Progress Energy 2004 Annual Report Download - page 101

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 Company
have undertaken efforts to have Georgia excluded from
the rule and its requirements. Georgia has not yet
submitted a state implementation plan to comply with the
Section 110 NOx SIP Call. The Company cannot predict
the outcome of this matter in Georgia.
In 1997, the EPA issued final regulations establishing a
new 8-hour ozone standard. In April 2004, the EPA
identified areas that do not meet the standard. The states
with identified areas, including North and South Carolina,
are proceeding with the implementation of the federal
8-hour ozone standard. Both states promulgated final
regulations, which will require PEC to install NOx controls
under the states’ programs to comply with the 8-hour
standard. The costs of those controls are included in the
$370 million cost estimate above. However, further
technical analysis and rulemaking may result in
requirements for additional controls at some units. The
Company cannot predict the outcome of this matter.
In June 2002, NC Clean Air legislation was enacted in
North Carolina requiring the state’s electric utilities to
reduce the emissions of NOx and SO2from coal-fired
power plants. Progress Energy projects that its capital
costs to meet these emission targets will total
approximately $895 million by the end of 2013. PEC has
expended approximately $108 million of these capital
costs through December 31, 2004. PEC currently has
approximately 5,100 MW of coal-fired generation
capacity in North Carolina that is affected by this law. The
law requires the emissions reductions to be completed in
phases by 2013, and applies to each utility’s total system
rather than setting requirements for individual power
plants. The law also freezes the utilities’ base rates for
five years unless there are extraordinary events beyond
the control of the utilities or unless the utilities
persistently earn a return substantially in excess of the
rate of return established and found reasonable by the
NCUC in the utilities’ last general rate case. The law
requires PEC to amortize $569 million, representing 70%
of the original cost estimate of $813 million, during the
five-year rate freeze period. PEC recognized amortization
of $174 million and $74 million for the years ended
December 31, 2004, and 2003, respectively, and has
recognized $248 million in cumulative amortization
through December 31, 2004. The remaining amortization
requirement of $321 million will be recorded over the
three-year period ending December 31, 2007. The law
permits PEC the flexibility to vary the amortization
schedule for recording of the compliance costs from
none up to $174 million per year. The NCUC will hold a
hearing prior to December 31, 2007, to determine cost
recovery amounts for 2008 and future periods. Pursuant
to the law, PEC entered into an agreement with the State
of North Carolina to transfer to the State certain NOx and
SO2emissions allowances that result from compliance
with the collective NOx and SO2emissions limitations set
out in the law. The law also requires the State to
undertake a study of mercury and carbon dioxide
emissions in North Carolina. Operation and maintenance
costs will increase due to the additional personnel,
materials and general maintenance associated with the
equipment. Operation and maintenance expenses are
recoverable through base rates, rather than as part of
this program. Progress Energy cannot predict the future
regulatory interpretation, implementation or impact of
this law.
In 1997, the EPA’s Mercury Study Report and Utility Report
to Congress concluded that mercury is not a risk to the
average person in America and expressed uncertainty
about whether reductions in mercury emissions from
coal-fired power plants would reduce human exposure.
Nevertheless, the EPA determined in 2000 that regulation
of mercury emissions from coal-fired power plants was
appropriate. In 2003, the EPA proposed alternative
control plans that would limit mercury emissions from
coal-fired power plants. The final rule was released on
March 15, 2005. The EPA’s rule establishes a mercury cap
and trade program for coal-fired power plants that
requires limits to be met in two phases, in 2010 and 2018.
The Company is reviewing the final rule. Installation of
additional air quality controls is likely to be needed to
meet the mercury rule’s requirements. Compliance plans,
including the costs to the Company’s operations, will be
determined once the Company completes its review.
In conjunction with the proposed mercury rule, the EPA
proposed a MACT standard to regulate nickel emissions
from residual oil-fired units. The agency estimates the
proposal will reduce national nickel emissions to
approximately 103 tons. As proposed, the rule may
require the Company to install additional pollution
controls on its residual oil-fired units, resulting in
significant capital expenditures. PEC does not have units
impacted by this proposal; PEF has eight units that are
affected, and they currently do not have pollution
controls in place that would meet the proposed
requirements of the nickel rule. The EPA expects to
finalize the nickel rule in March 2005. Compliance costs
will be determined following promulgation of the rule.
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Progress Energy Annual Report 2004