Progress Energy 2008 Annual Report Download - page 73

71
Progress Energy Annual Report 2008
(in millions) December 31, 2007
Inventory $6
Other current assets 2
Property, plant and equipment, net 38
Other assets 6
Assets to be divested $52
Accrued expenses $3
Long-term liabilities 5
Liabilities to be divested $8
J. Ceredo Synthetic Fuels Interests
On March 30, 2007, our Progress Fuels subsidiary
disposed of its 100 percent ownership interest in Ceredo,
a subsidiary that produced and sold qualifying coal-based
solid synthetic fuels, to a third-party buyer. In addition,
we entered into an agreement to operate the Ceredo
facility on behalf of the buyer. At closing, we received
cash proceeds of $10 million and a nonrecourse note
receivable of $54 million. Payments on the note were
received as we produced and sold qualifying coal-based
solid synthetic fuels on behalf of the buyer. In accordance
with the terms of the agreement, we received payments
on the note related to 2007 production of $49 million during
the year ended December 31, 2007, and a final payment
of $5 million during the year ended December 31, 2008.
The note had an interest rate equal to the three-month
London Inter Bank Offering Rate (LIBOR) rate plus 1%.
The estimated fair value of the note at the inception of
the transaction was $48 million. Under the terms of the
agreement, the purchase price was reduced by $7 million
during the year ended December 31, 2008, based on the
final value of the 2007 Section 29/45K tax credits.
During the year ended December 31, 2008, we recognized
previously deferred gains on disposal of $5 million based
on the final value of the 2007 Section 29/45K tax credits.
The operations of Ceredo ceased as of December 31,
2007, and are recorded as discontinued operations for all
periods presented. See discussion of the abandonment of
our synthetic fuels operations at Note 3A. In connection
with the disposal, Progress Fuels and Progress Energy
provided guarantees and indemnifications for certain
legal and tax matters to the buyer. The ultimate resolution
of these matters could result in adjustments to the loss
on disposal in future periods. See general discussion of
guarantees at Note 22C.
On the date of the transaction, the carrying value of the
disposed ownership interest totaled $37 million, which
consisted primarily of the fair value of crude oil call
options purchased in January 2007. Subsequent to the
disposal, we remain the primary beneficiary of Ceredo
and continue to consolidate Ceredo in accordance with
FIN 46R, but record a 100 percent minority interest.
K. Synthetic Fuels Partnership Interests
In two June 2004 transactions, Progress Fuels sold a
combined 49.8 percent partnership interest in Colona
Synfuel Limited Partnership, LLLP (Colona), one of its
synthetic fuels facilities. Substantially all proceeds from
the sales were received over time, which is typical of such
sales in the industry. Gains from the sales were recognized
on a cost-recovery basis. The book value of the interests
sold totaled approximately $5 million. We recognized a
gain on these transactions of $4 million in the year ended
December 31, 2006. In 2007, due to the increase in the
price of oil that limits synthetic fuels tax credits, we did
not record any additional gains. The operations of Colona
are reflected in discontinued operations for all periods
presented. See discussion of the abandonment of our
synthetic fuels operations at Note 3A.
4. PROPERTY, PLANT AND EQUIPMENT
A. Utility Plant
The balances of electric utility plant in service at
December 31 are listed below, with a range of depreciable
lives (in years) for each:
(in millions) Depreciable Lives 2008 2007
Production plant 7-43 $14,117 $13,765
Transmission plant 17-75 2,970 2,684
Distribution plant 13-55 8,028 7,676
General plant and other 5-35 1,211 1,202
Utility plant in service $26,326 $25,327
Generally, electric utility plant at PEC and PEF, other than
nuclear fuel, is pledged as collateral for the first mortgage
bonds of PEC and PEF, respectively (See Note 11).
AFUDC represents the estimated costs of capital funds
necessary to finance the construction of new regulated
assets. As prescribed in the regulatory uniform systems
of accounts, AFUDC is charged to the cost of the plant
for certain projects in accordance with the regulatory
provisions for each jurisdiction. The equity funds portion
of AFUDC is credited to other income, and the borrowed
funds portion is credited to interest charges. Regulatory
authorities consider AFUDC an appropriate charge for
inclusion in the rates charged to customers by the Utilities
over the service life of the property. The composite AFUDC
rate for PEC’s electric utility plant was 9.2%, 8.8% and