-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OOxicjZCGFB2JdPDVdl5Z1hwycrfr6NykkjdAkJA5UV3S2nn+Zlk5JZBxI+qbq7r M729umfsVcDC9gkqRmjT9Q== 0001094093-09-000184.txt : 20090902 0001094093-09-000184.hdr.sgml : 20090902 20090902102208 ACCESSION NUMBER: 0001094093-09-000184 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 32 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090902 DATE AS OF CHANGE: 20090902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROGRESS ENERGY INC CENTRAL INDEX KEY: 0001094093 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 562155481 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-15929 FILM NUMBER: 091049969 BUSINESS ADDRESS: STREET 1: 410 S WILMINGTON ST CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9195466463 MAIL ADDRESS: STREET 1: 410 S WILMINGTON ST CITY: RALEIGH STATE: NC ZIP: 27601 FORMER COMPANY: FORMER CONFORMED NAME: CP&L ENERGY INC DATE OF NAME CHANGE: 20000314 FORMER COMPANY: FORMER CONFORMED NAME: CP&L HOLDINGS INC DATE OF NAME CHANGE: 19990830 10-Q/A 1 form10qa_q2.htm 2009 Q2 FORM 10Q/A form10qa_q2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A
Amendment No. 1

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    .


Commission File Number
Exact name of registrant as specified in their charters, states of incorporation, addresses of principal executive offices,
and telephone numbers
I.R.S. Employer Identification Number
 
pgn logo
 
     
1-15929
Progress Energy, Inc.
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
Telephone:   (919) 546-6111
State of Incorporation: North Carolina
56-2155481
     

NONE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
x
No
o

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

Yes
x
No
o


 
 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Progress Energy
Yes
o
No
x

At August 3, 2009, the registrant had 279,297,789 shares of common stock (without par value) outstanding.

 

 
 

 


 
EXPLANATORY NOTE
 
 
The sole purpose of this Amendment No. 1 to the Progress Energy, Inc. (Progress Energy) Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (the Form 10-Q) is to furnish Exhibit 101 to the Form 10-Q. Exhibit 101 to this report contains the financial statements and notes thereto for Progress Energy from its Form 10-Q, filed with the Securities and Exchange Commission on August 7, 2009, formatted in eXtensible Business Reporting Language (“XBRL”). The Exhibit 101 contains the following financial statements and notes thereto for Progress Energy: (i) the Unaudited Condensed Consolidated Statements of Income, (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
 
Users of this data are advised pursuant to Rule 401 of Regulation S-T that the information contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of the Registrant. Investors should continue to rely on the official filed version of the Form 10-Q in making investment decisions. No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date and has not been updated to reflect events occurring subsequent to the original filing date.

In accordance with Rule 406T of Regulation S-T, Exhibit 101 shall not be deemed to be “filed” for purposes of Section 11 or 12 of the Securities Act of 1933, as amended (the “Securities Act”), Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of these sections, and are not part of any registration statement or prospectus, and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing or document.

 
 

 


 
ITEM 6.                 EXHIBITS
 
(a)  
Exhibits

Exhibit Number
Description
   
31(a) *
302 Certifications of Chief Executive Officer
   
31(b) *
302 Certifications of Chief Financial Officer
   
32(a) *
906 Certifications of Chief Executive Officer
   
32(b) *
906 Certifications of Chief Financial Officer
   
101
The following financial statements and notes thereto for Progress Energy from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 7, 2009, formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Income, (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
   

*Previously filed.



 
 

 



 
 
Pursuant to requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
 
 
PROGRESS ENERGY, INC.
Date: September 2, 2009
(Registrant)
   
 
By: /s/ Mark F. Mulhern
 
Mark F. Mulhern
 
Senior Vice President and Chief Financial Officer
   
 
By: /s/ Jeffrey M. Stone
 
Jeffrey M. Stone
 
Chief Accounting Officer and Controller
 

 

 
 

 
 
 
 
INDEX TO EXHIBITS
 
Exhibit Number
Description
   
31(a) *
302 Certifications of Chief Executive Officer
   
31(b) *
302 Certifications of Chief Financial Officer
   
32(a) *
906 Certifications of Chief Executive Officer
   
32(b) *
906 Certifications of Chief Financial Officer
   
101
The following financial statements and notes thereto for Progress Energy from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 7, 2009, formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Income, (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
   

*Previously filed.

 

 


 
 

 

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Unless otherwise noted, all adjustments are normal and recurring in nature. Due to seasonal weather variations, the impact of regulatory orders received, and the timing of outages of electric generating units, especially nuclear-fueled units, the results of operations for interim periods are not necessarily indicative of amounts expected for the entire year or future periods.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain amounts for 2008 have been reclassified to conform to the 2009 presentation.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">C.&#160;&#160;&#160;&#160;&#160;&#160;CONSOLIDATION OF VARIABLE INTEREST ENTITIES</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We consolidate all voting interest entities in which we own a majority voting interest and all variable interest entities (VIEs) for which we are the primary beneficiary. In general, we determine whether we are the primary beneficiary of a VIE through a qualitative analysis of risk that identifies which variable interest holder absorbsthe majority of the financial risk and variability of the VIE. In performing this analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE&#8217;s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. If the qualitative analysis is inconclusive, a specific quantitativeanalysis is performed. For purposes of the following disclosures, the maximum loss amounts represent the maximum exposure that would be absorbed by the Progress Registrants in the event that all of the assets of the VIE are deemed worthless, including any additional costs that the Progress Registrants would incur.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">PROGRESS ENERGY</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In addition to the following variable interests listed for PEC and PEF, Progress Energy, through its subsidiary Progress Fuels Corporation (Progress Fuels), is the primary beneficiary of, and consolidates, Ceredo Synfuel, LLC (Ceredo), a coal-based solid synthetic fuels production facility that qualified for fede ral tax credits under Section 45K of the Internal Revenue Code (the Code). See Note 1C in the 2008 Form 10-K for discussion of our variable interest in Ceredo and our disposal of Ceredo in 2007. There were no changes to our assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to Ceredo during the periods presented. At June 30, 2009, we had no assets and $20 million of liabilities related to the legal and tax indemnifications provided to the buyer includedin other liabilities and deferred credits on the Consolidated Balance Sheets. The ultimate resolution of the indemnifications could result in adjustments to the gain on disposal in future periods. The creditors of Ceredo do not have recourse to the general credit of Progress Energy. See Note 3D for additional information on the disposal of Ceredo and Note 15B for a general discussion of guarantees.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt " align="justify">&#160;</div><div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">19</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">PEC</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">VARIABLE INTEREST ENTITIES FOR WHICH PEC IS THE PRIMARY BENEFICIARY</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEC is the primary beneficiary of, and consolidates, two limited partnerships that qualify for federal affordable housing and historic tax credits under Section 42 of the Code. PEC&#8217;s variable interests are debt and equity investments in the two VIEs. PEC performed quantitative analyses to determine the primary beneficiaries of the two VIEs.The primary factors in the analyses were the estimated economic lives of the partnerships and their net cash flow projections, estimates of available tax credits, and the likelihood of default on debt and other commitments. There were no changes to PEC&#8217;s assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to the VIEs during the periods presented. At June 30, 2009, PEC had assets of $39 million, substantially all of which werereflected in miscellaneous other property and investments, $15 million in long-term debt, $3 million in other liabilities and deferred credits and $5 million in accounts payable on the Consolidated Balance Sheets related to the two VIEs. The assets of the two VIEs are collateral for, and can only be used to settle, their obligations. The creditors of these VIEs do not have recourse to the general credit of PEC and there are no other arrangements that could expose PEC to losses.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">OTHER VARIABL E INTERESTS</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEC has an equity investment in, and consolidates, one limited partnership investment fund that invests in 17 low-income housing partnerships that qualify for federal and state tax credits. The investment fund accounts for the 17 partnerships on the equity method of accounting. PEC also has an interest in one power plant resulting fromlong-term power purchase contracts. PEC&#8217;s only significant exposure to variability from the power purchase contracts results from fluctuations in the market price of fuel used by the entity&#8217;s plants to produce the power purchased by PEC. We are able to recover these fuel costs under PEC&#8217;s fuel clause. Th e generation capacity of the entity&#8217;s power plant is approximately 847 megawatts (MW). PEC has requested the necessary information to determine if the investment fund&#8217;s 17 partnerships and the power plant ownerare VIEs or to identify the primary beneficiaries; all entities from which the necessary financial information was requested declined to provide the information to PEC, and, accordingly, PEC has applied the information scope exception provided by GAAP to the 17 partnerships and the power plant. PEC believes that if it is determined to be the primary beneficiary of these entities, the effect of consolidating the power plant and the investment fund consolidating the 17 partnerships would result in increases tototal assets, long-term debt and other liabilities, but would have an insignificant or no impact on PEC&#8217;s common stock equity, net earnings or cash flows. However, because PEC has not received any financial information from the counterparties, the impact cannot be deter mined at this time.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">PEF</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The following information is provided for PEF&#8217;s significant variable interests in VIEs for which PEF is not the primary beneficiary:</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF has a prepayment clause in a building capital lease with a special purpose entity that is a VIE. In accordance with the lease agreement, PEF is not required to make any lease payments over the last 20 years of the lease, during which period $51 million of rental expense will be recorded in the PEF Statements of Income. The prepayment clause is PEF&#8217;s only variable interest in the VIE and, therefore, PEF&#8217;s exposure to loss primarily relates to the recovery of the prepayments through future use of the rental property. PEF performed qualitative and quantitative analyses and concluded that it is not the primary beneficiary of the VIE. The primary factors in the analyses were the lease term, the fact that the lease payments are not variable interests, the likelihood of construction and casualty risks to the building and the existence of insuranceto offset those risks, and the estimated fair value of the building at the end of the lease term. There were no changes to PEF&#8217;s assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to the VIE during the periods presented. At June 30, 2009, PEF had a $5 million prepayment included in other assets and deferred debits on the Balance Sheets. No liabilities associated with the prepayment clause were recorded. The aggregate maximum exposure to loss at June 30, 2009, is $51 million, which represents the loss if the maximum prepayment of rent at the end of year 20 was not recovered through future use of the rental property or from third-party insurers at that time.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF has a residual value guarantee in an operating railcar lease agreement with a special purpose entity that is a VIE. The lease agreement has an early termination clause that permits PEF to terminate the lease in certain circumstances. 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A mid-market pricing convention (the mid-point price between bid and ask prices) is permitted for use as a practical expedient andrequires the use of market data or assumptions that market p articipants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. 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The three levels of the fair value hierarchy are as follows:</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Level 1 &#8211; The pricing inputs are unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.&#160;Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. 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Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards, swaps and options, certain marketable debt securities, and financial instruments traded in less than active markets.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Level 3 &#8211; The pricing inputs include significant inputs that are generally less observable from objective sources. 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Although the overall schedule impact is not certain at this time, PEF expects the schedule for the commercial operation of Levy to shift later than the 2016 to 2018 timeframe by a minimum of 20 months. We anticipate amending the Levy Engineering,Procurement, and Construction agreement due to the schedule shift but cannot predict the impact, if any, such amendment might have on the project&#8217;s total cost. However, consistent with nuclear cost-recovery filings with the FPSC (See Note 4B), PEF anticipates that approximately $1 billion of the construction obligations disclosed in Note 22A in the 2008 Form 10-K for the three-year period following December 31, 2008, could be deferred to later periods as a result of the schedule shift.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">During the second quarter of 2009, PEF entered into conditional agreements for firm pipeline transportation capacity to support PEF&#8217;s gas supply needs for the period from April 2011 through March 2036. The total cost to PEF associated with these agreements is estimated to be approximately $281 million. These agreements are subject to severalconditions precedent, including various federal regulatory approvals, the completion and commencement of operation of necessary related interstate natural pipeline system expansions, and other contractual provisions. 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Such agreements include guarantees, standby letters of credit and surety bonds. At June 30, 2009, we do not believe conditions are likely for significant performance under these guarantees. To the extentliabilities are incurred as a result of the activities covered by the guarantees, such liabilities are included in the accompanying Balance Sheets.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGI N-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At June 30, 2009, we have issued guarantees and indemnifications of and for certain asset performance, legal, tax and environmental matters to third parties, including indemnifications made in connection with sales of businesses. Related to the sales of businesses, the latest specified notice period extends until 2013 for the majority of legal, tax and environmental matters provided for in the indemnification provisions. Indemnifications for the performance of assets extend to 2016. For certain matters for which we receive timely notice, our indemnity obligations may extend beyond the notice period. Certain indemnifications have no limitations as to time or maximum potential future payments. In 2005, PEC entered into an agreement with the joint owner of certain facilities at the Mayo and Roxboro plants to limit their aggregate costs associatedwith capital expenditures to comply with the Clean Smokestacks Act and recognized a liability related to this indemnification (See Note 14B). The terms of the agreement place no limit on PEC&#8217;s maximum remaining liability; however PEC estimates its remaining exposure to be $7 million as of June 30, 2009. Pursuant to a September 2008 NCUC order, PEC is including the indemnification costs as allowable costs to be included in rate base for ratemaking purposes (See Note 14B). At June 30, 2009, our estimated maximumexposure for guarantees and indemnifications for which a maximum exposure is determinable was $458 million, including $32 million at PEF. At June 30, 2009 and December 31, 2008, we have recorded liabilities related to guarantees and indemnifications to third parties of approximately $58 million and $61 million, respectively. 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During the three and six months ended June 30, 2009, PEC accrued approximately $2 million and spent approximately $1 million and $5 million, respectively, that exceeded the joint owner limit. As current estimates change, it is possible that additional losses related to guarantees and indemnifications to third parties, which could be material, may be recorded in the future.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In addition, the Parent and a subsidiary have issued $300 million of guarantees for certain payments of two wholly owned indirect subsidiaries. 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All similarly situated utilities were required to sign the same standard contract.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The DOE failed to begin taking spent nuclear fuel by January 31, 1998. In January 2004, the Utilities filed a complaint in the United States Court of Federal Claims against the DOE, claiming that the DOE breached the Standard Contract for Disposal of Spent Nuclear Fuel by failing to accept spent nuclear fuel from our various facilitieson or before January 31, 1998. Approximately 60 cases involving the government&#8217;s actions in connection with spent nuclear fuel are currently pending in the Court of Federal Claims. The Utilities have asserted nearly $91 million in damages incurred between January 31, 1998 and December 31, 2005; the time period set by the court for damages in this case. The Ut ilities will be free to file subsequent damage claims as they incur additional costs.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A trial was held in November 2007 in the United States Court of Federal Claims, and closing arguments were presented on April 4, 2008. On May 19, 2008, the Utilities received a ruling from the Trial Court awarding $83 million in the claim against the DOE for failure to abide by a contract for federal disposition of spent nuclear fuel. TheUnited States Department of Justice requested that the Trial Court reconsider its ruling. The Trial Court did reconsider its ruling and reduced the damage award by an immaterial amount. On August 15, 2008, the Department of Justice appealed the Trial Court&a mp;#8217;s ruling to the D.C. Court of Appeals. Oral arguments were held on May 4, 2009. On July 21, 2009, the D.C. Court of Appeals vacated and remanded the calculation of damages back to the Trial Court but affirmed the portion of damages awarded that were directedto overhead costs and other indirect expenses. The Trial Court has not yet scheduled further proceedings. In the event that the Utilities recover damages in this matter, such recovery is not expected to have a material impact on the Utilities&#8217; results of operations given the anticipated regulatory and accounting treatment. 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Global has asserted (1) that pursuant to the Asset Purchase Agreement, it is 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, (2) that it is entitled to damagesbecause the Progress Affiliates prohibited it from procuring purchasers for the synthetic fuels facilities and (3) a number of tort claims are related to the contracts.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The first suit, <font style="DISPLAY: inline; FONT-STYLE: italic">U.S. Global, LLC v. Progress Energy, Inc. et al.</font> (the Florida Global Case), asserts the above claims in a case filed in the Circuit Court for Broward County, Fla., in March 2003, and requests an unspecified amount of compensatory dama ges, as well as declaratory relief.The Progress Affiliates have answered the Complaint by generally denying all of Global&#8217;s substantive allegations and asserting numerous substantial affirmative defenses.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The second suit, <font style="DISPLAY: inline; FONT-STYLE: italic">Progress Synfuel Holdings, Inc. et al. v. 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In addition, we entered into an agreement to operate the Ceredo facility on behalf of the buyer. At closing, we received cash proceeds of $10 million and a non-recourse note receivable of $54 million. Payments on the note were due as we produced and sold qualifying synthetic fuels on behalf of the buyer. In accordance with the terms of the agreement, we received payments on the note related to 2007 production of $49 million during the year ended December 31, 2007, and $5 million during the six months ended June 30, 2008. The note had an interest rate equal to the three-month London Inter Bank Offering Rate (LIBOR) rate plus 1%. Theestimated fair value of the note at the inception of the transaction was $48 million. 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SFAS No. 141R considerably broadens the definition of a &#8220;business&#8221; and a &#8220;business combination,&#8221; which should result in an increased number of transactionsor other events that will qualify as business combinations. Other significant changes include the expensing of all acquisition-related transaction costs and most acquisition-related restructuring costs, the fair value remeasurement of certain earn-out arrangements and the discontinuance of the expense at acquisition of acquired-in-process research and development. SFAS No. 141R was effective for us for business combinations for which the acquisition date is on or after January 1, 2009. 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SFASNo. 160 was adopted concurr ently with the effective date of SFAS No. 141R, which for us was January 1, 2009. See Note 6B for information regarding our first quarter 2009 implementation of SFAS No. 160. 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FSP EITF 03-6-1 required a retrospective adjustment for all prior-period earnings per share data. 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FSP FAS 107-1 and APB 28-1, &#8220;Interim DisclosuresAbout Fair Value of Financial Instruments,&#8221; increases the frequency of fair value disclosures required by SFAS No. 107, &#8220;Disclosures of Fair Value of Financial Instruments,&#8221; from annually to quarterly.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div s tyle="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FSP FAS 115-2 and FAS 124-2, &#8220;Recognition and Presentation of Other-Than-Temporary Impairments&#8221; (FSP FAS 115-2), revises the recognition and reporting requirements for other-than-temporary impairments of debt securities and increases the frequency of disclosures for debt and equity securities. Under FSP FAS 115-2, if an entity intends tosell an impaired debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, an other-than-temporary impairment must be recognized currently in earnings equal to the difference between the investment&#8217;s amortized cost and its fair value at the balance sheet date.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align ="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The three FSPs were effective for us during the three months ended June 30, 2009. The adoption of the three FSPs resulted in additional disclosures but did not have a material impact on our or the Utilities' financial position or results of operations. See Note 9 for the disclosures resulting from our second quarter 2009 implementationof the three FSPs.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">SFAS No. 165, &#8220;Subsequent Events&#8221;</font></div><di v style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In May 2009, the FASB issued SFAS No. 165, &#8220;Subsequent Events&#8221; (SFAS No. 165), which is applicable to the accounting for and disclosure of subsequent events not otherwise addressed in GAAP. SFAS No. 165 defines subsequent events as &#8220;events or transactions that occur after the balance sheet date but before financial statements are issuedor are available to be issued.&#8221; For public entities, financial statements are considered &#8220;issued&#8221; when they are widely distributed to shareholders and other financial users for general use and reliance in a form and format that complies with GAAP. SFAS No. 165 is effective for us on June 30, 2009. The adoption of S FAS No. 165 requires the disclosure of the date through which subsequent events have been evaluated, as well as whether the date is the date the financial statements were issued or the date the financialstatements were available to be issued. See Note 1 for the information regarding our implementation of SFAS No. 165.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">FSP FAS 132R-1, &#8220;Employers&#8217; Disclosures about Post Retirement Benefit Plan Assets&#8221;</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In December 2008, the FASB issued FSP FAS 132R-1, &#8220;Employers&#8217; Disclosures about Post Retirement Benefit Plan Assets&#8221; (FSP FAS 132R-1), which requires additional disclosures on the investment allocation decision making process, the fair value of each major category of plan assets and the inputs and valuation techniques used to remeasurethe fair value of plan assets. FSP FAS 132R-1 is effective for us on December 31, 2009. The adoption of FSP FAS 132R-1 will change certain disclosures in the notes to the financial statements but we do not expect the adoption of FSP FAS 132R-1 to have a material impact on our or the Utilities&#8217; financial position or results of operations.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt ; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div></div><div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">22</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div></div></div></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">SFAS No. 166, &#8220;Accounting for Transfers of Financial Assets &#8211; an amendment of FASB Statement No. 140&#8221;</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In June 2009, the FASB issued SFAS No. 166, &#8220;Accounting for Transfers of Financial Assets &#8211; an amendment of FASB Statement No. 140&#8221; (SFAS No. 166), which is a revision to SFAS No. 140, &#8220;Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities&#8221;. SFAS No. 166 eliminates the concept of a &#8220;qualifying specialpurpose entity&#8221;, changes the requirements for derecognizing financial assets and requires additional disclosures. SFAS No. 166 is effective for us January 1, 2010. Earlier application is prohibited. 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SFAS No. 167 requiresall existing arrangements to be evaluated, and must be adopted through a cumulative-effect adjustment. SFAS No. 167 is effective for us on January 1, 2010. We are currently evaluating the impact adoption may have on our or the Utilities&#8217; financial position, results of operations and cash flows.</font></div>< ;/div> 0 71000000 1518000000 1471000000 174000000 164000000 400000000 0 2623000000 2567000000 3705000000 3520000000 27822000000 26326000000 <div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 34px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">14.&#160;&#160;</font></div></td> <td width="1363"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">ENVIRONMENTAL MATTERS</font></font></div></td></tr></table></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We are subject to regulation by various federal, state and local authorities in the areas of air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. We believe that we are in substantial compliance with those environmental regulations currently applicable to our business andoperations and believe we have all necessary permits to conduct such operations. Environmental laws and regulations frequently change and the ultimate costs of compliance cannot always be precisely estimated.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div& gt;<table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 33px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A.&#160;&#160;</font></div></td> <td width="1364"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">HAZARDOUS AND SOLID WASTE</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), authorize the EPA to require the cleanup of hazardous waste sites. This statute imposes retroactive joint and several liability. Some states, including North Carolina, South Carolina and Florida, have similar types ofstatutes. We are periodically notified by regulators, incl uding the EPA and various state agencies, of our involvement or potential involvement in sites that may require investigation and/or remediation. There are presently several sites with respect to which we have been notified of our potential liability by the EPA, the state of North Carolina, the state of Florida, or potentially responsible party (PRP) groups as described below in greater detail. Various organic materials associated with the production ofmanufactured gas, generally referred to as coal tar, are regulated under federal and state laws. PEC and PEF are each PRPs at several manufactured gas plant (MGP) sites. We are also currently in the process of assessing potential costs and exposures at other sites. These costs are eligible for regulatory recovery through either base rates or cost-recovery clauses. Both PEC and PEF evaluate potential claims against other PRPs and insurance carriers and plan to submit claims for cost recovery where appropriate. The outcome of potential and pending claims cannot be predicted. A discussion of sites by legal entity follows.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We record accruals for probable and estimable costs related to environmental sites on an undiscounted basis. We measure our liability for these sites based on available evidence including our experience in investigating and remediating environmentally impaired sites. The process often involves assessing and developing cost-sharing arrangementswith other PRPs. For all sites, as assessments are developed and analyzed, we will accrue costs for the sites to the extent our liability is probable and the costs can be reasonably estimated. Because the extent of environmenta l impact, allocation among PRPs for all sites, remediation alternatives (which could involve either minimal or significant efforts), and concurrence of the regulatory authorities have not yet reached the stage where a reasonable estimate of the remediation costs can be made, we cannot determinethe total costs that may be incurred in connection with the remediation of all sites at this time. It is probable that current estimates will change and additional losses, which could be material, may be incurred in the future.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">55</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; 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Actual experience may differ from current estimates, and it is probable that estimates will continue to change in the future.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In 2004, the EPA advised PEC that it had been identified as a PRP at th e Ward site. The EPA offered PEC and a number of other PRPs the opportunity to negotiate the removal action for the Ward site and reimbursement to the EPA for the EPA&#8217;s past expenditures in addressing conditions at the Ward site. Subsequently, PEC and other PRPs signeda settlement agreement, which requires the participating PRPs to remediate the Ward site. At June 30, 2009 and December 31, 2008, PEC&#8217;s recorded liability for the site was approximately $7 million. Actual experience may differ from current estimates, and it is probable that estimates will continue to change in the future. On September 12, 2008, PEC filed an initial civil action against a number of PRPs seeking contribution for and recovery of costs incurred in remediating the Ward site, as well as a declaratoryjudgment that defendants are jointly and severally liable for response costs at the site. On March 13, 2009, a subsequent action was filed against additional PRPs, and on April 30, 2009, suit was filed against the rema ining approximately 160 PRPs. PEC has settled with a number of the PRPs and is in active settlement negotiations with others. With respect to the defendants that do not settle, the federal district court in which this matter is pending requires that alternative dispute resolution be pursued earlyin civil litigation. The outcome of these matters cannot be predicted.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On September 30, 2008, the EPA issued a Record of Decision for the operable unit for stream segments downstream from the Ward site (Ward OU1) and advised 61 parties, including PEC, of their identification as PRPs for Ward OU1 and for the operable unit for further investigation at the Ward facility and certain adjacent areas (Ward OU2). </font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">56</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The EPA&#8217;s estimate for the selected remedy for Ward OU1 is approximately $6 million. 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Although a loss is considered probable, an agreement among the PRPs for these matters has not been reached; consequently, it is not possible at this time to reasonably estimate the total amount of PEC&#8217;s obligation, if any, for Ward OU1 and Ward OU2.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">PEF</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT - -SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF has received approval from the FPSC for recovery through the environmental cost recovery clause (ECRC) of the majority of costs associated with the remediation of distribution and substation transformers. Under agreements with the Florida Department of Environmental Protection (FDEP), PEF has reviewed all distribution transformer sitesand all substation sites for mineral oil-impacted soil caused by equipment integrity issues. Should further distribution transformer sites be identified outside of this population, the distribution O&amp;M costs will not be recoverable through the ECRC. For the three and six months ended June 30, 2009, PEF accrued approximately $2 million and spent approximately $4 million and $7 million, respectively, related to the remediation of transformers. For the three and six months ended June 30, 2008, PEF accrued approximately $10 million and $12 million, respectively, due to the identification of additional transformer sites and an increase in estimated remediation costs, and spent approximately $8 million and $14 million, respectively, related to the remediation of transformers. At June 30, 2009, PEF had recorded a regulatory asset for the probable recovery of these costs through the ECRC.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The accruals for MGP and other sites, in the previous table, relate to two former MGP sites and other sites associated with PEF that have required, or are anticipated to require, investigation and/or remediation. For the three and six months ended June 30, 2009, PEF made no material accruals and spent approximately $2 million, which primarily related to its MGP sites. For the three and six months ended June 30, 2008, PEF made no material accruals or expenditures.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 34px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">B.&#160;&#160;</font></div></td> <td width="1363"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">AIR AND WATER QUALITY</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At June 30, 2009 and December 31, 2008, we were subject to various current federal, state and local environmental compliance laws and regulations governing air and water quality, resulting in capital expenditures and increased O&amp;M expenses. These compliance laws and regulations included the Clean Air Interstate Rule (CAIR), the CleanAir Visibility Rule (CAVR), the North Carolina Clean Smok estacks Act, enacted in June 2002 (Clean Smokestacks Act) and mercury regulation. PEC&#8217;s and PEF&#8217;s environmental compliance capital expenditures related to these regulations began in 2002 and 2005, respectively. At June 30, 2009, cumulative environmental compliance capital expenditures to date with regard to these environmental laws and regulations were $2.027 billion, including $1.042 billion at PEC and $985 million at PEF. At December 31, 2008, cumulativeenvironmental compliance capital expenditures to date with regard to these environmental laws and regulations were $1.859 billion, including $1.012 billion at PEC, which primarily relates to Clean Smokestacks Act projects, and $847 million at PEF.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF participated in a coalition of Florida utilities that filed a challenge to the CAIR as it applied to Florida. PEF withdrew from the coalition during the fourth quarter of 2008. On July 11, 2008, the U.S. Court of Appeals for the District of Columbia (D.C. Court of Appeals) issued its decision on multiple challenges to the CAIR, includingthe Florida challenge, which vacated the CAIR in its entirety. On September 24, 2008, petitions for rehearing were filed by a number of parties. On December 23, 2008, the D.C. Court of Appeals remanded the CAIR without vacating the rule for the EPA to conduct further proceedings consistent with the D.C. Court of Appeals&#8217; prior opinion. The outcome of th e EPA&#8217;s further proceedings cannot be predicted. Because the D.C. Court of Appeals&#8217; December 23, 2008 decision remanded the CAIR, the current implementation ofthe CAIR continues to fulfill best available retrofit technology (BART) for SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> and nitrogen oxides (NOx) for BART-affected units under the CAVR. Should this determination change as the CAIR is revised, CAVR compliance eventually may require consideration of NOx and SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emissions in addition to particulate matter emissions for BART-eligible units.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;&l t;/div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">57</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On February 8, 2008, the D.C. Court of Appeals vacated the delisting determination and the Clean Air Mercury Rule (CAMR). The three states in which the Utilities operate adopted mercury regulations implementing CAMR and submitted their state implementation rules to the EPA. It is uncertain how the decision that vacated the federal CAMR will affect the state rules; however, state-specific provisions are likely to remain in effect. 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 these matters cannot be predicted.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF is continuing construction of its in-process emission control projects. On December 18, 2008, PEF and the FDEP announced an agreement under which PEF will retire Crystal River Units No. 1 and No. 2 (CR1 and CR2) as coal-fired units and complete construction of its em ission control projects at CR4 and CR5. CR1 and CR2 will be retiredafter the second proposed nuclear unit at Levy completes its first fuel cycle, which was anticipated to be around 2020. On May, 1, 2009, PEF announced that it expects the construction schedule to shift later than the originally estimated 2016 to 2018 timeframe by a minimum of 20 months for the commercial operation dates of Levy. We are currently evaluating the impacts of the schedule shift. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We account for emission allowances as inventory using the average cost method. We value inventory of the Utilities at historical cost consistent with ratemaking treatment. The EPA is continuing to record allowance allocations under the CAIR NOx trading program, in some cases for years beyond the estimated two-year period for promulgation of a replacement rule. The EPA&#8217;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. SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances will be utilized to comply with existing Clean Air Act requirements. PEF&#8217;s CAIR expenses, including NOx allowance inventory expense, are recoverable through theECRC. At June 30, 2009 and December 31, 2008, PEC had approximately $17 million and $22 million, respectively, in SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances and an immaterial amount of NOx emission allowances. At June 30, 2009 and December 31, 2008, PEF had approximately $9 million and $11 million, respectively, in SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> e mission allowances and approximately $54 million and $65 million,respectively, in NOx emission allowances.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In June 2002, the Clean Smokestacks Act was enacted in North Carolina requiring the state's electric utilities to reduce the emissions of NOx and SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> from their North Carolina coal-fired power plants in phases by 2013. Two of PEC&#8217;s largest coal-fired generating units(the Roxboro No. 4 and Mayo Units) impacted by the Clean Smokestacks Act are jointly owned. Pursuant to joint ownership agreements, the joint owners are required to pay a portion of the costs of owning and operatin g these plants. PEC has determined that the most cost-effective Clean Smokestacks Act compliance strategy is to maximize the SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> removal from its larger coal-fired units, including Roxboro No. 4 and Mayo, so as to avoid the installation of expensive emission controls on its smaller coal-fired units. In order to address the joint owner's concerns that such a compliance strategy would result in a disproportionate share of the cost of compliance for the jointly owned units, in 2005 PEC entered into an agreement with the joint owner to limit its aggregate costs associated with capital expenditures to comply with the Clean Smokestacks Act to approximately $38 million. PEC recorded a related liability for the joint owner's share of estimated costsin excess of the contract amount. The terms of the agreement place no limit on PEC&#8217;s maximum remaining liability; however PEC estimates its remaining exposure to be $7 million as of June 30, 2009. At June 30, 2009 and December 31, 2008, the amount of the liability was $7 million and $10 million, respectively, based upon the respective estimates for the remaining Clean Smokestacks Act compliance costs. During the three and six months ended June 30, 2009, PEC accrued approximately $2 million and spent approximately $1 million and $5 million, respectively, that exceeded the joint owner limit (See Note 15B). Because PEC has taken a system-wide compliance approach, its North Carolina retail ratepayers have significantly benefited from the strategy of focusing emission reduction efforts on the jointly owned units, and, therefore, PEC believes that any costs in excess of the joint owner&#8217;s share should be recovered from North Carolina retail ratepayers, consistent with other capital expenditures associated with PEC&#8217;s compliancewith the Clean Smokestacks Act. On September 5, 2008, the NCUC ordered that PEC shall be allowed to include in rate base all reasonable and prudently incurred environmental compliance costs in excess of $584 million, including eligible compliance costs in excess of the joint owner&#8217;s share, as the projects are closed to plant in service.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><br> ;<div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div></div><div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">58</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div></div></div></div></div> <div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 31px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">11.&#160;&#160;</font></div></td> <td width="1366"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS</font></font></div></td></tr></table></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We are exposed to various risks related to changes in market conditions. We have a risk management committee that includes senior executives from various business groups. The risk management committee is responsible for administering risk management policies and monitoring compliance with those policies by all subsidiaries. Under our riskpolicy, we may use a variety of instruments, including swaps, options and forward contracts, to manage exposure to fluctuations in commodity prices and interest rates. Such instruments contain credit risk if the counterparty fails to perform under the contract. We minimize such risk by performing credit and financial reviews using a combination of financial analysis and publicly available credit ratings of such counterparties. Potential nonperformance by counterparties is not expected to have a material effecton our financial position or results of operations.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A.&#160;&#160;&#160;&#160;&#160;&#160;COMMODITY DERIVATIVES</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">GENERAL</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Most of our physical commodity contracts are not derivatives or qualify as normal purchases or sales. Therefore, such contracts are not recorded at fair value.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">ECONOMIC DERIVATIVES</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DI SPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Derivative products, primarily natural gas and oil contracts, may be entered into from time to time for economic hedging purposes. While management believes the economic hedges mitigate exposures to fluctuations in commodity prices, these instruments are not designated as hedges for accounting purposes and are monitored consistent with trading positions.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Utilities have derivative instruments related to their exposure to price fluctuations on fuel oil and natural gas purchases. Substantially all of these instruments receive regulatory accounting treatment. Related unrealized gains and losses are recorded in regulatory liabilities and regulatory assets, respectively, on the Balance Sheetsuntil the contracts are settled. After settlement of the derivatives and the fuel is consumed, any realized gains or losses are passed through the fuel cost-recovery clause.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div&g t;<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain hedge agreements may result in the receipt of, or posting of, derivative collateral with our counterparties, depending on the daily derivative position. Fluctuations in commodity prices that lead to our return of collateral received and/or our posting of collateral with our counterparties negatively impact our liquidity. We manage open positions with strict policies that limit our exposure to market risk and require daily reporting to management of potential financial exposures.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain counterparties have posted or held cash collateral in support of these instruments. PEC had a cash collateral asset included in prepayments and other current assets of $8 million and $18 million on the PEC Consolidated Balance Sheet at June 30, 2009 and December 31, 2008, respectively. At June 30, 2009, PEC had 57.1 million MMBtunotional of natural gas related to outstanding commodity derivative swaps that were entered into to hedge forecasted natural gas purchases. Due to changes in natural gas prices and settlements o f financial hedge agreements since December 31, 2008, PEF&#8217;s cash collateral asset included in derivative collateral posted on the PEF Balance Sheet was $294 million at June 30, 2009, compared to $335 million at December 31, 2008. At June 30, 2009, PEF had 227.0 million MMBtu notional of natural gas and 2.4 million barrels notional of oil related to outstanding commodity derivative swaps that were entered into to hedge forecasted oil and natural gas purchases.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">CASH FLOW HEDGES</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The Utilities designate a portion of commodity derivative instruments as cash flow hedges. From time to time we hedge exposure to market risk associated with fluctuatio ns in the price of power for our forecasted sales. Realized gains and losses are recorded net in operating revenues. We also hedge exposure to market risk associated with fluctuations in the price of fuel for fleet vehicles. 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The ineffective portion of commodity cash flow hedges was not material to our or the Utilities&#8217; results of operations for the three and six months ended June 30, 2009 and 2008.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At June 30, 2009 and December 31, 2008, the amount recorded in our or the Utilities&#8217; accumulated other comprehensive income related to commodity cash flow hedges was not material.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"& gt;<font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">B.&#160;&#160;&#160;&#160;&#160;&#160;INTEREST RATE DERIVATIVES &#8211; FAIR VALUE OR CASH FLOW HEDGES</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We use cash flow hedging strategies to reduce exposure to changes in cash flow due to fluctuating interest rates. We use fair value hedging strategies to reduce exposure to changes in fair value due to interest rate changes. The notional amounts of interest rate derivatives are not exchanged and do not represent exposure to credit loss.In the event of default by the counterparty, the exposure in these transactions is the cost of replacing the agreements at current market rates.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN- RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">CASH FLOW HEDGES</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At June 30, 2009, all open interest rate hedges will reach their mandatory termination dates within approximately three years. It is expected that in the next twelve months $3 million and $4 million, net of tax, related to terminated hedges, will be reclassified to interest expense at the Parent and PEC, respectively. The actual amounts that will be reclassified to earnings may vary from the expected amounts as a result of the timing of debt issuances at the Parent and the Utilities and changes in the market value of currently open interest rate hedges.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At December 31, 2008, the Parent had $200 million notional of interest rate cash flow hedges. All of these forward starting swaps were terminated on March 16, 2009, in conjunction with the Parent&#8217;s issuance of $450 million of 7.05% Senior Notes due 2019. In January and June 2009, the Parent entered into forward starting swaps to mitigateexposure to interest rate risk in anticipation of future debt issuances. At June 30, 2009, the Parent had $100 million notional of interest rate cash flow hedges. In J uly 2009, the Parent entered into an additional $50 million notional forward starting swap to mitigate exposure to interest rate risk in anticipation of future debt issuances.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At December 31, 2008, PEC had $250 million notional of interest rate cash flow hedges. All of these forward starting swaps were terminated on January 8, 2009, in conjunction with PEC&#8217;s issuance of $600 million First Mortgage Bonds 5.30% Series due 2019. 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All of our goodwill is allocated to our utility segments and our goodwill impairment tests are performed at the utility segment level. The carrying amounts of goodwill at June 30, 2009 and December 31, 2008, for reportable segments PEC and PEF, were $1.922 billion and $1.733 billion, respectively. The amounts assigned to PEC and PEF are recorded in our Corporate and Other business segment. We perform our annual impairment tests as of April 1 each year. 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On May 28, 2009, PEC jointly filed a settlement agreement with the South Carolina Office of Regulatory Staff (ORS) and Nucor Steel. Under the terms of the settlement agreement, the parties agreed to PEC&#8217;s proposed rate reductionof approximately $13 million. A hearing on the matter was held by the SCPSC on June 11, 2009, and on June 19, 2009, the SCPSC approved the settlement agreement. The decrease is effective July 1, 2009, and decreases residential electric bills by $2.08 per 1,000 kilowatt-hours (kWh), or 2.0 percent, for fuel cost recovery.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On June 4, 2009, PEC filed w ith the NCUC for a decrease in the fuel rate charged to its North Carolina ratepayers. PEC is asking the NCUC to approve a $5 million decrease in the fuel rates driven by declining fuel prices. If approved, the decrease would take effect December 1, 2009, and would decrease residential electric bills by $0.17 per 1,000 kWh, or 0.2 percent, for fuel cost recovery. A hearing on the matter has been scheduled by the NCUC for September 15, 2009. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">DEMAND-SIDE MANAGEMENT AND ENERGY-EFFICIENCY COST RECOVERY</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">See Note 7B in the 2008 Form 10-K for discussion of North Carolina&#8217;s comprehensive energy legislation, which became law on August 20, 2007. As a result of the legislation, PEC has implemented a series of demand-side management (DSM) and energy-efficiency programs and will continu e to pursue additional programs. These programs must be approved by the NCUC and we cannot predict the outcome of the DSM and energy-efficiency filings currently pending approval by the NCUC or whether the implemented programs will produce the expected operational and economic results.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On June 6, 2008, and as subsequently amended, PEC filed an application with the NCUC for approval of a DSM and energy-efficiency rider to recover all program costs,&#160;including the recovery of appropriate incentives for investing in such programs. On November 14, 2008, the NCUC issued an order allowing PEC to implement the rates requestedin PEC&#8217;s November 14, 2008 revision to its initial application. The new rates, subject to true-up to the final order, were implemented on December 1, 2008, increasing residential electrical bills by $0.74 per 1,000 kWh, or 0.8 percent. On December 9, 2008, the North Carolina Public Staff filed an Agreement and Stipulation of Partial Settlement with PEC and some of the other parties to the proceedings. The NCUC held a hearing on the matter on January 7, 2009. On June 15, 2009, the NCUC issued an order approving the Agreement and Stipulation of Partial Settlement, subject to certain modifications. PEC estimates the year-to-date impact of these modifications to be immaterial. On July 13, 2009, PEC filed a motion asking the NCUC to reconsider certain provisions of the June 15, 2009 order and stay the requirements for PEC to revise its cost-recovery filings in accordance with the decisions approved in the order. On July 20, 2009, the NCUC issued an order requesting comments on the motion and allowed&#160;the motion forstay, pending a ruling on the motion for reconsideration, on a portion of PEC&#8217;s request. Reply comments are due August 7, 2009. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On June 4, 2009, PEC filed with the NCUC for a decrease in the DSM and energy-efficiency rate charged to its North Carolina ratepayers. PEC is asking the NCUC to approve a $3 million decrease in the DSM and energy-efficiency rates. If approved, the decrease would take effect December 1, 2009, and would decrease residential electric billsby $0.19 per 1,000 kWh, or 0.2 percent, for DSM and energy-efficiency cost recovery. A hearing on the matter has been scheduled by the NCUC for September 16, 2009. We cannot predict the outcome of this matter.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEC filed a petition on November 30, 2007, with the SCPSC seeking authorization to create a deferred account for DSM and energy-efficiency expenses. On December 21, 2007, the SCPSC issued an order granting PEC&#8217;s petition. On June 27, 2008, PEC filed an application with the SCPSC to establish procedures that encourage investment in cost-effective energy-efficient technologies and energy conservation programs and approve the establishment of an annual rider to allow recovery for all costs associated with such programs, as well as the recovery of appropriate incentives for investing in such programs. On January 23, 2009, PEC filed a Stipulation Agreement between PEC and some of the other parties to the proceeding. On May 6, 2009, the SCPSC approved the Stipulation Agreement and issued a directive requiring PEC to file for approval of all proposed DSM andenergy-efficiency programs. 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On June 10, 2009, SCPSC approved the proposed DSM and energy-efficiency programs and the cost-recovery rider application, on a provisional basis pending a review of the cost-recovery rider by the ORS. The rate increase was effective July 1, 2009, and increased residential electric bills by $0.79 per 1,000 kWh or 0.8 percent, for DSM and energy-efficiency cost recovery. We cannot predict the outcome of this matter.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">RENEWABLE ENERGY AND ENERGY EFFICIENCY PORTFOLIO STANDARD COST RECOVERY</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On June 4, 2009, PEC filed with the NCUC for an increase in the Renewable Energy and Energy Efficiency Portfolio standard (NC REPS) rate charged to its North Carolina ratepayers. PEC is asking the NCUC to approve a $6 million increase in the NC REPS rates. If approved, the increase would take effect December 1, 2009, and would increase residential electric bills by $0.26 per month, or 0.2 percent, for REPS cost recovery. A hearing on the matter has been scheduled by the NCUC for September 16, 2009. We cannot predict the outcome of this matter.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 31px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">B.&#160;&#160;</font></div></td> <td width="1366"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF RETAIL RATE MATTERS</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">BASE RATE FILING</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As a result of a base rate proceeding in 2005, PEF is party to a base rate settlement agreement that was effective with the first billing cycle of January 2006 and will remain in effect through the last billing cycle of December 2009.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 20, 2009, in anticipation of the expiration of its current base rate settlement agreement, PEF filed with the FPSC a proposal for an increase in base rates effective January 1, 2010. In its filing, PEF requested the FPSC to approve calendar year 2010 as the projected test period for setting new base rates and approve annual raterelief for PEF of $499 million, which includes PEF&#8217;s petition for a combined $76 million of new base rates in 2009 as disc ussed below. The request for increased base rates is based, in part, on investments PEF is making in its generating fleet and in its transmission and distribution systems.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Included within the base rate proposal is a request for an interim base rate increase of $13 million. Additionally, on March 20, 2009, PEF petitioned the FPSC for a limited proceeding to include in base rates revenue requirements of $63 million for the repowered Bartow power plant, which began commercial operations in June 2009. On May19, 2009, the FPSC approved both the annualized interim base rate increase and the cost recovery for the repowered Bartow power plant subject to refund with interest effective July 1, 2009. These increases&#160;are expected to&#160;result in additional revenues of approximately $70 million in 2009. The changes&#160;increased residential bills by approximately $4.52 per 1,000 kWh, or 3.7 percent. On July 2, 2009, Florida&#8217;s Office of Public Counsel (OPC), the Florida Industrial Power Users Group, the Attorney General,the Florida Retail Federation and PCS Phosphate filed a petition protesting portions of the FPSC approval. A hearing on the matter will not be held until after the annual rate relief hearings are concluded. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If PEF&#8217;s remaining rate request is approved by the FPSC as filed by PEF, the new base rates would increase residential bills by approximately $9.66 per 1,000 kWh, or 7.6 percent, effective January 1, 2010. The FPSC has scheduled hearings on the remaining annual rate relief filing beginning September 21, 2009. A ruling by the FPSC is expectedin November 2009. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">FUEL COST RECOVERY</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 17, 2009, PEF received approval from the FPSC to reduce its 2009 fuel cost-recovery factors by an amount sufficient to achieve a $206 million reduction in fuel charges to retail customers as a result of effective fuel purchasing strategies and lower fuel prices. The approval reduces residential customers&#8217; fuel charges by $6.90per 1,000 kWh, or 5.0 percent, starting with the first billing cycle of April 2009. Commercial and industrial customers will see similar reductions.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In 2006, OPC filed a petition with the FPSC asking that the FPSC require PEF to refund to ratepayers $135 million, plus interest, of alleged excessive past fuel recovery charges and sulfur dioxide (SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font>) allowance costs during the period 1996 to 2005. The OPC claimed that although Crystal River Unit 4 and Crystal River Unit 5 (CR4 and CR5) were designed to burn a blend of coals, PEF failed to act to lower ratepayers&#8217; costs by purchasing the most economical blends of coal. During the period specified in the petition, PEF&#8217;s costs recovered through fuel recovery clauses were annually reviewed for prudence and approval by the FPSC. On October 10, 2007, the FPSC issued its order rejecting most of the OPC&#8217;s contentions. However, the FPSC found that PEF had not been prudent in </font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">26</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">purchasing a portion of its coal requirements during the period from 2003 to 2005. Accordingly, the FPSC ordered PEF to refund its ratepayers $14 million, inclusive of interest, over a 12-month period beginning January 1, 2008. The refund was returned to ratepayers through a reduction of prior year under-recovered fuel costs. The FPSC alsoordered PEF to address whether it was prudent in its 2006 and 2007 coal purchases for CR4 and CR5. On October 4, 2007, PEF filed a motion to establish a separate docket on the prudence of its coal purchases for CR4 and CR5 for the years 2006 and 2007. On October 17, 2007, the FPSC granted that motion. On February 2, 2009, the OPC filed direct testimony in this hearing alleging that during 2006 and 2007, PEF collected excessive fuel costs and SO<font style="DISPLAY: inline; FONT-SIZE: 70 %; VERTICAL-ALIGN: sub">2</font> allowancecosts of $61 million before interest. The OPC claimed that these excessive costs were attributed to PEF&#8217;s ongoing practice of not blending the most economical sources of coal at its CR4 and CR5 plants. A hearing on PEF&#8217;s 2006 and 2007 coal purchases was held April 13-15, 2009. During the hearing, the OPC reduced the alleged excessive fuel costs to $33 million before interest. On June 30, 2009, the FPSC approved a refund of $8 million to PEF&#8217;s ratepayers to be paid over a 12-month period beginning January 1, 2010,and ordered PEF to file a report by September 2009 regarding the prospective application of PEF&#8217;s coal procurement plan and the prudence of PEF&#8217;s coal procurement actions. For the three months ended June 30, 2009, PEF recorded a pre-tax other operating expense of $8 million plus an immaterial amount of interest and an associated regulatory liability for the disallowed fuel costs and interest. PEF is e valuating its options, including a request for reconsideration and an appeal of the FPSC&#8217;s order to the FloridaSupreme Court. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">NUCLEAR COST RECOVERY</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 17, 2009, PEF received approval from the FPSC to defer until 2010 the recovery of $198 million of nuclear pre-construction costs for PEF&#8217;s proposed nuclear plant in Levy County, Florida (Levy), which the FPSC had authorized to be collected in 2009. The approval reduced residential customers&#8217; nucle ar cost-recovery charge by $7.80per 1,000 kWh, or 5.7 percent, starting with the first billing cycle of April 2009. Commercial and industrial customers experienced similar reductions.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On May 1, 2009, pursuant to the FPSC nuclear cost-recovery rule, PEF filed a petition to recover $446 million, which consists of pre-construction and carrying costs incurred or anticipated to be incurred during 2009 and the projected 2010 costs associated with the Levy and Crystal River Unit 3 (CR3) uprate projects. In an effort to help mitigate the initial price impact on its customers, as part of its filing, PEF has proposed collecting certain costs over a five-year period, with associated carrying costs. The deferral would result in a nuclear cost-recovery charge of $6.69 per 1,000 kWh for residential customers, which is approximately half of the amount PEF is eligible to recover in 2010 under the nuclear cost-recovery rule. If approved, the charges would begin with the first billing cycle of January 2010. The FPSC has scheduled hearingsin this matter beginning September 8, 2009, with a decision expected in October 2009. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">OTHER MATTERS</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 20, 2009, PEF filed a petition with the FPSC for expedited approval of the deferral of $53 million in 2009 pension expense and the authorization to charge $33 million in estimated 2009 storm hardening expenses to its storm damage reserve. PEF requested that the deferral of pension expense continue until the recovery of these costs is provided for in FPSC-approved base rates. On June 16, 2009, the FPSC denied PEF&#8217;s request related to the storm hardening expenses, but approved the deferral of the retail portion of actual 2009 pension expense. As a result of the order, during the three months ended June 30, 2009, PEF deferred $16 million of pension expense that had been recognized year to date and established a deferred pension regulatory asset. PEF will not earn a carrying charge on the deferred pension regulatory asset. The retail portionof subsequent pension expense will be deferred as incurred during the remainder of 2009. The deferral of pension expense will not result in a change in PEF&#8217;s 2009 retail rates or prices. In accordance with the order, subsequent to 2009 PEF will amortize the deferred pension regulatory asset to the extent that annual pension expense is less than the allowance provided for in the base rates established in the 2010 base rate proceeding. In the event such amortization is insufficient to fully amortize the regulatoryasset, PEF can seek recovery of the remaining unamortized amount in a base rate proceeding no earlier than 2015.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 29px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">C.&#160;&#160;</font></div></td> <td width="1368"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">OTHER RATE MATTERS</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On May 15, 2009 and May 29, 2009, PEC and PEF filed updates to their Open Access Transmission Tariffs (OATT) with the FERC. For PEC, the updates increased the transmission rate charged to wholesale customers by 18 percent effective June 1, 2009, and by an additional 1 percent effective August 1, 2009. The impact to PEC&#8217;s 2009 revenue isexpected to be an increase of $4 million. 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The rates are subject to wholesale customers filing a formal challenge with the FERC.&#160;Any challenge could result in a refund or adjustment.&#160;We cannot predict the outcome of this matter.</font></div></div> 1000000 1000000 400000000 427000000 122000000 127000000 0.62 0.76 1.28 1.34 0.62 0.78 1.28 1.59 51000000 35000000 93000000 60000000 <div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 34px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">12.&#160;&#160;</font></div></td> <td width="1363"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">FINANCIAL INFORMATION BY BUSINESS SEGMENT</font></font></div></td></tr></table></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Our reportable PEC and PEF business segments are primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina, South Carolina and Florida. 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The profit or loss of our reportable segments plusthe profit or loss of Corporate and Other represents our total income from continuing operations.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style ="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Income of discontinued operations is not included in the table presented below. 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Utility plant in service, net Miscellaneous other property and investments This element represents capitalized assets classified as property, plant and equipment not otherwise defined in the taxonomy and other noncurrent investments not otherwise specified in the taxonomy. Unearned ESOP shares (1 million shares) Fair value of unearned shares, at the time transferred to the trust, for all classes of common stockh held by an employee stock ownership plan (ESOP). Includes the sale of shares or the issuance treasury shares to an ESOP. Unearned Employee Stock Ownership Plan Shares Total Common Stock Equity The amount of stockholders' equity attributable to common stock. Total common stock equity Total Deferred Credits and Other Liabilities Total obligations incurred as part of normal operations that is expected to be repaid beyond the following twelve months or one business cycle excluding long-term debt, net and long-term debt, affiliate. Total deferred credits and other liabilities Depreciation, amortization and accretion The current period expense charged against earnings on long-lived, physical assets used in the normal conduct of business and not intended for resale to allocate or recognize the cost of assets over their useful lives; to record the reduction in book value of an intangible asset over the benefit period of such asset; or to record accretion expense in each subsequent period to recognize asset or liability growth resulting from the passage of time. Depreciation Amortization And Accretion Income Statement Interest and dividend income Includes all interest income, including impacts of discount accretion and premium amortization, and dividend income. Interest income Increase Decrease In Other Current Operating Assets The net change during the reporting period in other current operating assets not otherwise defined in the taxonomy. Prepayments and other current assets Other current liabilities The net change during the reporting period in other current operating liabilities not otherwise defined in the taxonomy. Increase Decrease In Other Current Operating Liabilities (Increase) Decrease in Other Noncurrent Operating Assets The net change during the reporting period in other noncurrent operating assets not otherwise defined in the taxonomy. (Increase) Decrease in Other Noncurrent Operating Assets Other assets and deferred debits Other liabilities and deferred credits The net change during the reporting period in other noncurrent operating liabilities not otherwise defined in the taxonomy. Increase Decrease In Other Noncurrent Operating Liabilities Proceeds from sales of discontinued operations and other assets, net of cash divested The cash inflow from the sales of discontinued operations and other assets not otherwise defined in the taxonomy, net of cash divested. Dividends paid to parent The cash outflow for dividends to the reporting entity's parent company. Cash distributions to noncontrolling interests The cash outflow to noncontrolled interests that represent returns of capital and returns on capital. Cash Distributions to Noncontrolling Interests of Consolidated Subsidiaries Supplemental Disclosures Supplemental Disclosures [Abstract] Common stock equity Common Stock Equity [Abstract] Current Derivative Liabilities Fair values as of the balance sheet date of all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments, and which are expected to be extinguished or otherwise disposed of within a year or the normal operating cycle, if longer. 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This element is a noncash adjustment to net income when calculating net cash generated by operating activities using the indirect method. Gain on sale of assets Increase Decrease Derivative Collateral Held The net change during the reporting period in the amount of cash collateral held for derivative instruments in a net asset position. Derivative collateral held OTHER INCOME AND OTHER EXPENSE Discloses nonoperating other income or other expense items. Souces of nonoperating income or nonoperating expense that should be disclosed in this note, or in the income statement, include nonregulated income or expense, profits (losses) on securities, net and miscellaneous other income or income deductions. Other Income And Other Expense [Text Block] Noncontrolling Interest, Amount Represented by Temporary Equity Preferred stock of subsidiaries The amount of noncontrolling interest in subsidiary represented by preferred securities issued by the subsidiary. 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Related to the sales of businesses, the latest specified notice period extends until 2013 for the majority of legal, tax and environmental matters provided for in the indemnification provisions. Indemnifications for the performance of assets extend to 2016. For certain matters for which we receive timely notice, our indemnity obligations may extend beyond the notice period. Certain indemnifications have no limitations as to time or maximum potential future payments. In 2005, PEC entered into an agreement with the joint owner of certain facilities at the Mayo and Roxboro plants to limit their aggregate costs associatedwith capital expenditures to comply with the Clean Smokestacks Act and recognized a liability related to this indemnification (See Note 14B). The terms of the agreement place no limit on PEC&#8217;s maximum remaining liability; however PEC estimates its remaining exposure to be $7 million as of June 30, 2009. 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All similarly situated utilities were required to sign the same standard contract.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The DOE failed to begin taking spent nuclear fuel by January 31, 1998. In January 2004, the Utilities filed a complaint in the United States Court of Federal Claims against the DOE, claiming that the DOE breached the Standard Contract for Disposal of Spent Nuclear Fuel by failing to accept spent nuclear fuel from our various facilitieson or before January 31, 1998. Approximately 60 cases involving the government&#8217;s actions in connection with spent nuclear fuel are currently pending in the Court of Federal Claims. 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The Trial Court did reconsider its ruling and reduced the damage award by an immaterial amount. On August 15, 2008, the Department of Justice appealed the Trial Court&a mp;#8217;s ruling to the D.C. Court of Appeals. Oral arguments were held on May 4, 2009. On July 21, 2009, the D.C. Court of Appeals vacated and remanded the calculation of damages back to the Trial Court but affirmed the portion of damages awarded that were directedto overhead costs and other indirect expenses. The Trial Court has not yet scheduled further proceedings. In the event that the Utilities recover damages in this matter, such recovery is not expected to have a material impact on the Utilities&#8217; results of operations given the anticipated regulatory and accounting treatment. However, the Utilities cannot predict the outcome of this matter.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" >SYNTHETIC FUELS MATTERS</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A number of our subsidiaries and affiliates are parties to two lawsuits 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 byProgress 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). 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In the alternative, Global requested that the court decline to exercise its discretion to hear the Progress Affiliates&#8217; declaratory judgment action. On August 7, 2003, the Wake County Superior Court denied Global&#8217;s motionto dismiss, but stayed the North Carolina Global Case, pending the outcome of the Florida Global Case. The Progress Affiliates appealed the superior court&#8217;s order staying the case. By order dated September 7, 2004, the North Carolina Court of Appeals dismissed the Progress Affiliates&#8217; appeal. 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Includes: (1) reconciliation of weighted-average number of common shares for basic and dilutive earnings per share, (2) roll forward of common total common stock equity and stockholders' equity attributable to noncontrolling interest, (3) presentation of comprehensive income including adjustments for reclassifications to net income and attributable to noncontrolling interests and controlling interests, and (4) amount and nature of changes in common stock. 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PEC is asking the NCUC to approve a $5 million decrease in the fuel rates driven by declining fuel prices. If approved, the decrease would take effect December 1, 2009, and would decrease residential electric bills by $0.17 per 1,000 kWh, or 0.2 percent, for fuel cost recovery. A hearing on the matter has been scheduled by the NCUC for September 15, 2009. 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On November 14, 2008, the NCUC issued an order allowing PEC to implement the rates requestedin PEC&#8217;s November 14, 2008 revision to its initial application. The new rates, subject to true-up to the final order, were implemented on December 1, 2008, increasing residential electrical bills by $0.74 per 1,000 kWh, or 0.8 percent. On December 9, 2008, the North Carolina Public Staff filed an Agreement and Stipulation of Partial Settlement with PEC and some of the other parties to the proceedings. The NCUC held a hearing on the matter on January 7, 2009. On June 15, 2009, the NCUC issued an order approving the Agreement and Stipulation of Partial Settlement, subject to certain modifications. PEC estimates the year-to-date impact of these modifications to be immaterial. 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If approved, the increase would take effect December 1, 2009, and would increase residential electric bills by $0.26 per month, or 0.2 percent, for REPS cost recovery. A hearing on the matter has been scheduled by the NCUC for September 16, 2009. We cannot predict the outcome of this matter.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 31px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">B.&#160;&#160;</font></div></td> <td width="1366"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF RETAIL RATE MATTERS</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">BASE RATE FILING</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As a result of a base rate proceeding in 2005, PEF is party to a base rate settlement agreement that was effective with the first billing cycle of January 2006 and will remain in effect through the last billing cycle of December 2009.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 20, 2009, in anticipation of the expiration of its current base rate settlement agreement, PEF filed with the FPSC a proposal for an increase in base rates effective January 1, 2010. In its filing, PEF requested the FPSC to approve calendar year 2010 as the projected test period for setting new base rates and approve annual raterelief for PEF of $499 million, which includes PEF&#8217;s petition for a combined $76 million of new base rates in 2009 as disc ussed below. The request for increased base rates is based, in part, on investments PEF is making in its generating fleet and in its transmission and distribution systems.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Included within the base rate proposal is a request for an interim base rate increase of $13 million. Additionally, on March 20, 2009, PEF petitioned the FPSC for a limited proceeding to include in base rates revenue requirements of $63 million for the repowered Bartow power plant, which began commercial operations in June 2009. On May19, 2009, the FPSC approved both the annualized interim base rate increase and the cost recovery for the repowered Bartow power plant subject to refund with interest effective July 1, 2009. These increases&#160;are expected to&#160;result in additional revenues of approximately $70 million in 2009. The changes&#160;increased residential bills by approximately $4.52 per 1,000 kWh, or 3.7 percent. On July 2, 2009, Florida&#8217;s Office of Public Counsel (OPC), the Florida Industrial Power Users Group, the Attorney General,the Florida Retail Federation and PCS Phosphate filed a petition protesting portions of the FPSC approval. A hearing on the matter will not be held until after the annual rate relief hearings are concluded. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">If PEF&#8217;s remaining rate request is approved by the FPSC as filed by PEF, the new base rates would increase residential bills by approximately $9.66 per 1,000 kWh, or 7.6 percent, effective January 1, 2010. The FPSC has scheduled hearings on the remaining annual rate relief filing beginning September 21, 2009. A ruling by the FPSC is expectedin November 2009. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">FUEL COST RECOVERY</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 17, 2009, PEF received approval from the FPSC to reduce its 2009 fuel cost-recovery factors by an amount sufficient to achieve a $206 million reduction in fuel charges to retail customers as a result of effective fuel purchasing strategies and lower fuel prices. The approval reduces residential customers&#8217; fuel charges by $6.90per 1,000 kWh, or 5.0 percent, starting with the first billing cycle of April 2009. Commercial and industrial customers will see similar reductions.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In 2006, OPC filed a petition with the FPSC asking that the FPSC require PEF to refund to ratepayers $135 million, plus interest, of alleged excessive past fuel recovery charges and sulfur dioxide (SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font>) allowance costs during the period 1996 to 2005. The OPC claimed that although Crystal River Unit 4 and Crystal River Unit 5 (CR4 and CR5) were designed to burn a blend of coals, PEF failed to act to lower ratepayers&#8217; costs by purchasing the most economical blends of coal. During the period specified in the petition, PEF&#8217;s costs recovered through fuel recovery clauses were annually reviewed for prudence and approval by the FPSC. On October 10, 2007, the FPSC issued its order rejecting most of the OPC&#8217;s contentions. However, the FPSC found that PEF had not been prudent in </font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">26</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">purchasing a portion of its coal requirements during the period from 2003 to 2005. Accordingly, the FPSC ordered PEF to refund its ratepayers $14 million, inclusive of interest, over a 12-month period beginning January 1, 2008. The refund was returned to ratepayers through a reduction of prior year under-recovered fuel costs. The FPSC alsoordered PEF to address whether it was prudent in its 2006 and 2007 coal purchases for CR4 and CR5. On October 4, 2007, PEF filed a motion to establish a separate docket on the prudence of its coal purchases for CR4 and CR5 for the years 2006 and 2007. On October 17, 2007, the FPSC granted that motion. On February 2, 2009, the OPC filed direct testimony in this hearing alleging that during 2006 and 2007, PEF collected excessive fuel costs and SO<font style="DISPLAY: inline; FONT-SIZE: 70 %; VERTICAL-ALIGN: sub">2</font> allowancecosts of $61 million before interest. The OPC claimed that these excessive costs were attributed to PEF&#8217;s ongoing practice of not blending the most economical sources of coal at its CR4 and CR5 plants. A hearing on PEF&#8217;s 2006 and 2007 coal purchases was held April 13-15, 2009. During the hearing, the OPC reduced the alleged excessive fuel costs to $33 million before interest. On June 30, 2009, the FPSC approved a refund of $8 million to PEF&#8217;s ratepayers to be paid over a 12-month period beginning January 1, 2010,and ordered PEF to file a report by September 2009 regarding the prospective application of PEF&#8217;s coal procurement plan and the prudence of PEF&#8217;s coal procurement actions. For the three months ended June 30, 2009, PEF recorded a pre-tax other operating expense of $8 million plus an immaterial amount of interest and an associated regulatory liability for the disallowed fuel costs and interest. PEF is e valuating its options, including a request for reconsideration and an appeal of the FPSC&#8217;s order to the FloridaSupreme Court. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">NUCLEAR COST RECOVERY</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 17, 2009, PEF received approval from the FPSC to defer until 2010 the recovery of $198 million of nuclear pre-construction costs for PEF&#8217;s proposed nuclear plant in Levy County, Florida (Levy), which the FPSC had authorized to be collected in 2009. The approval reduced residential customers&#8217; nucle ar cost-recovery charge by $7.80per 1,000 kWh, or 5.7 percent, starting with the first billing cycle of April 2009. Commercial and industrial customers experienced similar reductions.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On May 1, 2009, pursuant to the FPSC nuclear cost-recovery rule, PEF filed a petition to recover $446 million, which consists of pre-construction and carrying costs incurred or anticipated to be incurred during 2009 and the projected 2010 costs associated with the Levy and Crystal River Unit 3 (CR3) uprate projects. In an effort to help mitigate the initial price impact on its customers, as part of its filing, PEF has proposed collecting certain costs over a five-year period, with associated carrying costs. The deferral would result in a nuclear cost-recovery charge of $6.69 per 1,000 kWh for residential customers, which is approximately half of the amount PEF is eligible to recover in 2010 under the nuclear cost-recovery rule. If approved, the charges would begin with the first billing cycle of January 2010. The FPSC has scheduled hearingsin this matter beginning September 8, 2009, with a decision expected in October 2009. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">OTHER MATTERS</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On March 20, 2009, PEF filed a petition with the FPSC for expedited approval of the deferral of $53 million in 2009 pension expense and the authorization to charge $33 million in estimated 2009 storm hardening expenses to its storm damage reserve. PEF requested that the deferral of pension expense continue until the recovery of these costs is provided for in FPSC-approved base rates. On June 16, 2009, the FPSC denied PEF&#8217;s request related to the storm hardening expenses, but approved the deferral of the retail portion of actual 2009 pension expense. As a result of the order, during the three months ended June 30, 2009, PEF deferred $16 million of pension expense that had been recognized year to date and established a deferred pension regulatory asset. PEF will not earn a carrying charge on the deferred pension regulatory asset. The retail portionof subsequent pension expense will be deferred as incurred during the remainder of 2009. The deferral of pension expense will not result in a change in PEF&#8217;s 2009 retail rates or prices. In accordance with the order, subsequent to 2009 PEF will amortize the deferred pension regulatory asset to the extent that annual pension expense is less than the allowance provided for in the base rates established in the 2010 base rate proceeding. In the event such amortization is insufficient to fully amortize the regulatoryasset, PEF can seek recovery of the remaining unamortized amount in a base rate proceeding no earlier than 2015.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 29px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">C.&#160;&#160;</font></div></td> <td width="1368"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">OTHER RATE MATTERS</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On May 15, 2009 and May 29, 2009, PEC and PEF filed updates to their Open Access Transmission Tariffs (OATT) with the FERC. For PEC, the updates increased the transmission rate charged to wholesale customers by 18 percent effective June 1, 2009, and by an additional 1 percent effective August 1, 2009. The impact to PEC&#8217;s 2009 revenue isexpected to be an increase of $4 million. For PEF, the updates increased the transmission rate charged to </font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">27</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">wholesale customers by 11 percent, effective June 1. 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We believe that we are in substantial compliance with those environmental regulations currently applicable to our business andoperations and believe we have all necessary permits to conduct such operations. Environmental laws and regulations frequently change and the ultimate costs of compliance cannot always be precisely estimated.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div& gt;<table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 33px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A.&#160;&#160;</font></div></td> <td width="1364"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">HAZARDOUS AND SOLID WASTE</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), authorize the EPA to require the cleanup of hazardous waste sites. This statute imposes retroactive joint and several liability. Some states, including North Carolina, South Carolina and Florida, have similar types ofstatutes. We are periodically notified by regulators, incl uding the EPA and various state agencies, of our involvement or potential involvement in sites that may require investigation and/or remediation. There are presently several sites with respect to which we have been notified of our potential liability by the EPA, the state of North Carolina, the state of Florida, or potentially responsible party (PRP) groups as described below in greater detail. Various organic materials associated with the production ofmanufactured gas, generally referred to as coal tar, are regulated under federal and state laws. PEC and PEF are each PRPs at several manufactured gas plant (MGP) sites. We are also currently in the process of assessing potential costs and exposures at other sites. These costs are eligible for regulatory recovery through either base rates or cost-recovery clauses. Both PEC and PEF evaluate potential claims against other PRPs and insurance carriers and plan to submit claims for cost recovery where appropriate. The outcome of potential and pending claims cannot be predicted. A discussion of sites by legal entity follows.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We record accruals for probable and estimable costs related to environmental sites on an undiscounted basis. We measure our liability for these sites based on available evidence including our experience in investigating and remediating environmentally impaired sites. The process often involves assessing and developing cost-sharing arrangementswith other PRPs. For all sites, as assessments are developed and analyzed, we will accrue costs for the sites to the extent our liability is probable and the costs can be reasonably estimated. Because the extent of environmenta l impact, allocation among PRPs for all sites, remediation alternatives (which could involve either minimal or significant efforts), and concurrence of the regulatory authorities have not yet reached the stage where a reasonable estimate of the remediation costs can be made, we cannot determinethe total costs that may be incurred in connection with the remediation of all sites at this time. 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Actual experience may differ from current estimates, and it is probable that estimates will continue to change in the future. On September 12, 2008, PEC filed an initial civil action against a number of PRPs seeking contribution for and recovery of costs incurred in remediating the Ward site, as well as a declaratoryjudgment that defendants are jointly and severally liable for response costs at the site. On March 13, 2009, a subsequent action was filed against additional PRPs, and on April 30, 2009, suit was filed against the rema ining approximately 160 PRPs. PEC has settled with a number of the PRPs and is in active settlement negotiations with others. With respect to the defendants that do not settle, the federal district court in which this matter is pending requires that alternative dispute resolution be pursued earlyin civil litigation. 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Although a loss is considered probable, an agreement among the PRPs for these matters has not been reached; consequently, it is not possible at this time to reasonably estimate the total amount of PEC&#8217;s obligation, if any, for Ward OU1 and Ward OU2.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">PEF</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT - -SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF has received approval from the FPSC for recovery through the environmental cost recovery clause (ECRC) of the majority of costs associated with the remediation of distribution and substation transformers. Under agreements with the Florida Department of Environmental Protection (FDEP), PEF has reviewed all distribution transformer sitesand all substation sites for mineral oil-impacted soil caused by equipment integrity issues. Should further distribution transformer sites be identified outside of this population, the distribution O&amp;M costs will not be recoverable through the ECRC. For the three and six months ended June 30, 2009, PEF accrued approximately $2 million and spent approximately $4 million and $7 million, respectively, related to the remediation of transformers. For the three and six months ended June 30, 2008, PEF accrued approximately $10 million and $12 million, respectively, due to the identification of additional transformer sites and an increase in estimated remediation costs, and spent approximately $8 million and $14 million, respectively, related to the remediation of transformers. 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For the three and six months ended June 30, 2008, PEF made no material accruals or expenditures.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div><table cellpadding="0" cellspacing="0" id="list" width="100%" style="FONT-SIZE: 10pt; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><tr valign="top"><td style="WIDTH: 34px; TEXT-ALIGN: left"><div style="TEXT-ALIGN: left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">B.&#160;&#160;</font></div></td> <td width="1363"><div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">AIR AND WATER QUALITY</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At June 30, 2009 and December 31, 2008, we were subject to various current federal, state and local environmental compliance laws and regulations governing air and water quality, resulting in capital expenditures and increased O&amp;M expenses. These compliance laws and regulations included the Clean Air Interstate Rule (CAIR), the CleanAir Visibility Rule (CAVR), the North Carolina Clean Smok estacks Act, enacted in June 2002 (Clean Smokestacks Act) and mercury regulation. PEC&#8217;s and PEF&#8217;s environmental compliance capital expenditures related to these regulations began in 2002 and 2005, respectively. At June 30, 2009, cumulative environmental compliance capital expenditures to date with regard to these environmental laws and regulations were $2.027 billion, including $1.042 billion at PEC and $985 million at PEF. At December 31, 2008, cumulativeenvironmental compliance capital expenditures to date with regard to these environmental laws and regulations were $1.859 billion, including $1.012 billion at PEC, which primarily relates to Clean Smokestacks Act projects, and $847 million at PEF.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF participated in a coalition of Florida utilities that filed a challenge to the CAIR as it applied to Florida. PEF withdrew from the coalition during the fourth quarter of 2008. On July 11, 2008, the U.S. Court of Appeals for the District of Columbia (D.C. Court of Appeals) issued its decision on multiple challenges to the CAIR, includingthe Florida challenge, which vacated the CAIR in its entirety. On September 24, 2008, petitions for rehearing were filed by a number of parties. On December 23, 2008, the D.C. Court of Appeals remanded the CAIR without vacating the rule for the EPA to conduct further proceedings consistent with the D.C. Court of Appeals&#8217; prior opinion. The outcome of th e EPA&#8217;s further proceedings cannot be predicted. Because the D.C. Court of Appeals&#8217; December 23, 2008 decision remanded the CAIR, the current implementation ofthe CAIR continues to fulfill best available retrofit technology (BART) for SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> and nitrogen oxides (NOx) for BART-affected units under the CAVR. Should this determination change as the CAIR is revised, CAVR compliance eventually may require consideration of NOx and SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emissions in addition to particulate matter emissions for BART-eligible units.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;&l t;/div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">57</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On February 8, 2008, the D.C. Court of Appeals vacated the delisting determination and the Clean Air Mercury Rule (CAMR). The three states in which the Utilities operate adopted mercury regulations implementing CAMR and submitted their state implementation rules to the EPA. It is uncertain how the decision that vacated the federal CAMR will affect the state rules; however, state-specific provisions are likely to remain in effect. 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 these matters cannot be predicted.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF is continuing construction of its in-process emission control projects. On December 18, 2008, PEF and the FDEP announced an agreement under which PEF will retire Crystal River Units No. 1 and No. 2 (CR1 and CR2) as coal-fired units and complete construction of its em ission control projects at CR4 and CR5. CR1 and CR2 will be retiredafter the second proposed nuclear unit at Levy completes its first fuel cycle, which was anticipated to be around 2020. On May, 1, 2009, PEF announced that it expects the construction schedule to shift later than the originally estimated 2016 to 2018 timeframe by a minimum of 20 months for the commercial operation dates of Levy. We are currently evaluating the impacts of the schedule shift. We cannot predict the outcome of this matter.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We account for emission allowances as inventory using the average cost method. We value inventory of the Utilities at historical cost consistent with ratemaking treatment. The EPA is continuing to record allowance allocations under the CAIR NOx trading program, in some cases for years beyond the estimated two-year period for promulgation of a replacement rule. The EPA&#8217;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. SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances will be utilized to comply with existing Clean Air Act requirements. PEF&#8217;s CAIR expenses, including NOx allowance inventory expense, are recoverable through theECRC. At June 30, 2009 and December 31, 2008, PEC had approximately $17 million and $22 million, respectively, in SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances and an immaterial amount of NOx emission allowances. At June 30, 2009 and December 31, 2008, PEF had approximately $9 million and $11 million, respectively, in SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> e mission allowances and approximately $54 million and $65 million,respectively, in NOx emission allowances.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In June 2002, the Clean Smokestacks Act was enacted in North Carolina requiring the state's electric utilities to reduce the emissions of NOx and SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> from their North Carolina coal-fired power plants in phases by 2013. Two of PEC&#8217;s largest coal-fired generating units(the Roxboro No. 4 and Mayo Units) impacted by the Clean Smokestacks Act are jointly owned. Pursuant to joint ownership agreements, the joint owners are required to pay a portion of the costs of owning and operatin g these plants. PEC has determined that the most cost-effective Clean Smokestacks Act compliance strategy is to maximize the SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> removal from its larger coal-fired units, including Roxboro No. 4 and Mayo, so as to avoid the installation of expensive emission controls on its smaller coal-fired units. In order to address the joint owner's concerns that such a compliance strategy would result in a disproportionate share of the cost of compliance for the jointly owned units, in 2005 PEC entered into an agreement with the joint owner to limit its aggregate costs associated with capital expenditures to comply with the Clean Smokestacks Act to approximately $38 million. PEC recorded a related liability for the joint owner's share of estimated costsin excess of the contract amount. The terms of the agreement place no limit on PEC&#8217;s maximum remaining liability; however PEC estimates its remaining exposure to be $7 million as of June 30, 2009. At June 30, 2009 and December 31, 2008, the amount of the liability was $7 million and $10 million, respectively, based upon the respective estimates for the remaining Clean Smokestacks Act compliance costs. During the three and six months ended June 30, 2009, PEC accrued approximately $2 million and spent approximately $1 million and $5 million, respectively, that exceeded the joint owner limit (See Note 15B). Because PEC has taken a system-wide compliance approach, its North Carolina retail ratepayers have significantly benefited from the strategy of focusing emission reduction efforts on the jointly owned units, and, therefore, PEC believes that any costs in excess of the joint owner&#8217;s share should be recovered from North Carolina retail ratepayers, consistent with other capital expenditures associated with PEC&#8217;s compliancewith the Clean Smokestacks Act. On September 5, 2008, the NCUC ordered that PEC shall be allowed to include in rate base all reasonable and prudently incurred environmental compliance costs in excess of $584 million, including eligible compliance costs in excess of the joint owner&#8217;s share, as the projects are closed to plant in service.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><br> ;<div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div></div><div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">58</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160; </font></div></div></div></div></div> 14.&#160;&#160; ENVIRONMENTAL MATTERS &#160;We are subject to regulation by various federal, state and local authorities in the areas of air quality, water false false No definition available. 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It is expected that in the next twelve months $3 million and $4 million, net of tax, related to terminated hedges, will be reclassified to interest expense at the Parent and PEC, respectively. The actual amounts that will be reclassified to earnings may vary from the expected amounts as a result of the timing of debt issuances at the Parent and the Utilities and changes in the market value of currently open interest rate hedges.</font></div><div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At December 31, 2008, the Parent had $200 million notional of interest rate cash flow hedges. All of these forward starting swaps were terminated on March 16, 2009, in conjunction with the Parent&#8217;s issuance of $450 million of 7.05% Senior Notes due 2019. In January and June 2009, the Parent entered into forward starting swaps to mitigateexposure to interest rate risk in anticipation of future debt issuances. At June 30, 2009, the Parent had $100 million notional of interest rate cash flow hedges. In J uly 2009, the Parent entered into an additional $50 million notional forward starting swap to mitigate exposure to interest rate risk in anticipation of future debt issuances.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At December 31, 2008, PEC had $250 million notional of interest rate cash flow hedges. All of these forward starting swaps were terminated on January 8, 2009, in conjunction with PEC&#8217;s issuance of $600 million First Mortgage Bonds 5.30% Series due 2019. 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No authoritative reference available. false 28 4 pgn_ProceedsFromSalesOfDiscontinuedOperationsAndOtherAssetsNetOfCashDivested pgn false debit duration monetary The cash inflow from the sales of discontinued operations and other assets not otherwise defined in the taxonomy, net of cash... false false false false false false false false false 1 false true 0 0 false false 2 false true 64000000 64 false false The cash inflow from the sales of discontinued operations and other assets not otherwise defined in the taxonomy, net of cash divested. No authoritative reference available. false 29 4 us-gaap_PaymentsToAcquireInvestments us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true -982000000 -982 false false 2 false true -836000000 -836 false false No definition available. No authoritative reference available. false 30 4 us-gaap_ProceedsFromSaleMaturityAndCollectionsOfInvestments us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 960000000 960 false false 2 false true 816000000 816 false false No definition available. No authoritative reference available. false 31 4 us-gaap_PaymentsForProceedsFromOtherInvestingActivities us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true -3000000 -3 false false 2 false true -15000000 -15 false false No definition available. No authoritative reference available. false 32 4 us-gaap_NetCashProvidedByUsedInInvestingActivities us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true -1257000000 -1257 false false 2 false true -1274000000 -1274 false false No definition available. 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SFAS No. 141R considerably broadens the definition of a &#8220;business&#8221; and a &#8220;business combination,&#8221; which should result in an increased number of transactionsor other events that will qualify as business combinations. Other significant changes include the expensing of all acquisition-related transaction costs and most acquisition-related restructuring costs, the fair value remeasurement of certain earn-out arrangements and the discontinuance of the expense at acquisition of acquired-in-process research and development. SFAS No. 141R was effective for us for business combinations for which the acquisition date is on or after January 1, 2009. 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SFASNo. 160 was adopted concurr ently with the effective date of SFAS No. 141R, which for us was January 1, 2009. See Note 6B for information regarding our first quarter 2009 implementation of SFAS No. 160. The adoption of SFAS No. 160 resulted in a change in presentation of the financial statements and additional disclosures but did not have a material impact on our or the Utilities' financial position or results of operations.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">SFAS No. 161, &#8220;Disclosures about Derivative Instruments and Hedging Activities &#8211; an amendment of FASB Statement No. 133&#8221;</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" al ign="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On January 1, 2009, we implemented SFAS Statement No. 161, &#8220;Disclosures about Derivative Instruments and Hedging Activities &#8211; an amendment of FASB Statement No. 133&#8221; (SFAS No. 161), which requires entities to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedgeditems are accounted for under Statement 133 and its related interpretations and how derivative instruments and related hedged items affect an entity&#8217;s financial position, financial performance and cash flows. 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SFAS No. 166 eliminates the concept of a &#8220;qualifying specialpurpose entity&#8221;, changes the requirements for derecognizing financial assets and requires additional disclosures. SFAS No. 166 is effective for us January 1, 2010. Earlier application is prohibited. 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Unless otherwise noted, all adjustments are normal and recurring in nature. Due to seasonal weather variations, the impact of regulatory orders received, and the timing of outages of electric generating units, especially nuclear-fueled units, the results of operations for interim periods are not necessarily indicative of amounts expected for the entire year or future periods.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Certain amounts for 2008 have been reclassified to conform to the 2009 presentation.</font></div> <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">C.&#160;&#160;&#160;&#160;&#160;&#160;CONSOLIDATION OF VARIABLE INTEREST ENTITIES</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">We consolidate all voting interest entities in which we own a majority voting interest and all variable interest entities (VIEs) for which we are the primary beneficiary. In general, we determine whether we are the primary beneficiary of a VIE through a qualitative analysis of risk that identifies which variable interest holder absorbsthe majority of the financial risk and variability of the VIE. In performing this analysis, we consider all relevant facts and circumstances, including: the design and activities of the VIE, the terms of the contracts the VIE has entered into, the nature of the VIE&#8217;s variable interests issued and how they were negotiated with or marketed to potential investors, and which parties participated significantly in the design or redesign of the entity. If the qualitative analysis is inconclusive, a specific quantitativeanalysis is performed. 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See Note 1C in the 2008 Form 10-K for discussion of our variable interest in Ceredo and our disposal of Ceredo in 2007. There were no changes to our assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to Ceredo during the periods presented. At June 30, 2009, we had no assets and $20 million of liabilities related to the legal and tax indemnifications provided to the buyer includedin other liabilities and deferred credits on the Consolidated Balance Sheets. The ultimate resolution of the indemnifications could result in adjustments to the gain on disposal in future periods. The creditors of Ceredo do not have recourse to the general credit of Progress Energy. 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PEC&#8217;s variable interests are debt and equity investments in the two VIEs. PEC performed quantitative analyses to determine the primary beneficiaries of the two VIEs.The primary factors in the analyses were the estimated economic lives of the partnerships and their net cash flow projections, estimates of available tax credits, and the likelihood of default on debt and other commitments. There were no changes to PEC&#8217;s assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to the VIEs during the periods presented. At June 30, 2009, PEC had assets of $39 million, substantially all of which werereflected in miscellaneous other property and investments, $15 million in long-term debt, $3 million in other liabilities and deferred credits and $5 million in accounts payable on the Consolidated Balance Sheets related to the two VIEs. The assets of the two VIEs are collateral for, and can only be used to settle, their obligations. The creditors of these VIEs do not have recourse to the general credit of PEC and there are no other arrangements that could expose PEC to losses.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman">OTHER VARIABL E INTERESTS</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEC has an equity investment in, and consolidates, one limited partnership investment fund that invests in 17 low-income housing partnerships that qualify for federal and state tax credits. The investment fund accounts for the 17 partnerships on the equity method of accounting. PEC also has an interest in one power plant resulting fromlong-term power purchase contracts. PEC&#8217;s only significant exposure to variability from the power purchase contracts results from fluctuations in the market price of fuel used by the entity&#8217;s plants to produce the power purchased by PEC. We are able to recover these fuel costs under PEC&#8217;s fuel clause. Th e generation capacity of the entity&#8217;s power plant is approximately 847 megawatts (MW). PEC has requested the necessary information to determine if the investment fund&#8217;s 17 partnerships and the power plant ownerare VIEs or to identify the primary beneficiaries; all entities from which the necessary financial information was requested declined to provide the information to PEC, and, accordingly, PEC has applied the information scope exception provided by GAAP to the 17 partnerships and the power plant. PEC believes that if it is determined to be the primary beneficiary of these entities, the effect of consolidating the power plant and the investment fund consolidating the 17 partnerships would result in increases tototal assets, long-term debt and other liabilities, but would have an insignificant or no impact on PEC&#8217;s common stock equity, net earnings or cash flows. 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In accordance with the lease agreement, PEF is not required to make any lease payments over the last 20 years of the lease, during which period $51 million of rental expense will be recorded in the PEF Statements of Income. The prepayment clause is PEF&#8217;s only variable interest in the VIE and, therefore, PEF&#8217;s exposure to loss primarily relates to the recovery of the prepayments through future use of the rental property. PEF performed qualitative and quantitative analyses and concluded that it is not the primary beneficiary of the VIE. The primary factors in the analyses were the lease term, the fact that the lease payments are not variable interests, the likelihood of construction and casualty risks to the building and the existence of insuranceto offset those risks, and the estimated fair value of the building at the end of the lease term. There were no changes to PEF&#8217;s assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to the VIE during the periods presented. At June 30, 2009, PEF had a $5 million prepayment included in other assets and deferred debits on the Balance Sheets. No liabilities associated with the prepayment clause were recorded. The aggregate maximum exposure to loss at June 30, 2009, is $51 million, which represents the loss if the maximum prepayment of rent at the end of year 20 was not recovered through future use of the rental property or from third-party insurers at that time.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">PEF has a residual value guarantee in an operating railcar lease agreement with a special purpose entity that is a VIE. 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The residual value guarantee is PEF&#8217;s primary variable interest in the VIE and, therefore, PEF&#8217;s exposure to loss is from the potential decrease in the fair value of the railcars. PEF performed qualitative and quantitativeanalyses and concluded that it is not the primary beneficiary of the VIE. The primary factors in the analyses were the terms of the lease, the probability of exercising the early termination clause, and the estimated fair value of the railcars. There were no changes to PEF&#8217;s assessment of the primary beneficiary during 2008 or for the period ended June 30, 2009. No financial or other support has been provided to the VIE during the periods presented. No lia bilities associated with the residual value guaranteewere recorded at June 30, 2009, because the early termination clause was not exercised. 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The current period expense charged against earnings on long-lived, physical assets used in the normal conduct of business and not intended for resale to allocate or recognize the cost of assets over their useful lives; to record the reduction in book value of an intangible asset over the benefit period of such asset; or to record accretion expense in each subsequent period to recognize asset or liability growth resulting from the passage of time. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The amount of noncontrolling interest in subsidiary represented by preferred securities issued by the subsidiary. The preferred securities are not permanent equity but rather temporary equity. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The difference between the sale price and the book value of an asset that was sold during the reporting period. This element refers to the gain (loss) and not to the cash proceeds of the sale. This element is a noncash adjustment to net income when calculating net cash generated by operating activities using the indirect method. No authoritative reference available. The amount of stockholders' equity attributable to common stock. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair values as of the balance sheet date of all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments, and which are expected to be extinguished or otherwise disposed of within a year or the normal operating cycle, if longer. No authoritative reference available. The cash inflow from the sales of discontinued operations and other assets not otherwise defined in the taxonomy, net of cash divested. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. This element represents capitalized assets classified as property, plant and equipment not otherwise defined in the taxonomy and other noncurrent investments not otherwise specified in the taxonomy. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net change during the reporting period in the amount of cash collateral held for derivative instruments in a net asset position. No authoritative reference available. Period end amount of total gross PPE less the period end book value of accumulated depreciation on property, plant and equipment that is owned by the regulated operations of the public utility. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The adjustment that is the result of a component of the allowance for funds used during construction during the period based on an assumed rate of return on equity funds used in financing the construction of regulated assets. As a result of this capitalization, net income is increased. When calculating net cash generated by operating activities, this adjustment must be backed out of net income. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair value of unearned shares, at the time transferred to the trust, for all classes of common stockh held by an employee stock ownership plan (ESOP). Includes the sale of shares or the issuance treasury shares to an ESOP. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net change during the reporting period in other noncurrent operating liabilities not otherwise defined in the taxonomy. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The cash outflow to noncontrolled interests that represent returns of capital and returns on capital. No authoritative reference available. This element is used to capture the complete disclosure comprising shareholders' common equity, including earnings per common share, reconciliation of total equity, other comprehensive income, and changes in common stock equity. Includes: (1) reconciliation of weighted-average number of common shares for basic and dilutive earnings per share, (2) roll forward of common total common stock equity and stockholders' equity attributable to noncontrolling interest, (3) presentation of comprehensive income including adjustments for reclassifications to net income and attributable to noncontrolling interests and controlling interests, and (4) amount and nature of changes in common stock. No authoritative reference available. Period end amount of plants held for future use. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Represents the noncurrent portion of deferred tax liabilities and the noncurrent portion of uncertain tax positions as of the balance sheet date. Deferred tax liabilities result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net change during the period in the amount of current cash payments due to taxing authorities and due from taxing authorities for taxes that are based on the reporting entity's earnings. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair values as of the balance sheet date of all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments, and which are expected to be extinguished or otherwise disposed of after one year or beyond the normal operating cycle, if longer. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Discloses nonoperating other income or other expense items. Souces of nonoperating income or nonoperating expense that should be disclosed in this note, or in the income statement, include nonregulated income or expense, profits (losses) on securities, net and miscellaneous other income or income deductions. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net amount of capitalized fuel costs of a regulated entity that are expected to be recoverable through rate adjustments. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Total obligations incurred as part of normal operations that is expected to be repaid beyond the following twelve months or one business cycle excluding long-term debt, net and long-term debt, affiliate. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Includes all interest income, including impacts of discount accretion and premium amortization, and dividend income. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net change during the reporting period in other noncurrent operating assets not otherwise defined in the taxonomy. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net change during the reporting period in other current operating assets not otherwise defined in the taxonomy. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net change during the reporting period in other current operating liabilities not otherwise defined in the taxonomy. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. 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FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FAIR VALUE MEASUREMENTS</font></div></td></tr></table></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). A mid-market pricing convention (the mid-point price between bid and ask prices) is permitted for use as a practical expedient andrequires the use of market data or assumptions that market p articipants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. 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Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A fair value hierarchy that prioritizes the inputs used to measure fair value, and requires fair value measurements to be categorized based on the observability of those inputs has been established. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs)and the lowest priority to unobservable inputs (Level 3 inputs). 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Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards, swaps and options, certain marketable debt securities, and financial instruments traded in less than active markets.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Level 3 &#8211; The pricing inputs include significant inputs that are generally less observable from objective sources. 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There wereno transfers into or out of Level 3 during the periods ended June 30, 2009 and 2008.</font></div><div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt"><div id="FTR"><div id="GLFTR" style="WIDTH: 100%" align="left">&#160;</div></div> <div id="PN" style="PAGE-BREAK-AFTER: always"><div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">40</font></div> <div style="WIDTH: 100%; TEXT-ALIGN: center"><hr style="COLOR: red" noshade size="2"></div></div><div id="HDR"><div id="GLHDR" style="WIDTH: 100%" align="right">&#160;</div></div></div></div> 9.&#160;&#160; FAIR VALUE DISCLOSURES &#160;A.&#160;&#160; DEBT AND INVESTMENTS&#160;PROGRESS ENERGY&#160;DEBT &#160;The carrying amount of our long-term debt, false false No definition available. 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No authoritative reference available. false 6 3 us-gaap_OperatingExpensesAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false 3 false false 0 0 false false 4 false false 0 0 false false No definition available. false 7 4 us-gaap_FuelCosts us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 826000000 826 false false 2 false true 696000000 696 false false 3 false true 1780000000 1780 false false 4 false true 1393000000 1393 false false No definition available. No authoritative reference available. false 8 4 us-gaap_CostOfPurchasedPower us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 257000000 257 false false 2 false true 330000000 330 false false 3 false true 474000000 474 false false 4 false true 562000000 562 false false No definition available. No authoritative reference available. false 9 4 pgn_OperatingMaintenanceExpense pgn false debit duration monetary The amount of operating expense for the period for maintenance, repairs and operations. false false false false false false false false false 1 false true 484000000 484 false false 2 false true 488000000 488 false false 3 false true 937000000 937 false false 4 false true 931000000 931 false false The amount of operating expense for the period for maintenance, repairs and operations. 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No authoritative reference available. false 13 4 us-gaap_CostsAndExpenses us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 1933000000 1933 false false 2 false true 1838000000 1838 false false 3 false true 3982000000 3982 false false 4 false true 3539000000 3539 false false No definition available. No authoritative reference available. true 14 3 us-gaap_OperatingIncomeLoss us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 379000000 379 false false 2 false true 406000000 406 false false 3 false true 772000000 772 false false 4 false true 771000000 771 false false No definition available. No authoritative reference available. true 15 3 us-gaap_NonoperatingIncomeExpenseAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false 3 false false 0 0 false false 4 false false 0 0 false false No definition available. false 16 4 pgn_InterestAndDividendIncome pgn false credit duration monetary Includes all interest income, including impacts of discount accretion and premium amortization, and dividend income. false false false false false false false false false 1 false true 2000000 2 false false 2 false true 5000000 5 false false 3 false true 6000000 6 false false 4 false true 12000000 12 false false Includes all interest income, including impacts of discount accretion and premium amortization, and dividend income. No authoritative reference available. false 17 4 us-gaap_PublicUtilitiesAllowanceForFundsUsedDuringConstructionCapitalizedCostOfEquity us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 36000000 36 false false 2 false true 27000000 27 false false 3 false true 75000000 75 false false 4 false true 50000000 50 false false No definition available. No authoritative reference available. false 18 4 us-gaap_OtherNonoperatingIncomeExpense us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 13000000 13 false false 2 false true 3000000 3 false false 3 false true 12000000 12 false false 4 false true -2000000 -2 false false No definition available. No authoritative reference available. false 19 4 us-gaap_NonoperatingIncomeExpense us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 51000000 51 false false 2 false true 35000000 35 false false 3 false true 93000000 93 false false 4 false true 60000000 60 false false No definition available. No authoritative reference available. true 20 3 us-gaap_InterestAndDebtExpenseAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false 3 false false 0 0 false false 4 false false 0 0 false false No definition available. false 21 4 us-gaap_InterestExpense us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 181000000 181 false false 2 false true 154000000 154 false false 3 false true 360000000 360 false false 4 false true 315000000 315 false false No definition available. No authoritative reference available. false 22 4 us-gaap_PublicUtilitiesAllowanceForFundsUsedDuringConstructionCapitalizedInterest us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true -12000000 -12 false false 2 false true -8000000 -8 false false 3 false true -24000000 -24 false false 4 false true -16000000 -16 false false No definition available. No authoritative reference available. false 23 4 us-gaap_InterestAndDebtExpense us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 169000000 169 false false 2 false true 146000000 146 false false 3 false true 336000000 336 false false 4 false true 299000000 299 false false No definition available. No authoritative reference available. false 24 3 us-gaap_IncomeLossFromContinuingOperationsBeforeIncomeTaxesMinorityInterestAndIncomeLossFromEquityMethodInvestments us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 261000000 261 false false 2 false true 295000000 295 false false 3 false true 529000000 529 false false 4 false true 532000000 532 false false No definition available. No authoritative reference available. false 25 3 us-gaap_IncomeTaxExpenseBenefit us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 86000000 86 false false 2 false true 95000000 95 false false 3 false true 171000000 171 false false 4 false true 179000000 179 false false No definition available. No authoritative reference available. false 26 3 us-gaap_IncomeLossFromContinuingOperationsIncludingPortionAttributableToNoncontrollingInterest us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 175000000 175 false false 2 false true 200000000 200 false false 3 false true 358000000 358 false false 4 false true 353000000 353 false false No definition available. No authoritative reference available. true 27 3 us-gaap_IncomeLossFromDiscontinuedOperationsNetOfTax us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true -1000000 -1 false false 2 false true 5000000 5 false false 3 false true -1000000 -1 false false 4 false true 66000000 66 false false No definition available. No authoritative reference available. false 28 3 us-gaap_ProfitLoss us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 174000000 174 false false 2 false true 205000000 205 false false 3 false true 357000000 357 false false 4 false true 419000000 419 false false No definition available. No authoritative reference available. false 29 3 us-gaap_NetIncomeLossAttributableToNoncontrollingInterest us-gaap true debit duration monetary No definition available. false false false false false false false false false 1 false true 0 0 false false 2 false true 0 0 false false 3 false true -1000000 -1 false false 4 false true -5000000 -5 false false No definition available. No authoritative reference available. false 30 3 us-gaap_NetIncomeLoss us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 174000000 174 false false 2 false true 205000000 205 false false 3 false true 356000000 356 false false 4 false true 414000000 414 false false No definition available. No authoritative reference available. false 31 3 us-gaap_WeightedAverageNumberOfSharesOutstandingBasic us-gaap true na duration shares No definition available. false false false false false false false false false 1 false true 280 280.00 false false 2 false true 261 261.00 false false 3 false true 278 278.00 false false 4 false true 261 261.00 false false No definition available. No authoritative reference available. false 33 4 us-gaap_EarningsPerShareBasicAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false 3 false false 0 0 false false 4 false false 0 0 false false No definition available. false 34 5 us-gaap_IncomeLossFromContinuingOperationsPerBasicShare us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0.62 0.62 false false 2 true true 0.76 0.76 false false 3 true true 1.28 1.28 false false 4 true true 1.34 1.34 false false No definition available. No authoritative reference available. false 35 5 us-gaap_IncomeLossFromDiscontinuedOperationsNetOfTaxPerBasicShare us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0 0 false false 2 true true 0.02 0.02 false false 3 true true 0 0 false false 4 true true 0.25 0.25 false false No definition available. No authoritative reference available. false 36 5 us-gaap_EarningsPerShareBasic us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0.62 0.62 false false 2 true true 0.78 0.78 false false 3 true true 1.28 1.28 false false 4 true true 1.59 1.59 false false No definition available. No authoritative reference available. true 37 4 us-gaap_EarningsPerShareDilutedAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false 3 false false 0 0 false false 4 false false 0 0 false false No definition available. false 38 5 us-gaap_IncomeLossFromContinuingOperationsPerDilutedShare us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0.62 0.62 false false 2 true true 0.76 0.76 false false 3 true true 1.28 1.28 false false 4 true true 1.34 1.34 false false No definition available. No authoritative reference available. false 39 5 us-gaap_IncomeLossFromDiscontinuedOperationsNetOfTaxPerDilutedShare us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0 0 false false 2 true true 0.02 0.02 false false 3 true true 0 0 false false 4 true true 0.25 0.25 false false No definition available. No authoritative reference available. false 40 5 us-gaap_EarningsPerShareDiluted us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0.62 0.62 false false 2 true true 0.78 0.78 false false 3 true true 1.28 1.28 false false 4 true true 1.59 1.59 false false No definition available. No authoritative reference available. true 41 3 us-gaap_CommonStockDividendsPerShareDeclared us-gaap true na duration decimal No definition available. false false false false false false false false true 1 true true 0.620 0.620 false false 2 true true 0.615 0.615 false false 3 true true 1.240 1.240 false false 4 true true 1.230 1.230 false false No definition available. No authoritative reference available. false 42 3 us-gaap_IncomeAmountsAttributableToReportingEntityDisclosuresAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false 3 false false 0 0 false false 4 false false 0 0 false false No definition available. false 43 4 us-gaap_IncomeLossFromContinuingOperations us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true 175000000 175 false false 2 false true 200000000 200 false false 3 false true 357000000 357 false false 4 false true 349000000 349 false false No definition available. No authoritative reference available. false 44 4 us-gaap_IncomeLossFromDiscontinuedOperationsNetOfTaxAttributableToReportingEntity us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 false true -1000000 -1 false false 2 false true 5000000 5 false false 3 false true -1000000 -1 false false 4 false true 65000000 65 false false No definition available. No authoritative reference available. false 45 4 us-gaap_NetIncomeLoss us-gaap true credit duration monetary No definition available. false false false false false false false false false 1 true true 174000000 174 false false 2 true true 205000000 205 false false 3 true true 356000000 356 false false 4 true true 414000000 414 false false No definition available. No authoritative reference available. false false 4 40 false Millions NoRounding NoRounding false true XML 28 R2.xml IDEA: 2000 - UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 1.0.0.3 false 2000 - UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Millions false 1 $ false false u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 false 2 $ false false u000 Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 u001 Standard http://www.xbrl.org/2003/instance shares xbrli 0 6 4 pgn_UtilityPlantAbstract pgn false na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false No definition available. false 7 5 us-gaap_PublicUtilitiesPropertyPlantAndEquipmentPlantInService us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 true true 27822000000 27822 false false 2 true true 26326000000 26326 false false No definition available. No authoritative reference available. false 8 5 us-gaap_PublicUtilitiesPropertyPlantAndEquipmentAccumulatedDepreciation us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true -11396000000 -11396 false false 2 false true -11298000000 -11298 false false No definition available. No authoritative reference available. false 9 5 pgn_UtilityPlantInServiceNet pgn false debit instant monetary Period end amount of total gross PPE less the period end book value of accumulated depreciation on property, plant and... false false false false false false false false false 1 false true 16426000000 16426 false false 2 false true 15028000000 15028 false false Period end amount of total gross PPE less the period end book value of accumulated depreciation on property, plant and equipment that is owned by the regulated operations of the public utility. No authoritative reference available. true 10 5 pgn_PlantHeldForFutureUse pgn false debit instant monetary Period end amount of plants held for future use. false false false false false false false false false 1 false true 38000000 38 false false 2 false true 38000000 38 false false Period end amount of plants held for future use. No authoritative reference available. false 11 5 us-gaap_PublicUtilitiesPropertyPlantAndEquipmentConstructionWorkInProgress us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 2024000000 2024 false false 2 false true 2745000000 2745 false false No definition available. No authoritative reference available. false 12 5 us-gaap_NuclearFuelNetOfAmortization us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 486000000 486 false false 2 false true 482000000 482 false false No definition available. No authoritative reference available. false 13 5 us-gaap_PublicUtilitiesPropertyPlantAndEquipmentNet us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 18974000000 18974 false false 2 false true 18293000000 18293 false false No definition available. No authoritative reference available. true 14 4 us-gaap_AssetsCurrentAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false No definition available. false 15 5 us-gaap_CashAndCashEquivalentsAtCarryingValue us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 452000000 452 false false 2 false true 180000000 180 false false No definition available. No authoritative reference available. false 16 5 us-gaap_ReceivablesNetCurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 882000000 882 false false 2 false true 867000000 867 false false No definition available. No authoritative reference available. false 17 5 us-gaap_PublicUtilitiesInventory us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 1353000000 1353 false false 2 false true 1239000000 1239 false false No definition available. No authoritative reference available. false 18 5 us-gaap_RegulatoryAssetsCurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 426000000 426 false false 2 false true 533000000 533 false false No definition available. No authoritative reference available. false 19 5 us-gaap_CollateralAlreadyPostedAggregateFairValue us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 302000000 302 false false 2 false true 353000000 353 false false No definition available. No authoritative reference available. false 20 5 us-gaap_IncomeTaxesReceivable us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 72000000 72 false false 2 false true 194000000 194 false false No definition available. No authoritative reference available. false 21 5 us-gaap_OtherAssetsCurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 218000000 218 false false 2 false true 154000000 154 false false No definition available. No authoritative reference available. false 22 5 us-gaap_AssetsCurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 3705000000 3705 false false 2 false true 3520000000 3520 false false No definition available. No authoritative reference available. true 23 4 us-gaap_AssetsNoncurrentAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false No definition available. false 24 5 us-gaap_RegulatoryAssetsNoncurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 2623000000 2623 false false 2 false true 2567000000 2567 false false No definition available. No authoritative reference available. false 25 5 us-gaap_DecommissioningFundInvestments us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 1160000000 1160 false false 2 false true 1089000000 1089 false false No definition available. No authoritative reference available. false 26 5 pgn_MiscellaneousOtherPropertyAndInvestments pgn false debit instant monetary This element represents capitalized assets classified as property, plant and equipment not otherwise defined in the taxonomy... false false false false false false false false false 1 false true 450000000 450 false false 2 false true 446000000 446 false false This element represents capitalized assets classified as property, plant and equipment not otherwise defined in the taxonomy and other noncurrent investments not otherwise specified in the taxonomy. No authoritative reference available. false 27 5 us-gaap_Goodwill us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 3655000000 3655 false false 2 false true 3655000000 3655 false false No definition available. No authoritative reference available. false 28 5 us-gaap_OtherAssetsNoncurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 307000000 307 false false 2 false true 303000000 303 false false No definition available. No authoritative reference available. false 29 5 us-gaap_AssetsNoncurrent us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 8195000000 8195 false false 2 false true 8060000000 8060 false false No definition available. No authoritative reference available. true 30 4 us-gaap_Assets us-gaap true debit instant monetary No definition available. false false false false false false false false false 1 false true 30874000000 30874 false false 2 false true 29873000000 29873 false false No definition available. No authoritative reference available. true 32 4 pgn_CommonStockEquityAbstract pgn false na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false No definition available. false 33 5 us-gaap_CommonStockValue us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 6776000000 6776 false false 2 false true 6206000000 6206 false false No definition available. No authoritative reference available. false 34 5 pgn_UnearnedEmployeeStockOwnershipPlanShares pgn false credit instant monetary Fair value of unearned shares, at the time transferred to the trust, for all classes of common stockh held by an employee... false false false false false false false false false 1 false true -12000000 -12 false false 2 false true -25000000 -25 false false Fair value of unearned shares, at the time transferred to the trust, for all classes of common stockh held by an employee stock ownership plan (ESOP). Includes the sale of shares or the issuance treasury shares to an ESOP. No authoritative reference available. false 35 5 us-gaap_AccumulatedOtherComprehensiveIncomeLossNetOfTax us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true -96000000 -96 false false 2 false true -116000000 -116 false false No definition available. No authoritative reference available. false 36 5 us-gaap_RetainedEarningsAccumulatedDeficit us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 2621000000 2621 false false 2 false true 2622000000 2622 false false No definition available. No authoritative reference available. false 37 5 pgn_TotalCommonStockEquity pgn false credit instant monetary The amount of stockholders' equity attributable to common stock. false false false false false false false false false 1 false true 9289000000 9289 false false 2 false true 8687000000 8687 false false The amount of stockholders' equity attributable to common stock. No authoritative reference available. true 38 4 us-gaap_MinorityInterest us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 6000000 6 false false 2 false true 6000000 6 false false No definition available. No authoritative reference available. false 39 4 us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 9295000000 9295 false false 2 false true 8693000000 8693 false false No definition available. No authoritative reference available. true 40 4 pgn_NoncontrollingInterestAmountRepresentedByTemporaryEquity pgn false credit instant monetary The amount of noncontrolling interest in subsidiary represented by preferred securities issued by the subsidiary. The... false false false false false false false false false 1 false true 93000000 93 false false 2 false true 93000000 93 false false The amount of noncontrolling interest in subsidiary represented by preferred securities issued by the subsidiary. The preferred securities are not permanent equity but rather temporary equity. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. No authoritative reference available. false 41 4 us-gaap_NotesPayableRelatedPartiesNoncurrent us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 272000000 272 false false 2 false true 272000000 272 false false No definition available. No authoritative reference available. false 42 4 us-gaap_LongTermDebtNoncurrent us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 10834000000 10834 false false 2 false true 10387000000 10387 false false No definition available. No authoritative reference available. false 43 4 us-gaap_CapitalizationLongtermDebtAndEquity us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 20494000000 20494 false false 2 false true 19445000000 19445 false false No definition available. No authoritative reference available. false 44 4 us-gaap_LiabilitiesCurrentAbstract us-gaap true na duration string No definition available. false false false false false true false false false 1 false false 0 0 false false 2 false false 0 0 false false No definition available. false 45 5 us-gaap_LongTermDebtCurrent us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 400000000 400 false false 2 false true 0 0 false false No definition available. No authoritative reference available. false 46 5 us-gaap_ShortTermBorrowings us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 500000000 500 false false 2 false true 1050000000 1050 false false No definition available. No authoritative reference available. false 47 5 us-gaap_AccountsPayableCurrent us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 853000000 853 false false 2 false true 912000000 912 false false No definition available. No authoritative reference available. false 48 5 us-gaap_InterestPayableCurrent us-gaap true credit instant monetary No definition available. false false false false false false false false false 1 false true 181000000 181 false false 2 false true 167000000 167 false false No definition available. 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