commercial paper borrowings. The Progress Energy five-year credit facility and the PEF three-year credit facility are included in long-term debt. All other credit facilities are included in...

  • Page 86
    ... December 30, 2005. This facility was added to provide additional liquidity during 2005 due in part to storm restoration costs incurred in Florida during 2004. The credit agreement includes a defined maximum total debt to total capital ratio of 68% and a minimum interest coverage ratio of 2.5 to...

  • Page 87
    Progress Energy Annual Report 2004 the terms of Progress Energy's five-year credit facility, even in the event of a MAC, Progress Energy may continue to borrow funds so long as the proceeds are used to repay maturing commercial paper balances. CROSS-DEFAULT PROVISIONS Each of these credit ...

  • Page 88
    ...(liability) Investments Supplemental executive retirement plans Other post-employment benefits (OPEB) Other pension plans Goodwill Accumulated depreciation and property cost differences Deferred costs Deferred storm costs Deferred fuel Federal income tax credit carry forward State net operating loss...

  • Page 89
    ... Revenue Code (Code). The production and sale of the synthetic fuel from these facilities qualifies for tax credits under Section 29 if certain requirements are satisfied (See Note 23E). 16. CONTINGENT VALUE OBLIGATIONS In connection with the acquisition of FPC during 2000, the Company issued...

  • Page 90
    ... method. When the Company acquired Florida Progress in 2000, it retained the Florida Progress historical use of fair value to determine market-related value for Florida Progress pension assets. Reconciliations of the changes in the plans' benefit obligations and the plans' funded status are: 88

  • Page 91
    ... pursuant to a recent FPSC order and a 89 pre-tax charge of $229 million to accumulated other comprehensive loss, a component of common stock equity. A minimum pension liability adjustment of $23 million, related to the supplementary defined benefit pension plans, was recorded at December 31, 2003...

  • Page 92
    ... of a 2005 voluntary enhanced retirement program (See Note 24). The following weighted-average actuarial assumptions were used in the calculation of the year-end obligation: Pension Benefits Other Postretirement Benefits 2004 5.9% 2003 6.30% (in millions) Discount rate Rate of increase in future...

  • Page 93
    Progress Energy Annual Report 2004 The following weighted-average actuarial assumptions were used in the calculation of the net periodic cost: Pension Benefits Other Postretirement Benefits 2004 2003 2002 (in millions) Discount rate Rate of increase in future compensation Bargaining Nonbargaining ...

  • Page 94
    ... to results of operations during 2004, 2003 or 2002, and the Company did not have material outstanding positions in such contracts at December 31, 2004 and 2003. In 2004, PEF entered into derivative instruments related to its exposure to price fluctuations on fuel oil purchases. At December 31...

  • Page 95
    ... included in fuel used in electric generation on the Consolidated Statements of Income. Florida Progress Funding Corporation's (Funding Corp.) $309 million 7.10% Junior Subordinated Deferrable Interest Notes (Subordinated Notes) are due to FPC Capital I (the Trust). The Trust was established for the...

  • Page 96
    ... operations also distribute and sell electricity to other utilities, primarily on the east coast of the United States. Fuels operations, which are located throughout the United States, are involved in natural gas drilling and production, coal terminal services, coal mining, synthetic fuel production...

  • Page 97
    Progress Energy Annual Report 2004 (in millions) Year ended December 31, 2004 Revenues Unaffiliated Intersegment Total revenues Depreciation and amortization Total interest charges, net Gain on sale of assets Income tax expense (benefit)(a) Segment profit (loss) Total assets Capital and investment ...

  • Page 98
    ... $123 2004 2003 2002 Nonregulated energy and delivery services include power protection services and mass market programs (surge protection, appliance services and area light sales) and delivery, transmission and substation work for other utilities. There are nine former MGP sites and a number of...

  • Page 99
    ... the Florida Department of Environmental Protection (FDEP), PEF is in the process of examining distribution transformer sites and substation sites for potential equipment integrity issues that could result in the need for mineral oil impacted soil remediation. Through 2004 PEF has reviewed a number...

  • Page 100
    ... 2005, Environmental Review Commission hearing. The effective date of the Global RBCA rule is expected to be announced in April 2005. The Company and PEF are in the process of assessing the impact of this matter. Florida Progress Corporation In 2001, FPC established a $10 million accrual to address...

  • Page 101
    Progress Energy Annual Report 2004 these projected amounts. Increased operation and maintenance costs relating to the NOx SIP Call are not expected to be material to the Company's results of operations. Further controls are anticipated as electricity demand increases. Parties unrelated to the ...

  • Page 102
    ... South Carolina, Georgia and Florida, to reduce NOx and SO2 emissions in order to attain preset state NOx and SO2 emissions levels. The Company is reviewing the final rule. Installation of additional air quality controls is likely to be needed to meet the CAIR requirements. Compliance plans and cost...

  • Page 103
    ... to generate. Payments made under these contracts were $91 million in 2004, $113 million in 2003 and $145 million in 2002. On December 2, 2004, PEF entered into precedent and related agreements with Southern Natural Gas Company (SNG), Florida Gas Transmission Company (FGT), and BG LNG Services, LLC...

  • Page 104
    ... construction projects. Total payments under these contracts were $102 million, $158 million and $143 million for 2004, 2003 and 2002, respectively. OTHER PURCHASE OBLIGATIONS The Company has entered into various other contractual obligations primarily related to service contracts for operational...

  • Page 105
    Progress Energy Annual Report 2004 In 2003, the Company entered into a new operating lease for a building, for which minimum annual rental payments are included in the table above. The lease terms provide for no rental payments during the last 15 years of the lease, during which period $53 million ...

  • Page 106
    ... of onsite dry storage facilities at Robinson and Brunswick, PEC's spent nuclear fuel storage facilities will be sufficient to provide storage space for spent fuel generated on PEC's system through the expiration of the operating licenses for all of PEC's nuclear generating units. With certain...

  • Page 107
    ... Section 29 tax credits at September 30, 2004. As a result, the Company recorded a charge of $79 million related to Section 29 tax credits at September 30, 2004. On November 2, 2004, PEF filed a petition with the FPSC to recover $252 million of storm costs plus interest from customers over a two...

  • Page 108
    ... is a "qualified fuel" for purposes of the Section 29 tax credits. This action concluded the PFA program with respect to Colona. In July 2004, Progress Energy was notified that the IRS field auditors anticipated taking an adverse position regarding the placed-in-service date of the Company's four...

  • Page 109
    ... are reduced, including an increase in the price of oil that could limit or eliminate synthetic fuel tax credits, the amount of proceeds realized from the sale could be significantly impacted. IMPACT OF CRUDE OIL PRICES Although the Internal Revenue Code Section 29 tax credit program is expected to...

  • Page 110
    ... retirement program. In connection with the cost-management initiative, the Company expects to incur one-time pre-tax charges of approximately $130 million. Approximately $30 million of that amount relates to payments for severance benefits, and will be recognized in the first quarter of 2005...

  • Page 111
    ... Energy Annual Report 2004 CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is as follows: (in millions except per share data) Year ended December 31, 2004 Operating revenues Operating income Income from continuing operations before cumulative effect of changes...

  • Page 112
    ...Short-term obligations Total Capitalization and Total Debt Other Financial Data Return on average common stock equity (percent) Ratio of earnings to fixed charges Number of common shareholders of record Book value per common share Basic earnings per common share Income from continuing operations Net...

  • Page 113
    ... share Contingent value obligation mark-to-market NCNG discontinued operations SRS litigation settlement Gain on sale of natural gas assets Cumulative effect of accounting changes Impairments and one-time charges Ice storm impact PEF retroactive revenue refund Reported GAAP earnings per share 2004...

  • Page 114
    ...Progress Energy offers the Progress Energy Investor Plus Plan, a direct stock purchase and dividend reinvestment plan, and direct deposit of cash dividends to bank accounts for the convenience of shareholders. For information on these programs, contact our transfer agent at the above address or call...

  • Page 115
    Progress Energy - A Thriving Territory Progress Energy Corporate Headquarters Operating Plant Locations Progress Energy Regulated Service Area Progress Ventures Georgia Electric Membership Cooperative Customers 21

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    Progress Energy, Inc. P.O. Box 1551 Raleigh, NC 27602-1551 progress-energy.com 22 3700-AR-05