Progress Energy 2007 Annual Report Download - page 37

Progress Energy Annual Report 2007
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surcharges. As a result, fuel price volatility can be both
a source of and a use of liquidity resources, depending
on what phase of the cycle of price volatility we are
experiencing. Changes in the Utilities’ fuel and purchased
power costs may affect the timing of cash flows, but not
materially affect net income.
Effective February 8, 2006, the Energy Policy Act of 2005
(EPACT) provisions enacted the Public Utility Holding
Company Act of 2005 (PUHCA 2005). Progress Energy
is a registered public utility holding company subject
to regulation by the FERC under PUHCA 2005, including
provisions relating to the issuance and sale of securities
and the establishment of intercompany extensions of
credit (utility and nonutility money pools). PEC and PEF
participate in the utility money pool, which allows the two
utilities to lend to and borrow from each other. A nonutility
money pool allows our nonregulated operations to lend to
and borrow from each other. The Parent can lend money
to the utility and nonutility money pools but cannot borrow
funds. Pursuant to PUHCA 2005, utility holding companies
are allowed to continue to engage in financings authorized
by the SEC, provided the authorization orders have been
filed with the FERC and the holding company continues to
comply with such orders, terms and conditions. We have
filed all such SEC orders with the FERC; therefore, we are
permitted to continue all such financing transactions.
Cash from operations, asset sales, short-term and long-
term debt and limited ongoing equity sales from our
Investor Plus Stock Purchase Plan and employee benefit
and stock option plans are expected to fund capital
expenditures and common stock dividends for 2008. For
the fiscal year 2008, we expect to realize an aggregate
amount of approximately $100 million from the sale of
stock through these plans.
We believe our internal and external liquidity resources
will be sufficient to fund our current business plans. Risk
factors associated with credit facilities and credit ratings
are discussed below.
Historical for 2007 as Compared to 2006 and
2006 as Compared to 2005
CASH FLOWS FROM OPERATIONS
Cash from operations is the primary source used to meet
operating requirements and capital expenditures. The
Utilities produced substantially all of our consolidated
cash from operations for the years ended December 31,
2007, 2006 and 2005. Net cash provided by operating
activities for the three years ended December 31, 2007,
2006 and 2005, was $1.252 billion, $2.001 billion, and
$1.467 billion, respectively.
Cash from operating activities for 2007 decreased
when compared with 2006. The $749 million decrease in
operating cash flow was primarily due to $472 million in
income tax impacts, largely driven by income tax payments
related to the sale of Gas; the $347 million payment made
to exit the Georgia contracts (See Note 3A); a $279 million
decrease in the recovery of fuel costs; and $65 million in
premiums paid for derivative contracts in our synthetic
fuels businesses. These impacts were partially offset by a
$157 million decrease in inventory purchases in 2007,
primarily related to coal purchases at the Utilities;
$106 million of working capital changes related to the
divestiture of CCO; and $47 million in net refunds of cash
collateral previously paid to counterparties on derivative
contracts in the current year compared to $47 million in
net cash payments in the prior year at PEF. The decrease
in recovery of fuel costs is due to a $335 million decrease
at PEF driven by the 2006 recovery of previously under-
recovered fuel costs, partially offset by a $56 million
increase in the recovery at PEC driven by the 2007
recovery of previously under-recovered fuel costs.
Cash from operating activities for 2006 increased when
compared with 2005. The $534 million increase in operating
cash flow was primarily due to a $713 million increase in
the recovery of fuel costs at the Utilities, a $248 million
increase from the change in accounts receivable,
approximately $103 million of proceeds received from the
restructuring of a long-term coal supply contract at our
discontinued terminals operations, and $72 million related
to recovery of storm restoration costs at PEF. These
impacts were partially offset by $141 million related to a
wholesale customer prepayment in 2005 at PEC, as
discussed below, a $108 million decrease from the change
in accounts payable and a $96 million net increase in tax
payments in 2006 compared to 2005. The increase in
recovery of fuel costs was largely driven by the recovery
of previously under-recovered 2005 fuel costs. The
$248 million change in accounts receivable included
$147 million at PEC, principally driven by the timing of
wholesale sales, and $47 million at PEF, primarily related
to timing of receipts. The $108 million decrease from the
change in accounts payable was primarily related to our
discontinued and abandoned operations (See Note 3).
In November 2005, PEC entered into a contract with the
Public Works Commission of the City of Fayetteville, North
Carolina (PWC), in which the PWC prepaid $141 million in
exchange for future capacity and energy power sales.