Progress Energy 2006 Annual Report Download - page 55

Progress Energy Annual Report 2006
53
prior to December 31, 2007, to determine cost-recovery
amounts for 2008 and 2009.
Two of PEC’s largest coal-fired generation plants (the
Roxboro No. 4 and Mayo Units) impacted by the Clean
Smokestacks Act are jointly owned. In 2005, PEC entered
into an agreement with the joint owner to limit their
aggregate costs associated with capital expenditures to
comply with the Clean Smokestacks Act and recognized a
liability related to this indemnification (See Note 21B).
Pursuant to the Clean Smokestacks Act, PEC entered into
an agreement with the state of North Carolina to transfer
to the state certain NOx and SO2 emissions allowances
that result from compliance with the collective NOx and
SO2 emissions limitations set in the Clean Smokestacks
Act. The Clean Smokestacks Act also required the state
to undertake a study of mercury and CO2 emissions in
North Carolina. The future regulatory interpretation,
implementation or impact of the Clean Smokestacks Act
cannot be predicted.
Clean Air Interstate Rule, Clean Air Mercury Rule
and Clean Air Visibility Rule
On March 10, 2005, the EPA issued the final CAIR. The
EPA’s rule requires the District of Columbia and 28 states,
including North Carolina, South Carolina, Georgia and
Florida, to reduce NOx and SO2 emissions in order to
reduce levels of fine particulate matter and impacts to
visibility. The CAIR sets emission limits to be met in two
phases beginning in 2009 and 2015, respectively, for NOx
and beginning in 2010 and 2015, respectively, for SO2.
PEF has joined a coalition of Florida utilities that has
filed a challenge to the CAIR as it applies to Florida. A
petition for reconsideration and stay and a petition for
judicial review of the CAIR were filed on July 11, 2005. On
October 27, 2005, the District of Columbia Circuit Court
issued an order granting the motion for stay of the
proceedings. On December 2, 2005, the EPA announced a
reconsideration of four aspects of the CAIR, including its
applicability to Florida. On March 16, 2006, the EPA denied
all pending reconsiderations, allowing the challenge to
proceed. While we consider it unlikely that this challenge
would eliminate the compliance requirements of the CAIR,
it could potentially reduce or delay our costs to comply
with the CAIR. On June 29, 2006, the Florida Environmental
Regulation Commission adopted the Florida CAIR, which is
very similar to the EPA’s model rule. PEF and other Florida
utilities are participating in an administrative review of the
state-adopted rule. The outcome of these matters cannot
be predicted.
On March 15, 2005, the EPA finalized two separate but
related rules: the CAMR that sets emissions limits to be met
in two phases beginning in 2010 and 2018, respectively, and
encourages a cap-and-trade approach to achieving those
caps, and a de-listing rule that eliminated any requirement
to pursue a maximum achievable control technology
approach for limiting mercury emissions from coal-fired
power plants. NOx and SO2 controls also are effective
in reducing mercury emissions. However, according to
the EPA the second phase cap reflects a level of mercury
emissions reduction that exceeds the level that would be
achieved solely as a co-benefit of controlling NOx and
SO2 under CAIR. The de-listing rule has been challenged
by a number of parties; the resolution of the challenges
could impact our final compliance plans and costs. On
October 21, 2005, the EPA announced a reconsideration of
the CAMR. On May 31, 2006, the EPA issued a determination
confirming the de-listing. Sixteen states have subsequently
petitioned for a review of this determination. The outcome
of this matter cannot be predicted.
States were required to adopt mercury rules
implementing the CAMR by November 17, 2006, which
are subject to review and approval by the EPA. A number
of states, including North Carolina, South Carolina and
Florida, did not meet the deadline for submission to the
EPA. The EPA has indicated it will defer action. At
December 31, 2006, of the three states in which the
Utilities operate, all had formally proposed mercury
regulations. The North Carolina Environmental
Management Commission adopted the proposed rule on
November 9, 2006, which is subject to final approval
by the North Carolina legislature. North Carolina’s rule
adopts the EPA’s cap-and-trade approach and requires
the addition of mercury controls by 2018 on certain of
PEC’s North Carolina units that do not have scrubbers. PEC
will have until 2013 to provide the agency detailed plans
for the installation of controls at existing plants. South
Carolina’s rule, which was proposed on October 27, 2006,
adopts the EPA’s cap-and-trade approach and requires that
25 percent of the mercury allowances allocated to each
unit be held in a compliance supplement set-aside pool.
Allowances in the set-aside pool may be used by a unit
to meet compliance requirements but cannot be traded.
South Carolina’s rule was adopted on January 11, 2007,
and is subject to final approval by the South Carolina
legislature. On June 29, 2006, the Florida Environmental
Regulation Commission adopted the Florida CAMR. The
Florida rule adopts the EPA’s cap-and-trade approach with
changes to the EPA’s mercury allowance allocations in
the rule’s first phase. The outcome of this matter cannot
be predicted.