Progress Energy 2008 Annual Report Download - page 114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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under these contracts amounted to $273 million, $288 million
and $277 million for 2008, 2007 and 2006, respectively. At
December 31, 2008, minimum expected future capacity
payments under these contracts were $263 million,
$267 million, $281 million, $292 million and $288 million for
2009 through 2013, respectively, and $2.751 billion payable
thereafter. The FPSC allows the capacity payments to be
recovered through a capacity cost-recovery clause, which
is similar to, and works in conjunction with, energy payments
recovered through the fuel cost-recovery clause.
In June 2008, PEC entered into a conditional contract
with an interstate pipeline for firm pipeline transportation
capacity to support PEC’s gas supply needs for the period
from May 2011 through April 2031. The estimated total cost
to PEC associated with this agreement is approximately
$487 million. The transaction is subject to several conditions
precedent, including various state regulatory approvals, the
completion and commencement of operation of necessary
related interstate natural gas pipeline system expansions
and other contractual provisions. Due to the conditions
of this agreement, the estimated costs associated with
this agreement are not included in the contractual cash
obligations table above.
In July 2008, PEC entered into an amendment to an existing
transportation service agreement with an intrastate pipeline
for firm pipeline transportation capacity to support PEC’s
gas supply needs for the period from April 2011 through
May 2030. The total additional cost to PEC associated
with this amendment is estimated to be approximately
$54 million. The amendment is subject to several conditions
precedent, including various state regulatory approvals, the
completion and commencement of operation of necessary
related intrastate natural gas pipeline system expansions
and other contractual provisions. Due to the conditions
of this agreement, the estimated costs associated with
this agreement are not included in the contractual cash
obligations table above.
In April 2008 (and as amended in February 2009), PEF
entered into conditional contracts and extensions of existing
contracts with Florida Gas Transmission Company, LLC
(FGT) for firm pipeline transportation capacity to support
PEF’s gas supply needs for the period from April 2011 through
March 2036. The total cost to PEF associated with these
agreements is estimated to be approximately $1.086 billion.
The contracts are subject to several conditions precedent,
including the completion and commencement of operation
of necessary related interstate natural gas pipeline system
expansions and other contractual provisions. In addition
to the FGT contracts, during 2008, PEF entered into
additional gas supply and transportation arrangements
for the period from 2010 through 2025 that are subject to
certain conditions. The total current notional cost of these
additional agreements is estimated to be approximately
$849 million. Due to the conditions of these agreements, the
estimated costs associated with these agreements are not
included in the contractual cash obligations table above.
CONSTRUCTION OBLIGATIONS
We have purchase obligations related to various capital
construction projects. Our total payments under these
contracts were $1.018 billion, $698 million and $387 million
for 2008, 2007 and 2006, respectively.
PEC has purchase obligations related to various capital
projects including new generation, transmission and
obligations related to the Clean Smokestacks Act. Total
payments under PEC’s construction-related contracts
were $140 million, $208 million and $233 million for 2008,
2007 and 2006, respectively. PEC’s future obligations under
these contracts are $182 million, $72 million, $16 million and
$1 million for 2009, 2010, 2011 and 2013, respectively. PEC
has no future obligation under these contracts for 2012.
The majority of PEF’s construction obligations relate to an
engineering, procurement and construction (EPC) agreement
that PEF entered into 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 not assume any joint
ownership. Actual payments under the EPC agreement are
dependent upon, and may vary significantly based upon the
decision to build, regulatory approval schedules, timing and
escalation of project costs, and the percentages, if any, of
joint ownership. For termination without cause, the EPC
agreement contains exit provisions with termination fees,
which may be significant, that vary based on the termination
circumstance. See Note 7C for additional information about
the Levy project. In 2008, PEF made payments of $117 million
toward long-lead equipment and engineering related to the
EPC agreement. Additionally, PEF has other construction
obligations related to various capital projects including new
generation, transmission and environmental compliance.
Total payments under PEF’s other construction-related
contracts were $761 million, $490 million and $154 million
for 2008, 2007 and 2006, respectively.
OTHER PURCHASE OBLIGATIONS
We have entered into various other contractual obligations
primarily related to service contracts for operational
services entered into by PESC, parts and services contracts,