Progress Energy 2007 Annual Report Download - page 44

MANAGEMENT’S DISCUSSION AND ANALYSIS
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fuel and capacity costs by $140 million, over-recovered
in conservation costs by $14 million, over-recovered in
environmental compliance by $5 million and had accrued
disallowed fuel costs of $14 million as discussed below.
On August 10, 2006, Florida’s Office of Public Counsel
(OPC) filed a petition with the FPSC asking that the FPSC
require PEF to refund to ratepayers $143 million, plus
interest, of alleged excessive past fuel recovery charges
and sulfur dioxide (SO2) allowance costs associated with
PEF’s purported failure to utilize the most economical
sources of coal at Crystal River Unit 4 and Crystal River
Unit 5 (CR4 and CR5) during the period 1996 to 2005. The
OPC subsequently revised its claim to $135 million, plus
interest. On July 31, 2007, the FPSC heard this matter. On
October 10, 2007, the FPSC issued its order rejecting most
of the OPC’s contentions. However, the 4-1 majority found
that PEF had not been prudent in purchasing a portion
of its coal requirements during the period from 2003 to
2005. Accordingly, the FPSC ordered PEF to refund its
ratepayers approximately $14 million, inclusive of interest,
over a 12-month period beginning January 1, 2008. On
October 25, 2007, the OPC requested the FPSC to reconsider
its October 10, 2007 order asserting that the FPSC erred in
not ordering a larger refund. PEF filed its opposition to the
OPC’s request on November 1, 2007. On February 12, 2008,
the FPSC denied the OPC’s request for reconsideration.
PEF is also evaluating its options, including an appeal to
the Florida Supreme Court of the FPSC’s October 10, 2007
order. We cannot predict the outcome of this matter. The
FPSC also ordered PEF to address whether it was prudent
in its 2006 and 2007 coal purchases for CR4 and CR5. On
October 4, 2007, PEF filed a motion to establish a separate
docket on the prudence of its coal purchases for CR4 and
CR5 for the years 2006 and 2007. On October 17, 2007,
the FPSC granted that motion. The OPC filed testimony
in support of its position to require PEF to refund at least
$14 million for alleged excessive fuel recovery charges for
2006 coal purchases. PEF believes its coal procurement
practices were prudent. We cannot predict the outcome
of this matter.
On September 22, 2006, PEF filed a petition with the FPSC
for Determination of Need to uprate Crystal River Unit No.
3 Nuclear Plant (CR3), bid rule exemption and recovery
of the revenue requirements of the uprate through PEF’s
fuel recovery clause. To the extent the expenditures are
prudently incurred, PEF’s investment in the CR3 uprate is
eligible for recovery through base rates. PEF’s petition
would allow for more prompt recovery. On February 8,
2007, the FPSC issued an order approving PEF’s request
for a need determination to uprate through a multi-stage
uprate to be completed by 2012. PEF’s need determination
filing included estimated project costs of approximately
$382 million. On February 2, 2007, intervenors filed a
motion to abate the cost-recovery portion of PEF’s
request. On February 9, 2007, PEF requested that the
FPSC deny the intervenors’ motion as legally deficient
and without merit. On March 27, 2007, the FPSC denied
the motion to abate and directed the staff of the FPSC to
conduct a hearing on the matter to determine whether the
revenue requirements of the uprate should be recovered
through the fuel recovery clause. On May 4, 2007, PEF filed
amended testimony clarifying the scope of the project.
The FPSC held a hearing on this matter on August 7 and
8, 2007. The staff of the FPSC recommended that PEF be
allowed to recover prudent and reasonable costs of Phase
1, instrumentation modifications for improved accuracy,
estimated at $6 million through the fuel clause. The staff of
the FPSC recommended that the costs of all other phases,
estimated at $376 million, be considered in a base rate
proceeding. On October 19, 2007, PEF filed a notice of
withdrawal of its cost-recovery petition with the FPSC.
On November 21, 2007, PEF filed a petition with the FPSC
seeking cost recovery under Florida’s comprehensive
energy bill enacted in 2006, and the FPSC’s new nuclear
cost-recovery rule. On February 13, 2008, PEF filed a
notice of withdrawal of its cost-recovery petition with the
FPSC. PEF will proceed with cost recovery under Florida’s
comprehensive energy bill and the FPSC’s nuclear cost-
recovery rule based on the regulatory precedence
established by a FPSC order to an unaffiliated Florida
utility for a nuclear uprate project. We cannot predict the
outcome of this matter.
PEF has received approval from the FPSC for recovery
of costs associated with the remediation of distribution
and substation transformers through the ECRC, which
were estimated to be $31 million at December 31, 2007.
Additionally, on November 6, 2006, the FPSC approved
PEF’s petition for its integrated strategy to address
compliance with CAIR, CAMR and CAVR through the
ECRC (see “Other Matters – Environmental Matters” for
discussion regarding CAMR). The FPSC also approved
cost recovery of prudently incurred costs necessary to
achieve this strategy, which are currently estimated to
be $1.3 billion to $2.3 billion.
Storm Cost Recovery
On August 29, 2006, the FPSC approved a settlement
agreement related to PEF’s storm cost-recovery docket
that allowed PEF to extend its then-current two-year storm
surcharge. The requested 12-month extension, which
began in August 2007, will replenish the existing storm
reserve by an estimated $126 million. In the event future