Progress Energy 2007 Annual Report Download - page 53

Progress Energy Annual Report 2007
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immaterial amount of implementation and program costs
for future recovery in the South Carolina jurisdiction.
On July 13, 2007, the governor of Florida issued executive
orders to address reduction of greenhouse gas emissions.
The executive orders call for the first southeastern
state cap-and-trade program and include adoption of
a maximum allowable emissions level of greenhouse
gases for Florida utilities. The standard will require, at
a minimum, the following three reduction milestones: by
2017, emissions not greater than Year 2000 utility sector
emissions; by 2025, emissions not greater than Year 1990
utility sector emissions; and by 2050, emissions not greater
than 20 percent of Year 1990 utility sector emissions.
Among other things, the executive orders also requested
that the FPSC initiate a rulemaking by September 1, 2007,
that would (1) require Florida utilities to produce at least
20 percent of their electricity from renewable sources;
(2) reduce the cost of connecting solar and other
renewable energy technologies to Florida’s power grid by
adopting uniform statewide interconnection standards for
all utilities; and (3) authorize a uniform, statewide method
to enable residential and commercial customers, who
generate electricity from on-site renewable technologies
of up to 1 MW in capacity, to offset their consumption over
a billing period by allowing their electric meters to turn
backward when they generate electricity (net metering).
The FPSC has held meetings regarding the renewable
portfolio standard but no actions have been taken or rules
issued. The Energy and Climate Action Team appointed
by the governor submitted its initial recommendations
for implementation of the governor’s executive orders
on November 1, 2007. The recommendations encourage
the development and implementation of energy-
efficiency and conservation measures, implementation
of a climate registry and consideration of a cap-and-
trade approach to reducing the state’s greenhouse gas
emissions. Additional development and discussion of
the recommendations will occur through a stakeholder
process in 2008. The Florida Department of Environmental
Protection held its first rulemaking workshop on the
greenhouse gas emissions cap on August 22, 2007, and
a second workshop on December 5, 2007. We anticipate
drafts of the rule will be issued in 2008. In addition, the
Florida Energy Commission, which was established by
the Legislature in 2006, published its energy policy and
climate change recommendations on December 31, 2007.
The report includes proposed legislative language that
would implement energy-efficiency and conservation
programs, participation in the multi-state Climate
Registry and emissions reduction targets that are similar
to those contained in the governor’s executive orders.
We cannot currently predict the costs of complying
with the laws and regulations that may ultimately result
from these executive orders and the Florida Energy
Commission’s recommendations. Our balanced solution,
as described in “Increasing Energy Demand,” includes
greater investment in energy efficiency, renewable
energy and state-of-the-art generation and demonstrates
our commitment to environmental responsibility.
On April 10, 2007, the FPSC adopted a rule that specifies
what storm costs will be recoverable and whether such
recoverable costs would be offset against a utility’s storm
reserve fund or recoverable through its base rates. PEF
does not believe that compliance with this rule will
materially increase its costs.
EPACT, among other provisions, gave the FERC
accountability for system reliability and the authority
to impose civil penalties. EPACT provides procedures
and rules for the establishment of an electric reliability
organization (ERO) that will propose and enforce
mandatory reliability standards. On July 20, 2006, the
FERC certified the North American Electric Reliability
Corporation (NERC) as the ERO. Included in this
certification was a provision for the ERO to delegate
authority for the purpose of proposing and enforcing
reliability standards in particular regions of the country
by entering into delegation agreements with regional
entities. The SERC Reliability Corporation (SERC) and the
Florida Reliability Coordinating Council (FRCC) are the
regional entities for PEC and PEF, respectively.
As discussed in “Future Liquidity and Capital Resources
– Other Regulatory Matters,” during 2007 and 2008,
the FERC approved a significant number of reliability
standards developed by the NERC and set aside other
standards pending further development. Compliance
with FERC-approved reliability standards is mandatory
for all registered users, owners and operators of the bulk
power system, including PEC and PEF. Prior to the FERC
action, electric utility industry compliance with the NERC
standards had been voluntary.
Based on FERC’s directive to revise 56 of the adopted
standards, we expect standards to migrate to more
definitive and enforceable requirements over time. We
are committed to meeting those standards. The financial
impact of mandatory compliance cannot currently
be determined. Failure to comply with the reliability
standards could result in the imposition of fines and
civil penalties. If we are unable to meet the reliability
standards for the bulk power system in the future, it could
have a material adverse effect on our financial condition,
results of operations and cash flows.