Progress Energy 2008 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS
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remanding the CAIR maintained its implementation such
that CAIR satisfies BART for SO2 and NOx. Depending on
whether this determination continues to be maintained
as the CAIR is revised, CAVR compliance eventually
may require consideration of NOx and SO2 emissions
in addition to particulate matter emissions for BART-
eligible units. As a result, BART for SO2 and NOx could
apply specifically to PEC’s and PEF’s BART-eligible units.
We are assessing the potential impact of BART and its
implications with respect to our plans and estimated
costs to comply with the CAVR. On December 4, 2007,
the FDEP finalized a Regional Haze implementation rule
that goes beyond BART by requiring sources significantly
impacting visibility in Class I areas to install additional
controls by December 31, 2017. However, the FDEP has
not determined the level of additional controls PEF may
have to implement. The outcome of these matters cannot
be predicted.
Compliance Strategy
Both PEC and PEF have been developing an integrated
compliance strategy to meet the requirements of the
CAIR, the CAVR, mercury regulation and related air quality
regulations. The air quality controls installed to comply
with the requirements of the NOx SIP Call Rule under
Section 110 of the Clean Air Act (NOx SIP Call) and Clean
Smokestacks Act resulted in a reduction of the costs to
meet the CAIR requirements for our North Carolina units
at PEC.
PEC has completed installation of controls to meet the NOx
SIP Call requirements. The NOx SIP Call is not applicable
to sources in Florida. Expenditures for the NOx SIP Call
included the cost to install NOx controls under programs
by North Carolina and South Carolina to comply with the
federal eight-hour ozone standard.
On October 14, 2005, the FPSC approved PEF’s petition for
the recovery of costs associated with the development
and implementation of an Integrated Clean Air Compliance
Plan to comply with the CAIR, CAMR and CAVR through
the ECRC (see discussion above regarding the vacating
of the CAMR and remanding of the CAIR). On March 31,
2006, PEF filed a series of compliance alternatives with
the FPSC to meet these federal environmental rules. At
the time, PEF’s recommended proposed compliance plan
included approximately $740 million of estimated capital
costs expected to be spent through 2016, to plan, design,
build and install pollution control equipment at the Anclote
and Crystal River plants. On November 6, 2006, the FPSC
approved PEF’s petition for its integrated strategy to
address compliance with the CAIR, CAMR and CAVR.
They also approved cost recovery of prudently incurred
costs necessary to achieve this strategy. On June 1,
2007, PEF filed a supplemental petition for approval of its
recommended compliance plan and associated contracts
and recovery of costs for air pollution control projects.
The estimated capital cost for the recommended plan was
$1.26 billion in the June 1, 2007 filing. The increase from the
estimates filed in March 2006 is primarily due to the higher
cost of labor and construction materials, such as concrete
and steel, and refinement of cost and scope estimates for
the current projects. On April 2, 2008, PEF filed a petition
for approval true-up of final 2007 environmental costs and
a review of the Integrated Clean Air Compliance Plan,
which reconfirmed the efficacy of the recommended plan.
Additional costs may be incurred if pollution controls are
required in order to comply with the requirements of the
CAVR, as discussed above, or to meet revised compliance
requirements of a revised or new implementing rule for
the CAIR. Subsequent rule interpretations, increases
in the underlying material, labor and equipment costs,
equipment availability, or the unexpected acceleration
of compliance dates, among other things, could result in
significant increases in our estimated costs to comply and
acceleration of some projects. The outcome of this matter
cannot be predicted.
Environmental Compliance Cost Estimates
Environmental compliance cost estimates are dependent
upon a variety of factors and, as such, are highly uncertain
and subject to change. Factors impacting our environmental
compliance cost estimates include new and frequently
changing laws and regulations; the impact of legal decisions
on environmental laws and regulations; changes in the
demand for, supply of and costs of labor and materials;
changes in the scope and timing of projects; various design,
technology and new generation options; and projections of
fuel sources, prices, availability and security. The following
table contains information about our current estimates of
capital expenditures to comply with environmental laws
and regulations described above. Amounts presented in the
tables exclude AFUDC. Costs to comply with environmental
laws and regulations are eligible for regulatory recovery
through either base rates or cost-recovery clauses.
The outcome of future petitions for recovery cannot be
predicted. Our estimates of capital expenditures to comply
with environmental laws and regulations are subject to
periodic review and revision and may vary significantly.
We cannot predict the impact that the EPA’s further CAIR
proceedings will have on our compliance with the CAVR
requirements and will continue to reassess our plans and
estimated costs to comply with the CAVR. Our estimated
costs to comply with the CAVR prior to the July 11, 2008
D.C. Court of Appeals’ decision regarding CAIR were
approximately $100 million at PEC. Our previous estimate of