Progress Energy 2008 Annual Report Download - page 116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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In 2006, PEF entered into an agreement for 116.6-MW
(100 percent of net output) purchased power, which is
classified as a capital lease of the related plant. Due to
the conditions of the agreement, the capital lease will
not be recorded on our Consolidated Balance Sheets
until approximately 2011. Therefore, this capital lease is
not included in the table above. The agreement calls for
minimum annual payments of approximately $7 million from
2012 through November 2036, for a total of approximately
$170 million.
Excluding the Utilities, we are also a lessor of land,
buildings and other types of properties we own under
operating leases with various terms and expiration dates.
The leased buildings are depreciated under the same
terms as other buildings included in diversified business
property. Minimum rentals receivable under noncancelable
leases are approximately $8 million, $6 million, $5 million,
$2 million and $1 million for 2009 through 2013, respectively.
Rents received under these operating leases totaled
$9 million, $8 million and $9 million for 2008, 2007 and
2006, respectively.
The Utilities are lessors of electric poles, streetlights and
other facilities. PEC’s minimum rentals receivable under
noncancelable leases are $10 million for 2009 and none
thereafter. PEC’s rents received are contingent upon
usage and totaled $33 million each for 2008 and 2007 and
$31 million for 2006. PEF’s rents received are based on a fixed
minimum rental where price varies by type of equipment
or contingent usage and totaled $81 million, $78 million
and $72 million for 2008, 2007 and 2006, respectively. PEF’s
minimum rentals receivable under noncancelable leases
are not material for 2009 and thereafter.
C. Guarantees
As a part of normal business, we enter into various
agreements providing future financial or performance
assurances to third parties, which are outside the scope
of FASB Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others” (FIN 45).
Such agreements include guarantees, standby letters of
credit and surety bonds. At December 31, 2008, we do not
believe conditions are likely for significant performance
under these guarantees. To the extent liabilities are
incurred as a result of the activities covered by the
guarantees, such liabilities are included in the accompanying
Consolidated Balance Sheets.
At December 31, 2008, we have issued guarantees and
indemnifications of and for certain asset performance,
legal, tax and environmental matters to third parties,
including indemnifications made in connection with sales
of businesses, which are within the scope of FIN 45. Related
to the sales of businesses, the latest specified notice
period extends until 2013 for the majority of legal, tax and
environmental matters provided for in the indemnification
provisions. Indemnifications for the performance of assets
extend to 2016. For certain matters for which we receive
timely notice, our indemnity obligations may extend
beyond the notice period. Certain indemnifications have no
limitations as to 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 to this indemnification (See Note 21B).
PEC’s maximum exposure cannot be determined. At
December 31, 2008, the estimated maximum exposure
for guarantees and indemnifications for which a
maximum exposure is determinable was $458 million,
including $32 million at PEF. At December 31, 2008 and
2007, we had recorded liabilities related to guarantees
and indemnifications to third parties of approximately
$61 million and $80 million, respectively. During the year
ended December 31, 2008, PEC made no additional accruals
and spent approximately $20 million that exceeded the joint
owner limit. As current estimates change, it is possible that
additional losses related to guarantees and indemnifications
to third parties, which could be material, may be recorded
in the future.
In addition, the Parent has issued $300 million of guarantees
of certain payments of two wholly owned indirect
subsidiaries (See Note 23).
D. Other Commitments and Contingencies
SPENT NUCLEAR FUEL MATTERS
Pursuant to the Nuclear Waste Policy Act of 1982, the
Utilities entered into contracts with the DOE under which
the DOE agreed to begin taking spent nuclear fuel by no
later than January 31, 1998. All similarly situated utilities
were required to sign the same standard contract.
The DOE failed to begin taking spent nuclear fuel by
January 31, 1998. In January 2004, the Utilities filed a
complaint in the United States Court of Federal Claims
against the DOE, claiming that the DOE breached the
Standard Contract for Disposal of Spent Nuclear Fuel
by failing to accept spent nuclear fuel from our various
facilities on or before January 31, 1998. Approximately
60 cases involving the government’s actions in connection
with spent nuclear fuel are currently pending in the Court
of Federal Claims. The Utilities have asserted nearly