Progress Energy 2010 Annual Report Download - page 38

34
MANAGEMENT’S DISCUSSION AND ANALYSIS
costs. In the event the storm costs exceed that level, any
excess additional costs will be deferred and recovered
in a subsequent year or years as determined by the
FPSC. Additionally, the order approving the settlement
agreement allows PEF to use the surcharge to replenish
the storm damage reserve to $136 million, the level as of
June 1, 2010, after storm costs are fully recovered.
PEF Fuel Cost Recovery
On November 1, 2010, PEF filed a request with the FPSC
to seek approval to decrease the total fuel cost-recovery
by $205 million. This decrease is due to a decrease for
the projected recovery through the Capacity Cost-
Recovery Clause (CCRC) and for the projected recovery
of fuel costs. The decrease in the CCRC is primarily due
to the refund of a prior period over-recovery as a result of
higher than expected sales in 2010 and lower anticipated
costs associated with PEF’s proposed Levy project in
2011 (See “Other Matters – Nuclear – Potential New
Construction”). The decrease in the projected recovery
of fuel costs is due to lower expected 2011 fuel costs,
partially offset by an under-recovery of 2010 fuel costs.
On November 2, 2010 and November 30, 2010, the FPSC
approved PEF’s CCRC residential rate and fuel rate,
respectively.
PEF Nuclear Cost Recovery
PEF is allowed to recover prudently incurred site selection
costs, preconstruction costs and the carrying cost on
construction cost balances on an annual basis through
the CCRC. Such amounts will not be included in PEF’s rate
base when the plant is placed in commercial operation.
The nuclear cost-recovery rule also has a provision to
recover costs should the project be abandoned after the
utility receives a final order granting a Determination of
Need. These costs include any unrecovered construction
work in progress at the time of abandonment and any other
prudent and reasonable exit costs. In addition, the rule
requires the FPSC to conduct an annual prudence review
of the reasonableness and prudence of all such costs,
including construction costs, and such determination
shall not be subject to later review except upon a finding
of fraud, intentional misrepresentation or the intentional
withholding of key information by the utility.
In 2009, pursuant to the FPSC nuclear cost-recovery rule,
PEF filed a petition to recover $446 million through the
CCRC, which primarily consisted of preconstruction and
carrying costs incurred or anticipated to be incurred
during 2009 and the projected 2010 costs associated
with the Levy and CR3 uprate projects. In an effort to
help mitigate the initial price impact on its customers,
PEF proposed and the FPSC approved collecting certain
costs over a five-year period, with associated carrying
costs on the unrecovered balance. In adopting PEF’s
proposed rate management plan for 2010, the FPSC
permitted PEF to annually reconsider changes to the
recovery of deferred amounts to afford greater flexibility
to manage future rate impacts. The rate management
plan included the 2009 reclassification to the nuclear
cost-recovery clause regulatory asset of $198 million
of฀ capacity฀ revenues฀ and฀ the฀ accelerated฀ amortization฀
of $76 million of preconstruction costs. The cumulative
amount of $274 million was recorded as a nuclear cost-
recovery regulatory asset at December 31, 2009, and is
projected to be recovered by 2014.
On October 26, 2010, the FPSC approved PEF’s annual
nuclear cost-recovery filing with the FPSC to recover
$164 million, which includes recovery of preconstruction,
carrying and CCRC-recoverable O&M costs incurred
or anticipated to be incurred during 2011, recovery of
$60 million of the 2009 deferral in 2011, as well as the
estimated true-up of 2010 costs associated with the Levy
and CR3 uprate projects beginning with the first January
2011 billing cycle. Additionally, the FPSC approved the
prudence of the 2009 costs associated with the Levy
project. The final order was issued on February 2, 2011.
CR3 Outage
PEF maintains insurance coverage against incremental
costs of replacement power resulting from prolonged
accidental outages at CR3 through NEIL (See Note 4D).
NEIL has confirmed that the CR3 delamination event is
a covered accident. PEF is continuing to work with NEIL
for recovery of applicable repair costs and associated
replacement power costs.
The฀ following฀ table฀ summarizes฀ the฀ CR3฀ replacement฀
power and repair costs and recovery through
December 31, 2010:
(in millions) Replacement Power Costs Repair Costs
Spent to date $288 $150
NEIL proceeds received (117) (64)
Insurance receivable at
December 31, 2010 (54) (47)
Balance for recovery $117 $39
PEF considers replacement power and capital costs not
recoverable through insurance to be recoverable through