Progress Energy 2006 Annual Report Download - page 73

Progress Energy Annual Report 2006
71
assets and liabilities, disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements, and amounts of revenues and expenses
reflected during the reporting period. Actual results could
differ from those estimates.
REVENUE RECOGNITION
We recognize revenue when it is realized or realizable
and earned when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery
has occurred or services have been rendered; our price
to the buyer is fixed or determinable; and collectability
is reasonably assured. We recognize electric utility
revenues as service is rendered to customers. Operating
revenues include unbilled electric utility revenues earned
when service has been delivered but not billed by the end
of the accounting period. Diversified business revenues
are generally recognized at the time products are
shipped or as services are rendered. Leasing activities
are accounted for in accordance with SFAS No. 13,
“Accounting for Leases.” Revenues related to design and
construction of wireless infrastructure are recognized
upon completion of services for each completed phase
of design and construction. Revenues from the sale of
oil and gas production are recognized when title passes,
net of royalties. Customer prepayments are recorded as
deferred revenue and recognized as revenues as the
services are provided.
FUEL COST DEFERRALS
Fuel expense includes fuel costs or recoveries that are
deferred through fuel clauses established by the Utilities’
regulators. These clauses allow the Utilities to recover
fuel costs and portions of purchased power costs through
surcharges on customer rates. These deferred fuel costs
are recognized in revenues and fuel expenses as they
are billable to customers.
EXCISE TAXES
The Utilities collect from customers certain excise
taxes levied by the state or local government upon the
customers. The Utilities account for sales and use tax on a
net basis and gross receipts tax, franchise taxes and other
excise taxes on a gross basis. The amount of gross receipts
tax, franchise taxes and other excise taxes included
in electric operating revenues and taxes other than on
income in the Consolidated Statements of Income were
$293 million, $258 million and $240 million, respectively,
for the years ended December 31, 2006, 2005 and 2004.
STOCK-BASED COMPENSATION
Prior to July 2005, we accounted for stock-based
compensation under the recognition and measurement
provisions of Accounting Principles Board Opinion No.
25, “Accounting for Stock Issued to Employees,” and
related interpretations in accounting for our stock-based
compensation costs. In addition, we followed the disclosure
requirements contained in SFAS No. 123, “Accounting
for Stock-Based Compensation” (SFAS No. 123), as
amended by SFAS No. 148, “Accounting for Stock-Based
Compensation – Transition and Disclosure.” Effective
July 1, 2005, we adopted the fair value recognition
provisions of SFAS No. 123R, “Share-Based Payment”
(SFAS No. 123R), for stock-based compensation utilizing
the modified prospective transition method (See
Note 10B).
RELATED PARTY TRANSACTIONS
Our subsidiaries provide and receive services, at cost, to
and from the Parent and its subsidiaries, in accordance
with agreements approved by the SEC pursuant to Section
13(b) of PUHCA 1935. The costs of the services are billed
on a direct-charge basis, whenever possible, and on
allocation factors for general costs that cannot be directly
attributed. In the subsidiaries’ financial statements, billings
from affiliates are capitalized or expensed depending on
the nature of the services rendered. The repeal of PUHCA
1935 and subsequent regulation by the FERC did not
change our current intercompany services.
UTILITY PLANT
Utility plant in service is stated at historical cost less
accumulated depreciation. We capitalize all construction-
related direct labor and material costs of units of property
as well as indirect construction costs. Certain costs that
would otherwise not be capitalized under GAAP are
capitalized in accordance with regulatory treatment.
The cost of renewals and betterments is also capitalized.
Maintenance and repairs of property (including planned
major maintenance activities), and replacements and
renewals of items determined to be less than units of
property, are charged to maintenance expense as incurred,
with the exception of nuclear outages at PEF. Pursuant to
a regulatory order, PEF accrues for nuclear outage costs
in advance of scheduled outages, which occur every two
years. The cost of units of property replaced or retired, less
salvage, is charged to accumulated depreciation. Removal
or disposal costs that do not represent asset retirement
obligations under SFAS No. 143, “Accounting for Asset
Retirement Obligations” (SFAS No. 143), are charged to a
regulatory liability.