Progress Energy 2004 Annual Report Download - page 103

FUEL AND PURCHASED POWER
FPC, PEC and Fuels have entered into various long-term
contracts for coal, oil and gas. Payments under these
commitments were $2,097 million, $1,719 million and
$1,414 million for 2004, 2003 and 2002, respectively.
Pursuant to the terms of the 1981 Power Coordination
Agreement, as amended, between PEC and the North
Carolina Eastern Municipal Power Agency (Power
Agency), PEC is obligated to purchase a percentage of
Power Agency’s ownership capacity of, and energy from,
the Harris Plant. In 1993, PEC and Power Agency entered
into an agreement to restructure portions of their
contracts covering power supplies and interests in jointly
owned units. Under the terms of the 1993 agreement, PEC
increased the amount of capacity and energy purchased
from Power Agency’s ownership interest in the Harris
Plant, and the buyback period was extended six years
through 2007. The estimated minimum annual payments for
these purchases, which reflect capacity and energy costs,
total approximately $38 million. These contractual
purchases totaled $39 million, $36 million and $36 million
for 2004, 2003 and 2002, respectively. In 1987, the NCUC
ordered PEC to reflect the recovery of the capacity portion
of these costs on a levelized basis over the original 15-year
buyback period, thereby deferring for future recovery the
difference between such costs and amounts collected
through rates. In 1988, the SCPSC ordered similar
treatment, but with a 10-year levelization period. At
December 31, 2004, all previously deferred costs have
been expensed.
PEC has a long-term agreement for the purchase of power
and related transmission services from Indiana Michigan
Power Company’s Rockport Unit No. 2 (Rockport). The
agreement provides for the purchase of 250 MW of
capacity through 2009 with estimated minimum annual
payments of approximately $43 million, representing
capital-related capacity costs. Estimated annual payments
for energy and capacity costs are approximately
$72 million through 2009. Total purchases (including energy
and transmission use charges) under the Rockport
agreement amounted to $63 million, $66 million and
$59 million for 2004, 2003 and 2002, respectively.
PEC executed two long-term agreements for the
purchase of power from Broad River LLC’s Broad River
facility. One agreement provides for the purchase of
approximately 500 MW of capacity through 2021 with an
original minimum annual payment of approximately
$16 million, primarily representing capital-related
capacity costs. The second agreement provided for the
additional purchase of approximately 300 MW of
capacity through 2022 with an original minimum annual
payment of approximately $16 million representing
capital-related capacity costs. Total purchases for both
capacity and energy under the Broad River agreements
amounted to $42 million, $37 million and $38 million in
2004, 2003 and 2002 respectively.
PEF has long-term contracts for approximately 489 MW of
purchased power with other utilities, including a contract
with The Southern Company for approximately 414 MW of
purchased power annually through 2015. Total purchases,
for both energy and capacity, under these agreements
amounted to $129 million, $124 million and $109 million for
2004, 2003 and 2002, respectively. Total capacity payments
were $56 million, $55 million and $50 million for 2004, 2003
and 2002, respectively. Minimum purchases under these
contracts, representing capital-related capacity costs, at
December 31, 2004, are $60 million, $63 million, $65 million,
$66 million and $67 million for 2005 through 2009,
respectively, and $244 million thereafter.
Both PEC and PEF have ongoing purchased power
contracts with certain cogenerators (qualifying facilities)
with expiration dates ranging from 2005 to 2025. These
purchased power contracts generally provide for
capacity and energy payments. Energy payments for the
PEF contracts are based on actual power taken under
these contracts. Capacity payments are subject to the
qualifying facilities (QFs) meeting certain contract
performance obligations. PEF’s total capacity purchases
under these contracts amounted to $248 million,
$244 million and $235 million for 2004, 2003 and 2002,
respectively. Minimum expected future capacity
payments under these contracts at December 31, 2004,
are $271 million, $279 million, $289 million, $298 million and
$263 million for 2005 through 2009, respectively, and
$3.8 billion thereafter. PEC has various pay-for-
performance contracts with QFs for approximately
400 MW of capacity expiring at various times through
2009. Payments for both capacity and energy are
contingent upon the QFs’ ability 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 for the supply of natural gas and
associated firm pipeline transportation to augment PEF’s
gas supply needs for the period from May 1, 2007, to
April 30, 2027. The total cost to PEF associated with the
agreements is approximately $3.3 billion. The transactions
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Progress Energy Annual Report 2004