Progress Energy 2008 Annual Report Download - page 111

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Progress Energy Annual Report 2008
PEF
PEF has received approval from the FPSC for recovery
through the ECRC of the majority of costs associated with
the remediation of distribution and substation transformers.
Under agreements with the Florida Department of
Environmental Protection (FDEP), PEF has reviewed all
distribution transformer sites and all substation sites for
mineral oil-impacted soil caused by equipment integrity
issues. Should further distribution transformer sites
be identified outside of this population, the distribution
operations and maintenance expense (O&M) costs
will not be recoverable through the ECRC. Based on
historical experience, PEF projects costs will be between
approximately $3 million and $4 million per year. For the
year ended December 31, 2008, PEF accrued approximately
$17 million, due to the identification of additional
transformer sites and an increase in estimated remediation
costs, and spent approximately $26 million related to
the remediation of transformers. For the year ended
December 31, 2007, PEF accrued approximately $10 million
due to an increase in estimated remediation costs and
spent approximately $22 million related to the remediation
of transformers. For the year ended December 31, 2006, PEF
accrued approximately $42 million due to additional sites
expected to require remediation and spent approximately
$19 million related to the remediation of transformers. At
December 31, 2008 and 2007, PEF has recorded a regulatory
asset for the probable recovery of these costs through the
ECRC (See Note 7A).
The amounts for MGP and other sites, in the previous table,
relate to two former MGP sites and other sites associated
with PEF that have required, or are anticipated to require,
investigation and/or remediation. The amounts include
approximately $12 million in insurance claim settlement
proceeds received in 2004, which are restricted for
use in addressing costs associated with environmental
liabilities. For the year ended December 31, 2008, PEF made
no accruals and spent approximately $2 million. For the
year ended December 31, 2007, PEF made no accruals
and spent approximately $1 million. For the year ended
December 31, 2006, PEF made no accruals and PEF’s
expenditures were not material to our results of operations
or financial condition.
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 air and water quality,
resulting in capital expenditures and increased O&M
expenses. These compliance laws and regulations included
the Clean Air Interstate Rule (CAIR), the Clean Air Visibility
Rule (CAVR), the Clean Smokestacks Act and mercury
regulation. PEC’s and PEF’s environmental compliance
capital expenditures related to these regulations began
in 2002 and 2005, respectively. At December 31, 2008,
cumulative environmental compliance capital expenditures
to date with regard to these environmental laws and
regulations were $1.859 billion, including $1.012 billion at
PEC, which primarily relates to Clean Smokestacks Act
projects, and $847 million at PEF, which related entirely to
in-process CAIR projects. At December 31, 2007, cumulative
environmental compliance capital expenditures to date with
regard to these environmental laws and regulations were
$1.225 billion, including $902 million at PEC and $323 million
at PEF. PEC completed installation of controls to meet the
requirements of the NOx SIP Call Rule under Section 110
of the Clean Air Act (NOx SIP Call) in 2007.
PEF participated in a coalition of Florida utilities that
filed a challenge to the CAIR as it applied to Florida. PEF
withdrew from the coalition during the fourth quarter of
2008. On July 11, 2008, the U.S. Court of Appeals for the
District of Columbia (D.C. Court of Appeals) issued its
decision on multiple challenges to the CAIR, including the
Florida challenge, which vacated the CAIR in its entirety.
On September 24, 2008, petitions for rehearing were
filed by a number of parties. On December 23, 2008, the
D.C. Court of Appeals remanded the case without vacating
the CAIR for the EPA to conduct further proceedings
consistent with the D.C. Court of Appeals’ prior opinion.
The outcome of the EPA’s further proceedings cannot
be predicted. The Court’s December 23, 2008 decision
remanding the CAIR maintained its current implementation
such that CAIR satisfies best available retrofit technology
(BART) for SO2 and NOx for BART-affected units under the
CAVR. Depending on whether this determination continues
to be maintained as the CAIR is revised, for BART-eligible
units CAVR compliance eventually may require consideration
of NOx and SO2 emissions in addition to particulate matter
emissions. As a result, BART for SO2 and NOx could apply
to PEC’s and PEF’s BART-eligible units.
On February 8, 2008, the D.C. Court of Appeals vacated the
delisting determination and the Clean Air Mercury Rule
(CAMR). On September 17, 2008, the Utility Air Regulatory
Group filed a petition for writ of certiorari with the
U.S. Supreme Court seeking a review of the decision
that vacated the CAMR. On October 17, 2008, the EPA
filed a similar petition and subsequently withdrew it
on January 29, 2009. The Utility Air Regulatory Group’s
petition for writ of certiorari was denied on February 23,
2009. The three states in which the Utilities operate