Progress Energy 2010 Annual Report Download - page 52

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MANAGEMENT’S DISCUSSION AND ANALYSIS
U.S. Court of Appeals for the Second Circuit issued an
opinion and order remanding provisions of the rule to the
EPA, and the EPA suspended the rule pending further
rulemaking, with the exception of the requirement that
permitted facilities must meet any requirements under
Section 316(b) as determined by the permitting authorities
on a case-by-case, best professional judgment basis.
Following appeal, in 2009, the U.S. Supreme Court issued
an opinion holding that the EPA, in selecting the “best
technology” pursuant to Section 316(b), does have
the authority to reject technology when its costs are
“wholly disproportionate” to the benefits expected. Also,
the U.S. Supreme Court held that EPA’s site-specific
variance procedure (contained in the July 2004 rule)
was permissible in that the procedure required testing
to determine whether costs would be “significantly
greater than” the benefits before a variance would be
considered. As a result of these developments, our plans
and associated estimated costs to comply with Section
316(b) will need to be reassessed and determined in
accordance with any revised or new implementing rule
after it is established by the EPA. Costs of compliance with
a revised or new implementing rule are expected to be
higher, and could be significantly higher, than estimated
costs under the July 2004 rule. Our cost estimates
to comply with the July 2004 rule were $60 million to
$90 million. In December 2010, consent decrees were
entered in two pending federal actions brought by
environmental groups against the EPA requiring the EPA
to issue proposed Section 316(b) rules by March 14, 2011,
and to issue a final decision by July 27, 2012. The outcome
of this matter cannot be predicted.
OTHER ENVIRONMENTAL MATTERS
Climate Change
Growing state, federal and international attention to global
climate change may result in the regulation of CO2 and other
GHGs. In addition, the Obama administration has begun the
process of regulating GHG emissions through use of the
CAA. In 2007, the U.S. Supreme Court ruled that the EPA
has the authority under the CAA to regulate CO2 emissions
from new automobiles. In 2009, the EPA announced that six
GHGs (CO2, methane, nitrous oxide, hydrofluorocarbons,
perfluorocarbons and sulfur hexafluoride) pose a threat
to public health and welfare under the CAA. A number of
parties have filed petitions for review of this finding in the
D.C. Court of Appeals. On December 23, 2010, the EPA
announced a schedule for development of a new source
performance standard for new and existing fossil fuel-
fired electric utility units. Under the schedule, the EPA will
propose the standard by July 2011 and issue the final rule by
May 2012. The full impact of regulation under GHG initiatives
and any final legislation, if enacted, cannot be determined
at this time; however, we anticipate that it could result in
significant cost increases over time for which the Utilities
would seek corresponding rate recovery. We are preparing
for a carbon-constrained future and are actively engaged in
helping shape effective policies to address the issue.
The state of Florida’s 2008 comprehensive energy
legislation included a directive that the FDEP develop
rules to establish a cap-and-trade program to regulate
GHG emissions that would be presented to the legislature.
The FDEP has studied GHG policy options and the potential
economic impacts, but it has not developed a regulation for
the consideration of the legislature. While state-level study
groups have been active in all three of our jurisdictions, we
continue to believe that this issue requires a national policy
framework – one that provides certainty and consistency.
Our balanced solution as discussed in “Other Matters –
Energy Demand” is a comprehensive plan to meet the
anticipated demand in the Utilities’ service territories
and provides a solid basis for slowing and reducing CO2
emissions by focusing on energy efficiency, alternative
energy and a state-of-the-art power system.
There are ongoing efforts to reach a new international
climate change treaty to succeed the Kyoto Protocol.
The Kyoto Protocol was originally adopted by the United
Nations to address global climate change by reducing
emissions of CO2 and other GHGs. Although the treaty
went into effect in 2005, the United States has not adopted
it. In 2009, the United Nations Framework Convention on
Climate Change convened the 15th Conference of the
Parties to conduct further negotiations on GHG emissions
reductions. At the conclusion of the conference, a number
of the parties, including the United States, entered into
a nonbinding accord calling upon the parties to submit
emission reduction targets for 2020 to the United Nations
Framework Convention on Climate Change Secretariat by
the end of January 2010. On January 28, 2010, President
Obama submitted a proposal to reduce the U.S. GHG
emissions in the range of 17 percent below 2005 levels by
2020, subject to future congressional action.
Reductions in CO2 emissions to the levels specified by the
Kyoto Protocol, potential new international treaties or
federal or state proposals could be materially adverse to
our financial position or results of operations if associated
costs of control or limitation cannot be recovered from
ratepayers. The cost impact of legislation or regulation
to address global climate change would depend on the
specific legislation or regulation enacted and cannot be
determined at this time.