Progress Energy 2006 Annual Report Download - page 112

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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20. OTHER INCOME AND OTHER EXPENSE
Other income and expense includes interest income,
impairment of investments, and other income and expense
items as discussed below. Nonregulated energy and
delivery services include power protection services and
mass market programs such as surge protection, appliance
services and area light sales, and delivery, transmission
and substation work for other utilities. AFUDC equity
represents the estimated equity costs of capital funds
necessary to finance the construction of new regulated
assets. The components of other, net as shown on the
accompanying Consolidated Statements of Income for the
years ended December 31 were as follows:
(in millions) 2006 2005 2004
Other income
Nonregulated energy and delivery
services income $41 $32 $28
DIG Issue C20 amortization (Note 17A) 57 9
Contingent value obligation unrealized
gain (Note 15) –6 9
Gain on sale of Level 3 stock(a) 32 – –
Investment gains 44 2
Income from equity investments 11 3
AFUDC equity 21 16 12
Reversal of indemnification liability
(Note 21B) 29 – –
Other 16 16 14
Total other income 149 82 77
Other expense
Nonregulated energy and delivery
services expenses 27 23 21
Donations 20 18 15
Contingent value obligation unrealized
loss (Note 15) 25 – –
Loss from equity investments 813 8
Loss on debt redemption(b) 59 – –
FERC audit settlement –7 –
Indemnification liability (Note 21B) 13 16 –
Other 15 12 29
Total other expense 167 89 73
Other, net $(18) $(7) $4
(a) Other income includes pre-tax gains of $32 million for the year ended
December 31, 2006, from the sale of approximately 20 million shares of Level 3
stock received as part of the sale of our interest in PT LLC (See Note 3D). These
gains are prior to the consideration of minority interest.
(b) On November 27, 2006, Progress Energy redeemed the entire outstanding
$350 million principal amount of its 6.05% Senior Notes due April 15, 2007, and the
entire outstanding $400 million principal amount of its 5.85% Senior Notes due
October 30, 2008. On December 6, 2006, Progress Energy repurchased, pursuant
to a tender offer, $550 million, or 53.0 percent, of the aggregate principal amount
of its 7.10% Senior Notes due March 1, 2011. We recognized a total pre-tax loss of
$59 million in conjunction with these redemptions.
21. ENVIRONMENTAL MATTERS
We are subject to regulation by various federal, state
and local authorities in the areas of air quality, water
quality, control of toxic substances and hazardous
and solid wastes, and other environmental matters.
We believe that we are in substantial compliance with
those environmental regulations currently applicable
to our business and operations and believe we have
all necessary permits to conduct such operations.
Environmental laws and regulations frequently change
and the ultimate costs of compliance cannot always be
precisely estimated.
A. Hazardous and Solid Waste
The provisions of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980,
as amended (CERCLA), authorize the Environmental
Protection Agency (EPA) to require the cleanup of
hazardous waste sites. This statute imposes retroactive
joint and several liabilities. Some states, including North
Carolina, South Carolina and Florida, have similar types
of statutes. We are periodically notified by regulators,
including the EPA and various state agencies, of our
involvement or potential involvement in sites that may
require investigation and/or remediation. There are
presently several sites with respect to which we have
been notified of our potential liability by the EPA, the state
of North Carolina or the state of Florida, as described below
in greater detail. Various materials associated with the
production of manufactured gas, generally referred to as
coal tar, are regulated under federal and state laws. PEC
and PEF are each potentially responsible parties (PRPs)
at several manufactured gas plant (MGP) sites. We are
also currently in the process of assessing potential costs
and exposures at other sites. These costs are eligible for
regulatory recovery through either base rates or cost-
recovery clauses. We evaluate potential claims against
other potential PRPs and insurance carriers and plan to
submit claims for cost recovery where appropriate. The
outcome of these potential claims cannot be predicted.
No material claims are currently pending. A discussion
of sites by legal entity follows.
We record accruals for probable and estimable costs
related to environmental sites on an undiscounted basis.
We measure our liability for these sites based on available
evidence including our experience in investigating
and remediating environmentally impaired sites. The
process often involves assessing and developing cost-
sharing arrangements with other PRPs. For all sites, as
assessments are developed and analyzed, we will accrue