Progress Energy 2010 Annual Report Download - page 42

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Contractual Obligations
We are party to numerous contracts and arrangements
obligating us to make cash payments in future years.
These contracts include financial arrangements such
as debt agreements and leases, as well as contracts
for the purchase of goods and services. In most
cases, these contracts contain provisions for price
adjustments, minimum purchase levels and other
financial commitments. The commitment amounts
presented in the following table are estimates and
therefore will likely differ from actual purchase amounts.
Further disclosure regarding our contractual obligations
is included in the respective notes to the Consolidated
Financial Statements. We take into consideration the
future commitments when assessing our liquidity and
future financing needs.
The following table reflects Progress Energy’s contractual
cash obligations and other commercial commitments at
December 31, 2010, in the respective periods in which
they are due:
(in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years
Long-term debt (See Note 11)(a) $12,699 $1,000 $1,780 $1,300 $8,619
Interest payments on long-term debt(b) 10,034 691 1,234 1,079 7,030
Capital lease obligations (See Note 22B)(c) 457 34 75 65 283
Operating leases (See Note 22B)(c) 1,415 37 154 182 1,042
Fuel and purchased power (See Note 22A)(d) 21,745 2,882 5,247 3,436 10,180
Other purchase obligations (See Note 22A)(e) 2,046 629 490 216 711
Minimum pension funding requirements(f) 568 126 267 153 22
Other postretirement benefits(g) 489 41 89 96 263
Uncertain tax positions(h) – – – – –
Other commitments(i) 91 13 26 26 26
Total $49,544 $5,453 $9,362 $6,553 $28,176
(a) Our maturing debt obligations are generally expected to be repaid with cash from operations or refinanced with new debt issuances in the
capital markets.
(b) Interest payments on long-term debt are based on the interest rate effective at December 31, 2010.
(c) Amounts include certain related executory cost commitments.
(d) Essentially all fuel and certain purchased power costs incurred by the Utilities are eligible for recovery through cost-recovery clauses in
accordance with state and federal regulations and therefore do not require separate liquidity support. Amounts exclude precedent and
conditional contracts of $3.213 billion and an approximately $400 million Levy nuclear fuel fabrication contract. (See Note 22A and the other
purchase obligations discussion following in (e)).
(e) Amounts exclude an EPC agreement that PEF entered into in December 2008 for two nuclear units planned for construction at Levy.
As disclosed in “Other Matters – Nuclear – Potential New Construction,” the EPC agreement includes provisions for termination. For
termination without cause, the EPC agreement contains exit provisions with termination fees, which may be significant, that vary based
on the termination circumstances. We executed an amendment to the EPC agreement in 2010 due to the schedule shifts that will postpone
major construction activities on the project until after the NRC issues the COL, which is expected to be in 2013, if the licensing schedule
remains on track. Prior to the amendment, estimated payments and associated escalations were $8.608 billion for the multi-year contract
and did not assume any joint ownership. Because we have executed an amendment to the EPC agreement and anticipate negotiating
additional amendments upon receipt of the COL, we cannot currently predict the timing of when those obligations will be satisfied or the
magnitude of any change. Additionally, in light of the schedule shifts in the Levy nuclear project, PEF may incur fees and charges related to
the disposition of outstanding purchase orders on long lead time equipment for the Levy nuclear project, which could be material. In June
2010,฀PEF฀completed฀its฀long฀lead฀time฀equipment฀disposition฀analysis฀to฀minimize฀the฀impact฀associated฀with฀the฀schedule฀shift.฀As฀a฀result฀
of the analysis, PEF will continue with selected components of the long lead time equipment. Work has been suspended on the remaining
long lead time equipment items, which have total remaining estimated payments and associated escalations of approximately $1.250 billion
included in the previously discussed $8.608 billion. PEF has been in suspension negotiations with the selected equipment vendors, which
we anticipate concluding by the end of the first quarter of 2011. In its April 30, 2010 nuclear cost-recovery filing, PEF included for rate-
making purposes a point estimate of potential Levy disposition fees and charges of $50 million, subject to true-up. However, the amount of
disposition fees and charges, if any, cannot be determined until suspension negotiations are completed. We cannot predict the outcome of
this matter.
(f) Represents the projected minimum required contributions to the qualified pension trusts for a total of 10 years. These amounts are subject
to change significantly based on factors such as pension asset earnings and market interest rates.
(g) Represents projected benefit payments for a total of 10 years related to our postretirement health and life plans and are subject to change
based on factors such as experienced claims and general health care cost trends.
(h) Uncertain tax positions of $176 million are not reflected in this table as we cannot predict when open income tax years will close with
completed฀examinations.฀It฀is฀reasonably฀possible฀that฀the฀total฀amounts฀of฀unrecognized฀tax฀benefits฀will฀decrease฀by฀up฀to฀approximately฀
$60 million during the 12-month period ending December 31, 2011, due to expected settlements.
(i) By NCUC order, in 2008, PEC began transitioning North Carolina jurisdictional amounts currently retained internally to its external
decommissioning funds. The transition of the original $131 million must be complete by December 31, 2017, and at least 10 percent must be
transitioned each year.