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strong
FOUNDATION
2008 Annual Report and
Notice of Annual Meeting and Proxy Statement
future
BRIGHT

Table of contents

  • Page 1
    2008 Annual Report and Notice of Annual Meeting and Proxy Statement strong FOUNDATION future BRIGHT

  • Page 2

  • Page 3
    DEAR SHAREHOLDERS: The economic landscape is so fluid these days that it might already seem like old news now to report on the year gone by. So my intent with this letter is to go beyond a simple recap of 2008. I want to give you a clear sense of how Progress Energy is managing the business through ...

  • Page 4
    ... shareholder return for the year was a negative 12.9 percent. We're not satisfied with a negative return, but it was better than most of our peers and much better than the equity market as a whole. We also maintained our investmentgrade credit rating. In the opening days of 2009, Progress Energy...

  • Page 5
    ... as well as expansion of generating capacity and transmission facilities. We have had to raise our rates in the Carolinas and Florida in the last 12 months, which came at a particularly bad time given the economic downturn. We are working closely with customers to help them conserve energy and...

  • Page 6
    ... we continue to fund our critical capital projects. It's important for us to keep making strategic investments that will produce value for our customers and investors. During 2008, Florida regulators unanimously endorsed the need for our proposed two-unit nuclear plant in Levy County, Fla. We filed...

  • Page 7
    ... A. Corbett Senior Vice President - Energy Delivery Progress Energy Carolinas, Inc. FINANCIAL REPORT Safe Harbor for Forward-Looking Statements ...6 Management's Discussion and Analysis ...7 Market Risk Disclosures ...48 Reports of Management and Independent Registered Public Accounting Firm ...53...

  • Page 8
    ... cash ï¬,ows, estimated capital requirements through the year 2011 and future financing plans; and d) "Other Matters" about our synthetic fuels tax credits, the effects of new environmental regulations, meeting anticipated demand in our regulated service territories, potential nuclear construction...

  • Page 9
    ... A LY S I S Progress Energy Annual Report 2008 The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause...

  • Page 10
    ... NRC's schedule for review and approval of the COL. PEF is assessing the impact of the NRC schedule on the plans and estimated costs for Levy. Current plans would be for the Levy units to be operational in the 2016 to 2018 time frame. If PEC proceeds with construction at Harris, a new unit would not...

  • Page 11
    ... and promoting renewable resources while also pricing greenhouse gas emissions and setting a federal requirement for renewable energy. We are currently reviewing the impact the new legislation might have on our operations. The impact of the new legislation and regulation resulting from other...

  • Page 12
    ... allowance for funds used during construction (AFUDC) at the Utilities; • increased retail base rates at PEF; • higher wholesale revenues at PEF; • lower purchased power capacity costs at PEC due to the expiration of a power buyback agreement; and • favorable net retail customer growth...

  • Page 13
    ... companies' presentation or more useful than the GAAP information provided elsewhere in this report. REVENUES PEC's electric revenues and the percentage change by year and by customer class were as follows: (in millions) Residential Commercial Industrial Governmental Total retail revenues Wholesale...

  • Page 14
    ..., as well as a downturn in the lumber and building materials segment as a result of declines in residential construction. Wholesale revenues decreased less than wholesale energy sales for 2008 due to the impact of increased fuel revenues as a result of higher energy costs. Industrial electric energy...

  • Page 15
    Progress Energy Annual Report 2008 costs (primarily due to two nuclear refueling and maintenance outages in the current year compared to three in the prior year). O&M expense was $1.024 billion for 2007, which represents a $94 million increase compared to 2006. This increase is driven primarily by ...

  • Page 16
    ... companies' presentation or more useful than the GAAP information provided elsewhere in this report. REVENUES PEF's electric revenues and the percentage change by year and by customer class were as follows: (in millions) Customer Class Residential Commercial Industrial Governmental Revenue sharing...

  • Page 17
    ... plant outage and maintenance costs. The ECRC and replenishment of storm damage reserve expenses 15 Industrial electric energy revenues and sales decreased in 2007 compared to 2006 primarily due to a change in the terms of an agreement with a major customer. EXPENSES Fuel and Purchased Power Fuel...

  • Page 18
    ...related to higher ECRC and energy conservation cost recovery clause (ECCR) costs. Additionally, the increase is due to $27 million higher plant outage and maintenance costs and $12 million higher employee benefit costs. The higher employee benefit costs are primarily due to the impact from changes...

  • Page 19
    ... sale of Progress Energy Ventures, Inc.'s (PVI) nonregulated generation facilities and energy marketing and trading operations. In 2008, we recorded an additional $6 million deferred tax asset related to the state net operating loss carry forward due to a change in estimate based on 2007 tax return...

  • Page 20
    ... the change in the relative oil prices, which indicated a higher estimated phase-out of tax credits, and lower margins due to the increase in coal-based solid synthetic fuels production. COAL MINING BUSINESSES On March 7, 2008, we sold the remaining operations of Progress Fuels Corporation (Progress...

  • Page 21
    ... County Power, LLC (Rowan), including certain existing power supply contracts to Southern Power Company, a subsidiary of Southern Company, for gross purchase prices of approximately $80 million and $325 million, respectively. We used the proceeds from the sales to reduce debt and for other corporate...

  • Page 22
    ... critical accounting policies with the Audit and Corporate Performance Committee (Audit Committee) of our board of directors. Impact of Utility Regulation Our regulated utilities segments are subject to regulation that sets the prices (rates) we are permitted to charge customers based on the costs...

  • Page 23
    ... Progress Energy's total AROs at December 31, 2008, were $1.471 billion. We calculated the present value of our AROs based on estimates that are dependent on subjective factors such as management's estimated retirement costs, the timing of future cash ï¬,ows and the selection of appropriate discount...

  • Page 24
    ... affect 2009 pension costs. Our discount rates are selected based on a plan-by-plan study, which matches our projected benefit payments to a high-quality corporate yield curve. Consistent with general market conditions, our plan assets performed poorly in 2008 with returns of Income Taxes Judgment...

  • Page 25
    ... 25 basis point change in the expected rate of return for 2008 would have changed 2008 pension costs by approximately $5 million. Another factor affecting our pension costs, and sensitivity of the costs to plan asset performance, is the method selected to determine the market-related value of assets...

  • Page 26
    ...currently expect changes to the Parent's common stock dividend policy. Cash from operations, commercial paper issuance, borrowings under our credit facilities, long-term debt financings, equity offerings, and limited ongoing sales of common stock from our Investor Plus Stock Purchase Plan, employee...

  • Page 27
    ... current business plans. Risk factors associated with credit facilities and credit ratings are discussed below. Historical for 2008 as Compared to 2007 and 2007 as Compared to 2006 CASH FLOWS FROM OPERATIONS Net cash provided by operations is the primary source used to meet operating requirements...

  • Page 28
    ... efficient natural gas-burning technology, which will not be completed until 2009, and nuclear and transmission projects, partially offset by lower spending on energy system distribution projects and at the Hines Unit 4 facility. During 2008, proceeds from sales of discontinued operations and other...

  • Page 29
    ... or number of various securities that can be issued (See "Credit Facilities and Registration Statements"). Progress Energy issued approximately 3.7 million shares of common stock resulting in approximately $132 million in proceeds from its Investor Plus Stock Purchase Plan and its employee bene...

  • Page 30
    ... through cash from operations, commercial paper issuance, availability under our credit facilities, long-term debt financings and equity offerings. We may also use periodic ongoing sales of common stock from our Investor Plus Stock Purchase Plan and employee benefit and stock option plans to meet...

  • Page 31
    ... performance of the capital markets affects the values of the assets held in trust to satisfy future obligations under our defined benefit pension plans. Although a number of factors impact our pension funding requirements, a decline in the market value of these assets may significantly increase...

  • Page 32
    ... Energy Efficiency Portfolio Standard (NC REPS) clause will be set based on projected costs with true-up provisions. PEC Cost-Recovery Clause On June 26, 2008, the South Carolina Public Service Commission (SCPSC) approved PEC's request for an increase in the fuel rate charged to its South Carolina...

  • Page 33
    ...its repowered Bartow power plant, which is expected to begin commercial operation in June 2009, and decreased sales and higher pension costs impacted by the current financial and credit crises. We cannot predict the outcome of this matter. PEF Cost-Recovery Clause On July 1, 2008, the FPSC approved...

  • Page 34
    ...credit facilities that support the issuance of commercial paper. Access to the commercial paper market provides additional liquidity to help meet working capital requirements. AFUDCborrowed funds represents the debt costs of capital funds necessary to finance the construction of new regulated plant...

  • Page 35
    ... on a number of factors including, but not limited to, industry restructuring, regulatory constraints, market volatility and economic trends. CREDIT FACILITIES AND REGISTRATION STATEMENTS At December 31, 2008 and 2007, we had committed lines of credit used to support our commercial paper borrowings...

  • Page 36
    ... made in connection with sales of businesses, and for timely payment of obligations in support of our nonwholly owned synthetic fuels operations as discussed in Note 22C. (a) Guaranteed by the Parent and Florida Progress. These ratings reï¬,ect the current views of these rating agencies, and no...

  • Page 37
    ...in accordance with North Carolina, South Carolina and Florida regulations and therefore do not require separate liquidity support. (e) Amounts primarily relate to an EPC agreement that PEF entered into in December 2008 for two nuclear units planned for construction at Levy. Actual payments under the...

  • Page 38
    ...carried forward as deferred tax credits. See Note 22D for additional discussion related to our synthetic fuels operations. To our knowledge, there is currently no enacted or proposed legislation in North Carolina, South Carolina or Florida that would give retail ratepayers the right to choose their...

  • Page 39
    ... North Carolina's comprehensive energy legislation. These rules provide filing requirements associated with the legislation. The order required PEC to submit its first annual NC REPS compliance plan as part of its integrated resource plan, which was filed on September 2, 2008. Under the new rules...

  • Page 40
    ... production tax credits and risk insurance provided by EPACT. EPACT provides an annual tax credit of 1.8 cents per kWh for nuclear facilities for the first eight years of operation. The credit is limited to the first 6,000 MW of new nuclear generation in the United States and has an annual cap...

  • Page 41
    ..., we have taken steps to keep open the option of building a plant or plants. During 2008, PEC and PEF filed COL applications to potentially construct new nuclear plants in North Carolina and Florida. The NRC estimates that it will take approximately three to four years to review and process the COL...

  • Page 42
    ... North Carolina legislature also passed new energy legislation, which authorizes the NCUC to allow annual prudence reviews of baseload generating plant construction costs and removes the requirement that a public utility prove financial distress before it may include construction work in progress...

  • Page 43
    ... Carolina, the state of Florida or potentially responsible parties (PRP) groups. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under federal and state laws. PEC and PEF are each PRPs at several manufactured gas plant...

  • Page 44
    ... Act was enacted in North Carolina requiring the state's electric utilities to reduce the emissions of NOx and SO2 from their North Carolina coal-fired power plants in phases by 2013. PEC currently has approximately 5,000 MW of coal-fired generation capacity in North Carolina that is 42 affected...

  • Page 45
    ... construction of its emission control projects at CR4 and CR5. CR1 and CR2 will be retired after the second proposed nuclear unit at Levy completes its first fuel cycle, which is anticipated to be around 2020. We account for emission allowances as inventory using the average cost method. We value...

  • Page 46
    ...the NOx SIP Call requirements. The NOx SIP Call is not applicable to sources in Florida. Expenditures for the NOx SIP Call included the cost to install NOx controls under programs by North Carolina and South Carolina to comply with the federal eight-hour ozone standard. On October 14, 2005, the FPSC...

  • Page 47
    Progress Energy Annual Report 2008 $1.0 billion to comply with the CAVR at PEF related primarily to installation of control equipment at CR1 and CR2, which we subsequently have decided to retire as coal-fired units. The timing and extent of the costs for future projects will depend upon final ...

  • Page 48
    ... of operations or financial position. New Source Review The EPA is conducting an enforcement initiative related to a number of coal-fired utility power plants in an effort to determine whether changes at those facilities were subject to New Source Review requirements or New 46 Source Performance...

  • Page 49
    ... consistency. Our balanced solution is a comprehensive plan to meet the anticipated demand in the Utilities' service territories and provides a solid basis for slowing and reducing CO2 emissions by focusing on energy efficiency, alternative energy and state-of-the-art power generation as discussed...

  • Page 50
    ...various risks related to changes in market conditions. Market risk represents the potential loss arising from adverse changes in market rates and prices. We have a risk management committee that includes senior executives from various business groups. The risk management committee is responsible for...

  • Page 51
    ... and Florida Progress-obligated mandatorily redeemable securities of trust. The tables also include estimates of the fair value of our interest rate risk-sensitive instruments based on quoted market prices for these or similar issues. For interest rate swaps and interest rate forward contracts, the...

  • Page 52
    ... trust fund securities. Contingent Value Obligations Market Value Risk In connection with the acquisition of Florida Progress, the Parent issued 98.6 million CVOs. Each CVO represents the right of the holder to receive contingent payments based on the performance of four synthetic fuels facilities...

  • Page 53
    ... in the timing between when these costs are incurred and when these costs are recovered from the ratepayers, changes from year to year have no material impact on operating results. In addition, most of our long-term power sales contracts shift substantially all fuel price risk to the purchaser. Most...

  • Page 54
    .... We manage open positions with strict policies that limit our exposure to market risk and require daily reporting to management of potential financial exposures. The Utilities have derivative instruments related to their exposure to price ï¬,uctuations on fuel oil and natural gas purchases...

  • Page 55
    ... PUBLIC ACCOUNTING FIRM Progress Energy Annual Report 2008 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING It is the responsibility of Progress Energy's management to establish and maintain adequate internal control over financial reporting, as such term is defined in Rules...

  • Page 56
    ... FIRM REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Progress Energy, Inc.: We have audited the internal control over financial reporting of Progress Energy, Inc. (the Company), as of December 31, 2008, based on the criteria established in...

  • Page 57
    Progress Energy Annual Report 2008 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Progress Energy, Inc.: We have audited the accompanying consolidated balance sheets of Progress Energy, Inc., and its subsidiaries (the Company) at December 31, ...

  • Page 58
    ...in millions except per share data) Years ended December 31 Operating revenues Operating expenses Fuel used in electric generation Purchased power Operation and maintenance Depreciation, amortization and accretion Taxes other than on income Other Total operating expenses Operating income Other income...

  • Page 59
    Progress Energy Annual Report 2008 CONSOLIDATED BALANCE SHEETS (in millions) December 31 ASSETS Utility plant Utility plant in service Accumulated depreciation Utility plant in service, net Held for future use Construction work in progress Nuclear fuel, net of amortization Total utility plant, net ...

  • Page 60
    ... (credit) cost Deferred income Allowance for equity funds used during construction Other adjustments to net income Cash provided (used) by changes in operating assets and liabilities Receivables Inventory Derivative collateral posted Prepayments and other current assets Income taxes, net Accounts...

  • Page 61
    Progress Energy Annual Report 2008 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (in millions except per share data) Balance, December 31, 2005, as restated (See Note 1B) Net income Other comprehensive loss Comprehensive income Adjustment to initially apply SFAS No. 158, net of tax ...

  • Page 62
    ... (PUHCA 2005). Our reportable segments are PEC and PEF, both of which are primarily engaged in the generation, transmission, distribution and sale of electricity. The Corporate and Other segment primarily includes amounts applicable to the activities of the Parent and Progress Energy Service Company...

  • Page 63
    Progress Energy Annual Report 2008 The following table reï¬,ects the effects of the restatement on the Consolidated Balance Sheet and Consolidated Statement of Changes in Common Stock Equity as of December 31, 2007: As Previously Reported $1,167 183 2,829 26,365 2,465 8,422 17,336 26,365 ...

  • Page 64
    ... and state tax credits. The investment fund accounts for the 17 partnerships on the equity method of accounting. PEC also has an interest in one power plant resulting from longterm power purchase contracts. PEC's only significant exposure to variability from the power purchase contracts results...

  • Page 65
    ... 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...

  • Page 66
    ... operation and maintenance expenses resulting from the siting, licensing, design and construction of a nuclear plant through PEF's capacity cost-recovery clause, which is similar to, and works in conjunction with, energy payments recovered through PEF's fuel cost-recovery clause. Unrecovered nuclear...

  • Page 67
    ... tax credits related to regulated operations have been deferred and are being amortized over the estimated service life of the related properties. Credits for the production and sale of synthetic fuels are deferred credits to the extent they cannot be or have not been utilized in the annual...

  • Page 68
    ... for Progress Energy on December 31, 2008, and which amended the disclosure requirements of FIN 46R. FASB Staff Position No. FIN 39-1, "An Amendment of FIN 39, Offsetting of Amounts Related to Certain Contracts" On January 1, 2008, we implemented FSP FIN 39-1, which allows a reporting entity...

  • Page 69
    Progress Energy Annual Report 2008 for us for business combinations for which the acquisition date is on or after January 1, 2009. Earlier application is prohibited. We do not expect the adoption of SFAS No. 141R to have a material impact on our financial position or results of operations. FSP No...

  • Page 70
    ... costs to exit the Georgia Contracts, and other related contracts, of $349 million after-tax (charge included in the 42 $61 - $83 - $(37) B. Coal Mining Businesses On March 7, 2008, we sold the remaining operations of Progress Fuels subsidiaries engaged in the coal mining business (Coal Mining...

  • Page 71
    ... certain existing power supply contracts to Southern Power Company, a subsidiary of Southern Company, for gross purchase prices of approximately $80 million and $325 million, respectively. DeSoto owned a 320-MW dual-fuel combustion turbine electric generation facility in DeSoto County, Fla., and...

  • Page 72
    ... in cash. Dixie Fuels operates a ï¬,eet of four ocean-going dry-bulk barge and tugboat units. Dixie Fuels primarily transported coal from the lower Mississippi River to Progress Energy's Crystal River facility. We recorded an after-tax gain of $2 million on the sale of Dixie Fuels during the year...

  • Page 73
    ... recognized on a cost-recovery basis. The book value of the interests sold totaled approximately $5 million. We recognized a gain on these transactions of $4 million in the year ended December 31, 2006. In 2007, due to the increase in the price of oil that limits synthetic fuels tax credits, we did...

  • Page 74
    ... facilities, was $145 million, $139 million and $140 million for the years ended December 31, 2008, 2007 and 2006, respectively. This amortization expense is included in fuel used for electric generation in the Consolidated Statements of Income. Amortization of nuclear fuel costs for the years...

  • Page 75
    Progress Energy Annual Report 2008 2008 (in millions) Subsidiary PEC PEC PEC PEC PEF PEF 2007 Facility Mayo Harris Brunswick Roxboro Unit 4 Crystal River Unit 3 Intercession City Unit P11 Company Ownership Interest 83.83% 83.83% 81.67% 87.06% 91.78% 66.67% Company Ownership Interest 83.83% 83.83...

  • Page 76
    ...FPSC requires that PEF update its cost estimate for nuclear decommissioning every five years. PEF received a new site-specific estimate of decommissioning costs for Crystal River Unit No. 3 (CR3) in October 2008, which PEF will file with the FPSC in 2009 as part of PEF's planned base rate filing...

  • Page 77
    Progress Energy Annual Report 2008 E. Insurance The Utilities are members of Nuclear Electric Insurance Limited (NEIL), which provides primary and excess insurance coverage against property damage to members' nuclear generating facilities. Under the primary program, each company is insured for $500...

  • Page 78
    ... enacted in North Carolina requiring the state's electric utilities to reduce the emissions of NOx and sulfur dioxide (SO2) from their North Carolina coal-fired power plants in phases by 2013. The Clean Smokestacks Act froze North Carolina electric utility base rates for a five-year period, which...

  • Page 79
    ... electric bills increased by $5.86 per 1,000 kilowatt-hours (kWh), or 6.1 percent, for fuel cost recovery. At December 31, 2008, PEC's South Carolina under-recovered deferred fuel balance was $15 million. On June 6, 2008, PEC filed with the NCUC for an increase in the fuel rate charged to its North...

  • Page 80
    ...August 22, 2008, PEC filed an application with the NCUC for approval of a NC REPS clause to recover the costs of this program. On November 14, 2008, the NCUC approved a monthly charge per customer rather than a usage-based rate. Effective December 1, 2008, residential electric bills increased $0.36...

  • Page 81
    ... with plans to construct an approximate 600-MW combined cycle dual fuel capable generating facility at its Richmond County generation site to provide additional generating and transmission capacity to meet the growing energy demands of southern and eastern North Carolina. PEC expects that the new...

  • Page 82
    ... L S TAT E M E N T S Bartow power plant, which is expected to begin commercial operation in June 2009, and decreased sales and higher pension costs impacted by the current financial and credit crises. We cannot predict the outcome of this matter. FUEL COST RECOVERY On September 4, 2007, PEF filed...

  • Page 83
    ... 2009 capacity cost-recovery clause factor. Levy Nuclear On March 11, 2008, PEF filed a petition for an affirmative Determination of Need for its proposed Levy Units 1 and 2 nuclear power plants, together with the associated facilities, including transmission lines and substation facilities. Levy...

  • Page 84
    ...nuclear cost-recovery rule. On November 12, 2008, the FPSC issued an order to approve the inclusion of preconstruction and carrying charges of $357 million as well as site selection costs of $38 million in establishing PEF's 2009 capacity cost-recovery clause factor. As discussed above in "Fuel Cost...

  • Page 85
    ... other things, continued high oil prices and the then-current idled state of our synthetic fuels facilities. We estimated the fair value using the expected present value of future cash ï¬,ows. Based on the results of the impairment test, we recorded a pre-tax impairment charge of $27 million ($17...

  • Page 86
    ... plan. Such compensation cost is allocated to participants' accounts in the form of Progress Energy common stock, with the number of shares determined by dividing compensation cost by the common stock market value at the time of allocation. We currently meet common stock share needs with open market...

  • Page 87
    ... and key employees are granted a target number of performance shares on an annual basis that vest over a three-year consecutive period. Each performance share has a value that is equal to, and changes with, the value of a share of Progress Energy common stock, and dividend equivalents are accrued...

  • Page 88
    ...vesting schedule over a minimum of three years. Compensation expense, which is based on the fair value of common stock at the grant date, is recognized over the applicable vesting period, with corresponding increases in common stock equity. Restricted shares are not included as shares outstanding in...

  • Page 89
    Progress Energy Annual Report 2008 There were no adjustments to net income or to income from continuing operations between the calculations of basic and fully diluted earnings per common share. ESOP shares that have not been committed to be released to participants' accounts are not considered ...

  • Page 90
    ...2008, the Parent had a revolving credit agreement (RCA) used to support its commercial paper borrowings. We classified $100 million of the $600 million outstanding under the Parent's RCA as long-term debt. Settlement of a portion of this obligation did not require the use of working capital in 2009...

  • Page 91
    ..., 2008, Progress Capital Holdings, Inc., one of our wholly owned subsidiaries, paid at maturity its remaining outstanding debt of $45 million of 6.46% Medium-Term Notes with available cash on hand. On January 12, 2009, the Parent issued 14.4 million shares of common stock at a public offering price...

  • Page 92
    ... liquidity support for issuances of commercial paper and other short-term obligations. Fees and interest rates under Progress Energy's RCA are based upon the credit rating of Progress Energy's long-term unsecured senior noncredit-enhanced debt, currently rated as Baa2 by Moody's Investors Service...

  • Page 93
    Progress Energy Annual Report 2008 PEC's mortgage indenture provides that, as long as any first mortgage bonds are outstanding, cash dividends and distributions on its common stock and purchases of its common stock are restricted to aggregate net income available for PEC since December 31, 1948, ...

  • Page 94
    ... in fair value to below the cost basis judged to be other than temporary on available-for-sale securities are included in long-term regulatory liabilities on the Consolidated Balance Sheets for securities held in our nuclear decommissioning trust funds and in operation and maintenance expense and...

  • Page 95
    Progress Energy Annual Report 2008 and gains for 2007 relate to the decommissioning trusts. The aggregate fair values of investments that related to the 2008 and 2007 unrealized losses were $374 million and $243 million, respectively. At December 31, 2008, the fair value of available-for-sale debt ...

  • Page 96
    ... availablefor-sale debt and equity securities used to fund certain employee benefit costs. We issued Contingent Value Obligations (CVOs) in connection with the acquisition of Florida Progress, as discussed in Note 15. The CVOs are derivatives recorded at fair value based on quoted prices from...

  • Page 97
    ... and liabilities. Investment tax credits related to regulated operations have been deferred and are being amortized over the estimated service life of the related properties. To the extent that the establishment of deferred income taxes under SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109...

  • Page 98
    ... upon the sale of PVI's nonregulated generation facilities and energy marketing and trading operations. During 2008, we recorded an additional deferred income tax asset of $6 million related to the state net operating loss carry forward due to a change in estimate based on 2007 tax return filings...

  • Page 99
    ... of Florida Progress in October 1999. All of our synthetic fuels businesses were abandoned and all operations ceased as of December 31, 2007 (See Note 3A).The payments are based on the net after-tax cash ï¬,ows the facilities generate. We will make deposits into a CVO trust for estimated contingent...

  • Page 100
    ... determine marketrelated value for Florida Progress pension assets. The components of the net periodic benefit cost for the years ended December 31 were: We adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No...

  • Page 101
    Progress Energy Annual Report 2008 The following weighted-average actuarial assumptions were used in the calculation of our net periodic cost: Pension Benefits 2008 Discount rate Rate of increase in future compensation Bargaining Supplementary plans Expected long-term rate of return on plan assets...

  • Page 102
    ...00% 5.00% 2016 9.00% 5.00% 2015 The rates of increase in future compensation include the effects of cost of living adjustments and promotions. Our primary defined benefit retirement plan for nonbargaining employees is a "cash balance" pension plan as defined in EITF Issue No. 03-4, "Determining...

  • Page 103
    Progress Energy Annual Report 2008 Pension Benefits Target Allocations Asset Category Equity - domestic Equity - international Debt - domestic Debt - international Other Total 2009 40% 20% 10% 15% 15% 100% Percentage of Plan Assets at Year End 2008 39% 20% 10% 16% 15% 100% 2007 42% 25% 11% 12% 10%...

  • Page 104
    ... our liquidity. We manage open positions with strict policies that limit our exposure to market risk and require daily reporting to management of potential financial exposures. The Utilities have derivative instruments related to their exposure to price ï¬,uctuations on fuel oil and natural gas

  • Page 105
    Progress Energy Annual Report 2008 purchases. Substantially all of these instruments receive regulatory accounting treatment. Related unrealized gains and losses are recorded in regulatory liabilities and regulatory assets, respectively, on the Consolidated Balance Sheets until the contracts are ...

  • Page 106
    ...2006, and subsequent regulation by the FERC did not change our current intercompany services. Services include purchasing, human resources, accounting, legal, transmission and delivery support, engineering materials, contract support, loaned employees payroll costs, construction management and other...

  • Page 107
    ... included in fuel used in electric generation on the Consolidated Statements of Income. In 2006, PEF began entering into coal contracts on its own behalf. disclosure requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," as a separate business segment...

  • Page 108
    ...include power protection services and mass market programs such as surge protection, appliance services and area light sales, and delivery, transmission and substation work for other utilities. The components of other, net as shown on the accompanying Consolidated Statements of Income for the years...

  • Page 109
    ...as coal tar, are regulated under federal and state laws. PEC and PEF are each PRPs at several manufactured gas plant (MGP) sites. We are also currently in the process of assessing potential costs and exposures at other sites. These costs are eligible for regulatory recovery through either base rates...

  • Page 110
    ..., 2008 letter. Another group of PRPs separately submitted a good faith response to the EPA's September 30, 2008 letter. Although a loss is considered probable, an agreement among the PRPs for these matters has not been reached; consequently, it is not possible at this time to reasonably estimate the...

  • Page 111
    ... Group's petition for writ of certiorari was denied on February 23, 2009. The three states in which the Utilities operate B. Air and Water Quality At December 31, 2008 and 2007, we were subject to various current federal, state and local environmental compliance laws and regulations governing...

  • Page 112
    ... construction of its emission control projects at CR4 and CR5. CR1 and CR2 will be retired after the second proposed nuclear unit at Levy completes its first fuel cycle, which is anticipated to be around 2020. We account for emission allowances as inventory using the average cost method. We value...

  • Page 113
    ... co-generators (primarily QFs) with expiration dates ranging from 2009 to 2028. These purchased power contracts generally provide for capacity and energy payments. PEC has a long-term agreement for the purchase of power and related transmission services from Indiana Michigan Power Company's Rockport...

  • Page 114
    ... in December 2008 with Westinghouse Electric Company LLC and Stone & Webster, Inc. for two approximately 1,100-MW Westinghouse AP1000 nuclear units planned for construction at Levy. Estimated payments and associated escalation totaling $8.736 billion are included for the multi-year contract and do...

  • Page 115
    Progress Energy Annual Report 2008 and PEF service agreements related to the Hines Energy Complex and the Bartow plant. Our payments under these agreements were $110 million, $75 million and $100 million for 2008, 2007 and 2006, respectively. PEC has various purchase obligations for emission ...

  • Page 116
    ... time or maximum potential future payments. In 2005, PEC entered into an agreement with the joint owner of certain facilities at the Mayo and Roxboro plants to limit their aggregate costs associated with capital expenditures to comply with the Clean Smokestacks Act and recognized a liability related...

  • Page 117
    ... is entitled to damages because the Progress Affiliates prohibited it from procuring purchasers for the synthetic fuels facilities, and (3) a number of tort claims are related to the contracts. The first suit, U.S. Global, LLC v. Progress Energy, Inc. et al. (the Florida Global Case), asserts the...

  • Page 118
    ... Consolidating Statements of Income, Balance Sheets and Cash Flows as required by Rule 3-10 of Regulation S-X. In September 2005, we issued our guarantee of certain payments of two wholly owned indirect subsidiaries, FPC Capital I (the Trust) and Florida Progress Funding Corporation (Funding Corp...

  • Page 119
    Progress Energy Annual Report 2008 CONDENSED CONSOLIDATING STATEMENT OF INCOME Year ended December 31, 2008 (in millions) Operating revenues Operating expenses Fuel used in electric generation Purchased power Operation and maintenance Depreciation, amortization and accretion Taxes other than on ...

  • Page 120
    ...Year ended December 31, 2006 (in millions) Operating revenues Operating expenses Fuel used in electric generation Purchased power Operation and maintenance Depreciation, amortization and accretion Taxes other than on income Other Total operating expenses Operating...086 Other $1 Progress Energy, Inc. ...

  • Page 121
    Progress Energy Annual Report 2008 CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2008 Subsidiary ...companies Derivative liabilities Other current liabilities Total current liabilities Deferred credits and other liabilities Noncurrent income tax liabilities Regulatory liabilities Accrued pension...

  • Page 122
    ... - 154 19 - 697 1,170 936 1,098 459 1,298 3,791 $11,955 Other Progress Energy, Inc. (in millions) ASSETS Utility plant, net Current assets Cash and cash equivalents Receivables, net Notes receivable from affiliated companies Inventory Regulatory assets Assets to be divested Prepayments and other...

  • Page 123
    ... cash (used) provided by operating activities Investing activities Gross property additions Nuclear fuel additions Proceeds from sales of discontinued operations and other assets, net of cash divested Proceeds from sales of assets to affiliated companies Purchases of available-for-sale securities...

  • Page 124
    ... Nuclear fuel additions Proceeds from sales of discontinued operations and other assets, net of cash divested Purchases of available-for-sale securities and other investments Proceeds from available-for-sale securities and other investments Changes in advances to affiliated companies Return...

  • Page 125
    ... additions Nuclear fuel additions Proceeds from sales of discontinued operations and other assets, net of cash divested Purchases of available-for-sale securities and other investments Proceeds from available-for-sale securities and other investments Changes in advances to affiliated companies...

  • Page 126
    ... Income from continuing operations Net income Dividends declared per common share Market price per share 2007 Operating revenues Operating income Income from continuing operations Net income (loss) Common stock data Basic earnings per common share Income from continuing operations Net income (loss...

  • Page 127
    ... data Return on average common stock equity (percent) Ratio of earnings to fixed charges Number of common shareholders of record Book value per common share Dividends declared per common share Energy supply (millions of kilowatt-hours) Generated Steam Nuclear Combustion turbines/combined cycle...

  • Page 128
    ... upon the sale of Progress Energy Ventures, Inc.'s nonregulated generation facilities and energy marketing and trading operations. In 2008, we recorded an additional deferred tax asset related to the state net operating loss carry forward due to a change in estimate based on 2007 tax return filings...

  • Page 129
    ... risk. Progress Energy generally is identified as being in the regulated integrated subsector. This means Progress Energy and its peer companies are primarily rate-of- return regulated, operate in the full range of the value chain, and typically have requirements to serve all customers under state...

  • Page 130
    ...the Progress Energy Investor Plus Plan, a direct stock-purchase and dividend-reinvestment plan, and direct deposit of cash dividends to bank accounts for the convenience of shareholders. For information on these programs, contact Computershare or the company. Dividend-reinvestment statements and tax...

  • Page 131
    NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

  • Page 132

  • Page 133
    ... public accounting firm for Progress Energy, Inc., and the approval of the Progress Energy, Inc. 2009 Executive Incentive Plan to comply with Section 162(m) of the Internal Revenue Code. We are pleased to take advantage of the new Securities and Exchange Commission rules that allow companies...

  • Page 134
    ...promptly SIGN, DATE and RETURN the enclosed proxy card or VOTE BY TELEPHONE in accordance with the instructions on the enclosed proxy card so that as many shares as possible will be represented at the Annual Meeting. A self-addressed envelope, which requires no postage if mailed in the United States...

  • Page 135
    ... Company's Common Stock of record at the close of business on March 6, 2009, are entitled to attend the meeting and to vote. The stock transfer books will remain open. By order of the Board of Directors JOHN R. MCARTHUR Executive Vice President and Corporate Secretary Raleigh, North Carolina March...

  • Page 136
    ...of Selection of Independent Registered Public Accounting Firm ...Proposal 3-Approval of the Progress Energy, Inc. 2009 Executive Incentive Plan to Comply with Section 162(m) of the Internal Revenue Code ...Financial Statements ...Future Shareholder Proposals ...Other Business ...Exhibit A-Policy and...

  • Page 137
    ... by the Board of Directors (at times referred to as the "Board") of proxies to be used at the Annual Meeting of Shareholders. That meeting will be held at 10:00 a.m. on May 13, 2009, at the Progress Energy Center for the Performing Arts, 2 East South Street, Raleigh, North Carolina. (For directions...

  • Page 138
    ... as our independent registered public accounting firm for the fiscal year ending December 31, 2009, as set forth in this Proxy Statement; and "FOR" the proposal to approve the Progress Energy, Inc. 2009 Executive Incentive Plan to comply with Section 162(m) of the Internal Revenue Code as set forth...

  • Page 139
    ... the number of shares voted "FOR," "AGAINST" or "ABSTAINING" from such nonroutine matters. At the 2009 Annual Meeting of Shareholders, one nonroutine matter, a proposal to approve the Progress Energy, Inc. 2009 Executive Incentive Plan to comply with Section 162(m) of the Internal Revenue Code...

  • Page 140
    ... Progress Energy, Inc. 2009 Executive Incentive Plan to comply with Section 162(m) of the Internal Revenue Code will not be included in determining the number of votes cast. We will announce preliminary voting results at the Annual Meeting. We will publish the final results in our quarterly report...

  • Page 141
    ..., 2008, is a director standing for election to the Board by our shareholders for the first time. Mr. Hyler was recommended to the Governance Committee by William D. Johnson, who is our Chairman of the Board, President and Chief Executive Officer. (Carolina Power & Light Company d/b/a Progress Energy...

  • Page 142
    ... a director of the Company since 2008. He is a member of the Board's Audit and Corporate Performance Committee and the Finance Committee. WILLIAM D. JOHNSON, age 55, is Chairman, President and Chief Executive Officer of Progress Energy. He served as President and Chief Operating Officer of Progress...

  • Page 143
    ... (iii) all directors and nominees for director and executive officers as a group. A unit of Common Stock does not represent an equity interest in the Company and possesses no voting rights, but is equal in economic value at all times to one share of Common Stock. As of February 27, 2009, none of the...

  • Page 144
    ... by all Directors and executive officers of the Company as a group (24 persons) * 8,3111 7,0001 5,000 1,000 118,4672 1,000 1,000 21,2382 35,9812 3,5001 31,8332 10,0001,3 242 7,0001 110,7442,4 1,000 1,000 20,8792 485,1415 Retiring from the Board at the Annual Meeting of Shareholders on May 13, 2009...

  • Page 145
    Progress Energy Proxy Statement Management Ownership of Units Representing Common Stock The table below shows ownership of units representing our Common Stock under the NonEmployee Director Deferred Compensation Plan and units under the Non-Employee Director Stock Unit Plan as of February 27, 2009:...

  • Page 146
    ...to file reports of their holdings and transactions in our securities with the SEC and the NYSE. Based on our records and other information, we believe that all Section 16(a) filing requirements applicable to our directors and executive officers with respect to the Company's 2008 fiscal year were met...

  • Page 147
    ..., Progress Energy, Inc. Board of Directors, c/o John R. McArthur, Executive Vice President and Corporate Secretary, P.O. Box 1551, Raleigh, NC 27602-1551. We screen mail addressed to Mr. Mullin for security purposes and to ensure that it relates to discrete business matters relevant to the Company...

  • Page 148
    ...Internet Web site and can be accessed at www.progress-energy.com/investor. The charters are available in print to any shareholder who requests them. Additionally, the charter of the Audit and Corporate Performance Committee is included as Exhibit C to this Proxy Statement. The current membership and...

  • Page 149
    ... and investments, pension funds and financing plans. The Finance Committee also monitors our risk management activities and financial position and recommends changes to our dividend policy and proposed budget. The Finance Committee held four meetings in 2008. Nuclear Project Oversight Committee...

  • Page 150
    ... Company shall provide staff support to the Compensation Committee. John R. McArthur, our Executive Vice President and Corporate Secretary, serves as management's liaison to the Compensation Committee. William D. Johnson, our Chief Executive Officer, is responsible for conducting annual performance...

  • Page 151
    ...John R. McArthur, Executive Vice President and Corporate Secretary, Progress Energy, Inc., P.O. Box 1551, Raleigh, NC 27602-1551. We screen mail addressed to the Board, the Governance Committee or any specified individual director for security purposes and to ensure that the mail relates to discrete...

  • Page 152
    ...Energy Carolinas, Inc. The fourth part consists of the Compensation Committee's Report. Following the CD&A are the tables setting forth the 2008 compensation for each of the named executive officers, as well as a discussion concerning compensation for the members of the Company's Board of Directors...

  • Page 153
    ... for additional generating capacity increases. To address this issue, we have designed market-based compensation programs that are competitive and are aligned with our corporate strategy. Consistent with these principles, the Committee seeks to provide executive officers a compensation program that...

  • Page 154
    ...attracting and Stock Units Service-based vesting. retaining executives. Supplemental Senior Formula-based Aids in attracting and retaining executive Long-term Executive Retirement Plan compensation, based on officers. salary, bonus and eligible years of service. Management Change-InElements based on...

  • Page 155
    ... shareholder value drivers; and recommending appropriate performance metrics and financial targets. Hewitt has not in 2009, and did not in 2008, provide any services or products to the Company other than those that are related to the Company's executive compensation and benefits program...

  • Page 156
    ... market, with flexibility to pay higher or lower amounts based on individual and corporate performance. The Committee believes that this philosophy is aligned with our executive compensation objective of linking pay to actual performance. Progress Energy, a regulated electric utility holding company...

  • Page 157
    ... 3.5 times Base Salary 2.5 times Base Salary 2.5 times Base Salary 2009 Stock Ownership Guidelines 5.0 times Base Salary 4.0 times Base Salary 3.0 times Base Salary 3.0 times Base Salary Position Level Chief Executive Officer Chief Operating Officer Chief Financial Officer Presidents/Executive Vice...

  • Page 158
    ...of meeting the applicable guidelines, the following are considered as common stock owned by an executive: (i) shares owned outright by the executive; (ii) stock held in any defined contribution, Employee Stock Ownership Plan or other stock-based plan; (iii) performance shares/ units or phantom stock...

  • Page 159
    Progress Energy Proxy Statement three years. The Committee reviews the estimated values of vested and unvested balances of accumulated long-term incentives that have been awarded to each senior executive. The Committee also uses tally sheets in adjusting annual compensation and long-term incentive ...

  • Page 160
    ... year, the Committee establishes the threshold, target and outstanding levels for the performance measures applicable to the named executive officers. The specific performance levels are established based on the Company's annual goals and objectives for corporate earnings per share and business unit...

  • Page 161
    ... will seek shareholder approval of the Progress Energy 2009 Executive Incentive Plan (the "EIP"), an annual cash incentive plan for the Company's named executive officers, at its 2009 Annual Meeting of Shareholders. The EIP is intended to enable the Company to preserve the tax deductibility of...

  • Page 162
    ... the named executive officer's positions. Long-Term Incentive Award Target1 Performance Shares Target Award 2008 233% 117% 117% 117% 100% Restricted Stock Units Target Award 2008 117% 58% 58% 58% 50% Position2 Chief Executive Officer Executive Vice President Chief Financial Officer3 Presidents, PEC...

  • Page 163
    ... the number of performance shares awarded if it determines that the payouts resulting from the Total Business Return do not appropriately reflect the Company's actual performance. 2009 Performance Share Sub-Plan (the "2009 PSSP") In early 2009, the Committee, along with its executive compensation...

  • Page 164
    ... and cost effective for the Company. Executive officers typically receive a grant of service-based restricted stock units in the first quarter of each year. The size of each grant is based on the executive officer's target and determined using the closing stock price on the last trading day prior...

  • Page 165
    ... the market-competitiveness of the Company's executive retirement benefits, we maintain the SERP for executive officers, including the named executive officers. The SERP defines covered compensation as annual base salary plus the annual cash incentive award. The qualified plans define covered...

  • Page 166
    PROXY STATEMENT than 4 percent per year of service. None of the named executive officers for 2008 are subject to the new benefit percentage.) Benefits under the SERP are fully offset by Social Security benefits and by benefits paid under our qualified pension plan. An executive officer who is age ...

  • Page 167
    ... Plan benefits as it relates to our named executive officers: Tier I Chief Executive Officer, Chief Operating Officer, Presidents and Executive Vice Presidents 300% of base salary and annual incentive1 Coverage up to 36 months Full gross-up of excise tax Tier II Senior Vice Presidents 200% of base...

  • Page 168
    ... response to the Internal Revenue Service's final split-dollar regulations and the Sarbanes-Oxley Act of 2002. In 2008 the Committee authorized the Chief Executive Officer to terminate the executive split-dollar program. The Plan was terminated effective January 1, 2009. All named executive officers...

  • Page 169
    ... "Business-Related" Spousal Travel on Corporate Aircraft3 Financial and Estate Planning Tax Preparation Services Luncheon and Health Club Dues Executive Physical Internet and Telecom Access4 Home Security Accidental Death and Dismemberment Insurance 1 Executives received gross-up payments for state...

  • Page 170
    ... work more efficiently and, in the case of the tax and financial planning services, help them to optimize the value received from all of the compensation and benefits programs offered. The costs of these benefits constitute only a small percentage of each named executive officer's total compensation...

  • Page 171
    ...Delivering operational excellence and customer satisfaction; Achieving financial objectives; Managing construction projects effectively; Building support for the Company's Balanced Solution strategy; Achieving acceptable Levy EPC agreement and need case ruling; Achieving acceptable energy-efficiency...

  • Page 172
    ... Service Company operating costs; achieving our EPS goal; and maintaining strong relationships with the financial community. With respect to his long-term compensation, in 2008, Mr. Scott was granted 11,847 restricted stock units and 22,997 performance shares in accordance with his pre-established...

  • Page 173
    ... blend of the applicable incentive target for the respective positions he held in 2008, 45 percent for the Senior Vice-President-Finance position and 55 percent for the Chief Financial Officer position.) Mr. Mulhern's performance goals for 2008 were consistent with the focus areas established for Mr...

  • Page 174
    ... 40 of this Proxy Statement, was largely due to the expensing impacts pursuant to SFAS No. 123(R) of the one-time transitional performance share grants for the applicable officers as set forth in the table above. The increase in year-over-year total compensation to Mr. Yates for 2008, as compared to...

  • Page 175
    Progress Energy Proxy Statement IV. COMPENSATION COMMITTEE REPORT The Committee has reviewed and discussed this CD&A with management as required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Committee recommended to the Company's Board of Directors that the CD&A be ...

  • Page 176
    ... paid executive officers who were serving at the end of 2008. The values in the table reflect the compensation expense for financial statement reporting purposes in accordance with generally accepted accounting principles, in particular SFAS No. 123(R). For example, our stock option program was...

  • Page 177
    ... items: Company match contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; dividends paid under provisions of the Restricted Stock Award/Unit Plans and Management Deferred Compensation Plans; perquisites and tax gross-ups; and the dollar value of the premium relating to the...

  • Page 178
    ... increase in average monthly eligible pay over the past 36 months. Consists of (i) $14,988 in Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; (ii) $1,731 in dollar value of premiums related to the Executive Permanent Life Insurance program based on 1 year until...

  • Page 179
    ... the Progress Energy 401(k) Savings & Stock Ownership Plan; (ii) $982 in dollar value of premiums related to the Executive Permanent Life Insurance program based on 1 year until the policy splits or terminates and the total policy premium of $10,615; (iii) $15,819 in deferred compensation credits...

  • Page 180
    ... (retired effective 3/18/08 September 1, 2008) PSSP 3/18/08 MICP 3/6/09 Mark F. Mulhern, Restricted Senior Vice President Stock and Chief Financial Officer Units (as of September 1, 2008) 3/18/08 PSSP 3/18/08 MICP 3/6/09 John R. McArthur, Restricted Executive Vice President Stock and Corporate...

  • Page 181
    Progress Energy Proxy Statement The Management Incentive Compensation Plan is considered a non-equity incentive compensation plan. Award amounts are shown at threshold, target, and maximum levels. The target award is calculated using the 2008 eligible earnings times the executive's target ...

  • Page 182
    ... annual targets for long-term compensation in the form of performance share awards granted pursuant to the Performance Share Sub-Plan ("PSSP") of our 2002 Equity Incentive Plan and restricted stock increased to 165 percent and 85 percent, respectively, of his base salary for each of the years 2005...

  • Page 183
    Progress Energy Proxy Statement to increase the awards to Mr. Scott and that any such increase will be based upon a target award equal to 63 percent of Mr. Scott's base salary for the year. Mr. Scott's base salary for 2005 was $525,000. The Amendment also provides that if (i) prior to April 1, 2008...

  • Page 184
    ... restricted stock units. Market value at December 31, 2008, was based on a December 31, 2008, closing price of $39.85 per share. 2 3 4 Performance share value based on expected payout of 0% on outstanding 2006 PSSP grant. Performance share value for the 2007 2-year transitional grant, 2007 annual...

  • Page 185
    ... of 0%. Outstanding performance share balances consist of the following: (i) 10,498 - 2007 2-year transitional grant; (ii) 10,498 - 2007 annual grant; and (iii) 10,103 - 2008 annual grant. 15 Restricted stock grants vest based on the following schedule: 2,200 shares on March 7, 2009; 1,366 shares on...

  • Page 186
    ... the number of restricted stock shares, restricted stock units, and performance shares that vested in 2008. Unless otherwise stated, no restricted stock units vested for named executive officers during 2008 and performance shares vested on January 1, 2008 for the 2005 and 2007 1-year transitional...

  • Page 187
    ..., Progress Energy Pension Plan Senior Vice President and Restoration Retirement Plan Chief Financial Officer (as of Supplemental Senior Executive September 1, 2008) Retirement Plan John R. McArthur, Progress Energy Pension Plan Executive Vice President and Restoration Retirement Plan Corporate...

  • Page 188
    PROXY STATEMENT "Supplemental Senior Executive Retirement Plan" on November 1, 2008. 7 Based on an estimated annual benefit payable at age 65 of $187,047. Based on estimated annual benefit payable at age 65 of $314,648. 8 Mr. Yates's Restoration Retirement Plan benefits were forfeited upon his ...

  • Page 189
    Progress Energy Proxy Statement NONQUALIFIED DEFERRED COMPENSATION The table below shows the nonqualified deferred compensation for each of the named executive officers. Information regarding details of the deferred compensation plans currently in effect can be found under the heading "Deferred ...

  • Page 190
    ... distribution of the Company match contributions for 2000 - 2004 and the 401(k) rollover balance under the Management Deferred Compensation Plan. 8 Includes balances under the following deferral plans: Management Deferred Compensation Plan: $87,327; and Performance Share Sub-Plan: $488,563. 7 9 Mr...

  • Page 191
    ... under Stock / Units Shares Stock / Unit Options 2008) MDCP Vesting Vesting Dividends Vesting Perquisite (b)2 (c)3 (d)4 (e)5 (f)6 (g)7 (h)8 Name and Position William D. Johnson, Chairman, Chief Executive Officer and President Peter M. Scott III, Executive Vice President and Chief Financial Officer...

  • Page 192
    ...performance shares vesting on January 1, 2008 at $48.43 for the 2007 1-year transitional grant under the applicable PSSP. 6 Reflects dividends and dividend equivalents paid as the result of outstanding restricted stock or restricted stock units held in Company Plan accounts. 5 7 Reflects the value...

  • Page 193
    ... the Annual Cash Incentive Compensation Plan provisions of the Management Change-in-Control Plan, calculated as 85% times $950,000. In the event of death or disability, Mr. Johnson would receive a pro-rata incentive award for the period worked during the year. For December 31, 2008, this is based on...

  • Page 194
    ... would vest 100% and be paid in an amount using performance factors determined at the time of the event. For the 2008 performance grant, a pro-rata payment would be made based upon time in the plan. 5 Unvested restricted stock units (RSU) would be forfeited under voluntary termination, involuntary...

  • Page 195
    Progress Energy Proxy Statement 11 Mr. Johnson would be eligible to receive $500,000 proceeds from the executive AD&D policy. 12 Upon a change in control, the Management Change-in-Control Plan provides for the Company to pay all excise taxes under IRC Section 280G plus applicable gross-up amounts...

  • Page 196
    ... the Annual Cash Incentive Compensation Plan provisions of the Management Change-in-Control Plan, calculated as 55% times $385,000. In the event of death or disability, Mr. Mulhern would receive a pro-rata incentive award for the period worked during the year. For December 31, 2008, this is based on...

  • Page 197
    ... would vest 100% and be paid in an amount using performance factors determined at the time of the event. For the 2008 performance grant, a pro-rata payment would be made based upon time in the plan. Unvested restricted stock units (RSU) would be forfeited under voluntary termination, involuntary not...

  • Page 198
    ...the Annual Cash Incentive Compensation Plan provisions of the Management Change-in-Control Plan, calculated as 55% times $480,000. In the event of death or disability, Mr. McArthur would receive a pro-rata incentive award for the period worked during the year. For December 31, 2008, this is based on...

  • Page 199
    ... would vest 100% and be paid in an amount using performance factors determined at the time of the event. For the 2008 performance grant, a pro-rata payment would be made based upon time in the plan. Unvested restricted stock units (RSU) would be forfeited under voluntary termination, involuntary not...

  • Page 200
    ... the Annual Cash Incentive Compensation Plan provisions of the Management Change-in-Control Plan, calculated as 55% times $445,000. In the event of death or disability, Mr. Lyash would receive a pro-rata incentive award for the period worked during the year. For December 31, 2008, this is based on...

  • Page 201
    ... would vest 100% and be paid in an amount using performance factors determined at the time of the event. For the 2008 performance grant, a pro-rata payment would be made based upon time in the plan. Unvested restricted stock units (RSU) would be forfeited under voluntary termination, involuntary not...

  • Page 202
    ... the Annual Cash Incentive Compensation Plan provisions of the Management Change-in-Control Plan, calculated as 55% times $440,000. In the event of death or disability, Mr. Yates would receive a pro-rata incentive award for the period worked during the year. For December 31, 2008, this is based on...

  • Page 203
    ... would vest 100% and be paid in an amount using performance factors determined at the time of the event. For the 2008 performance grant, a pro-rata payment would be made based upon time in the plan. Unvested restricted stock units (RSU) would be forfeited under voluntary termination, involuntary not...

  • Page 204
    ... in cash or deferred into the Non-Employee Director Deferred Compensation Plan. 2 Reflects the change in value in the Non-Employee Director Stock Unit Plan account for 2008. The value of account is tracked in phantom stock units and changes with the annual $60,000 grant, dividend reinvestment, unit...

  • Page 205
    ...ceases to be a member of the Board of Directors, he or she will receive cash equal to the market value of a share of the Company's Common Stock on the date of payment multiplied by the number of units credited to the participant's account. DIRECTOR INCENTIVE COMPENSATION PLAN In conjunction with the...

  • Page 206
    ...of dividends with respect to the Common Stock of the Company. Benefits under the Stock Unit Plan vest after a participant has been a member of the Board for five years and are payable solely in cash. Effective January 1, 2007, a Director shall be fully vested at all times in the stock units credited...

  • Page 207
    Progress Energy Proxy Statement EQUITY COMPENSATION PLAN INFORMATION as of December 31, 2008 (c) Number of (a) securities Number of remaining available securities to for future issuance be issued upon (b) under equity exercise of Weighted-average compensation plans outstanding exercise price of (...

  • Page 208
    ... AND CORPORATE PERFORMANCE COMMITTEE The Audit and Corporate Performance Committee of the Company's Board of Directors (the "Audit Committee") has reviewed and discussed the audited financial statements of the Company for the fiscal year ended December 31, 2008, with the Company's management and...

  • Page 209
    ... fees ...Audit-related fees ...Tax fees ...Total Fees ... Audit fees include fees billed for services rendered in connection with (i) the audits of our annual financial statements and those of our SEC reporting subsidiaries (Carolina Power & Light Company and Florida Power Corporation); (ii) the...

  • Page 210
    ... serve as our independent registered public accounting firm for the fiscal year ending December 31, 2009, requires approval by a majority of the votes actually cast by holders of Common Stock present in person or represented by proxy at the Annual Meeting of Shareholders and entitled to vote thereon...

  • Page 211
    ... Board of Directors and Organization and Compensation Committee (the "Committee") have unanimously approved the adoption of the Progress Energy, Inc. 2009 Executive Incentive Plan (the "EIP") effective March 17, 2009, subject to shareholder approval of the EIP at the Annual Meeting of Shareholders...

  • Page 212
    ... for the performance period based upon business criteria determined by the Committee and as typically executed through the Management Incentive Compensation Plan of Progress Energy, Inc. ("MICP"), the Company's principal cash incentive plan for executive officers, and such other factors as the...

  • Page 213
    ...the cash bonuses that were paid to the named executive officers for fiscal year 2008 under the MICP are described above in the Summary Compensation Table under the heading "Non-Equity Incentive Plan Compensation" on page 40. Approval of the proposal regarding the Progress Energy, Inc. 2009 Executive...

  • Page 214
    ... Shareholder proposals submitted for inclusion in the proxy statement for our 2010 Annual Meeting must be received no later than December 1, 2009, at our principal executive offices, addressed to the attention of: John R. McArthur Executive Vice President and Corporate Secretary Progress Energy...

  • Page 215
    ... to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, and is available at the SEC's Web site at www.sec.gov. OTHER BUSINESS The Board of Directors does not intend to bring any business before the meeting other than that stated in this Proxy Statement. The Board knows of no...

  • Page 216
    ..., a "Related Person" means: 1. any person who is, or at any time since the beginning of the Company's last fiscal year was, a director or executive officer (i.e. members of the Senior Management Committee and the Controller) of the Company, Progress Energy Carolinas, Inc., or Progress Energy Florida...

  • Page 217
    Progress Energy Proxy Statement C. Approval Procedures 1. The Board has determined that the Committee is best suited to review and approve Related Person Transactions. Accordingly, at each calendar year's first regularly scheduled Committee meeting, management shall recommend Related Person ...

  • Page 218
    ... Board and any material Related Person Transaction shall be disclosed to the full Board of Directors. The material features of this Policy shall be disclosed in the Company's annual report on Form 10-K or in the Company's proxy statement, as required by applicable laws, rules and regulations. A-3

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    ...last three years, employed as an executive officer of another company where any of the Company's present executives at the same time serve or served on that company's compensation committee is not independent. A director who is an executive officer or an employee (or whose immediate family member is...

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    ...: • • executive compensation arrangements otherwise reported under Item 402 of Reg. S-K (other than in the case of an immediate family member); indebtedness incurred in connection with the purchase of goods and services on usual trade terms; ordinary business travel and expense payments; and...

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    ...that having the Chief Executive Officer as a member of the Board is appropriate and can increase the Board's effectiveness and comprehension of the Company's business. Whether employees other than the Chief Executive Officer should serve on the Board is a matter determined based on the circumstances...

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    ... disclosure of key events, risk assessment and management, and actual or contingent liabilities that could materially impact the Company's financial results or cause the reported information to be misleading. Review the annual report to shareholders, the annual/quarterly reports on Forms 10-K/10...

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    ... audit work, and the results/changes made to the prior year's plan; significant audit findings and recommendations and management's action plans; the adequacy of the budget and staffing for the Department; and the appointment or dismissal and annual compensation of the Chief Audit Executive. Meet...

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    ... the Company's website. In addition, the disclosure of this Charter will be stated annually in the proxy, which will contain a copy of the Charter in an appendix, as required. MEETINGS The Committee shall hold at least three regular meetings and four quarterly conference call meetings each year in...

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    ... at any time. "Covered Employee" means an employee of the Company or a Subsidiary if, as of the close of the fiscal year of the Company, the employee is the principal executive officer of the Company, or one of the other named executive officers in the annual proxy statement of the Company, subject...

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    ...Section 4(d). "MICP" means the Management Incentive Compensation Plan of Progress Energy, Inc., as amended or restated from time to time. "Participant" means an Eligible Employee who has been selected by the Committee to participate in the Plan for a designated Performance Period pursuant to Section...

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    Progress Energy Proxy Statement 4. The Incentive Pool. (a) Creation of Incentive Pool. The Incentive Pool for each Performance Period of the Company shall equal one percent (1%) of the Earnings of the Company for such Performance Period. The Incentive Pool shall be an unfunded pool established for ...

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    ... under generally accepted accounting principles), or (iii) in response to changes in applicable laws and regulations, accounting principles, and tax rates (and interpretations thereof) or changes in business conditions or the Committee's assessment of the business strategy of the Company. No such...

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    Progress Energy Proxy Statement 6. Change in Control. (a) Payments Relating to Prior Performance Period Individual Awards. Any provision of the Plan to the contrary notwithstanding, in the event of a Change in Control, the Committee may not exercise any discretion conferred under Section 5 to ...

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    ... matter thereof. (i) Governing Law. The validity, construction and effect of the Plan, and any rules and regulations under the Plan, shall be determined in accordance with the laws of the State of North Carolina applicable to contracts made and to be performed in the State of North Carolina to the...

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    PROXY STATEMENT Directions to Progress Energy's 2009 Annual Shareholders' Meeting Progress Energy Center for the Performing Arts 2 E. South Street, Raleigh, North Carolina Public Parking 002CS-61034

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    ... board in 1999 and sits on the following committees: Corporate Governance; Nuclear Project Oversight; Operations and Nuclear Oversight; Organization and Compensation (Chair). James E. Bostic, Jr. Managing Director, HEP & Associates (business consulting) and retired Executive Vice President, Georgia...

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    Progress Energy, Inc. P.O. Box 1551 Raleigh, N.C. 27602-1551 progress-energy.com PGN - 002CS17914