Progress Energy 2008 Annual Report Download - page 34

MANAGEMENT’S DISCUSSION AND ANALYSIS
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construction cost balances on an annual basis through
the capacity cost-recovery clause. Such amounts will not
be included in PEF’s rate base when the plant is placed
in commercial operation. The nuclear cost-recovery rule
also has a provision to recover costs should the project be
abandoned after the utility receives a final order granting
a Determination of Need. These costs include any
unrecovered construction work in progress at the time of
abandonment and any other prudent and reasonable exit
costs. In addition, the rule requires the FPSC to conduct
an annual prudence review of the reasonableness
and prudence of all such costs, including construction
costs, and such determination shall not be subject to
later review except upon a finding of fraud, intentional
misrepresentation or the intentional withholding of key
information by the utility.
During 2008, PEF filed for recovery of costs incurred
to uprate CR3 under Florida’s comprehensive energy
legislation and the FPSC’s nuclear cost-recovery rule. The
current project estimate of fully loaded costs for the multi-
stage uprate is $364 million. On August 19, 2008, the FPSC
granted PEF’s petition to amend its request to recover
costs for the nuclear uprate project under the nuclear
cost-recovery rule.
As discussed further in Note 7 and “Other Matters –
Nuclear,” on August 12, 2008, the FPSC issued the final order
granting PEF’s need certification petition for its proposed
Levy Units 1 and 2, together with the associated facilities,
including transmission lines and substation facilities.
The filed, nonbinding project cost estimate for Levy
Units 1 and 2 is approximately $14 billion for generating
facilities and approximately $3 billion for associated
transmission facilities. On October 14, 2008, the FPSC voted
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 “PEF Cost-Recovery Clause,”
on February 18, 2009, PEF filed a request with the FPSC
to defer the recovery of $200 million of Levy nuclear
preconstruction costs.
CAPITAL EXPENDITURES
Total cash from operations and proceeds from long-
term debt issuances provided the funding for our capital
expenditures, including environmental compliance and
other utility property additions, nuclear fuel expenditures
and non-utility property additions during 2008.
As shown in the table that follows, we expect the majority
of our capital expenditures to be incurred at our regulated
operations. We expect to fund our capital requirements
primarily through a combination of internally generated
funds, long-term debt, preferred stock and/or common
equity. In addition, we have $2.030 billion in credit facilities
that support the issuance of commercial paper. Access to
the commercial paper market provides additional liquidity
to help meet working capital requirements. AFUDC-
borrowed funds represents the debt costs of capital funds
necessary to finance the construction of new regulated
plant assets.
Regulated capital expenditures for 2009, 2010 and
2011 in the table above include approximately
$380 million, $230 million and $120 million, respectively,
for environmental compliance capital expenditures.
Forecasted environmental compliance capital expenditures
for 2009, 2010 and 2011 include $80 million, $150 million
and $120 million, respectively, at PEC. Forecasted
environmental compliance capital expenditures for 2009
and 2010 include $300 million and $80 million, respectively,
at PEF. PEF does not have forecasted environmental
compliance capital expenditure in 2011. See “Other
Matters – Environmental Matters” for further discussion
of our environmental compliance costs and related
recovery of costs.
(in millions)
Actual Forecasted
2008 2009 2010 2011
Regulated capital
expenditures $2,151 $1,990 $1,890 $1,650
Nuclear fuel
expenditures 222 260 250 310
AFUDC-
borrowed funds (26) (40) (30) (40)
Other capital
expenditures 530 30 30
Total before
potential nuclear
construction 2,352 2,240 2,140 1,950
Potential nuclear
construction(a)(b) 168 260 – 560 460 – 660 750 – 950
Total $2,520 $2,500 – 2,800 $2,600 – 2,800 $2,700 – 2,900
(a) Expenditures for potential nuclear construction are net of AFUDC-borrowed funds
and include land, development, licensing, equipment and associated transmission.
Forecasted potential nuclear construction expenditures 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 of joint
ownership.
(b) These expenditures, which are primarily at PEF, are subject to cost-recovery
provisions in the Utilities’ respective jurisdictions (See discussion under “Other
Matters – Nuclear”). Forecasted potential nuclear construction expenditures
for 2009, 2010 and 2011 include approximately $50 million, $130 million and
$150 million, respectively, of preconstruction expenditures, which are eligible for
recovery under Florida’s nuclear cost-recovery rule. The timing of the recovery
of these expenditures could be impacted by PEF’s February 2009 regulatory filings
discussed above in “Regulatory Matters and Recovery of Costs.”