17. BENEFIT PLANS

A. POSTRETIREMENT BENEFITS

We have noncontributory defined benefit retirement plans that provide pension benefits for substantially all full-time employees. We also have supplementary defined benefit pension plans that provide benefits to higher-level employees. In addition to pension benefits, we provide contributory other postretirement benefits (OPEB), including certain health care and life insurance benefits, for retired employees who meet specified criteria. We use a measurement date of December 31 for our pension and OPEB plans.

COSTS OF BENEFIT PLANS

Prior service costs and benefits are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of assets are amortized over the average remaining service period of active participants.

To determine the market-related value of assets, we use a five-year averaging method for a portion of the pension assets and fair value for the remaining portion. We have historically used the five-year averaging method. When we acquired Florida Progress in 2000, we retained the Florida Progress historical use of fair value to determine market-related value for Florida Progress pension assets.

The tables below provide the components of the net periodic benefit cost for the years ended December 31. A portion of net periodic benefit cost is capitalized as part of construction work in progress.


PROGRESS ENERGY
			Pension Benefits						OPEB
(in millions)			2011		2010		2009		2011		2010		2009
Service cost		$	53	$	48	$	42	$	11	$	16	$	7
Interest cost			141		140		138		41		45		31
Expected return on plan assets			(182)		(157)		(133)		(2)		(4)		(4)
Amortization of actuarial loss^(a)			69		51		54		12		13		1
Other amortization, net ^(a)			7		6		6		5		5		5
	Net periodic cost before deferral^(b)	$	88	$	88	$	107	$	67	$	75	$	40

^(a)	Adjusted to reflect PEF’s rate treatment (See Note 17B).
^(b)	PEF received permission from the FPSC to defer the retail portion of certain 2009 pension expense. The FPSC order did not change the total net periodic pension cost, but deferred a portion of the costs to be recovered in future periods. During 2009, PEF deferred $34 million of net periodic pension costs as a regulatory asset. See Note 8C.

PEC
			Pension Benefits						OPEB
(in millions)			2011		2010		2009		2011		2010		2009
Service cost		$	21	$	19	$	18	$	5	$	5	$	5
Interest cost			63		64		64		20		20		16
Expected return on plan assets			(91)		(77)		(67)		-		(2)		(2)
Amortization of actuarial loss			26		16		11		5		4		-
Other amortization, net			5		6		6		1		1		1
	Net periodic cost	$	24	$	28	$	32	$	31	$	28	$	20

PEF
			Pension Benefits						OPEB
(in millions)			2011		2010		2009		2011		2010		2009
Service cost		$	25	$	22	$	19	$	5	$	10	$	2
Interest cost			59		59		56		18		22		13
Expected return on plan assets			(78)		(68)		(56)		(2)		(2)		(1)
Amortization of actuarial loss			33		31		38		7		9		-
Other amortization, net			-		-		-		4		4		3
	Net periodic cost before deferral^(a)	$	39	$	44	$	57	$	32	$	43	$	17

^(a)	PEF received permission from the FPSC to defer the retail portion of certain 2009 pension expense. The FPSC order did not change the total net periodic pension cost, but deferred a portion of the costs to be recovered in future periods. During 2009, PEF deferred $34 million of net periodic pension costs as a regulatory asset. See Note 8C.

The following tables provide a summary of amounts recognized in other comprehensive income and other comprehensive income reclassification adjustments for amounts included in net income for 2011, 2010 and 2009. The tables also include comparable items that affected regulatory assets. Amounts that would otherwise be recorded in other comprehensive income are recorded as adjustments to regulatory assets consistent with the recovery of the related costs through the ratemaking process.


PROGRESS ENERGY
				Pension Benefits						OPEB
(in millions)				2011		2010		2009		2011		2010		2009
Other comprehensive income (loss)
	Recognized for the year
		Net actuarial (loss) gain	$	(20)	$	(11)	$	(1)	$	(2)	$	(10)	$	4
		Regulatory asset adjustment		84		-		-		(4)		-		-
	Reclassification adjustments
		Net actuarial loss		10		4		5		-		-		1
		Other, net		2		-		-		-		-		1
Regulatory asset (increase) decrease
	Recognized for the year
		Net actuarial (loss) gain		(307)		(65)		10		(95)		(164)		64
		Reclassification adjustment		(84)		-		-		4		-		-
		Other, net		-		-		(3)		-		-		-
	Amortized to income^(a)
		Net actuarial loss		59		47		49		12		13		-
		Other, net		5		6		6		5		5		4

^(a)		These amounts were amortized as a component of net periodic cost, as reflected in the previous net periodic cost table. Refer to that table for information regarding the deferral of a portion of net periodic pension cost.

PEC
				Pension Benefits						OPEB
(in millions)				2011		2010		2009		2011		2010		2009
Regulatory asset (increase) decrease
	Recognized for the year
		Net actuarial (loss) gain	$	(134)	$	(24)	$	(14)	$	(49)	$	(64)	$	38
		Other, net		-		-		(2)		-		-		-
	Amortized to income
		Net actuarial loss		26		16		11		5		4		-
		Other, net		5		6		6		1		1		1

PEF
				Pension Benefits						OPEB
(in millions)				2011		2010		2009		2011		2010		2009
Regulatory asset (increase) decrease
	Recognized for the year
		Net actuarial (loss) gain	$	(147)	$	(41)	$	24	$	(39)	$	(100)	$	26
		Other, net		-		-		(1)		-		-		-
	Amortized to income^(a)
		Net actuarial loss		33		31		38		7		9		-
		Other, net		-		-		-		4		4		3

^(a)		These amounts were amortized as a component of net periodic cost, as reflected in the previous net periodic cost table. Refer to that table for information regarding the deferral of a portion of net periodic pension cost.

The following weighted-average actuarial assumptions were used by Progress Energy in the calculation of its net periodic cost:


		Pension Benefits						OPEB
		2011		2010		2009		2011		2010		2009
Discount rate		5.60	%	6.00	%	6.30	%	5.70	%	6.05	%	6.20	%
Rate of increase in future compensation
	Bargaining	4.50	%	4.50	%	4.25	%	-		-		-
	Supplementary plans	5.25	%	5.25	%	5.25	%	-		-		-
Expected long-term rate of return on plan assets		8.50	%	8.75	%	8.75	%	5.00	%	6.60	%	6.80	%

The weighted-average actuarial assumptions used by PEC and PEF were not materially different from the assumptions above, as applicable, except that the expected long-term rate of return on OPEB plan assets was 5.00% for PEF for all years presented and for PEC was 8.75% for 2010 and 2009. PEC held no OPEB plan assets during 2011.

The expected long-term rates of return on plan assets were determined by considering long-term projected returns based on the plans' target asset allocations. Specifically, return rates were developed for each major asset class and weighted based on the target asset allocations. The projected returns were benchmarked against historical returns for reasonableness. We decreased our expected long-term rate of return on pension assets by 0.25% in 2011, primarily due to a shift in our investment strategy. See the “Assets of Benefit Plans” section below for additional information regarding our investment policies and strategies.

BENEFIT OBLIGATIONS AND ACCRUED COSTS

GAAP requires us to recognize in our statement of financial condition the funded status of our pension and other postretirement benefit plans, measured as the difference between the fair value of the plan assets and the benefit obligation as of the end of the fiscal year.

Reconciliations of the changes in the Progress Registrants' benefit obligations and the funded status as of December 31, 2011 and 2010 are presented in the tables below, with each table followed by related supplementary information.


PROGRESS ENERGY
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Projected benefit obligation at January 1		$	2,609	$	2,422	$	733	$	543
Service cost			53		48		11		16
Interest cost			141		140		41		45
Settlements			(6)		-		-		-
Benefit payments			(129)		(129)		(42)		(44)
Plan amendment			-		1		-		-
Actuarial loss			238		127		98		173
	Obligation at December 31		2,906		2,609		841		733
Fair value of plan assets at December 31			2,191		1,891		37		33
	Funded status	$	(715)	$	(718)	$	(804)	$	(700)

All defined benefit pension plans had accumulated benefit obligations in excess of plan assets, with projected benefit obligations totaling $2.906 billion and $2.609 billion at December 31, 2011 and 2010, respectively. Those plans had accumulated benefit obligations totaling $2.854 billion and $2.563 billion at December 31, 2011 and 2010, respectively, and plan assets of $2.191 billion and $1.891 billion at December 31, 2011 and 2010, respectively.

The accrued benefit costs reflected in the Consolidated Balance Sheets at December 31 were as follows:

			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Current liabilities		$	(10)	$	(10)	$	(22)	$	(22)
Noncurrent liabilities			(705)		(708)		(782)		(678)
	Funded status	$	(715)	$	(718)	$	(804)	$	(700)

The following table provides a summary of amounts not yet recognized as a component of net periodic cost at December 31:

			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Recognized in accumulated other comprehensive loss
	Net actuarial loss	$	34	$	90	$	-	$	5
	Other, net		2		9		-		1
Recognized in regulatory assets, net
	Net actuarial loss		1,139		824		274		183
	Other, net		56		55		3		9
	Total not yet recognized as a component of net periodic cost^(a)	$	1,231	$	978	$	277	$	198

^(a)	All components are adjusted to reflect PEF's rate treatment (See Note 17B).

The following table presents the amounts we expect to recognize as components of net periodic cost in 2012:

(in millions)		Pension Benefits				OPEB
Amortization of actuarial loss^(a)			$	91	$	23
Amortization of other, net^(a)				9		4

^(a)	Adjusted to reflect PEF’s rate treatment (See Note 17B).


PEC
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Projected benefit obligation at January 1		$	1,188	$	1,120	$	352	$	282
Service cost			21		19		5		5
Interest cost			63		64		20		20
Benefit payments			(56)		(56)		(19)		(19)
Actuarial loss			86		41		49		64
	Obligation at December 31		1,302		1,188		407		352
Fair value of plan assets at December 31			1,091		884		-		-
	Funded status	$	(211)	$	(304)	$	(407)	$	(352)

All defined benefit pension plans had accumulated benefit obligations in excess of plan assets, with projected benefit obligations totaling $1.302 billion and $1.188 billion at December 31, 2011 and 2010, respectively. Those plans had accumulated benefit obligations totaling $1.297 billion and $1.184 billion at December 31, 2011 and 2010, respectively, and plan assets of $1.091 billion and $884 million at December 31, 2011 and 2010, respectively.

The accrued benefit costs reflected on the Balance Sheets at December 31 were as follows:


			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Current liabilities		$	(2)	$	(2)	$	(19)	$	(19)
Noncurrent liabilities			(209)		(302)		(388)		(333)
	Funded status	$	(211)	$	(304)	$	(407)	$	(352)

The table below provides a summary of amounts not yet recognized as a component of net periodic cost at December 31:


			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Recognized in regulatory assets
	Net actuarial loss	$	527	$	418	$	121	$	76
	Other, net		43		49		-		2
	Total not yet recognized as a component of net periodic cost	$	570	$	467	$	121	$	78

The following table presents the amounts PEC expects to recognize as components of net periodic cost in 2012:


(in millions)	Pension Benefits			OPEB
Amortization of actuarial loss		$	37		$	11
Amortization of other, net			8			-


PEF
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Projected benefit obligation at January 1		$	1,087	$	992	$	326	$	219
Service cost			25		22		5		10
Interest cost			59		59		18		22
Plan amendment			-		1		-		-
Benefit payments			(58)		(58)		(21)		(23)
Actuarial loss			110		71		40		98
	Obligation at December 31		1,223		1,087		368		326
Fair value of plan assets at December 31			969		871		37		33
	Funded status	$	(254)	$	(216)	$	(331)	$	(293)

All defined benefit pension plans had accumulated benefit obligations in excess of plan assets, with projected benefit obligations totaling $1.223 billion and $1.087 billion at December 31, 2011 and 2010, respectively. Those plans had accumulated benefit obligations totaling $1.184 billion and $1.049 billion at December 31, 2011 and 2010, respectively, and plan assets of $969 million and $871 million at December 31, 2011 and 2010, respectively.

The accrued benefit costs reflected in the Balance Sheets at December 31 were as follows:


			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Current liabilities		$	(3)	$	(3)	$	-	$	-
Noncurrent liabilities			(251)		(213)		(331)		(293)
	Funded status	$	(254)	$	(216)	$	(331)	$	(293)

The following table provides a summary of amounts not yet recognized as a component of net periodic cost at December 31.

			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Recognized in regulatory assets, net
	Net actuarial loss	$	520	$	406	$	139	$	107
	Other, net		6		6		3		7
	Total not yet recognized as a component of net periodic cost	$	526	$	412	$	142	$	114

The following table presents the amounts PEF expects to recognize as components of net periodic cost in 2012:

(in millions)	Pension Benefits				OPEB
Amortization of actuarial loss		$	45	$	12
Amortization of other, net			-		3

The following weighted-average actuarial assumptions were used in the calculation of our year-end obligations:

		Pension Benefits				OPEB
		2011		2010		2011		2010
Discount rate		4.75	%	5.65	%	4.85	%	5.75	%
Rate of increase in future compensation
	Bargaining	4.00	%	4.50	%	-		-
	Supplementary plans	5.25	%	5.25	%	-		-
Initial medical cost trend rate for pre-Medicare Act benefits		-		-		8.75	%	8.50	%
Initial medical cost trend rate for post-Medicare Act benefits		-		-		8.75	%	8.50	%
Ultimate medical cost trend rate		-		-		5.00	%	5.00	%
Year ultimate medical cost trend rate is achieved		-		-		2020		2017

The weighted-average actuarial assumptions for PEC and PEF were the same or were not significantly different from those indicated above, as applicable. The rates of increase in future compensation include the effects of cost of living adjustments and promotions.

Our primary defined benefit retirement plan for nonbargaining employees is a “cash balance” pension plan. Therefore, we use the traditional unit credit method for purposes of measuring the benefit obligation of this plan. Under the traditional unit credit method, no assumptions are included about future changes in compensation, and the accumulated benefit obligation and projected benefit obligation are the same.

MEDICAL COST TREND RATE SENSITIVITY

The medical cost trend rates were assumed to decrease gradually from the initial rates to the ultimate rates. The effects of a 1 percent change in the medical cost trend rate are shown below.

		Progress Energy				PEC		PEF
1 percent increase in medical cost trend rate
	Effect on total of service and interest cost		$	3	$	1	$	1
	Effect on postretirement benefit obligation			43		21		19
1 percent decrease in medical cost trend rate
	Effect on total of service and interest cost			(2)		(1)		(1)
	Effect on postretirement benefit obligation			(31)		(15)		(14)

ASSETS OF BENEFIT PLANS

In the plan asset reconciliation tables that follow, our, PEC's and PEF's employer contributions to qualified plans for 2011 include contributions directly to pension plan assets of $334 million, $217 million and $112 million, respectively, and for 2010 include contributions directly to pension plan assets of $129 million, $95 million and $34 million, respectively. Substantially all of the remaining employer contributions represent benefit payments made directly from the Progress Registrants' assets. The OPEB benefit payments presented in the plan asset reconciliation tables that follow represent the cost after participant contributions. Participant contributions represent approximately 16 percent of gross benefit payments for Progress Energy, 21 percent for PEC and 12 percent for PEF. The OPEB benefit payments are also reduced by prescription drug-related federal subsidies received. In 2011, the subsidies totaled $5 million for us, $2 million for PEC and $2 million for PEF. In 2010, the subsidies totaled $3 million for us, $1 million for PEC and $2 million for PEF.

Reconciliations of the fair value of plan assets at December 31 follow:


PROGRESS ENERGY
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Fair value of plan assets January 1		$	1,891	$	1,673	$	33	$	55
Actual return on plan assets			91		208		3		2
Benefit payments, including settlements			(135)		(129)		(42)		(44)
Employer contributions			344		139		43		20
	Fair value of plan assets at December 31	$	2,191	$	1,891	$	37	$	33

PEC
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Fair value of plan assets January 1		$	884	$	749	$	-	$	21
Actual return on plan assets			44		94		-		2
Benefit payments			(56)		(56)		(19)		(19)
Employer contributions (reimbursements)			219		97		19		(4)
	Fair value of plan assets at December 31	$	1,091	$	884	$	-	$	-

PEF
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Fair value of plan assets January 1		$	871	$	794	$	33	$	32
Actual return on plan assets			41		98		4		1
Benefit payments			(58)		(58)		(21)		(23)
Employer contributions			115		37		21		23
	Fair value of plan assets at December 31	$	969	$	871	$	37	$	33

The Progress Registrants' primary objectives when setting investment policies and strategies are to manage the assets of the pension plan to ensure that sufficient funds are available at all times to finance promised benefits and to invest the funds such that contributions are minimized, within acceptable risk limits. We periodically perform studies to analyze various aspects of our pension plans including asset allocations, expected portfolio return, pension contributions and net funded status. One of our key investment objectives is to achieve a rate of return significantly in excess of the discount rate used to measure the plan liabilities over the long term. As of December 31, 2011, the target pension asset allocations are 29 percent domestic equity, 19 percent international equity, 35 percent domestic fixed income, 10 percent private equity and timber and 7 percent absolute return hedge funds. Tactical shifts (plus or minus 5 percent) in asset allocation from the target allocations are made based on the near-term view of the risk and return tradeoffs of the asset classes. Domestic equity includes investments across large, medium and small capitalized domestic stocks, using investment managers with value, growth and core-based investment strategies and includes both long only and long/short equity managers. International equity includes investments in foreign stocks in both developed and emerging market countries, using a mix of value and growth-based investment strategies and includes both long only and long/short equity managers. Domestic fixed income primarily includes domestic investment grade long duration fixed income investments. OPEB plan assets, representing all PEF's OPEB plan assets, are invested in domestic governmental securities.

PROGRESS ENERGY

The following table sets forth by level within the fair value hierarchy our pension plan assets at December 31, 2011 and 2010. See Note 14 for detailed information regarding the fair value hierarchy.


			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2011
Assets
Cash and cash equivalents		$	82	$	33	$	-	$	115
International equity securities			47		-		-		47
Domestic equity securities			266		-		-		266
Private equity securities			-		-		153		153
Corporate bonds			-		407		-		407
U.S. state and municipal debt			-		42		-		42
U.S. and foreign government debt			247		102		-		349
Commingled funds			-		490		-		490
Hedge funds			-		159		147		306
Timber investments			-		-		11		11
Other investments			-		5		-		5
	Fair value of plan assets	$	642	$	1,238	$	311	$	2,191

			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2010
Assets
Cash and cash equivalents		$	-	$	94	$	-	$	94
International equity securities			40		-		-		40
Domestic equity securities			286		-		-		286
Private equity securities			-		-		147		147
Corporate bonds			-		216		-		216
U.S. state and municipal debt			-		19		-		19
U.S. and foreign government debt			144		30		-		174
Commingled funds			-		847		-		847
Hedge funds			-		51		2		53
Timber investments			-		-		11		11
Other investments			-		4		-		4
	Fair value of plan assets	$	470	$	1,261	$	160	$	1,891

Our other postretirement benefit plan assets had a fair value of $37 million and $33 million, which consisted of U.S. state and municipal assets classified as Level 2 in the fair value hierarchy at December 31, 2011, and December 31, 2010, respectively.

A reconciliation of changes in the fair value of our pension plan assets classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:


(in millions)		Private Equity Securities		Hedge Funds		Timber Investments			Total
2011
Balance at January 1		$	147	$	2	$	11	$	160
Net realized and unrealized gains ^(a)			-		4		1		5
Transfers in			-		52		-		52
Purchases, sales and distributions, net			6		89		(1)		94
Balance at December 31		$	153	$	147	$	11	$	311

(in millions)		Private Equity Securities		Hedge Funds		Timber Investments			Total
2010
Balance at January 1		$	122	$	2	$	14	$	138
Net realized and unrealized gains (losses)^(a)			7		-		(2)		5
Purchases, sales and distributions, net			18		-		(1)		17
Balance at December 31		$	147	$	2	$	11	$	160

^(a)	Substantially all amounts relate to investments held at December 31.

PEC

The following table sets forth by level within the fair value hierarchy PEC's pension plan assets at December 31, 2011 and 2010. See Note 14 for detailed information regarding the fair value hierarchy.


			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2011
Assets
Cash and cash equivalents		$	41	$	16	$	-	$	57
International equity securities			24		-		-		24
Domestic equity securities			133		-		-		133
Private equity securities			-		-		76		76
Corporate bonds			-		203		-		203
U.S. state and municipal debt			-		21		-		21
U.S. and foreign government debt			123		51		-		174
Commingled funds			-		244		-		244
Hedge funds			-		79		73		152
Timber investments			-		-		5		5
Other investments			-		2		-		2
	Fair value of plan assets	$	321	$	616	$	154	$	1,091

			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2010
Assets
Cash and cash equivalents		$	-	$	44	$	-	$	44
International equity securities			19		-		-		19
Domestic equity securities			134		-		-		134
Private equity securities			-		-		69		69
Corporate bonds			-		101		-		101
U.S. state and municipal debt			-		9		-		9
U.S. and foreign government debt			67		14		-		81
Commingled funds			-		396		-		396
Hedge funds			-		24		1		25
Timber investments			-		-		5		5
Other investments			-		1		-		1
	Fair value of plan assets	$	220	$	589	$	75	$	884

A reconciliation of changes in the fair value of PEC's pension plan assets classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:


(in millions)		Private Equity Securities		Hedge Funds		Timber Investments		Total
2011
Balance at January 1		$	69	$	1	$	5	$	75
Net realized and unrealized gains^(a)			-		2		-		2
Transfers in			-		26		-		26
Purchases, sales and distributions, net			7		44		-		51
Balance at December 31		$	76	$	73	$	5	$	154

(in millions)		Private Equity Securities		Hedge Funds		Timber Investments		Total
2010
Balance at January 1		$	55	$	1	$	6	$	62
Net realized and unrealized gains (losses)^(a)			4		-		(1)		3
Purchases, sales and distributions, net			10		-		-		10
Balance at December 31		$	69	$	1	$	5	$	75

^(a)	Substantially all amounts relate to investments held at December 31.

PEF

The following table sets forth by level within the fair value hierarchy PEF's pension assets at December 31, 2011 and 2010. See Note 14 for detailed information regarding the fair value hierarchy.


			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2011
Assets
Cash and cash equivalents		$	36	$	15	$	-	$	51
International equity securities			21		-		-		21
Domestic equity securities			117		-		-		117
Private equity securities			-		-		68		68
Corporate bonds			-		180		-		180
U.S. state and municipal debt			-		19		-		19
U.S. and foreign government debt			109		45		-		154
Commingled funds			-		217		-		217
Hedge funds			-		70		65		135
Timber investments			-		-		5		5
Other investments			-		2		-		2
	Fair value of plan assets	$	283	$	548	$	138	$	969

			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2010
Assets
Cash and cash equivalents		$	-	$	43	$	-	$	43
International equity securities			18		-		-		18
Domestic equity securities			132		-		-		132
Private equity securities			-		-		68		68
Corporate bonds			-		99		-		99
U.S. state and municipal debt			-		9		-		9
U.S. and foreign government debt			66		14		-		80
Commingled funds			-		391		-		391
Hedge funds			-		23		1		24
Timber investments			-		-		5		5
Other investments			-		2		-		2
	Fair value of plan assets	$	216	$	581	$	74	$	871

PEF's other postretirement benefit plan assets had a fair value of $37 million and $33 million, which consisted of U.S. state and municipal assets classified as Level 2 in the fair value hierarchy at December 31, 2011 and 2010, respectively.

A reconciliation of changes in the fair value of PEF's pension plan assets classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:


(in millions)		Private Equity Securities		Hedge Funds		Timber Investments		Total
2011
Balance at January 1		$	68	$	1	$	5	$	74
Net realized and unrealized gains^(a)			-		2		-		2
Transfers in			-		23		-		23
Purchases, sales and distributions, net			-		39		-		39
Balance at December 31		$	68	$	65	$	5	$	138

(in millions)		Private Equity Securities		Hedge Funds		Timber Investments		Total
2010
Balance at January 1		$	58	$	1	$	7	$	66
Net realized and unrealized gains (losses)^(a)			3		-		(1)		2
Purchases, sales and distributions, net			7		-		(1)		6
Balance at December 31		$	68	$	1	$	5	$	74

^(a)	Substantially all amounts relate to investments held at December 31.

For Progress Energy, PEC and PEF, the determination of the fair values of pension and postretirement plan assets incorporates various factors required under GAAP. The assets of the plan include exchange traded securities (classified within Level 1) and other marketable debt and equity securities, most of which are valued using Level 1 inputs for similar instruments, and are classified within Level 2 investments.

Most over-the-counter investments are valued using observable inputs for similar instruments or prices from similar transactions and are classified as Level 2. Over-the-counter investments where significant unobservable inputs are used, such as financial pricing models, are classified as Level 3 investments.

Investments in private equity are valued using observable inputs, when available, and also include comparable market transactions, income and cost basis valuation techniques. The market approach includes using comparable market transactions or values. The income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. Private equity investments are classified as Level 3 investments.

Investments in commingled funds are not publically traded, but the underlying assets held in these funds are traded in active markets and the prices for these assets are readily observable. Holdings in commingled funds are classified as Level 2 investments.

Hedge funds are based primarily on the net asset values and other financial information provided by management of the private investment funds. Hedge funds are classified as Level 2 if the plan is able to redeem the investment with the investee at net asset value as of the measurement date, or at a later date within a reasonable period of time. Hedge funds are classified as Level 3 if the investment cannot be redeemed at net asset value or it cannot be determined when the fund will be redeemed.

Investments in timber are valued primarily on valuations prepared by independent property appraisers. These appraisals are based on cash flow analysis, current market capitalization rates, recent comparable sales transactions, actual sales negotiations and bona fide purchase offers. Inputs include the species, age, volume and condition of timber stands growing on the land; the location, productivity, capacity and accessibility of the timber tracts; current and expected log prices; and current local prices for comparable investments. Timber investments are classified as Level 3 investments.

CONTRIBUTION AND BENEFIT PAYMENT EXPECTATIONS

In 2012, we expect to make contributions of $125 million-$225 million directly to pension plan assets and $1 million of discretionary contributions directly to the OPEB plan assets. The expected benefit payments for the pension benefit plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $182, $185, $193, $198, $200 and $1,046, respectively. The expected benefit payments for the OPEB plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $47, $50, $53, $56, $58 and $318, respectively. The expected benefit payments include benefit payments directly from plan assets and benefit payments directly from our assets. The benefit payment amounts reflect our net cost after any participant contributions and do not reflect reductions for expected prescription drug-related federal subsidies. The expected federal subsidies for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $4, $5, $5, $6, $7 and $44, respectively.

In 2012, PEC expects to make contributions of $60 million-$110 million directly to pension plan assets. The expected benefit payments for the pension benefit plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $94, $94, $99, $99, $97 and $479, respectively. The expected benefit payments for the OPEB plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $21, $23, $25, $26, $28 and $158, respectively. The expected benefit payments include benefit payments directly from plan assets and benefit payments directly from PEC assets. The benefit payment amounts reflect the net cost to PEC after any participant contributions and do not reflect reductions for expected prescription drug-related federal subsidies. The expected federal subsidies for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $2, $2, $3, $3, $3 and $23, respectively.

In 2012, PEF expects to make contributions of $65 million-$115 million directly to pension plan assets and expects to make $1 million of discretionary contributions to OPEB plan assets. The expected benefit payments for the pension benefit plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $64, $67, $70, $73, $76 and $430, respectively. The expected benefit payments for the OPEB plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $23, $24, $25, $25, $26 and $137, respectively. The expected benefit payments include benefit payments directly from plan assets and benefit payments directly from PEF's assets. The benefit payment amounts reflect the net cost to PEF after any participant contributions and do not reflect reductions for expected prescription drug-related federal subsidies. The expected federal subsidies for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $2, $2, $2, $3, $3 and $17, respectively.

The Patient Protection and Affordable Care Act (PPACA) and the related Health Care and Education Reconciliation Act, which made various amendments to the PPACA, were enacted in March 2010. The PPACA contains a provision that changes the tax treatment related to a federal subsidy available to sponsors of retiree health benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to the benefits under Medicare Part D. The subsidy is known as the Retiree Drug Subsidy. Employers are not currently taxed on the Retiree Drug Subsidy payments they receive. However, as a result of the PPACA as amended, Retiree Drug Subsidy payments will effectively become taxable in tax years beginning after December 31, 2012, by requiring the amount of the subsidy received to be offset against the employer's deduction for health care expenses. Under GAAP, changes in tax law are accounted for in the period of enactment. Accordingly, an additional tax expense of $22 million for us, including $12 million for PEC and $10 million for PEF, was recognized during the year ended December 31, 2010.

B. FLORIDA PROGRESS ACQUISITION

During 2000, we completed our acquisition of Florida Progress. Florida Progress' pension and OPEB liabilities, assets and net periodic costs are reflected in the above information as appropriate. Certain of Florida Progress' nonbargaining unit benefit plans were merged with our benefit plans effective January 1, 2002.

PEF continues to recover qualified plan pension costs and OPEB costs in rates as if the acquisition had not occurred. The information presented in Note 17A is adjusted as appropriate to reflect PEF's rate treatment.

Benefit Plans Disclosure [Line Items]

Benefit Plans

17. BENEFIT PLANS

A. POSTRETIREMENT BENEFITS

We have noncontributory defined benefit retirement plans that provide pension benefits for substantially all full-time employees. We also have supplementary defined benefit pension plans that provide benefits to higher-level employees. In addition to pension benefits, we provide contributory other postretirement benefits (OPEB), including certain health care and life insurance benefits, for retired employees who meet specified criteria. We use a measurement date of December 31 for our pension and OPEB plans.

COSTS OF BENEFIT PLANS

Prior service costs and benefits are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of assets are amortized over the average remaining service period of active participants.

To determine the market-related value of assets, we use a five-year averaging method for a portion of the pension assets and fair value for the remaining portion. We have historically used the five-year averaging method. When we acquired Florida Progress in 2000, we retained the Florida Progress historical use of fair value to determine market-related value for Florida Progress pension assets.

The tables below provide the components of the net periodic benefit cost for the years ended December 31. A portion of net periodic benefit cost is capitalized as part of construction work in progress.

PEF
			Pension Benefits						OPEB
(in millions)			2011		2010		2009		2011		2010		2009
Service cost		$	25	$	22	$	19	$	5	$	10	$	2
Interest cost			59		59		56		18		22		13
Expected return on plan assets			(78)		(68)		(56)		(2)		(2)		(1)
Amortization of actuarial loss			33		31		38		7		9		-
Other amortization, net			-		-		-		4		4		3
	Net periodic cost before deferral^(a)	$	39	$	44	$	57	$	32	$	43	$	17

^(a)	PEF received permission from the FPSC to defer the retail portion of certain 2009 pension expense. The FPSC order did not change the total net periodic pension cost, but deferred a portion of the costs to be recovered in future periods. During 2009, PEF deferred $34 million of net periodic pension costs as a regulatory asset. See Note 8C.

The following tables provide a summary of amounts recognized in other comprehensive income and other comprehensive income reclassification adjustments for amounts included in net income for 2011, 2010 and 2009. The tables also include comparable items that affected regulatory assets. Amounts that would otherwise be recorded in other comprehensive income are recorded as adjustments to regulatory assets consistent with the recovery of the related costs through the ratemaking process.

PEF
				Pension Benefits						OPEB
(in millions)				2011		2010		2009		2011		2010		2009
Regulatory asset (increase) decrease
	Recognized for the year
		Net actuarial (loss) gain	$	(147)	$	(41)	$	24	$	(39)	$	(100)	$	26
		Other, net		-		-		(1)		-		-		-
	Amortized to income^(a)
		Net actuarial loss		33		31		38		7		9		-
		Other, net		-		-		-		4		4		3

^(a)		These amounts were amortized as a component of net periodic cost, as reflected in the previous net periodic cost table. Refer to that table for information regarding the deferral of a portion of net periodic pension cost.

The following weighted-average actuarial assumptions were used by Progress Energy in the calculation of its net periodic cost:


		Pension Benefits						OPEB
		2011		2010		2009		2011		2010		2009
Discount rate		5.60	%	6.00	%	6.30	%	5.70	%	6.05	%	6.20	%
Rate of increase in future compensation
	Bargaining	4.50	%	4.50	%	4.25	%	-		-		-
	Supplementary plans	5.25	%	5.25	%	5.25	%	-		-		-
Expected long-term rate of return on plan assets		8.50	%	8.75	%	8.75	%	5.00	%	6.60	%	6.80	%

The weighted-average actuarial assumptions used by PEC and PEF were not materially different from the assumptions above, as applicable, except that the expected long-term rate of return on OPEB plan assets was 5.00% for PEF for all years presented and for PEC was 8.75% for 2010 and 2009. PEC held no OPEB plan assets during 2011.

The expected long-term rates of return on plan assets were determined by considering long-term projected returns based on the plans' target asset allocations. Specifically, return rates were developed for each major asset class and weighted based on the target asset allocations. The projected returns were benchmarked against historical returns for reasonableness. We decreased our expected long-term rate of return on pension assets by 0.25% in 2011, primarily due to a shift in our investment strategy. See the “Assets of Benefit Plans” section below for additional information regarding our investment policies and strategies.

BENEFIT OBLIGATIONS AND ACCRUED COSTS

GAAP requires us to recognize in our statement of financial condition the funded status of our pension and other postretirement benefit plans, measured as the difference between the fair value of the plan assets and the benefit obligation as of the end of the fiscal year.

Reconciliations of the changes in the Progress Registrants' benefit obligations and the funded status as of December 31, 2011 and 2010 are presented in the tables below, with each table followed by related supplementary information.


PEF
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Projected benefit obligation at January 1		$	1,087	$	992	$	326	$	219
Service cost			25		22		5		10
Interest cost			59		59		18		22
Plan amendment			-		1		-		-
Benefit payments			(58)		(58)		(21)		(23)
Actuarial loss			110		71		40		98
	Obligation at December 31		1,223		1,087		368		326
Fair value of plan assets at December 31			969		871		37		33
	Funded status	$	(254)	$	(216)	$	(331)	$	(293)

All defined benefit pension plans had accumulated benefit obligations in excess of plan assets, with projected benefit obligations totaling $1.223 billion and $1.087 billion at December 31, 2011 and 2010, respectively. Those plans had accumulated benefit obligations totaling $1.184 billion and $1.049 billion at December 31, 2011 and 2010, respectively, and plan assets of $969 million and $871 million at December 31, 2011 and 2010, respectively.

The accrued benefit costs reflected in the Balance Sheets at December 31 were as follows:


			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Current liabilities		$	(3)	$	(3)	$	-	$	-
Noncurrent liabilities			(251)		(213)		(331)		(293)
	Funded status	$	(254)	$	(216)	$	(331)	$	(293)

The following table provides a summary of amounts not yet recognized as a component of net periodic cost at December 31.

			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Recognized in regulatory assets, net
	Net actuarial loss	$	520	$	406	$	139	$	107
	Other, net		6		6		3		7
	Total not yet recognized as a component of net periodic cost	$	526	$	412	$	142	$	114

The following table presents the amounts PEF expects to recognize as components of net periodic cost in 2012:

(in millions)	Pension Benefits				OPEB
Amortization of actuarial loss		$	45	$	12
Amortization of other, net			-		3

The following weighted-average actuarial assumptions were used in the calculation of our year-end obligations:

		Pension Benefits				OPEB
		2011		2010		2011		2010
Discount rate		4.75	%	5.65	%	4.85	%	5.75	%
Rate of increase in future compensation
	Bargaining	4.00	%	4.50	%	-		-
	Supplementary plans	5.25	%	5.25	%	-		-
Initial medical cost trend rate for pre-Medicare Act benefits		-		-		8.75	%	8.50	%
Initial medical cost trend rate for post-Medicare Act benefits		-		-		8.75	%	8.50	%
Ultimate medical cost trend rate		-		-		5.00	%	5.00	%
Year ultimate medical cost trend rate is achieved		-		-		2020		2017

The weighted-average actuarial assumptions for PEC and PEF were the same or were not significantly different from those indicated above, as applicable. The rates of increase in future compensation include the effects of cost of living adjustments and promotions.

Our primary defined benefit retirement plan for nonbargaining employees is a “cash balance” pension plan. Therefore, we use the traditional unit credit method for purposes of measuring the benefit obligation of this plan. Under the traditional unit credit method, no assumptions are included about future changes in compensation, and the accumulated benefit obligation and projected benefit obligation are the same.

MEDICAL COST TREND RATE SENSITIVITY

The medical cost trend rates were assumed to decrease gradually from the initial rates to the ultimate rates. The effects of a 1 percent change in the medical cost trend rate are shown below.

		Progress Energy				PEC		PEF
1 percent increase in medical cost trend rate
	Effect on total of service and interest cost		$	3	$	1	$	1
	Effect on postretirement benefit obligation			43		21		19
1 percent decrease in medical cost trend rate
	Effect on total of service and interest cost			(2)		(1)		(1)
	Effect on postretirement benefit obligation			(31)		(15)		(14)

ASSETS OF BENEFIT PLANS

In the plan asset reconciliation tables that follow, our, PEC's and PEF's employer contributions to qualified plans for 2011 include contributions directly to pension plan assets of $334 million, $217 million and $112 million, respectively, and for 2010 include contributions directly to pension plan assets of $129 million, $95 million and $34 million, respectively. Substantially all of the remaining employer contributions represent benefit payments made directly from the Progress Registrants' assets. The OPEB benefit payments presented in the plan asset reconciliation tables that follow represent the cost after participant contributions. Participant contributions represent approximately 16 percent of gross benefit payments for Progress Energy, 21 percent for PEC and 12 percent for PEF. The OPEB benefit payments are also reduced by prescription drug-related federal subsidies received. In 2011, the subsidies totaled $5 million for us, $2 million for PEC and $2 million for PEF. In 2010, the subsidies totaled $3 million for us, $1 million for PEC and $2 million for PEF.

Reconciliations of the fair value of plan assets at December 31 follow:

PEF
			Pension Benefits				OPEB
(in millions)			2011		2010		2011		2010
Fair value of plan assets January 1		$	871	$	794	$	33	$	32
Actual return on plan assets			41		98		4		1
Benefit payments			(58)		(58)		(21)		(23)
Employer contributions			115		37		21		23
	Fair value of plan assets at December 31	$	969	$	871	$	37	$	33

The Progress Registrants' primary objectives when setting investment policies and strategies are to manage the assets of the pension plan to ensure that sufficient funds are available at all times to finance promised benefits and to invest the funds such that contributions are minimized, within acceptable risk limits. We periodically perform studies to analyze various aspects of our pension plans including asset allocations, expected portfolio return, pension contributions and net funded status. One of our key investment objectives is to achieve a rate of return significantly in excess of the discount rate used to measure the plan liabilities over the long term. As of December 31, 2011, the target pension asset allocations are 29 percent domestic equity, 19 percent international equity, 35 percent domestic fixed income, 10 percent private equity and timber and 7 percent absolute return hedge funds. Tactical shifts (plus or minus 5 percent) in asset allocation from the target allocations are made based on the near-term view of the risk and return tradeoffs of the asset classes. Domestic equity includes investments across large, medium and small capitalized domestic stocks, using investment managers with value, growth and core-based investment strategies and includes both long only and long/short equity managers. International equity includes investments in foreign stocks in both developed and emerging market countries, using a mix of value and growth-based investment strategies and includes both long only and long/short equity managers. Domestic fixed income primarily includes domestic investment grade long duration fixed income investments. OPEB plan assets, representing all PEF's OPEB plan assets, are invested in domestic governmental securities.

PEF

The following table sets forth by level within the fair value hierarchy PEF's pension assets at December 31, 2011 and 2010. See Note 14 for detailed information regarding the fair value hierarchy.


			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2011
Assets
Cash and cash equivalents		$	36	$	15	$	-	$	51
International equity securities			21		-		-		21
Domestic equity securities			117		-		-		117
Private equity securities			-		-		68		68
Corporate bonds			-		180		-		180
U.S. state and municipal debt			-		19		-		19
U.S. and foreign government debt			109		45		-		154
Commingled funds			-		217		-		217
Hedge funds			-		70		65		135
Timber investments			-		-		5		5
Other investments			-		2		-		2
	Fair value of plan assets	$	283	$	548	$	138	$	969

			Pension Benefit Plan Assets
(in millions)		Level 1		Level 2		Level 3			Total
2010
Assets
Cash and cash equivalents		$	-	$	43	$	-	$	43
International equity securities			18		-		-		18
Domestic equity securities			132		-		-		132
Private equity securities			-		-		68		68
Corporate bonds			-		99		-		99
U.S. state and municipal debt			-		9		-		9
U.S. and foreign government debt			66		14		-		80
Commingled funds			-		391		-		391
Hedge funds			-		23		1		24
Timber investments			-		-		5		5
Other investments			-		2		-		2
	Fair value of plan assets	$	216	$	581	$	74	$	871

PEF's other postretirement benefit plan assets had a fair value of $37 million and $33 million, which consisted of U.S. state and municipal assets classified as Level 2 in the fair value hierarchy at December 31, 2011 and 2010, respectively.

A reconciliation of changes in the fair value of PEF's pension plan assets classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:


(in millions)		Private Equity Securities		Hedge Funds		Timber Investments		Total
2011
Balance at January 1		$	68	$	1	$	5	$	74
Net realized and unrealized gains^(a)			-		2		-		2
Transfers in			-		23		-		23
Purchases, sales and distributions, net			-		39		-		39
Balance at December 31		$	68	$	65	$	5	$	138

(in millions)		Private Equity Securities		Hedge Funds		Timber Investments		Total
2010
Balance at January 1		$	58	$	1	$	7	$	66
Net realized and unrealized gains (losses)^(a)			3		-		(1)		2
Purchases, sales and distributions, net			7		-		(1)		6
Balance at December 31		$	68	$	1	$	5	$	74

^(a)	Substantially all amounts relate to investments held at December 31.

For Progress Energy, PEC and PEF, the determination of the fair values of pension and postretirement plan assets incorporates various factors required under GAAP. The assets of the plan include exchange traded securities (classified within Level 1) and other marketable debt and equity securities, most of which are valued using Level 1 inputs for similar instruments, and are classified within Level 2 investments.

Most over-the-counter investments are valued using observable inputs for similar instruments or prices from similar transactions and are classified as Level 2. Over-the-counter investments where significant unobservable inputs are used, such as financial pricing models, are classified as Level 3 investments.

Investments in private equity are valued using observable inputs, when available, and also include comparable market transactions, income and cost basis valuation techniques. The market approach includes using comparable market transactions or values. The income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. Private equity investments are classified as Level 3 investments.

Investments in commingled funds are not publically traded, but the underlying assets held in these funds are traded in active markets and the prices for these assets are readily observable. Holdings in commingled funds are classified as Level 2 investments.

Hedge funds are based primarily on the net asset values and other financial information provided by management of the private investment funds. Hedge funds are classified as Level 2 if the plan is able to redeem the investment with the investee at net asset value as of the measurement date, or at a later date within a reasonable period of time. Hedge funds are classified as Level 3 if the investment cannot be redeemed at net asset value or it cannot be determined when the fund will be redeemed.

Investments in timber are valued primarily on valuations prepared by independent property appraisers. These appraisals are based on cash flow analysis, current market capitalization rates, recent comparable sales transactions, actual sales negotiations and bona fide purchase offers. Inputs include the species, age, volume and condition of timber stands growing on the land; the location, productivity, capacity and accessibility of the timber tracts; current and expected log prices; and current local prices for comparable investments. Timber investments are classified as Level 3 investments.

CONTRIBUTION AND BENEFIT PAYMENT EXPECTATIONS

In 2012, we expect to make contributions of $125 million-$225 million directly to pension plan assets and $1 million of discretionary contributions directly to the OPEB plan assets. The expected benefit payments for the pension benefit plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $182, $185, $193, $198, $200 and $1,046, respectively. The expected benefit payments for the OPEB plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $47, $50, $53, $56, $58 and $318, respectively. The expected benefit payments include benefit payments directly from plan assets and benefit payments directly from our assets. The benefit payment amounts reflect our net cost after any participant contributions and do not reflect reductions for expected prescription drug-related federal subsidies. The expected federal subsidies for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $4, $5, $5, $6, $7 and $44, respectively.

In 2012, PEC expects to make contributions of $60 million-$110 million directly to pension plan assets. The expected benefit payments for the pension benefit plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $94, $94, $99, $99, $97 and $479, respectively. The expected benefit payments for the OPEB plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $21, $23, $25, $26, $28 and $158, respectively. The expected benefit payments include benefit payments directly from plan assets and benefit payments directly from PEC assets. The benefit payment amounts reflect the net cost to PEC after any participant contributions and do not reflect reductions for expected prescription drug-related federal subsidies. The expected federal subsidies for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $2, $2, $3, $3, $3 and $23, respectively.

In 2012, PEF expects to make contributions of $65 million-$115 million directly to pension plan assets and expects to make $1 million of discretionary contributions to OPEB plan assets. The expected benefit payments for the pension benefit plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $64, $67, $70, $73, $76 and $430, respectively. The expected benefit payments for the OPEB plan for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $23, $24, $25, $25, $26 and $137, respectively. The expected benefit payments include benefit payments directly from plan assets and benefit payments directly from PEF's assets. The benefit payment amounts reflect the net cost to PEF after any participant contributions and do not reflect reductions for expected prescription drug-related federal subsidies. The expected federal subsidies for 2012 through 2016 and in total for 2017 through 2021, in millions, are approximately $2, $2, $2, $3, $3 and $17, respectively.

The Patient Protection and Affordable Care Act (PPACA) and the related Health Care and Education Reconciliation Act, which made various amendments to the PPACA, were enacted in March 2010. The PPACA contains a provision that changes the tax treatment related to a federal subsidy available to sponsors of retiree health benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to the benefits under Medicare Part D. The subsidy is known as the Retiree Drug Subsidy. Employers are not currently taxed on the Retiree Drug Subsidy payments they receive. However, as a result of the PPACA as amended, Retiree Drug Subsidy payments will effectively become taxable in tax years beginning after December 31, 2012, by requiring the amount of the subsidy received to be offset against the employer's deduction for health care expenses. Under GAAP, changes in tax law are accounted for in the period of enactment. Accordingly, an additional tax expense of $22 million for us, including $12 million for PEC and $10 million for PEF, was recognized during the year ended December 31, 2010.

B. FLORIDA PROGRESS ACQUISITION

During 2000, we completed our acquisition of Florida Progress. Florida Progress' pension and OPEB liabilities, assets and net periodic costs are reflected in the above information as appropriate. Certain of Florida Progress' nonbargaining unit benefit plans were merged with our benefit plans effective January 1, 2002.

PEF continues to recover qualified plan pension costs and OPEB costs in rates as if the acquisition had not occurred. The information presented in Note 17A is adjusted as appropriate to reflect PEF's rate treatment.