Progress Energy 2006 Annual Report Download - page 43

Progress Energy Annual Report 2006
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At December 31, 2006, the current portion of our long-
term debt was $324 million, which we expect to fund
with a combination of cash from operations, proceeds
from sales of assets, commercial paper borrowings and
long-term debt. See Note 3 for additional information on
asset sales.
REGULATORY MATTERS AND RECOVERY OF COSTS
Regulatory matters, as discussed in “Other Matters
– Regulatory Environment” and Note 7, and filings for
recovery of environmental costs, as discussed in Note
21 and in “Other Matters – Environmental Matters,”
may impact our future liquidity and financing activities.
The impacts of these matters, including the timing of
recoveries from ratepayers, can be both a source of and
a use of future liquidity resources.
Base Rates
PEC’s base rates are subject to the regulatory jurisdiction
of the North Carolina Utilities Commission (NCUC) and the
South Carolina Public Service Commission (SCPSC). As
further discussed in Note 21B, the Clean Smokestacks
Act was enacted in 2002. The Clean Smokestacks Act
freezes North Carolina electric utility base rates for a
five-year period ending in December 2007, unless there
are extraordinary events beyond the control of the
utilities or unless the utilities consistently earn a return
substantially in excess of the rate of return established
and found reasonable by the NCUC in the respective
utility’s last general rate case. Subsequent to 2007, PEC’s
current North Carolina base rates will continue subject to
traditional cost-based rate regulation.
As a result of a base rate proceeding in 2005, PEF is
party to a base rate settlement agreement that was
effective with the first billing cycle of January 2006 and
will remain in effect through the last billing cycle of
December 2009, with PEF having sole option to extend
the agreement through the last billing cycle of June 2010.
The settlement agreement also provides for revenue
sharing between PEF and its ratepayers beginning in
2006 whereby PEF will refund two-thirds of retail base
revenues between a specified threshold and specified
cap, which will be adjusted annually, and 100 percent
of revenues above the specified cap. PEF’s retail base
revenues did not exceed the specified 2006 threshold,
and thus no revenues were subject to revenue sharing.
The settlement agreement provides for PEF to continue
to recover certain costs through clauses, such as the
recovery of post-9/11 security costs through the capacity
clause and the carrying costs of coal inventory in transit
and coal procurement costs through the fuel clause.
Additionally, PEF will continue to recover and collect a
return on Hines Unit 2 through the fuel clause through
late 2007, when it will be transferred into base rates.
If PEF’s regulatory return on equity (ROE) falls below
10 percent, and for certain other events, PEF is authorized
to petition the FPSC for a base rate increase.
PEC Fuel Cost Recovery
On June 16, 2006, the SCPSC approved a settlement
agreement for an increase in the fuel rate charged to
PEC’s South Carolina ratepayers for under-recovered
fuel costs and to meet future expected fuel costs. The
settlement agreement provided for a $23 million, or
4.6 percent, increase in rates, effective July 1, 2006. At
December 31, 2006, PEC’s South Carolina deferred fuel
balance was $29 million, of which $5 million is expected to
be collected after 2007 in accordance with the settlement
agreement and, therefore, has been classified as a long-
term regulatory asset.
On September 25, 2006, the NCUC approved a settlement
agreement for an increase in the fuel rate charged to PEC’s
North Carolina ratepayers. The settlement agreement
provided for a $177 million, or 6.7 percent, increase in
rates effective October 1, 2006. The settlement agreement
further provides for rate increases of $50 million in 2007
and $30 million in 2008 and for PEC to collect its existing
deferred fuel balance by September 30, 2009. PEC initially
sought an increase of $292 million, or 11.0 percent, but
agreed to a three-year phase-in of the increase in order
to address customer concerns regarding the magnitude
of the proposed increase. PEC will be allowed to calculate
and collect interest at 6% on the difference between its fuel
factor proposed in its original request to the NCUC and the
settlement agreement’s factor. At December 31, 2006, PEC’s
North Carolina deferred fuel balance was $281 million, of
which $109 million is expected to be collected after 2007 in
accordance with the settlement agreement and, therefore,
has been classified as a long-term regulatory asset.
The Carolina Utility Customers Association (CUCA) has
appealed the NCUC’s order on the grounds that the NCUC
does not have the statutory authority to establish fuel rates
for more than one year. We anticipate filing a motion to
dismiss during the first quarter of 2007. We cannot predict
the outcome of this matter.
PEF Pass-through Clause Cost Recovery
On November 8, 2006, the FPSC approved PEF’s
supplemental filing resulting in a $40 million, or
0.7 percent, increase over 2006 rates to cover rising fuel,