Each owner has provided its own financing for its ownership interest in Catawba.
The Corporation retains a 12.5 percent ownership interest in Catawba. As of December 31,
1997, $507.8 million of Property, Plant and Equipment represented the Corporation’s investment
in Units 1 and 2. Accumulated depreciation and amortization of $198.3 million associated with
Catawba was recorded as of year-end 1997. The Corporation’s share of operating costs of
Catawba is included in the Consolidated Statements of Income.
In connection with the joint ownership, the Corporation has entered into contractual
interconnection agreements with the other joint owners to purchase declining percentages
of the generating capacity and energy from the plant. These purchased power agreements were
effective beginning with the commercial operation of each unit. Units 1 and 2 began
commercial operation in June 1985 and August 1986, respectively. The purchased power
agreements were established for 15 years for NCMPA and PMPA and 10 years for NCEMC and
Saluda River. While the purchased power agreements with NCMPA and PMPA extend for 15 years,
a significant decrease in the percentage of capacity and energy the Corporation is obligated
to purchase occurs in the 11th calendar year of operation for each unit. This significant
decrease occurred in 1995 for Unit 1 and 1996 for Unit 2.
The interconnection agreements also provide for supplemental power sales by the
Corporation to the other joint owners. Such power sales are to satisfy capacity and
energy needs of the other joint owners beyond the capacity and energy which they retain
from Catawba or potentially acquire in the form of other resources. The agreements
further provide the other joint owners the ability to secure such supplemental requirements
outside of these contractual agreements following an appropriate notice period. NCEMC and
Saluda River have given appropriate notice that they intend to acquire their supplemental
capacity requirements outside of these agreements effective January 1, 2001 and January 1,
2002, respectively, thus relieving the Corporation of the obligation to serve this portion
of load. In addition, as a result of the merger, the other joint owners of Catawba have the
right to end their supplemental capacity requirements as of January 1, 2001 with written
notice to the Corporation due by December 31, 1999. As the joint owners retain more capacity
and energy from Catawba or a third party, supplemental power sales are expected to decline.
Management is of the opinion that this will not have a material adverse effect on the
consolidated results of operations or the financial position of the Corporation.
The interconnection agreements with each of the other joint owners include provisions
that the Corporation will provide generating reserves to backstand the other joint owners’
retained capacity in the Catawba plant at the system average cost of installed capacity.
Additionally, the agreements include certain reliability exchanges designed to manage
outage-related risks by exchanging energy entitlements between Catawba and the McGuire
Nuclear Station, impacting the Corporation as well as all the other joint owners. The
agreements also provide the other joint owners the ability to terminate the interconnection
agreements in their entirety upon eight years written notice to the Corporation. PMPA has
rendered such notice effective January 1, 2006. This termination will relieve the Corporation
of the obligation to serve this portion of load as well as provide the reserves associated
with PMPA’s retained capacity. Management is of the opinion that this will not have a material
adverse effect on the consolidated results of operations or the financial position of the
Corporation.
Purchased energy cost payments are based on variable operating costs and are a function
of the generation output of Catawba. Purchased capacity payments are based on the fixed
costs of the plant and include the capital costs and fixed operating and maintenance costs.
Actual purchased capacity costs for 1997 and projected obligations through 2000, the last
year of the purchase buy-backs, are $99.8 million, $72 million, $52.9 million and $6.6 million,
respectively.
Effective in its November 1991 rate order, the NCUC reaffirmed the Corporation’s recovery
from retail electric customers, on a levelized basis, of the capital costs and fixed operating
and maintenance costs of capacity purchased from the other joint owners. The PSCSC in its
November 1991 rate order reaffirmed the Corporation’s recovery on a levelized basis of the
capital costs of capacity purchased from the other joint owners. Levelization was reaffirmed
through inclusion in rates approved in March 1992 by the FERC. The portion of purchased
capacity subject to levelization not currently recovered in rates is being deferred, and the
Corporation is recording a deferred return on the accumulated balance. The Corporation is
recovering the accumulated balance, including the deferred return, when the sum of the declining
purchased capacity payments and accrual of deferred returns for the current period drops below
the levelized revenues. Jurisdictional levelizations are intended to recover total costs,
including deferred returns, and are subject to adjustments, including final true-ups. The
Corporation recovers the costs of purchased energy and the non-levelized portion of purchased
capacity on a current basis.
The current levelized revenues approved in the Corporation’s last general rate proceedings
are $211.4 million, $94.1 million and $6.8 million for North Carolina retail, South Carolina
retail and Other Wholesale (FERC), respectively. Purchased power costs, subject to
levelization, are deferred based on allocation factors of approximately 62 percent, 26
percent and 2 percent for North Carolina retail, South Carolina retail and Other Wholesale
(FERC), respectively. The PSCSC, on May 7, 1996, ordered a rate reduction in the form of a
decrement rider for an interim true-up adjustment. The Corporation also recovers an
allocated amount of purchased power costs in the pricing of supplemental sales made to
the other joint owners on a current basis.
During 1996, in the North Carolina retail and the FERC wholesale jurisdictions, annual
levelized revenues exceeded purchased capacity payments and the accrual of deferred returns
for the first time. In the South Carolina retail jurisdiction, cumulative levelized revenues
have exceeded purchased capacity payments and accrual of deferred returns.