4. REGULATORY MATTERS

On January 8, 2011, Progress Energy and Duke Energy entered into the Merger Agreement. See Note 2 for regulatory information related to the Merger with Duke Energy.

A. PEC RETAIL RATE MATTERS

COST RECOVERY FILINGS

On June 3, 2011, PEC filed with the NCUC for an increase in the fuel rate charged to its North Carolina retail ratepayers, driven by rising fuel prices. On September 15, 2011, PEC filed a settlement agreement for an increase of approximately $85 million in the fuel rate. The settlement agreement updated certain costs from PEC's original filing and included the impact of a $24 million disallowance of replacement power costs resulting from prior-year performance of PEC's nuclear plants. If approved, the increase will be effective December 1, 2011, and will increase residential electric bills by $2.75 per 1,000 kilowatt-hours (kWh) for fuel cost recovery. On June 3, 2011, and as subsequently amended on August 23, 2011, PEC also filed for a $24 million increase in the demand-side management (DSM) and energy-efficiency (EE) rate charged to its North Carolina ratepayers which, if approved, will be effective December 1, 2011, and will increase the residential electric bills by $1.08 per 1,000 kWh for DSM and EE cost recovery. On June 3, 2011, and as subsequently amended on September 8, 2011, PEC also requested a $9 million increase for North Carolina Renewable Energy and Energy Efficiency Portfolio Standard (NC REPS), which if approved, will be effective December 1, 2011, and will decrease the residential electric bills by $0.02 per 1,000 kWh. The residential NC REPS rate decreased while the total amount to be recovered increased due to the allocation of the NC REPS recovery between customer classes. The net impact of the settlement agreement and filings results in an average increase in residential electric bills of 3.7 percent. We cannot predict the outcome of these matters.

On June 29, 2011, the SCPSC approved a $22 million increase in the fuel rate charged to PEC's South Carolina ratepayers, driven by rising fuel prices. The increase was effective July 1, 2011, and increased residential electric bills by $3.45 per 1,000 kWh. Also on June 20, 2011, the SCPSC provisionally approved a $4 million increase in the DSM and EE rate. The increase was effective July 1, 2011, and increased residential electric bills by $1.25 per 1,000 kWh. The net impact of the two filings resulted in an average increase in residential electric bills of 4.7 percent. We cannot predict the outcome of this matter.

OTHER MATTERS

Construction of Generating Facilities

The NCUC has granted PEC permission to construct two new generating facilities: an approximately 950-MW combined cycle natural gas-fueled facility at its Lee generation facility and an approximately 620-MW natural gas-fueled facility at its Sutton generation facility. The facilities are expected to be placed in service in January 2013 and December 2013, respectively.

Planned Retirements of Generating Facilities

PEC filed a plan with the NCUC and the SCPSC to retire all of its coal-fired generating facilities in North Carolina that do not have scrubbers. These facilities total approximately 1,500 MW at four sites. On October 1, 2011, PEC retired the Weatherspoon coal-fired generating units. PEC expects to retire the remaining coal-fired facilities by the end of 2013.

The net carrying value of the four facilities at September 30, 2011, of $171 million is included in other utility plant, net on the Consolidated Balance Sheets. Consistent with ratemaking treatment, PEC will continue to depreciate each plant using the current depreciation lives and rates on file with the NCUC and the SCPSC until the earlier of the plant's retirement or PEC's completion and filing of a new depreciation study on or before March 31, 2013. The final recovery periods may change in connection with the regulators' determination of the recovery of the remaining net carrying value.

B. PEF RETAIL RATE MATTERS

CR3 OUTAGE

In September 2009, PEF's Crystal River Unit No. 3 Nuclear Plant (CR3) began an outage for normal refueling and maintenance as well as an uprate project to increase its generating capability and to replace two steam generators. During preparations to replace the steam generators, workers discovered a delamination (or separation) within the concrete at the periphery of the containment building, which resulted in an extension of the outage. After analysis, PEF determined that the concrete delamination at CR3 was caused by redistribution of stresses in the containment wall that occurred when PEF created an opening to accommodate the replacement of the unit's steam generators. In March 2011, the work to return the plant to service was suspended after monitoring equipment at the repair site identified a new delamination that occurred in a different section of the outer wall after the repair work was completed and during the late stages of retensioning the containment building. CR3 has remained out of service while PEF conducted an engineering analysis and review of the new delamination and evaluated repair options. Subsequent to March 2011, monitoring equipment has detected additional changes in the partially tensioned containment building and additional cracking or delaminations may have occurred or could occur during the repair process.

PEF analyzed multiple repair options as well as early decommissioning and believes, based on the information and analyses conducted to date, that repairing the unit is the best option. PEF engaged outside engineering consultants to perform the analysis of possible repair options for the second delamination. The consultants analyzed 22 potential repair options and ultimately narrowed those to four. PEF, along with other independent consultants, reviewed the four options for technical issues, constructability, and licensing feasibility as well as cost.

Based on that initial analysis, PEF selected the best repair option, which would entail systematically removing and replacing concrete in substantial portions of the containment structure walls. The planned option does not include the area where concrete was replaced during the initial repair. The preliminary cost estimate for this repair as filed with the FPSC on June 27, 2011, is between $900 million and $1.3 billion. Engineering design of the final repair is underway. PEF will update the current estimate as this work is completed.

PEF is moving forward systematically and will perform additional detailed engineering analyses and designs, which could affect any final repair plan. This process will lead to more certainty for the cost and schedule of the repair. PEF will continue to refine and assess the plan, and the prudence of continuing to pursue it, based on new developments and analyses as the process moves forward. Under this repair plan, PEF estimates that CR3 will return to service in 2014. A number of factors could affect the repair plan, the return-to-service date and costs, including regulatory reviews, final engineering designs, contract negotiations, the ultimate work scope completion, testing, weather, the impact of new information discovered during additional testing and analysis and other developments.

CR3's current operating license expires in December 2016, and PEF applied for a 20-year renewal of the license in 2008. PEF understands that the NRC has completed the license extension process with the exception of the containment structure repair. Once the repair design has been completed and evaluated, the NRC can proceed with the review of the containment structure. Assuming the repair is successful, management is not aware of any reasons why CR3 will not satisfy the requirements for the license extension.

PEF maintains insurance for property damage and incremental costs of replacement power resulting from prolonged accidental outages through Nuclear Electric Insurance Limited (NEIL). NEIL has confirmed that the CR3 initial delamination is a covered accident but has not yet made a determination as to coverage for the second delamination. Following a 12-week deductible period, the NEIL program provided reimbursement for replacement power costs for 52 weeks at $4.5 million per week, through April 9, 2011. An additional 71 weeks of coverage, which runs through August 2012, is provided at $3.6 million per week. Accordingly, the NEIL program provides replacement power coverage of up to $490 million per event. Actual replacement power costs have exceeded the insurance coverage through September 30, 2011. PEF anticipates that future replacement power costs will continue to exceed the insurance coverage. As discussed below, PEF considers replacement power costs not recoverable through insurance to be recoverable through its fuel cost-recovery clause. PEF also maintains insurance coverage through NEIL's accidental property damage program, which provides insurance coverage up to $2.25 billion with a $10 million deductible per claim. PEF is continuing to work with NEIL for recovery of applicable repair costs and associated replacement power costs.

The following table summarizes the CR3 replacement power and repair costs and recovery through September 30, 2011:

(in millions)			Replacement Power Costs			Repair Costs
Spent to date			$	457		$	229
NEIL proceeds received to date				(162)			(136)
Insurance receivable at September 30, 2011				(162)			(48)
	Balance for recovery		$	133	^(a)	$	45

^(a)		As approved by the FPSC, on January 1, 2011, PEF began collecting, subject to refund, replacement power costs related to CR3 within the fuel clause (See Note 7C in the 2010 Form 10-K). The replacement power costs to be recovered through the fuel clause during 2011 allow for full recovery of all of 2010’s and 2011’s replacement power costs. The 2011 fuel cost-recovery filing, discussed in “Fuel Cost Recovery,” anticipates full recovery of estimated 2012 replacement power costs.

PEF believes the actions taken and costs incurred in response to the CR3 delamination have been prudent and, accordingly, considers replacement power and capital costs not recoverable through insurance to be recoverable through its fuel cost-recovery clause or base rates. PEF has recorded $324 million of NEIL replacement power cost reimbursements subsequent to the deductible period, of which $162 million has been received to date. PEF has received $45 million of replacement power reimbursements from NEIL for the nine months ended September 30, 2011. No replacement power reimbursements have been received from NEIL for the three months ended September 30, 2011. Additional replacement power costs and repair and maintenance costs incurred until CR3 is returned to service could be material. We cannot predict with certainty the future recoverability of these costs. Failure to recover some or all of these costs could have a material adverse effect on our and PEF's financial results. Additionally, we cannot be assured that CR3 can be repaired and brought back to service until full engineering and other analyses are completed.

On October 25, 2010, the FPSC approved PEF's motion to establish a separate spin-off docket to review the prudence and costs related to the outage and replacement fuel and power costs associated with the CR3 extended outage. This docket will allow the FPSC to evaluate PEF's actions concerning the concrete delamination and review PEF's resulting costs associated with the extended outage. On June 27, 2011, PEF filed an updated status report with the NRC and FPSC regarding the CR3 outage. The FPSC held subsequent status conferences regarding the CR3 outage on July 14, 2011, and August 8, 2011.

On August 23, 2011, the FPSC issued an order dividing the docket into three phases. The first phase will include a prudence review of the events and decisions of PEF leading up to the October 2, 2009 delamination event. A hearing has been scheduled for June 11-15, 2012. The second phase will be a consideration of the prudence of PEF's decision to repair rather than decommission CR3. The third phase of this docket will include the decisions and events subsequent to the October 2, 2009 delamination leading up to the March 14, 2011 delamination event and the subsequent repair of the containment building. The hearing dates and schedules for the second and third phases will be set in subsequent orders. PEF will file status reports regarding its analysis of the engineering reports, costs, schedule for completion of the repair, along with updated information regarding the decision to repair rather than decommission CR3, and updates regarding the repair of the containment building in accordance with the controlling dates set forth by the FPSC. The first status report is due January 9, 2012.

We cannot predict the outcome of these matters.

COST OF REMOVAL RESERVE

The base rate settlement agreement in effect through the last billing cycle of 2012 provides PEF the discretion to reduce amortization expense (cost of removal component) by up to $150 million in 2010, up to $250 million in 2011, and up to any remaining balance in the cost of removal reserve in 2012 until the earlier of (a) PEF's applicable cost of removal reserve reaches zero, or (b) the expiration of the settlement agreement at the end of 2012. In the event PEF reduces amortization expense by less than the annual amounts for 2010 or 2011, PEF may carry forward (i.e., increase the annual cap by) any unused cost of removal reserve amounts in subsequent years during the term of the agreement. Pursuant to the settlement agreement, PEF carried an unused balance of $90 million forward from 2010, which is available to reduce future amortization expense. For the nine months ended September 30, 2011, PEF recognized a $205 million reduction in amortization expense. Under the base rate settlement agreement, PEF had eligible cost of removal reserves of $294 million remaining as of September 30, 2011. The balance of the cost of removal reserve is impacted by accruals in accordance with PEF's latest depreciation study, removal costs expended and reductions in amortization expense as permitted by the settlement agreement.

FUEL COST RECOVERY

On September 1, 2011, and as subsequently adjusted by the FPSC (see “Nuclear Cost Recovery”), PEF filed its annual fuel-cost recovery filing, requesting to increase the total fuel-cost recovery by $162 million, increasing the residential rate by $3.32 per 1,000 kWh, or 2.78 percent, which will be effective January 1, 2012 if approved. This increase is due to an increase of $3.99 per 1,000 kWh for the projected recovery of fuel costs offset by a decrease of $0.67 per 1,000 kWh for the projected recovery through the Capacity Cost-Recovery Clause (CCRC). The increase in the projected recovery of fuel costs is due to an under-recovery from the prior year. The decrease in the CCRC is primarily due to lower anticipated costs associated with PEF's proposed Levy Units No. 1 and No. 2 Nuclear Power Plants (Levy), and the deferral of 2011 and 2012 estimated costs associated with PEF's CR3 uprate project until 2012 (see “Nuclear Cost Recovery”), partially offset by increased capacity costs and a reduction of the refund related to an over-recovery from the prior year. A hearing was held on November 1-2, 2011. An agenda conference has been scheduled for November 22, 2011. We cannot predict the outcome of this matter.

NUCLEAR COST RECOVERY

Levy Nuclear

Major construction activities on Levy have been postponed until after the NRC issues the combined license (COL) for the plants, which is expected in 2013 if the current licensing schedule remains on track. Along with the FPSC's annual prudence reviews, we will continue to evaluate the project on an ongoing basis based on certain criteria, including, but not limited to cost; potential carbon regulation; fossil fuel prices; the benefits of fuel diversification; public, regulatory and political support; adequate financial cost-recovery mechanisms; appropriate levels of joint owner participation; customer rate impacts; project feasibility; DSM and EE programs; and availability and terms of capital financing. Taking into account these criteria, we consider Levy to be PEF's preferred baseload generation option.

CR3 Uprate

In 2007, the FPSC issued an order approving PEF's Determination of Need petition related to a multi-stage uprate of CR3 that will increase CR3's gross output by approximately 180 MW during its next refueling outage. PEF implemented the first-stage design modifications in 2008. The final stage of the uprate required a license amendment to be filed with the NRC, which was filed by PEF in June 2011.

Cost Recovery

On October 24, 2011, the FPSC approved a $78 million decrease in the amount charged to PEF's ratepayers for nuclear cost recovery, which is a component of, and is included in, the fuel cost recovery (See “Fuel Cost Recovery”), including recovery of pre-construction and carrying costs and CCRC recoverable O&M expense anticipated to be incurred during 2012, recovery of $60 million of prior years' deferrals in 2012, as well as the estimated actual true-up of 2011 costs associated with the Levy and CR3 uprate projects. Also included is the stipulation of PEF's filed motion with the FPSC to defer until 2012 the approval of the long-term feasibility analysis of completing the CR3 uprate, and the determination of reasonableness on, and recovery of, 2011 and 2012 estimated costs. This results in an estimated decrease in the nuclear cost-recovery charge of $2.67 per 1,000 kWh for residential customers, beginning with the first January 2012 billing cycle. The approved rate did not include PEF's request to apply the 2011 over-recovery against the prior-years' deferrals, but rather provides for the refund of $55 million for those prior period over collections. Under the FPSC's ruling, the prior-years' deferral will be recovered consistent with the 2009 rate mitigation plan as approved by the FPSC in 2009, which presented the recovery of costs over a five-year period.

DEMAND-SIDE MANAGEMENT

On July 26, 2011, the FPSC voted to set PEF's DSM compliance goals to remain at their current level until the next goal setting docket is initiated. An intervener timely filed a protest to the FPSC's Proposed Agency Action order, asserting legal challenges to the order. The FPSC has approved a briefing schedule for the parties to make legal arguments to the FPSC. We cannot predict the outcome of this matter.

On November 1, 2011, the FPSC approved PEF's request to decrease the Energy Conservation Cost Recovery Clause (ECCR) residential rate by $0.11 per 1,000 kWh, or 0.1 percent of the total residential rate, effective January 1, 2012. The decrease in the ECCR is primarily due to an increased refund of a prior period over-recovery, partially offset by an increase in conservation program costs.

OTHER MATTERS

On August 26, 2011, and as subsequently revised on October 14, 2011, PEF filed its annual Environmental Cost Recovery Clause (ECRC) filing, requesting to increase the ECRC by $24 million, increasing the residential rate by $0.54 per 1,000 kWh, or 0.5 percent, which would be effective January 1, 2012 if approved. The increase in the ECRC is primarily due to the 2011 return of a prior period over-recovery, partially offset by a decrease in the related O&M expense. A hearing was held on November 1-2, 2011. A subsequent agenda conference has been scheduled for November 22, 2011. We cannot predict the outcome of this matter.

Regulatory Matters Disclosure [Line Items]

Regulatory Matters

B. PEF RETAIL RATE MATTERS

CR3 OUTAGE

In September 2009, PEF's Crystal River Unit No. 3 Nuclear Plant (CR3) began an outage for normal refueling and maintenance as well as an uprate project to increase its generating capability and to replace two steam generators. During preparations to replace the steam generators, workers discovered a delamination (or separation) within the concrete at the periphery of the containment building, which resulted in an extension of the outage. After analysis, PEF determined that the concrete delamination at CR3 was caused by redistribution of stresses in the containment wall that occurred when PEF created an opening to accommodate the replacement of the unit's steam generators. In March 2011, the work to return the plant to service was suspended after monitoring equipment at the repair site identified a new delamination that occurred in a different section of the outer wall after the repair work was completed and during the late stages of retensioning the containment building. CR3 has remained out of service while PEF conducted an engineering analysis and review of the new delamination and evaluated repair options. Subsequent to March 2011, monitoring equipment has detected additional changes in the partially tensioned containment building and additional cracking or delaminations may have occurred or could occur during the repair process.

PEF analyzed multiple repair options as well as early decommissioning and believes, based on the information and analyses conducted to date, that repairing the unit is the best option. PEF engaged outside engineering consultants to perform the analysis of possible repair options for the second delamination. The consultants analyzed 22 potential repair options and ultimately narrowed those to four. PEF, along with other independent consultants, reviewed the four options for technical issues, constructability, and licensing feasibility as well as cost.

Based on that initial analysis, PEF selected the best repair option, which would entail systematically removing and replacing concrete in substantial portions of the containment structure walls. The planned option does not include the area where concrete was replaced during the initial repair. The preliminary cost estimate for this repair as filed with the FPSC on June 27, 2011, is between $900 million and $1.3 billion. Engineering design of the final repair is underway. PEF will update the current estimate as this work is completed.

PEF is moving forward systematically and will perform additional detailed engineering analyses and designs, which could affect any final repair plan. This process will lead to more certainty for the cost and schedule of the repair. PEF will continue to refine and assess the plan, and the prudence of continuing to pursue it, based on new developments and analyses as the process moves forward. Under this repair plan, PEF estimates that CR3 will return to service in 2014. A number of factors could affect the repair plan, the return-to-service date and costs, including regulatory reviews, final engineering designs, contract negotiations, the ultimate work scope completion, testing, weather, the impact of new information discovered during additional testing and analysis and other developments.

CR3's current operating license expires in December 2016, and PEF applied for a 20-year renewal of the license in 2008. PEF understands that the NRC has completed the license extension process with the exception of the containment structure repair. Once the repair design has been completed and evaluated, the NRC can proceed with the review of the containment structure. Assuming the repair is successful, management is not aware of any reasons why CR3 will not satisfy the requirements for the license extension.

PEF maintains insurance for property damage and incremental costs of replacement power resulting from prolonged accidental outages through Nuclear Electric Insurance Limited (NEIL). NEIL has confirmed that the CR3 initial delamination is a covered accident but has not yet made a determination as to coverage for the second delamination. Following a 12-week deductible period, the NEIL program provided reimbursement for replacement power costs for 52 weeks at $4.5 million per week, through April 9, 2011. An additional 71 weeks of coverage, which runs through August 2012, is provided at $3.6 million per week. Accordingly, the NEIL program provides replacement power coverage of up to $490 million per event. Actual replacement power costs have exceeded the insurance coverage through September 30, 2011. PEF anticipates that future replacement power costs will continue to exceed the insurance coverage. As discussed below, PEF considers replacement power costs not recoverable through insurance to be recoverable through its fuel cost-recovery clause. PEF also maintains insurance coverage through NEIL's accidental property damage program, which provides insurance coverage up to $2.25 billion with a $10 million deductible per claim. PEF is continuing to work with NEIL for recovery of applicable repair costs and associated replacement power costs.

The following table summarizes the CR3 replacement power and repair costs and recovery through September 30, 2011:

(in millions)			Replacement Power Costs			Repair Costs
Spent to date			$	457		$	229
NEIL proceeds received to date				(162)			(136)
Insurance receivable at September 30, 2011				(162)			(48)
	Balance for recovery		$	133	^(a)	$	45

^(a)		As approved by the FPSC, on January 1, 2011, PEF began collecting, subject to refund, replacement power costs related to CR3 within the fuel clause (See Note 7C in the 2010 Form 10-K). The replacement power costs to be recovered through the fuel clause during 2011 allow for full recovery of all of 2010’s and 2011’s replacement power costs. The 2011 fuel cost-recovery filing, discussed in “Fuel Cost Recovery,” anticipates full recovery of estimated 2012 replacement power costs.

PEF believes the actions taken and costs incurred in response to the CR3 delamination have been prudent and, accordingly, considers replacement power and capital costs not recoverable through insurance to be recoverable through its fuel cost-recovery clause or base rates. PEF has recorded $324 million of NEIL replacement power cost reimbursements subsequent to the deductible period, of which $162 million has been received to date. PEF has received $45 million of replacement power reimbursements from NEIL for the nine months ended September 30, 2011. No replacement power reimbursements have been received from NEIL for the three months ended September 30, 2011. Additional replacement power costs and repair and maintenance costs incurred until CR3 is returned to service could be material. We cannot predict with certainty the future recoverability of these costs. Failure to recover some or all of these costs could have a material adverse effect on our and PEF's financial results. Additionally, we cannot be assured that CR3 can be repaired and brought back to service until full engineering and other analyses are completed.

On October 25, 2010, the FPSC approved PEF's motion to establish a separate spin-off docket to review the prudence and costs related to the outage and replacement fuel and power costs associated with the CR3 extended outage. This docket will allow the FPSC to evaluate PEF's actions concerning the concrete delamination and review PEF's resulting costs associated with the extended outage. On June 27, 2011, PEF filed an updated status report with the NRC and FPSC regarding the CR3 outage. The FPSC held subsequent status conferences regarding the CR3 outage on July 14, 2011, and August 8, 2011.

On August 23, 2011, the FPSC issued an order dividing the docket into three phases. The first phase will include a prudence review of the events and decisions of PEF leading up to the October 2, 2009 delamination event. A hearing has been scheduled for June 11-15, 2012. The second phase will be a consideration of the prudence of PEF's decision to repair rather than decommission CR3. The third phase of this docket will include the decisions and events subsequent to the October 2, 2009 delamination leading up to the March 14, 2011 delamination event and the subsequent repair of the containment building. The hearing dates and schedules for the second and third phases will be set in subsequent orders. PEF will file status reports regarding its analysis of the engineering reports, costs, schedule for completion of the repair, along with updated information regarding the decision to repair rather than decommission CR3, and updates regarding the repair of the containment building in accordance with the controlling dates set forth by the FPSC. The first status report is due January 9, 2012.

We cannot predict the outcome of these matters.

COST OF REMOVAL RESERVE

The base rate settlement agreement in effect through the last billing cycle of 2012 provides PEF the discretion to reduce amortization expense (cost of removal component) by up to $150 million in 2010, up to $250 million in 2011, and up to any remaining balance in the cost of removal reserve in 2012 until the earlier of (a) PEF's applicable cost of removal reserve reaches zero, or (b) the expiration of the settlement agreement at the end of 2012. In the event PEF reduces amortization expense by less than the annual amounts for 2010 or 2011, PEF may carry forward (i.e., increase the annual cap by) any unused cost of removal reserve amounts in subsequent years during the term of the agreement. Pursuant to the settlement agreement, PEF carried an unused balance of $90 million forward from 2010, which is available to reduce future amortization expense. For the nine months ended September 30, 2011, PEF recognized a $205 million reduction in amortization expense. Under the base rate settlement agreement, PEF had eligible cost of removal reserves of $294 million remaining as of September 30, 2011. The balance of the cost of removal reserve is impacted by accruals in accordance with PEF's latest depreciation study, removal costs expended and reductions in amortization expense as permitted by the settlement agreement.

FUEL COST RECOVERY

On September 1, 2011, and as subsequently adjusted by the FPSC (see “Nuclear Cost Recovery”), PEF filed its annual fuel-cost recovery filing, requesting to increase the total fuel-cost recovery by $162 million, increasing the residential rate by $3.32 per 1,000 kWh, or 2.78 percent, which will be effective January 1, 2012 if approved. This increase is due to an increase of $3.99 per 1,000 kWh for the projected recovery of fuel costs offset by a decrease of $0.67 per 1,000 kWh for the projected recovery through the Capacity Cost-Recovery Clause (CCRC). The increase in the projected recovery of fuel costs is due to an under-recovery from the prior year. The decrease in the CCRC is primarily due to lower anticipated costs associated with PEF's proposed Levy Units No. 1 and No. 2 Nuclear Power Plants (Levy), and the deferral of 2011 and 2012 estimated costs associated with PEF's CR3 uprate project until 2012 (see “Nuclear Cost Recovery”), partially offset by increased capacity costs and a reduction of the refund related to an over-recovery from the prior year. A hearing was held on November 1-2, 2011. An agenda conference has been scheduled for November 22, 2011. We cannot predict the outcome of this matter.

NUCLEAR COST RECOVERY

Levy Nuclear

Major construction activities on Levy have been postponed until after the NRC issues the combined license (COL) for the plants, which is expected in 2013 if the current licensing schedule remains on track. Along with the FPSC's annual prudence reviews, we will continue to evaluate the project on an ongoing basis based on certain criteria, including, but not limited to cost; potential carbon regulation; fossil fuel prices; the benefits of fuel diversification; public, regulatory and political support; adequate financial cost-recovery mechanisms; appropriate levels of joint owner participation; customer rate impacts; project feasibility; DSM and EE programs; and availability and terms of capital financing. Taking into account these criteria, we consider Levy to be PEF's preferred baseload generation option.

CR3 Uprate

In 2007, the FPSC issued an order approving PEF's Determination of Need petition related to a multi-stage uprate of CR3 that will increase CR3's gross output by approximately 180 MW during its next refueling outage. PEF implemented the first-stage design modifications in 2008. The final stage of the uprate required a license amendment to be filed with the NRC, which was filed by PEF in June 2011.

Cost Recovery

On October 24, 2011, the FPSC approved a $78 million decrease in the amount charged to PEF's ratepayers for nuclear cost recovery, which is a component of, and is included in, the fuel cost recovery (See “Fuel Cost Recovery”), including recovery of pre-construction and carrying costs and CCRC recoverable O&M expense anticipated to be incurred during 2012, recovery of $60 million of prior years' deferrals in 2012, as well as the estimated actual true-up of 2011 costs associated with the Levy and CR3 uprate projects. Also included is the stipulation of PEF's filed motion with the FPSC to defer until 2012 the approval of the long-term feasibility analysis of completing the CR3 uprate, and the determination of reasonableness on, and recovery of, 2011 and 2012 estimated costs. This results in an estimated decrease in the nuclear cost-recovery charge of $2.67 per 1,000 kWh for residential customers, beginning with the first January 2012 billing cycle. The approved rate did not include PEF's request to apply the 2011 over-recovery against the prior-years' deferrals, but rather provides for the refund of $55 million for those prior period over collections. Under the FPSC's ruling, the prior-years' deferral will be recovered consistent with the 2009 rate mitigation plan as approved by the FPSC in 2009, which presented the recovery of costs over a five-year period.

DEMAND-SIDE MANAGEMENT

On July 26, 2011, the FPSC voted to set PEF's DSM compliance goals to remain at their current level until the next goal setting docket is initiated. An intervener timely filed a protest to the FPSC's Proposed Agency Action order, asserting legal challenges to the order. The FPSC has approved a briefing schedule for the parties to make legal arguments to the FPSC. We cannot predict the outcome of this matter.

On November 1, 2011, the FPSC approved PEF's request to decrease the Energy Conservation Cost Recovery Clause (ECCR) residential rate by $0.11 per 1,000 kWh, or 0.1 percent of the total residential rate, effective January 1, 2012. The decrease in the ECCR is primarily due to an increased refund of a prior period over-recovery, partially offset by an increase in conservation program costs.

OTHER MATTERS

On August 26, 2011, and as subsequently revised on October 14, 2011, PEF filed its annual Environmental Cost Recovery Clause (ECRC) filing, requesting to increase the ECRC by $24 million, increasing the residential rate by $0.54 per 1,000 kWh, or 0.5 percent, which would be effective January 1, 2012 if approved. The increase in the ECRC is primarily due to the 2011 return of a prior period over-recovery, partially offset by a decrease in the related O&M expense. A hearing was held on November 1-2, 2011. A subsequent agenda conference has been scheduled for November 22, 2011. We cannot predict the outcome of this matter.