Progress Energy 2010 Annual Report Download - page 116

112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SYNTHETIC FUELS MATTERS
On October 21, 2009, a jury delivered a verdict in a lawsuit
against Progress Energy and a number of our subsidiaries
and affiliates arising out of an Asset Purchase Agreement
dated as of October 19, 1999, and amended as of August
23, 2000 (the Asset Purchase Agreement) by and among
U.S. Global, LLC (Global); Earthco; certain affiliates of
Earthco; EFC Synfuel LLC (which was owned indirectly
by Progress Energy, Inc.) and certain of its affiliates,
including Solid Energy LLC; Solid Fuel LLC; Ceredo Synfuel
LLC; Gulf Coast Synfuel LLC (renamed Sandy River Synfuel
LLC) (collectively, the Progress Affiliates), as amended by
an amendment to the Asset Purchase Agreement. In a
case filed in the Circuit Court for Broward County, Fla., in
March 2003 (the Florida Global Case), Global requested an
unspecified amount of compensatory damages, as well
as declaratory relief. Global asserted (1) that pursuant
to the Asset Purchase Agreement, it was entitled to an
interest in two synthetic fuels facilities previously owned
by the Progress Affiliates and an option to purchase
additional interests in the two synthetic fuels facilities and
(2) that it was entitled to damages because the Progress
Affiliates prohibited it from procuring purchasers for the
synthetic fuels facilities. As a result of the expiration of
the Section 29 tax credit program on December 31, 2007,
all of our synthetic fuels businesses were abandoned
and we reclassified our synthetic fuels businesses as
discontinued operations.
The jury awarded Global $78 million. On October 23, 2009,
Global filed a motion to assess prejudgment interest on
the award. On November 20, 2009, the court granted the
motion and assessed $55 million in prejudgment interest
and entered judgment in favor of Global in a total amount
of $133 million. During the year ended December 31,
2009, we recorded an after-tax charge of $74 million to
discontinued operations. In December 2009, we made a
$154 million payment, which represents payment of the
total judgment and a required premium equivalent to two
years of interest, to the Broward County Clerk of Court
bond account. On December 17, 2010, we filed our initial
appellate brief. We cannot predict the outcome of this
matter.
In a second suit filed in the Superior Court for Wake
County, N.C., Progress Synfuel Holdings, Inc. et al. v. U.S.
Global, LLC (the North Carolina Global Case), the Progress
Affiliates seek declaratory relief consistent with our
interpretation of the Asset Purchase Agreement. Global
was served with the North Carolina Global Case on
April 17, 2003.
On May 15, 2003, Global moved to dismiss the North
Carolina Global Case for lack of personal jurisdiction over
Global. In the alternative, Global requested that the court
decline to exercise its discretion to hear the Progress
Affiliates’ declaratory judgment action. On August 7,
2003, the Wake County Superior Court denied Global’s
motion to dismiss, but stayed the North Carolina Global
Case, pending the outcome of the Florida Global Case.
The Progress Affiliates appealed the superior court’s
order staying the case. By order dated September 7,
2004, the North Carolina Court of Appeals dismissed the
Progress Affiliates’ appeal. Based upon the verdict in the
Florida Global Case, we anticipate dismissal of the North
Carolina Global Case.
NOTICE OF VIOLATION
On April 29, 2009, the EPA issued a notice of violation and
opportunity to show cause with respect to a 16,000-gallon
oil spill at one of PEC’s substations in 2007. The notice
of violation did not include specified sanctions sought.
Subsequently, the EPA notified PEC that the agency was
seeking monetary sanctions that are de minimus to our
results of operations or financial condition. PEC has
entered into consent agreements with the EPA resolving
all issues and requiring de minimus payment of penalties
and performance.
FLORIDA NUCLEAR COST RECOVERY
On February 8, 2010, a lawsuit was filed against PEF in
state circuit court in Sumter County, Fla., alleging that the
Florida nuclear cost-recovery statute (Section 366.93,
Florida Statutes) violates the Florida Constitution, and
seeking a refund of all monies collected by PEF pursuant
to that statute with interest. The complaint also requests
that the court grant class action status to the plaintiffs.
On April 6, 2010, PEF filed a motion to dismiss the complaint.
The trial judge issued an order on May 3, 2010, dismissing
the complaint. The plaintiffs filed an amended complaint
on June 1, 2010. PEF believes the lawsuit is without merit
and filed a motion to dismiss the amended complaint on
July 12, 2010. On October 1, 2010, the plaintiffs filed an
appeal of the trial court’s order dismissing the complaint.
Initial and reply briefs have been filed by the appellants
and PEF. The appellants filed their response brief on
January 25, 2011. We cannot predict the outcome of
this matter.