Progress Energy 2004 Annual Report Download - page 62

1. ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization
Progress Energy, Inc. (Progress Energy or the Company)
is a holding company headquartered in Raleigh, North
Carolina. The Company is registered under the Public
Utility Holding Company Act of 1935 (PUHCA), as
amended, and as such, the Company and its subsidiaries
are subject to the regulatory provisions of PUHCA.
Effective January 1, 2003, three of the Company’s
subsidiaries, Carolina Power & Light Company (CP&L),
Florida Power Corporation and Progress Ventures, Inc.,
began doing business under the assumed names
Progress Energy Carolinas, Inc. (PEC), Progress Energy
Florida, Inc. (PEF) and Progress Energy Ventures, Inc.
(PVI), respectively.
Through its wholly owned subsidiaries, PEC and PEF, the
Company’s PEC Electric and PEF segments are primarily
engaged in the 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 in natural gas
drilling and production, coal terminal services, coal mining,
synthetic fuel production, fuel transportation and delivery.
The CCO segment includes nonregulated generation and
energy marketing activities. Through the Rail Services
(Rail) segment, the Company is involved in nonregulated
railcar repair, rail parts reconditioning and sales and scrap
metal recycling. Through its other business units, the
Company engages in other nonregulated business areas,
including telecommunications and energy management
and related services. Progress Energy’s legal structure is
not currently aligned with the functional management and
financial reporting of the Progress Ventures business unit.
Whether, and when, the legal and functional structures will
converge depends upon legislative and regulatory action,
which cannot currently be anticipated.
B. Basis of Presentation
The consolidated financial statements are prepared in
accordance with accounting principles generally
accepted in the United States of America (GAAP) and
include the activities of the Company and its majority-
owned subsidiaries. Significant intercompany balances
and transactions have been eliminated in consolidation
except as permitted by Statement of Financial
Accounting Standards (SFAS) No. 71, “Accounting for the
Effects of Certain Types of Regulation,” which provides
that profits on intercompany sales to regulated affiliates
are not eliminated if the sales price is reasonable and the
future recovery of the sales price through the ratemaking
process is probable.
The consolidated financial statements of the Company
and its subsidiaries include the majority-owned and
controlled subsidiaries. Noncontrolling interests in the
subsidiaries along with the income or loss attributed to
these interests are included in minority interest in both
the Consolidated Balance Sheets and in the
Consolidated Statements of Income. The results of
operations for minority interest are reported on a net of
tax basis if the underlying subsidiary is structured as a
taxable entity.
Unconsolidated investments in companies over which
the Company does not have control, but has the ability to
exercise influence over operating and financial policies
(generally 20%–50% ownership), are accounted for
under the equity method of accounting. These
investments are primarily in limited liability corporations
and limited liability partnerships, and the earnings from
these investments are recorded on a pre-tax basis (See
Note 21). These equity method investments are included
in miscellaneous other property and investments in the
Consolidated Balance Sheets. At December 31, 2004 and
2003, the Company has equity method investments of
approximately $27 million and $36 million, respectively.
Certain investments in debt and equity securities that
have readily determinable market values, and for which
the Company does not have control, are accounted for as
available-for-sale securities at fair value in accordance
with SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities.” These investments
include investments held in trust funds, pursuant to the
United States Nuclear Regulatory Commission (NRC)
requirements, to fund certain costs of decommissioning
nuclear plants. The fair value of these trust funds was
$1.044 billion and $938 million at December 31, 2004 and
2003, respectively. The Company also actively invests
available cash balances in various financial instruments,
such as tax-exempt debt securities that have stated
maturities of 20 years or more. These instruments provide
for a high degree of liquidity through arrangements with
banks that provide daily and weekly liquidity and 7, 28 and
35 day auctions that allow for the redemption of the
investment at its face amount plus earned income. As the
Company intends to sell these instruments generally
within 30 days from the balance sheet date, they are
classified as current assets. At December 31, 2004
and
2003, the fair value of these investments was $82 million
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Notes to Consolidated Financial Statements