Progress Energy 2008 Annual Report Download - page 82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Bartow power plant, which is expected to begin commercial
operation in June 2009, and decreased sales and higher
pension costs impacted by the current financial and credit
crises. We cannot predict the outcome of this matter.
FUEL COST RECOVERY
On September 4, 2007, PEF filed a request with the
FPSC seeking approval of a cost adjustment to reflect a
projected over-collection of fuel costs in 2007, declining
projected fuel costs for 2008 and other recovery clause
factors. On January 8, 2008, the FPSC issued an order
approving PEF’s request for a $163 million, or 4.53 percent,
decrease in rates effective January 1, 2008.
On May 30, 2008, PEF filed a petition with the FPSC
requesting a mid-course correction to its fuel cost-
recovery factors to recover an additional $213 million in
2008, primarily due to rising fuel costs. In accordance with
a FPSC order, investor-owned utilities must file a notice
with the FPSC if the year-end projected over- or under-
recovery of fuel costs is expected to be greater than
10 percent of projected fuel revenues. The requested mid-
course correction would have resulted in a residential
fuel rate increase of $12.07 per 1,000 kWh for the period
August through December 2008. On July 1, 2008, the
FPSC approved recovery of the $213 million projected
year-end under-recovery, but allowed PEF to recover
50 percent in 2008 and 50 percent in 2009. Therefore, the
increase in the fuel rate for the period August through
December 2008 was $6.03 per 1,000 kWh. This increase
was partially offset by the expiration of PEF’s storm cost-
recovery surcharge of $3.61 per 1,000 kWh effective
August 2008. Consequently, beginning with the first
billing cycle in August and including gross receipts tax,
residential electric bills increased by $2.48 per 1,000 kWh,
or 2.29 percent. As discussed in “Base Rate Agreement,”
residential base rates increased effective January 1, 2008,
due to specified generation facilities placed in service in
2007. The costs of certain of these facilities had previously
been recovered through the fuel clause.
On October 15, 2008, PEF filed a request with the FPSC to
seek approval of a cost adjustment for the under-recovery
of fuel costs in 2008 and other recovery-clause factors.
PEF asked the FPSC to approve an increase in residential
electric bills by $27.28 per 1,000 kWh, or 24.7 percent,
effective January 1, 2009. The increase in residential bills
is primarily due to increases of $14.09 per 1,000 kWh for
the projected recovery of fuel costs, $9.74 per 1,000 kWh
for the projected recovery through the capacity cost-
recovery clause and $2.50 per 1,000 kWh for the projected
recovery through the ECRC. The increase in the capacity
cost-recovery clause is primarily the result of projected
costs to be incurred in 2009 under the nuclear cost-
recovery rule discussed below for the proposed Levy Units
1 and 2 and the CR3 uprate less the projected reduction
in capacity costs. The increase in the ECRC is primarily
due to the recovery of emission allowance costs (See
Note 21B) and the return on assets expected to be placed
in service in 2009. The FPSC issued orders in November
and December 2008 to approve the cost adjustment. At
December 31, 2008, PEF’s under-recovered deferred fuel
balance was $128 million.
On February 18, 2009, PEF filed a request with the FPSC to
reduce its 2009 fuel cost-recovery factors by an amount
sufficient to achieve a $207 million reduction in fuel
charges to retail customers as a result of effective fuel
purchasing strategies and lower fuel prices, and to defer
until 2010 the recovery of $200 million of Levy nuclear
preconstruction costs, which the FPSC had authorized
to be collected in 2009. If approved, the request would
reduce residential customers’ fuel charges by $6.90 per
1,000 kWh, and would reduce the nuclear cost-recovery
charge by $7.80 per 1,000 kWh, starting with the first April
billing cycle. Commercial and industrial customers would
see similar reductions. We cannot predict the outcome of
this matter.
On August 10, 2006, Florida’s Office of Public Counsel
(OPC) filed a petition with the FPSC asking that the
FPSC require PEF to refund to ratepayers $143 million,
plus interest, of alleged excessive past fuel recovery
charges and SO2 allowance costs during the period
1996 to 2005. The OPC subsequently revised its claim to
$135 million, plus interest. The OPC claimed that although
Crystal River Unit 4 and Crystal River Unit 5 (CR4 and CR5)
were designed to burn a blend of coals, PEF failed to
act to lower ratepayers’ costs by purchasing the most
economical blends of coal. During the period specified
in the petition, PEF’s costs recovered through fuel
recovery clauses were annually reviewed for prudence
and approval by the FPSC. On October 10, 2007, the FPSC
issued its order rejecting most of the OPC’s contentions.
However, the FPSC found that PEF had not been prudent
in purchasing a portion of its coal requirements during the
period from 2003 to 2005. Accordingly, the FPSC ordered
PEF to refund its ratepayers approximately $14 million,
inclusive of interest, over a 12-month period beginning
January 1, 2008. For the year ended December 31, 2007,
PEF recorded a pre-tax other operating expense of
$12 million, interest expense of $2 million and an
associated $14 million regulatory liability included within
PEF’s deferred fuel cost at December 31, 2007. The refund
was returned to ratepayers through a reduction of prior
year under-recovered fuel costs. The FPSC also ordered