Progress Energy 2008 Annual Report Download - page 22

MANAGEMENT’S DISCUSSION AND ANALYSIS
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debt. Prior to the sale, we had a 51 percent interest in PT
LLC. See Note 20 for a discussion of the subsequent sale
of the Level 3 Communications, Inc. stock in 2006.
Based on the net proceeds associated with the sale and
after consideration of minority interest, we recorded an
after-tax gain on disposal of $28 million during the year
ended December 31, 2006. Net losses from discontinued
operations for PT LLC were $2 million for the year ended
December 31, 2006.
DIXIE FUELS AND OTHER FUELS BUSINESS
On March 1, 2006, we sold Progress Fuels’ 65 percent
interest in Dixie Fuels Limited (Dixie Fuels) to Kirby
Corporation for $16 million in cash. Dixie Fuels operates
a fleet 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
ended December 31, 2006. During the years ended
December 31, 2008 and 2007, we recorded an additional
gain of $1 million and $2 million, respectively, primarily
related to the expiration of indemnifications.
Net earnings from discontinued operations for Dixie Fuels
and other fuels business were $7 million for the year
ended December 31, 2006.
PROGRESS RAIL
We completed the sale of Progress Rail Services
Corporation during the year ended December 31, 2005.
As a result of certain legal, tax and environmental
indemnifications provided by Progress Fuels and Progress
Energy, we continue to record adjustments to the loss
on sale. During the year ended December 31, 2008, we
recorded an after-tax gain on disposal of $2 million. During
the year ended December 31, 2006, we recorded an after-
tax loss on disposal of $6 million. The ultimate resolution
of these matters could result in additional adjustments to
the loss on sale in future periods.
APPLICATION OF CRITICAL ACCOUNTING
POLICIES AND ESTIMATES
We prepared our Consolidated Financial Statements in
accordance with GAAP. In doing so, we made certain
estimates that were critical in nature to the results of
operations. The following discusses those significant
estimates that may have a material impact on our
financial results and are subject to the greatest amount
of subjectivity. We have discussed the development
and selection of these 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 that regulatory agencies
determine we are permitted to recover. At times,
regulators permit the future recovery through rates of
costs that would be currently charged to expense by a
nonregulated company. This ratemaking process results
in deferral of expense recognition and the recording
of regulatory assets based on anticipated future cash
inflows. As a result of the different ratemaking processes
in each state in which we operate, a significant amount
of regulatory assets has been recorded. We continually
review these assets to assess their ultimate recoverability
within the approved regulatory guidelines. Impairment
risk associated with these assets relates to potentially
adverse legislative, judicial or regulatory actions in
the future. Additionally, the state regulatory agencies’
ratemaking processes often provide flexibility in the
manner and timing of the depreciation of property, nuclear
decommissioning costs and amortization of the regulatory
assets. See Note 7 for additional information related to the
impact of utility regulation on our operations.
We evaluate the carrying value of long-lived assets
and intangible assets with definite lives for impairment
whenever impairment indicators exist. If an impairment
indicator exists, the asset group held and used is tested
for recoverability by comparing the carrying value to the
sum of undiscounted expected future cash flows directly
attributable to the asset group. If the asset group is not
recoverable through undiscounted cash flows or if the
asset group is to be disposed of, an impairment loss is
recognized for the difference between the carrying
value and the fair value of the asset group. Our exposure
to potential impairment losses for utility plant, net is
mitigated by the fact that our regulated ratemaking
process generally allows for recovery of our investment
in utility plant plus an allowed return on the investment, as
long as the costs are prudently incurred. At December 31,
2008 and 2007, the carrying value of our total utility plant,
net was $18.293 billion and $16.605 billion, respectively.
As discussed in Note 13, our financial assets and
liabilities are primarily comprised of derivative financial
instruments and marketable debt and equity securities
held in our nuclear decommissioning trusts. Substantially
all unrealized gains and losses on derivatives and all