Progress Energy 2004 Annual Report Download - page 46

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liquidity and future financing needs. The following table
reflects Progress Energy’s contractual cash obligations
and other commercial commitments at December 31, 2004,
in the respective periods in which they are due:
44
Management’s Discussion and Analysis
(in millions)
Total Less than 1 year 1-3 years 3-5 years More than 5 years
Long-term debt (a)(See Note 13) $9,942 $349 $1,637 $1,387 $6,569
Interest payments on long-term debt
and interest rate derivatives(b) 3,064 301 489 423 1,851
Capital lease obligations
(See Note 23C) 50 4 8 7 31
Operating leases (See Note 23C) 597 66 113 112 306
Fuel and purchased power(c)
(See Note 23A) 13,010 2,692 3,088 1,346 5,884
Other purchase obligations
(See Note 23A) 633 151 134 80 268
North Carolina Clean Air capital
commitments (See Note 22) 764 170 297 143 154
Other commitments(d)(e) 243 42 70 26 105
Total $28,303 $3,775 $5,836 $3,524 $15,168
(a) The Company’s maturing debt obligations are generally expected to be refinanced with new debt issuances in the capital markets. However, the Company does
plan to annually reduce its debt to total capitalization leverage over the next few years through selected asset sales, free cash flow and increased equity from
retained earnings and ongoing equity issuances.
(b) Interest payments on long-term debt and interest rate derivatives are based on the interest rate effective as of December 31, 2004, and the LIBOR forward curve
as of December 31, 2004, respectively.
(c) Fuel and purchased power commitments 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 require separate liquidity support.
(d) In 2008, PEC must begin transitioning amounts currently retained internally to its external decommissioning funds. The transition of $131 million must be
complete by December 31, 2017, and at least 10% must be transitioned each year.
(e) The Company has certain future commitments related to four synthetic fuel facilities purchased that provide for contingent payments (royalties) through 2007
(See Note 23B).
OTHER MATTERS
Synthetic Fuels Tax Credits
The Company has substantial operations associated with
the production of coal-based synthetic fuels. The
production and sale of these products qualifies for
federal income tax credits so long as certain
requirements are satisfied. These operations are subject
to numerous risks.
Although the Company believes that it operates its
synthetic fuel facilities in compliance with applicable legal
requirements for claiming the credits, its four Earthco
facilities are under audit by the IRS. IRS field auditors have
taken an adverse position with respect to the Company’s
compliance with one of these legal requirements, and if
the Company fails to prevail with respect to this position, it
could incur significant liability and/or lose the ability to
claim the benefit of tax credits carried forward or
generated in the future. Similarly, the Financial Accounting
Standards Board may issue new accounting rules that
would require that uncertain tax benefits (such as those
associated with the Earthco plants) be probable of being
sustained in order to be recorded on the financial
statements; if adopted, this provision could have an
adverse financial impact on the Company.
The Company’s ability to utilize tax credits is dependent
on having sufficient tax liability. Any conditions that
negatively impact the Company’s tax liability, such as
weather, could also diminish the Company’s ability to
utilize credits, including those previously generated, and
the synthetic fuel is generally not economical to produce
absent the credits. Finally, the tax credits associated with
synthetic fuels may be phased out if market prices for
crude oil exceed certain prices.
The Company’s synthetic fuel operations and related
risks are described in more detail in Note 23E.