Progress Energy 2010 Annual Report Download - page 110

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Clean Smokestacks Act) and mercury regulation. PEC’s
environmental compliance projects under the first phase
of Clean Smokestacks Act emission reductions have
been placed in service. PEF’s CAIR projects have been
placed in service.
In 2008, the U.S. Court of Appeals for the District of
Columbia (D.C. Court of Appeals) initially vacated the
CAIR in its entirety and subsequently remanded the
rule without vacating it for the EPA to conduct further
proceedings consistent with the court’s prior opinion. On
August 2, 2010, the EPA published the proposed Transport
Rule, which is the regulatory program that will replace
the฀ CAIR฀ when฀ finalized.฀ The฀ proposed฀ Transport฀ Rule฀
contains new emissions trading programs for nitrogen
oxides (NOx) and sulfur dioxide (SO2) emissions as well as
more stringent overall emissions targets. The EPA plans
to฀finalize฀the฀Transport฀Rule฀in฀the฀spring฀of฀2011.฀Due฀to฀
significant investments in NOx and SO2 emissions controls
and฀ fleet฀ modernization฀ projects฀ completed฀ or฀ under฀
way, we believe both PEC and PEF are well positioned
to comply with the Transport Rule. The outcome of the
EPA’s rulemaking cannot be predicted. Because of the
D.C. Court of Appeals’ decision that remanded the CAIR,
the current implementation of the CAIR continues to
fulfill best available retrofit technology (BART) for NOx
and SO2 for BART-affected units under the CAVR. Should
this determination change as the Transport Rule is
promulgated, CAVR compliance eventually may require
consideration of NOx and SO2 emissions in addition to
particulate matter emissions for BART-eligible units.
In 2008, the D.C. Court of Appeals vacated the Clean Air
Mercury Rule (CAMR). As a result, the EPA subsequently
announced that it will develop a maximum achievable
control technology (MACT) standard. The United States
District Court for the District of Columbia has issued an
order requiring the EPA to issue a final MACT standard
for power plants by November 16, 2011. In addition, North
Carolina adopted a state-specific requirement. The
North Carolina mercury rule contains a requirement that
all coal-fired units in the state install mercury controls
by December 31, 2017, and requires compliance plan
applications to be submitted in 2013. We are currently
evaluating the impact of these decisions. The outcome of
this matter cannot be predicted.
To date, expenditures at PEF for CAIR regulation primarily
relate to environmental compliance projects at Crystal
River Units No. 4 and No. 5 (CR4 and CR5). The CR4
project was placed in service in May 2010 and the CR5
project was placed in service in December 2009. Under
an agreement with the FDEP, PEF will retire Crystal River
Units No. 1 and No. 2 (CR1 and CR2) as coal-fired units
and operate emission control equipment at CR4 and CR5.
CR1 and CR2 will be retired after the second proposed
nuclear unit at Levy completes its first fuel cycle,
which was originally anticipated to be around 2020. As
discussed in Note 7C, PEF identified in its 2010 nuclear
cost-recovery filing regulatory and economic conditions
causing schedule shifts such that major construction
activities are being postponed until after the NRC issues
the Levy COL. As required, PEF has advised the FDEP of
these developments that will delay the retirement of CR1
and CR2 beyond the originally anticipated date. We are
currently evaluating the impacts of the Levy schedule on
PEF’s compliance with environmental regulations. We
cannot predict the outcome of this matter.
The EPA is continuing to record allowance allocations
under the CAIR NOx trading program, in some cases
for฀ years฀ beyond฀ the฀ estimated฀ 2011฀ finalization฀ of฀ the฀
Transport Rule. The EPA’s continued recording of CAIR
NOx allowance allocations does not guarantee that
allowances will continue to be usable for compliance
after฀ a฀ replacement฀ rule฀ is฀ finalized฀ or฀ that฀ they฀ will฀
continue to have value in the future. SO2 emission
allowances฀will฀be฀utilized฀to฀comply฀with฀existing฀Clean฀
Air Act requirements. PEF’s CAIR expenses, including
NOx allowance inventory expense, are recoverable
through the ECRC. At December 31, 2010 and 2009, PEC
had approximately $8 million and $13 million, respectively,
in SO2 emission allowances and an immaterial amount
of NOx emission allowances. At December 31, 2010
and 2009, PEF had approximately $5 million and
$7 million, respectively, in SO2 emission allowances and
approximately $28 million and $36 million, respectively, in
NOx emission allowances.