Progress Energy 2008 Annual Report Download - page 79

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Progress Energy Annual Report 2008
no adjustments to PEC’s base rates during the five-year
period ended December 31, 2007. Subsequent to 2007,
PEC’s current North Carolina base rates are continuing
subject to traditional cost-based rate regulation. During
the rate freeze period, the legislation provided for a
minimum amortization and recovery of 70 percent of the
original estimated compliance costs of $813 million (or
$569 million) while providing flexibility in the amount of
annual amortization recorded from none up to $174 million
per year.
On March 23, 2007, PEC filed a petition with the NCUC
requesting that it be allowed to amortize the remaining
30 percent (or $244 million) of the original estimated
compliance costs for the Clean Smokestacks Act
during 2008 and 2009, with discretion to amortize up to
$174 million in either year. Additionally, among other
things, PEC requested in its March 23, 2007 petition that
the NCUC allow PEC to include in its rate base those
eligible compliance costs exceeding the original estimated
compliance costs and that PEC be allowed to accrue
AFUDC on all eligible compliance costs in excess of the
original estimated compliance costs. PEC also requested
that any prudency review of PEC’s environmental
compliance costs be deferred until PEC’s next ratemaking
proceeding in which PEC seeks to adjust its base rates.
On October 22, 2007, PEC filed with the NCUC a settlement
agreement with the NCUC Public Staff, the Carolina Utility
Customers Association (CUCA) and the Carolina Industrial
Group for Fair Utility Rates II (CIGFUR) supporting PEC’s
proposal. On December 20, 2007, the NCUC approved the
settlement agreement on a provisional basis, with the
NCUC indicating that it intended to initiate a review in
2009 to consider all reasonable alternatives and proposals
related to PEC’s recovery of its Clean Smokestacks Act
compliance costs in excess of the original estimated
compliance costs of $813 million.
On July 10, 2008, PEC filed a petition with the NCUC
requesting that the NCUC reconsider its order issued
December 20, 2007, and terminate the requirement that
PEC amortize any Clean Smokestacks Act compliance
costs in excess of $569 million, and instead allow PEC to
place into rate base all capital costs associated with its
compliance with the Clean Smokestacks Act in excess of
$569 million.
On September 5, 2008, the NCUC approved PEC’s request
to terminate any further accelerated amortization of its
Clean Smokestacks Act compliance costs. The NCUC
ordered that PEC shall be allowed to include in rate base
all reasonable and prudently incurred environmental
compliance costs in excess of $584 million as the projects
are closed to plant in service. As a result of this order,
PEC will not amortize $229 million of the original estimated
compliance costs for the Clean Smokestacks Act during
2008 and 2009, but will record depreciation over the useful
life of the assets.
For the years ended December 31, 2008, 2007 and 2006,
PEC recognized amortization of $15 million, $34 million and
$140 million, respectively, and recognized $584 million in
cumulative amortization through December 31, 2008.
See Note 21B for additional information about the Clean
Smokestacks Act.
FUEL COST RECOVERY
On April 30, 2008, PEC filed with the SCPSC for an increase
in the fuel rate charged to its South Carolina ratepayers.
PEC asked the SCPSC to approve a $39 million increase
in fuel rates for under-recovered fuel costs associated
with prior year settlements and to meet future expected
fuel costs. On June 26, 2008, the SCPSC approved PEC’s
request. Effective July 1, 2008, residential electric bills
increased by $5.86 per 1,000 kilowatt-hours (kWh), or
6.1 percent, for fuel cost recovery. At December 31, 2008,
PEC’s South Carolina under-recovered deferred fuel
balance was $15 million.
On June 6, 2008, PEC filed with the NCUC for an increase
in the fuel rate charged to its North Carolina ratepayers.
Subsequently, PEC jointly filed a settlement agreement
with CIGFUR, CUCA and the NCUC Public Staff. Under
the terms of the settlement agreement, PEC will collect
$203 million of deferred fuel costs ratably over a three-year
period beginning December 1, 2008, compared with a one-
year recovery period proposed in PEC’s original request.
Amounts to be collected in years beginning December 1,
2009 and 2010, will accrue interest. On November 14, 2008,
the NCUC approved the settlement agreement. Effective
December 1, 2008, residential electric bills increased
by $8.79 per 1,000 kWh, or 9.1 percent. At December 31,
2008, PEC’s North Carolina deferred fuel balance was
$321 million, of which $130 million is expected to be
collected after 2009 and has been classified as a long-
term regulatory asset.
DEMAND-SIDE MANAGEMENT AND ENERGY-
EFFICIENCY COST RECOVERY
During 2007, the North Carolina legislature passed
comprehensive energy legislation, which became law on
August 20, 2007. Among other provisions, the law allows the
utility to recover the costs of demand-side management
(DSM) and energy-efficiency programs through an annual
DSM clause. The law allows PEC to capitalize those costs