Progress Energy 2008 Annual Report Download - page 84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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cost-recovery rule. On May 1, 2008, PEF filed a petition for
recovery of both preconstruction and carrying charges on
construction costs incurred or anticipated to be incurred
during 2008 and 2009 under the nuclear cost-recovery
rule. Based on the affirmative vote by the FPSC on the
Determination of Need for Levy, PEF filed a petition on
July 18, 2008, to recover all prudently incurred costs
under the nuclear cost-recovery rule. On November 12,
2008, the FPSC issued an order 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 “Fuel Cost Recovery,” on
February 18, 2009, PEF filed a request with the FPSC
to defer the recovery of $200 million of Levy nuclear
preconstruction costs.
STORM COST RECOVERY
In 2005, the FPSC issued an order authorizing PEF to
recover $232 million over a two-year period, including
interest, of the costs it incurred and previously deferred
related to PEF’s restoration of power associated with
four hurricanes in 2004. The net impact was included in
customer bills beginning January 1, 2006. In 2007 and 2006,
PEF recorded amortization of $75 million and $122 million,
respectively, associated with the recovery of these storm
costs. The retail portion of storm restoration costs were
fully recovered at December 31, 2007.
On April 25, 2006, PEF entered into a settlement agreement
with certain intervenors in its storm cost-recovery
docket that would allow PEF to extend its then-current
two-year storm surcharge, which equals approximately
$3.61 on the average residential monthly customer bill of
1,000 kWh, for an additional 12-month period to replenish
its storm reserve. The requested extension, which began
August 2007, was expected to replenish the existing
storm reserve by an estimated $126 million. During the
third quarter of 2006, PEF and the intervenors modified
the settlement agreement such that in the event future
storms deplete the reserve, PEF would be able to petition
the FPSC for implementation of an interim surcharge of
at least 80 percent and up to 100 percent of the claimed
deficiency of its storm reserve. The intervenors agreed not
to oppose the interim recovery of 80 percent of the future
claimed deficiency but reserved the right to challenge the
interim surcharge recovery of the remaining 20 percent.
The FPSC has the right to review PEF’s storm costs for
prudence. On August 29, 2006, the FPSC approved the
settlement agreement as modified. In 2008, PEF recorded
net additional storm reserve of $66 million from the
extension of the storm surcharge. At December 31, 2008,
PEF’s storm reserve totaled $129 million.
OTHER MATTERS
On October 29, 2007, PEF submitted a revised OATT
filing, including a settlement agreement, with the FERC
requesting an increase in transmission rates. The purpose
of the filing was to implement formula rates for the PEF
OATT in order to more accurately reflect the costs that
PEF incurs in providing transmission service. In the filing,
PEF proposed to move from a fixed rate to a formula rate,
which allows for transmission rates to be updated each
year based on the prior year’s actual costs. Settlement
discussions were held with major customers prior to the
filing and a settlement agreement was reached on all
issues. The settlement proposed a formula rate with a
rate of return on equity of 10.8 percent. PEF received FERC
approval of the settlement agreement on December 17,
2007. The new rates were effective January 1, 2008, and
increased 2008 revenues by $2 million.
D. Regional Transmission Organizations
In 2000, the FERC issued Order 2000, which set minimum
characteristics and functions that regional transmission
organizations (RTOs) must meet, including independent
transmission service. In October 2000, as a result of Order
2000, PEC, along with Duke Energy Corporation and South
Carolina Electric & Gas Company, filed an application
with the FERC for approval of an RTO, GridSouth. In July
2001, the FERC issued an order provisionally approving
GridSouth. However, in July 2001, the FERC issued orders
recommending that companies in the southeastern United
States engage in mediation to develop a plan for a single
RTO. PEC participated in the mediation; no consensus
was reached on creating a southeast RTO. On August 11,
2005, the GridSouth participants notified the FERC that
they had terminated the GridSouth project. By order issued
October 20, 2005, the FERC terminated the GridSouth
proceeding.
On November 16, 2007, PEC petitioned the NCUC to allow
it to establish a regulatory asset for PEC’s development
costs of GridSouth pending disposition in a general rate
proceeding. On January 14, 2008, the NCUC issued an
order requesting interested parties to file comments
regarding PEC’s petition on or before January 28, 2008.
On February 11, 2008, PEC filed response comments. On
December 20, 2007, the NCUC issued an order for one of
the other GridSouth partners. As part of that order, the
NCUC ruled that the utility’s GridSouth development costs
should be amortized and recovered over a 10-year period
beginning June 2002. Consequently, in 2007, PEC recorded