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Progress Energy Annual Report 2006
85
At December 31 the balances of regulatory assets
(liabilities) were as follows:
Except for portions of deferred fuel costs and loss on
reacquired debt, all regulatory assets earn a return or
the cash has not yet been expended, in which case the
assets are offset by liabilities that do not incur a carrying
cost. We expect to fully recover these assets and refund
these liabilities through customer rates under current
regulatory practice.
B. PEC Retail Rate Matters
BASE RATES
PEC’s base rates are subject to the regulatory jurisdiction
of the NCUC and 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
persistently 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.
During the rate freeze period, the legislation provides for
the amortization and recovery of 70 percent of the original
estimated compliance costs while providing significant
flexibility in the amount of annual amortization recorded
from none up to $174 million per year. Subsequent to 2007,
PEC’s current North Carolina base rates will continue
subject to traditional cost-based rate regulation.
FUEL COST RECOVERY
On May 3, 2006, PEC filed with the SCPSC for an
increase in the fuel rate charged to its South Carolina
ratepayers for under-recovered fuel costs and to meet
future expected fuel costs. On June 16, 2006, the SCPSC
approved a settlement agreement filed jointly by PEC
and all other parties to the proceeding. The settlement
agreement provided for a $23 million, or 4.6 percent,
increase in rates. The increase was $4 million less than
PEC originally requested due to adjustment of future fuel
cost estimates agreed upon during settlement. Effective
July 1, 2006, residential electric bills increased by $3.01
per 1,000 kWh for fuel cost recovery. 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 June 2, 2006, PEC filed with the NCUC for an increase
in the fuel rate charged to its North Carolina ratepayers.
On September 25, 2006, the NCUC approved a settlement
agreement filed jointly by PEC, the NCUC Public Staff and
the Carolinas Industrial Group for Fair Utility Rates II.
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
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. Effective October 1,
2006, residential electric bills increased by $4.87 per
1,000 kWh for fuel cost recovery. 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.
(in millions) 2006 2005
Deferred fuel cost – current (Note 7B) $196 $602
Deferred fuel cost – long-term (Note 7B) 114 31
Deferred impact of ARO – PEC (Note 1D) 282 281
Income taxes recoverable through future rates
(Note 14) 114 81
Loss on reacquired debt (Note 1D) 46 50
Storm deferral (Notes 7B and 7C) 102 227
Postretirement benefits (Note 16) 373 88
Derivative mark-to-market adjustment (Note 17) 78 6
Environmental (Notes 7B, 7C and 21A) 72 26
Other 50 64
Total long-term regulatory assets 1,231 854
Deferred fuel cost – current (Note 7C) (63) –
Deferred energy conservation cost and other
current regulatory liabilities (13) (10)
Total current regulatory liabilities (76) (10)
Non-ARO cost of removal (Note 5D) (1,602) (1,571)
Deferred impact of ARO – PEF (Note 1D) (221) (225)
Net nuclear decommissioning trust unrealized
gains (Note 5D) (330) (251)
Clean Smokestacks Act compliance (Note 21B) (333) (317)
Derivative mark-to-market adjustment (Note 17A) –(122)
Other (57) (41)
Total long-term regulatory liabilities (2,543) (2,527)
Net regulatory liabilities $(1,192) $(1,081)