# Appendix H.7 North Carolina’s Clean Smokestacks Act Implementation Plan

# Implementatio n ofth e

"Clea n Smokestack s Act " FILE D JU N fl 1 200 7 Clerk' s Offic e N.C . Utilitie s Commissio n 

# ARepor t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie wCommitte e Submitte d b yth e Nort h Carolin a Departmen t o fEnvironmen t an d Natura l Resource s an d th e Nort h Carolin a Utilitie s Commissio n

Jun e 1 , 200 7 6*0 (U D tic* —

# FILE D JU N 0 1 200 7 Clerk' s Offic e N. C Utilitie s Commissio n 

## Implementatio n ofth e "Clea n Smokestack s Act '

ARepor t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie wCommitte e Submitte d b yth e Nort h Carolin a Departmen t o f Environmen t an d Natura l Resource s an d th e Nort h Carolin a Utilitie s Commissio n Thi s repor t i s submitte d pursuan t t o th e requiremen t o f Sectio n 1 4 o f Sessio n La w2002-4 , Senat e Bil l 107 8 enacte d Jun e 20 , 2002 . Th e action s take n t o dat e b yProgres s Energ yCarolinas , Inc . an d Duk e Energ yCarolinas , LL C appea r t o b e i n accordanc e wit h th e provision s an d requirement s o f th e Clea n Smokestack s Act .

Signed : Willia m G . Ross , Jr.TSecretar y

Departmen t o f Environmen t an d tura l Resource s 

# Signed : AAJ ? J r Jr. , Chaiim^ n

Edwar d S . Finley , Nort h Carolin a Utilitie s Commissio n

Jun e 1 , 200 7

## Implementatio n ofth e "Clea n Smokestack s Act " ARepor t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie wCommitte e

Jun e 1,200 7 Th e Genera l Assembl yo fNort h Carolina , Sessio n 2001 , passe d Sessio n Law2002-4 , als o know n a s Senat e Bil l 1078 . Thi s legislatio n i s title d "A n Ac t t o Improv e Ai rQualit yi n th e Stat e b yImposin g Limit s o n th e Emissio n o fCertai n Pollutant s fro m Certai n Facilitie s tha t Bu m Coa l t o Generat e Electricit yan d t o Provid e fo rRecoveryb y Electri cUtilitie s o f th e Cost s o fAchievin g Complianc e wit h Thos e Limits " ("th e Clea n Smokestack s Act " o r"th e Act") . Th e Clea n Smokestack s Act , i n Sectio n 14 , require s th e Departmen t o f Environmen t an d Natura l Resource s ("DENR" ) an d th e Utilitie s Commissio n ("Commission" ) t o repor t annually , i.e. , b yJun e 1 o feac h year , o n th e implementatio n o f th e Ac t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie wCommittee . Th e Act , i n Sectio n 9 , require s Duk e Energ yCarolinas , LL C ("Duke Energy") , an d Progres s Energ yCarolinas , Inc . ("Progres s Energy") , t o submi t annua l report s t o DEN R an d th e Commissio n containin g certai n specifie d information . Duk e Energ yan d Progres s Energ yfile d reports , wit h DEN R an d th e Commission , b ycove rletter s date d Marc h 30 , 2007 . Specifically , suc h report s wer e submitte d i n complianc e wit h th e requirement s o fG.S . 62-133.6(1) . Duk e Energy' s an d Progres s Energy' s report s are attached , an d mad e part o fthi s report , a s Attachments Aan d B , respectively . Additionaily , b ylette rdate d May9 , 2007 , th e Secretaryo fDEN R wrot e t o th e Commissio n statin g that , pursuan t t o G.S . 62-133. 6 (j) . DEN R ha s reviewe d th e informatio n provide d an d determine d tha t th e submittal s compl ywit h th e Act . Th e Secretaryfurthe rstate d tha t th e plan s an d schedule s o fth e Companie s appea r adequat e t o achiev e th e emissio n limitation s se t ou t i n G.S . 143-215.107D . Thi s report i s presente d t o mee t th e reportin g requiremen t ofth e Ac t pertainin g t o DEN R an d th e Commission , a s discusse d above , an d i s submitte d jointl yb yDEN R an d th e Commission . Th e report i s structure d t o addres s th e variou s action s tha t hav e occurre d pursuan t t o th e provision s ofSection s 9 , 10 , 11 , 12 , an d 1 3 ofth e Act . Report s o faction s unde rthes e Section s describ e th e exten t o fimplementatio n o fth e Ac t t o thi s date .I . Sectio n 9(c ) o f th e Act , Codifie d a s Sectio n 62-133.6(c ) o fth e Nort h

Carolin a Genera l Statute s G.S . 62-133.6(c ) provides : Th e investor-owne d publi cutilitie s shal l fil e thei r complianc e plans , includin g initia l cos t estimates , wit h th e Commissio n an d th e Departmen t o f Environmen t an d Natura l Resource s no t late rtha n 1 0 day s afte rth e dat e o n whic h thi s sectio n become s effective . Th e Commissio n shal l consul t wit h th e Secretaryo fEnvironmen t an d Natura l Resource s an d shal l conside rth e advic e o f th e Secretarya s t o whethe ra n investor-owne d publi cutility' s propose d complianc e pla n i s adequat e t o achiev e th e emission s limitation s se t ou t i n G.S . 143-215.107D . Status : Nort h Carolina' s investor-owne d electri cutilities , Progres s Energ yan d Duk e Energy , file d thei rinitia l complianc e plan s a s require d i n Jun e an d Jul yo f2002 , respectively , i n accordanc e wit h G.S . 62-133.6(c) , Sectio n 9(c ) o fSessio n Law s 2002-4 , th e Clea n Smokestack s Act . DEN R reviewe d thi s informatio n an d determine d tha t th e submittal s compl ywit h th e Ac t and , a s proposed , appea radequat e t o achiev e th e emissio n limitation s se t ou t i n G.S . 143-215.107D . II . Sectio n 9(i ) ofth e Act , Codifie d a s Sectio n 62-133.6(i ) ofth e Nort h Carolin a Genera l Statute s G.S . 62-133.6(i ) provides : A n investor-owne d publi cutilit ytha t i s subjec t t o th e emission s limitation s se t ou t i n G.S . 143-215.107 D shal l submi t t o th e Commissio n an d t o th e Departmen t o f Environmen t an d Natura l Resource s o n o rbefor e 1 Apri l o feac h yea ra verifie d statemen t tha t contain s al l o fth e followin g [specifie d information] : Th e followin g ar e th e eleve n subsection s o f G.S . 62-133.6(i ) an d th e relate d response s fro m Progres s Energ yan d Duk e Energ yfo reac h subsection : 1 . G.S . 62-133.6(i)(1 ) requires : Adetaile d repor t o n th e investor-owne d publi cutility' s plan s fo rmeetin g th e emission s limitation s se t ou t i n G.S . 143-215.107D . Progres s Energ yResponse : "Th e initia l pla n fo rProgres s Energ yCarolinas , Inc . wa s submitte d o n Jul y29 , 2002 . Appendi xA[o fth e attache d Progres s Energ y submitta l date d Marc h 30 , 2007 , i.e. , Attachmen t B ] contain s a n update d versio n ofthi s plan , effectiv e Apri l 1 , 2007. " Duk e Energ yResponse : "Exhibit s Aan d B [o fth e attache d Duk e submitta l date d Marc h 30 , 2007 , i.e. , Attachmen t A , outlin e th e update d pla n a s o fApri l 1 , 2007 , for ] . . . curren t uni t specifi ctechnolog yselections , projecte d operationa l dates , expecte d emissio n rates , an d th e correspondin g ton s o f emission s tha t demonstrat e complianc e wit h th e legislativ e requirement s t o th e bes t o fDuk e Energ yCarolinas ' knowledg e a t thi s time. " 2 . G.S . 62-133.6(i)(2 ) requires : Th e actua l environmenta l complianc e cost s incurre d b yth e investor-owne d publi cutilit yi n th e previou s calenda ryear , includin g a descriptio n o fth e constructio n undertake n an d complete d durin g tha t year .Summar yo fProgres s Energ yReport : Th e actua l environmental complianc e

cost s (capita l costs ) incurre d b yProgres s Energ yi n calenda ryea r200 6 wer e $272.8 2 million . Progres s Energ yperforme d a significan t amoun t o f wor k a t th e Ashevill e an d Roxbor o plants . Progres s Energ ysuccessfull yplace d th e we t scrubbe r o n Ashevill e Uni t 2 int o servic e i n May2006 . Additionally , mechanica l an d electrica l wor k fo rth e Ashevill e Uni t 1 selectiv e catalyti creductio n (SCR ) projec t wa s complete d i n preparatio n fo rplacin g th e SC R int o servic e i n th e Sprin g o f2007 . A t th e Roxbor o plant , constructio n fo rth e scrubbe rprojec t continue d o n th e fou runit s i n 2006 . Specifi c uni t constructio n activitie s included , bu t wer e no t limite d to : Uni t 1 - completio n o f foundation s fo rth e absorber , recycl e pum p house , primaryhydr o cyclon e tank , an d electrica l building ; Uni t 2 - completio n ofth e recycl e pum p house , installatio n o finduce d draf t fan s an d associate d ducting , an d installatio n o f th e hydr o cyclon e tan k an d transformers ; Uni t 3 - starte d installatio n o fductin g fro m th e existin g stac k t o ne w induce d draft fans , starte d constructio n o ffoundation s fo rduc t support steel , an d continue d installatio n o fth e absorber ; Uni t 4 - complete d th e absorbe ran d starte d th e erectio n o fth e recycl e pum p hous e an d primar yhydr o cyclon e tank . A t th e Le e plant , procuremen t an d installatio n o fth e low-NO xburner s fo rUni t 2 wer e complete d i n 2006 . Also , constructio n activitie s associate d wit h th e Uni t 3 Rotami xconcluded . A t th e May o plant , engineerin g an d desig n wor k continue d i n 200 6 an d contract s associate d wit h th e absorbe rtowe ran d chimne ywer e executed . A t th e Sutto n plant , procuremen t an d installatio n o fth e low-NO xburner s fo rUni t 2 wer e complete d i n 2006 . Summar yo fDuk e Energ yReport : Th e actua l environmenta l complianc e cost s incurre d b yDuk e Energ yi n calenda ryea r200 6 wer e $427.9 8 million . Significan t constructio n occurre d i n 200 6 a t th e Belew s Cree k Stea m Station . Constructio n o f th e majo rfoundation s an d th e concret e shel l fo rth e tw o ne wchimney s fo rth e flu e ga s desulfurizatio n (FGD ) syste m was completed . Approximatel y72 % o f th e overal l projec t wa s complete d (54 % o fth e constructio n activities ) i n 2006 . A t th e Marshal l Stea m Station , tie-i n o fth e Uni t 4 absorbe rwa s completed , whil e initia l tie-i n o f th e Uni t 3 ductwor k an d installatio n o fth e blankin g plat e wer e complete d i n 2006 . Al l ductwork , wit h th e exceptio n o fUni t 1 an d Uni t 2 tie-in , was se t i n 2006 . A t Alle n Stea m Station , contract s wer e awarde d fo rth e stac k constructio n an d wastewate rtreatmen t syste m associate d wit h th e FG D system . Othe ractivitie s included , bu t wer e no t limite d to : relocatio n o fa transmissio n line ; sit e clearing , grubbin g an d earthwork ; relocatio n o f a n as h line ; relocatio n o f coa l handlin g railroa d spurs ; an d placin g purchas e order s fo ral l majo relectrica l an d mechanica l equipment . Fo rth e remainin g Stea m Station s (Cliffside , Buck , Da n River , an d Riverbend) , th e Compan yreporte d tha t cost s wer e incurre d fo ra variet yo f thing s suc h a s detaile d engineering , materia l procuremen t an d delivery , equipmen t installations , etc .3 . G.S . 62-133.6(i)(3 ) requires : Th e amoun t o f th e investor-owne d

publi cutility' s environmenta l complianc e cos t amortize d i n th e previou s calenda ryear . Summar yo fProgres s Energ yan d Duk e Energ yReports : I n 2006 , Progres s Energ yamortize d $14 0 millio n an d Duk e Energ yamortize d $225. 2 million . A s indicate d i n th e Jun e 1 , 200 6 repor t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie wCommitte e ("th e Jun e 1,200 6 report") , Progres s Energy , i n respons e t o a dat a reques t submitte d b yth e Commission , ha d projecte d - assumin g certai n ratabl e amortizatio n - tha t i t woul d amortiz e $8 7 millio n o f environmenta l complianc e cost s i n 2006 . However , Progres s Energ yals o note d tha t th e Ac t grant s Progres s Energ yth e flexibilit yt o var yth e amortizatio n schedul e fo r200 6 an d 200 7 fro m $ 0 t o $17 4 millio n pe ryear . Also , a s indicate d i n th e Jun e 1 , 200 6 report , Duke Energy , i n respons e t o a Commissio n dat a request , ha d projecte d tha t i t woul d amortiz e $25 0 millio n o fenvironmenta l complianc e cost s i n 2006 . 4 . G.S . 62-133.6(i)(4 ) requires : A n estimat e o f th e investor-owne d publi cutility' s environmenta l complianc e cost s an d th e basi s fo ran yrevision s o f thos e estimate s whe n compare d t o th e estimate s submitte d durin g th e previou s year . Summar yo fProgres s Energ yReport : Progres s Energ yreporte d tha t it s tota l estimate d ne t capital cost s (tha t is , excludin g th e portio n fo rwhic h th e Powe rAgenc yi s responsible ) ar e currentl yprojecte d t o b e betwee n $1. 1 billio n an d $1. 4 billion , wit h th e curren t poin t estimat e bein g $1,35 5 billion , a sligh t decreas e fro m th e 200 6 cos t estimat e o f$1,36 2 billion . Whil e cost s o f material s an d labo rcontinu e t o increas e accordin g t o Progres s Energy , i t continue s t o refin e th e complianc e strateg yweighin g a numbe ro ffactor s suc h a s syste m loa d projections , expecte d fue l selection , availabl e contro l equipment , anticipate d performanc e an d cost s o f emission s controls , an d knowledg e o fan d experienc e wit h emission s contro l options . Fo rexample , Progres s Energ ycontinue s t o evaluat e th e potentia l us e o fFurnac e Sorben t Injectio n (FSI ) technolog ya t th e Cap e Fea rPlant . Th e FS I technolog yma yoffe ra mor e cost-effectiv e complianc e solutio n fo rCap e Fea rtha n th e origina l pla n t o us e a we t scrubber . Th e Nort h Carolin a Divisio n o fAi rQualit y(DAQ ) submitte d a n informationa l reques t t o Progres s Energ yo n Apri l 25 , 2007 . Th e informatio n requeste d o f Progres s Energy , amon g othe rthings , concerne d th e evaluatio n o f th e FS I technolog yan d whethe rther e woul d b e sufficien t tim e t o pursu e alternative s t o th e FS I i f th e testin g doe s no t support it s installatio n a t Cap e Fear . Progres s Energ yresponde d that , "i f th e testin g a t Robinso n (SC ) result s i n a conclusio n tha t FS I wil l no t b e use d a t Cap e Fear , PE C wil l hav e sufficien t tim e t o pursu e alternative s prio rt o th e CS A201 3 deadline. " Finally , othe rmor e cos t effectiv e complianc e solution s submitte d b yProgres s Energ yinclud e th e us e o fa dryscrubbe ra t Sutto n Uni t 3 an d us e o f Rotami xtechnolog ywit h combustio n optimizatio n a t Le e Uni t 3 fo rNO xcontrol . Progres s Energy' s curren t cos t estimat e o f$1,35 5 billio n i s $54 2 million , o r 6 7 percent , highe rtha n th e origina l 200 2 cos t estimat e o f $81 3 million .Summar yo fDuk e Energ yReport : Duk e Energ yreporte d tha t it s currentl y

expecte d cost s ar e highe rtha n th e estimate s provide d i n 2006 . Mor e specifically , i n it s 200 7 report , th e Compan yestimate d it s complianc e cost s t o b e $1,96 5 billion , a s compare d t o th e $1,73 2 billio n reflecte d i n it s 200 6 report , a n increas e o f $23 3 million , o r1 3 percen t (detaile d i n Exhibi t C o f Attachmen t Ao f th e Duk e Energ yreport) . A s state d b yDuk e Energy , th e reason s fo rthi s increas e were :
• Alle n FG D Projec t - Th e Alle n FG D estimat e ha s increase d sinc e th e previou s 200 6 filing , wit h thi s increas e attributabl e t o continue d ram p u p i n th e powe rgeneratio n and/o renvironmenta l retrofi t constructio n marke t an d continue d escalatio n o flabo ran d commodit ycosts . • Cliffsid e Uni t 5 FG D Projec t - Lik e Allen , th e Cliffsid e Uni t 5 FG D estimat e i s primaril yaffecte d b ylabor , commodit yan d marke t escalatio n an d thu s show s a n increas e i n tota l forecaste d cos t a s compare d t o th e estimat e include d i n th e 200 6 filing . I n addition , th e curren t estimat e no winclude s a large rportio n o fth e cost s associate d wit h commo n FG D equipmen t an d infrastructur e assumin g onl yon e ne wCliffsid e uni t i s built , versu s assumin g tw o ne wunit s ar e buil t a s i n th e previou s year' s plan . • Selectiv e Non-Catalyti cReductio n (SCNR ) & Burne rProject s - Whil e ther e ha s bee n n o significan t chang e t o th e scop e o rtimin g o f th e NO xrelate d project s remainin g t o b e installed, all ofth e curren t forecasts hav e increase d a s compare d t o th e 200 6 filing . I n eac h case , thes e increase s approac h 10 % a s compare d t o prio restimate s an d tak e int o accoun t th e continue d escalatio n o flabo rcost s an d ram p u p i n th e environmenta l retrofi t constructio n marke t a s note d fo rth e large rprojects . • Marshal l Uni t 4 SNC R Project - Th e Marshal l Uni t 4 SNC R equipmen t wa s installe d i n lat e 200 6 a t a cos t significantl yles s tha n estimate d i n th e previou s year' s plan . Th e decisio n t o ad d th e SC R technolog yt o Marshal l Uni t 3 allowe d fo rthi s reductio n i n cost s a s selecte d SNC R equipmen t i n servic e o n Uni t 3 was redeploye d t o Uni t 4 . Duk e Energy' s curren t cos t estimat e o f $1,96 5 billio n i s $46 5 million , o r 3 1 percent , highe rtha n th e origina l 200 2 cos t estimat e o f $1. 5 billion . 5 . G.S . 62-133.6(i)(5 ) requires : Adescriptio n o f al l permits require d i n orde rt o compl ywit h th e provision s o fG.S . 143-215.107 D fo rwhic h th e investor-owne d publi cutilit yha s applie d an d th e statu s o f thos e permit s o rpermi t applications . Summar yo fProgres s Energ yResponse : Ashevill e Plan t • Notifie d tha t ai rpermi t chang e fo rSO3 mitigatio n syste m wil l b e treate d a s a n offpermi t change . • Severa l erosio n an d sedimentatio n contro l pla n update s wer e submitted .Roxbor o Plan t

• Update s fo rai rpermi t fo rcoa l handlin g an d limeston e handlin g wer e issued . • Severa l erosio n an d sedimentatio n contro l pla n update s wer e submitted . • NPDE S Permi t - Authorizatio n t o Construc t (ATC ) relatin g t o th e gypsu m settlin g pon d an d th e bioreacto rwa s received . May o Plan t • Ai rpermi t was issue d fo rconstructio n o fth e FG D system . • NPDE S Permi t modificatio n fo rwastewate rsyste m received . • Erosio n an d sedimentatio n contro l pla n updat e wa s approved . Le e Plan t • Apreventio n o f significan t deterioratio n (PSD ) ai rpermi t was approve d fo r installatio n o flo wNO xburners . Ai rpermi t approve d fo rconstructio n o f th e Rotami xSyste m NO xcontrol . • NPDE S permi t amendmen t approve d fo rRotami xUre a Injectio n Syste m o n Units . Summar yo f Duk e Energ yResponse : Belew s Cree k • NPDE S Permi t modificatio n received . • Landfil l sit e suitabilit yapproved . • Landfil l constructio n pla n - permi t received . • Ai rpermi t fo rFG D projec t received . • Authorizatio n t o Construc t (ATC ) applicatio n fo rth e wastewate rtreatmen t syste m was approved . • Receive d permi t t o construc t sanitarywast e lagoon . • Receive d permi t t o decommissio n existin g sewag e lagoon . • Severa l soi l erosio n an d sedimentatio n contro l plan s hav e bee n approved . Cliffsid e • Ai rpermi t receive d fo rUni t 5 FGD . Marshal l • Severa l soi l erosio n an d sedimentatio n contro l plan s hav e bee n approved . • Landfil l constructio n pla n applicatio n receive d - Landfil l (lining ) permi t receive d - Permi t t o operat e Marshal l FG D landfil l received . • Authorizatio n t o Construc t (ATC ) applicatio n fo rsolid s remova l syste m wa s approved . • AT C applicatio n fo rconstructe d wetland s was approved . • Ai rpermit s receive d fo rSNCR s o n Unit s 1-4 . Alle n NPDE S Permi t modificatio n received . DENR/ACO E Permi t received .• Ai rpermi t receive d fo rFG D an d SNCR s o n Unit s 2 , 3 , 4 , an d 5 .

• Authorizatio n t o Construc t (ATC ) applicatio n fo rth e wastewate rtreatmen t syste m was approved . • Severa l soi l erosion an d sedimentatio n contro l permits hav e bee n receive d Riverben d • Ai rpermits receive d fo rSNCR s o n Unit s 4-7 . Burne rpermit s receive d fo r Unit s 5 an d 6 . Da n Rive r • Ai rpermit s receive d fo rBurner s o n Unit s 1-3 . Buc k • Ai rpermits receive d fo rBurner s o n Unit s 3 an d 4 an d fo rSNCR s o n Unit s 5 an d 6 . 6 . G.S . 62-133.6(i)(6 ) requires : Adescriptio n o fth e constructio n relate d t o complianc e wit h th e provision s o f G.S . 143-215.107 D tha t i s anticipate d durin g th e followin g year . Summar yo fProgres s Energ yResponse : Se e Appendi xC o f th e attache d lette rfro m Progres s Energ ydate d Marc h 30 , 200 7 (Attachmen t B o f thi s report ) fo r detail s o fconstructio n an d installatio n o f equipment . Th e Divisio n o fAi rQualif y(DAQ ) submitte d a n informationa l reques t t o Progres s Energ yo n Apri l 25 , 2007 . Th e informatio n requeste d o fProgres s Energy , amon g othe rthings , concerne d th e operationa l dat e o fth e SC R o n Ashevill e Uni t 1 an d th e Rotami xa t Le e Uni t 3 . Progres s Energ yresponde d tha t "Installatio n o f th e Ashevill e Uni t 1 SC R i s bein g complete d durin g th e curren t outage . Th e uni t i s expecte d t o b e bac k on-lin e o n o r abou t May7 (2007) , an d th e SC R i s expecte d t o b e i n operatio n o n o rabou t Ma y1 0 (2007) . Th e Le e # 3 Rotami xsyste m i s onlin e an d i s operating . Initia l operatio n o fth e Rotami xsyste m bega n i n January2007 . Initia l checkou t an d testin g o f th e Rotami xsyste m continue d int o Februaryan d Marc h wit h fina l tunin g an d norma l operatio n occurrin g i n Marc h 2007. " Summar yo fDuk e Energ yResponse : Se e attache d lette rfro m Duke Energ y date d Marc h 30 , 200 7 (Attachmen t A) , fo rdetail s o fconstructio n anticipate d fo rth e nex t year . 7 . G.S . 62-133.6(i)(7 ) requires : Adescriptio n o f th e application s fo r permit s require d i n orde rt o compl ywit h th e provision s o f G.S . 143-215.107 D tha t ar e anticipate d durin g th e followin g year . Progres s Energ yResponse : Ashevill e Plan t Ai rPermi t • "Curren t opacit yrule s pre-dat e saturate d ga s stream s fro m we t scrubber s an d 7requir e representativ e measurement s wher e condense d wate rvapo ri s not present . W e wil l reques t revision s t o th e permi t an d underlyin g rule s fo r opacit ymonitorin g t o includ e reference s t o curren t federa l regulation s tha t exemp t unit s wit h we t scrubber s fro m continuou s opacit ymonitorin g requirements. " NPDE S Permi t • " Areques t fo rSamplin g Reductio n a t th e interna l Outfal l 00 5 (treate d FG D we t scrubbe rwastewater ) was submitte d January25 , 2007 . Arespons e i s expecte d b yen d o ffirs t quarter. " Roxbor o Plan t Ai rPermi t • " Apermi t applicatio n fo rth e emergencyfir e wate rdiese l engin e wa s submitte d i n January2007 . Authorizatio n t o construc t th e fir e wate rdiese l engin e ha s bee n received ; however , th e operatin g permi t mus t b e receive d t o support operatio n o fth e Uni t 2 scrubbe rdurin g th e secon d quarte r2007. " • "Curren t opacit yrule s pre-dat e saturate d ga s stream s fro m we t scrubber s an d requir e representativ e measurement s wher e condense d wate rvapo ri s not present . W e wil l reques t revision s t o th e permi t an d underlyin g rule s fo r opacit ymonitorin g t o includ e reference s t o curren t federa l regulation s tha t exemp t unit s wit h we t scrubber s fro m continuou s opacit ymonitorin g requirements. " May o Plan t NPDE S Permi t • "A n AT C reques t fo rth e wastewate rtreatmen t syste m i s expecte d t o b e submitte d i n th e firs t quarte rwit h respons e desire d b yth e en d o fth e secon d quarter. " • "A n AT C reques t fo ra ne woil/wate rseparato ri s expecte d t o b e submitte d by th e en d o fth e firs t quarte rwit h respons e expecte d b yth e en d o fth e thir d quarter. " Erosio n an d Sedimentatio n Contro l Pla n • "Re vF . fo rth e increas e i n disturbe d lan d (fro m 3 5 acre s t o 9 8 acre s fo rth e flu e ga s desulfurizatio n syste m wa s submitte d January29 , 2007 . Additiona l pla n revision s wil l b e necessarya s constructio n plan s ar e developed. " Le e Plan t • " ATitl e V permi t applicatio n i s du e t o b e submitte d i n Jul y200 7 i n accordanc e wit h permi t requirement s associate d wit h th e low-NO xburne rinstallation. " Duk e Energ yResponse : Belew s Cree k

Stea m Statio n FG D • Permi t t o operat e th e FG D Residu e Landfil l - Submi t certificatio n report Augus t 13 , 2007 , expec t permi t t o operat e b yOctobe r23 , 2007 .Cliffsid e Stea m Statio n Uni t 5 FG D • Authorizatio n t o Construc t (ATC ) applicatio n anticipate d Septembe r2007 . 8 . G.S . 62-133.6(i)(8 ) requires : Th e result s o fequipmen t testin g relate d t o complianc e wit h G.S . 143-215.107D .

Summar yo fProgres s Energ yResponse : Progres s Energ yconducte d performanc e testin g o fth e SO 2 scrubber s a t Ashevill e Unit s 1 an d 2 i n 2006 . Th e testin g confirme d th e scrubber s ha d achieve d thei rperformanc e guarante e o f 9 7 percen t remova l efficiency .

Progres s Energ yals o teste d th e low-NO xburner s (LNBs ) a t Sutto n Uni t 2 an d Le e Uni t 2 i n 2006 . Th e testin g demonstrate d tha t th e LNB s me t thei rrespectiv e performanc e guarantees .

Duk e Energ yResponse : "N o additiona l equipmen t relate d testin g occurre d i n 2006. " Duk e Energ yinclude d SNC R an d SC R test s don e i n prio ryear s i n th e 200 7 repor t fo rreference .

9 . G.S . 62-133.6(i)(9 ) requires : Th e numbe ro fton s o foxide s o f nitroge n (NOx ) an d sulfu rdioxid e (SO2 ) emitte d durin g th e previou s calenda ryea rfro m th e coal-fire d generatin g unit s tha t ar e subjec t t o th e emission s limitation s se t ou t i n G.S . 143-215.107D .

Progres s Energ yResponse : "Th e tota l calenda ryea r200 6 emission s fro m th e affecte d coal-fire d Progres s Energ yunit s are :

• NO x46,50 1 [tons ] • SO 2 175,22 6 [tons] " Summar yo fDuk e Energ yResponse : I n th e 200 6 calenda ryear , th e followin g wer e emitte d fro m th e Nort h Carolin a base d Duk e Energ ycoal-fire d units :

• NO x54,335. 5 ton s • SO 2 286,639. 2 ton s 10 . G.S . 62-133.6(0(10 ) requires : Th e emission s allowance s describe d i n G.S . 143-215.107D(i ) tha t ar e acquire d b yth e investor-owne d publi cutilit ytha t resul t fro m complianc e wit h th e emission s limitation s se t ou t i n G.S . 143-215.107D .

Progres s Energ yResponse : "Durin g 2006 , PE C di d no t acquir e an y allowance s a s a resul t o fcomplianc e wit h th e emissio n limitation s se t ou t i n N.C . Genera l Statut e 143-215.1070. "

Duk e Energ yResponse : "N o emission s allowance s hav e bee n acquire d b y Duk e Energ yCarolina s resultin g fro m complianc e wit h th e emission s limitation s se t ou t i n G.S . 143-215.1070. " 911 . G.S . 62-133.6(0(11 ) requires : An yothe rinformatio n requeste d b y

th e Commissio n o rth e Departmen t o fEnvironmen t an d Natura l Resources . Summar yo fDENR/DA Q Request : Th e DENR/DA Q submitte d informationa l request s t o Progres s Energ yan d Duk e Energ yo n Apri l 25 , 2007 . Th e informatio n requested , alon g wit h th e informatio n containe d i n th e origina l Marc h 30 , 200 7 submittal s fro m Progres s Energ yan d Duk e Energy , support DENR/DAQ' s conclusio n tha t th e plan s an d schedule s o fth e companie s appea radequat e t o achiev e th e emissio n limitation s se t ou t i n G. S 143-215.107D . Th e informatio n requeste d o n Apri l 25 , 2007 , amon g othe rthings , concerned : operationa l date s fo rcontro l unit s a t Progres s Energ y(answer s outline d i n Numbe r6 above) ; pla n an d timin g i ffurnac e sorben t injectio n (FSI ) testin g does no t support th e FS I installatio n a t Cap e Fea r(answe routline d i n Numbe r4 above) ; whethe rplan s fo r maintainin g NO xemission s a t o rbelo wth e cap(s ) consider , fo rexample , growt h i n energ ysales ; an d a n inquiryo n ho wyear-to-yea rmeteorologica l variabilit yaffect s energ ydeman d an d thu s affect s productio n fro m th e coal-fire d unit s an d th e relate d SO 2 an d NO xemissions . Progres s Energ yResponse : i n respons e t o th e DENR/DA Q question , "Wha t ar e you rplan s fo rmaintainin g NO xemission s a t o rbelo wth e fina l (2007 ) ca p considering , fo rexample , growt h i n energ ysales, " Progres s Energ ynoted , "PE C full y intend s t o compl ywit h th e annua l NO xemission s cap . Plannin g fo rNO xemission s i s include d wit h plannin g fo runi t generation , fue l consumption , an d fue l an d operation s costs . Year-to-dat e actua l emission s wit h year-en d projection s ar e continuousl y monitore d an d ar e update d weekl yt o ensur e annua l compliance . Hig h an d lo wcase s (energy , outages , performance , etc. ) ar e continuousl yevaluate d an d monitore d t o provid e PE C wit h a rang e o fpotentia l scenario s i n orde rt o prepar e fo radditiona l action s t o cur b emissions , i fneeded. " I n respons e t o th e DENR/DA Q questio n o n ho wyear-to-yea rmeteorologica l variabilit yaffect s energ ydeman d an d thu s affect s productio n fro m th e coal-fire d unit s an d th e relate d SO2 an d NO xemissions , Progres s Energ ynoted , "PEC' s bas e cas e forecas t use s a weather-normalize d loa d an d energ yforecast . Deviation s fro m norma l weathe rcondition s increas e o rdecreas e syste m energ ydemand (dependin g o n th e specifi cdeviation ) an d thu s ca n resul t i n a n increas e o rdecreas e i n actua l emissions . Fo rexample , a hotte rtha n norma l summe rwoul d likel yresul t i n a n increas e i n emission s whil e a milde rsumme rwoul d likel yresul t i n lowe remissions. " Duk e Energ yResponse : I n respons e t o th e DENR/DA Q question , "Wha t ar e you rplan s fo rmaintainin g NO xemission s a t o rbelo wth e fina l (2009 ) ca p considering , fo rexample , growt h i n energ ysales, " Duk e Energ ynoted , "Th e projection s abov e represen t a syste m averag e capacit yfacto ro f73% . T o pu t thi s i n perspective , th e highes t annua l fossi l syste m capacit yfacto rDuk e ha s eve rachieve d was 69 % i n 2005 . Th e projectio n als o includes a substantial amoun t o fbul k powe rmarketin g (BPM ) sales . I fw e ha d BP M sale s a t a historica l high , thi s coul d increas e NO xemission s i n th e 

### 1 090 0 ton s rang e t o accoun t fo rthi s load. " Duk e state d tha t the yexpec t t o hav e a

comfortabl e complianc e margi n eve n wit h offsyste m sales . I n respons e t o th e DENR/DA Q questio n o n ho wyear-to-yea rmeteorologica l variabilit yaffect s energ ydeman d an d thu s affect s productio n fro m th e coal-fire d unit s an d th e relate d SO

2 an d NO xemissions , Duk e Energ ynoted , "...w e ar e plannin g t o a veryhig h syste m averag e capacit yfactor . Historically , w e hav e ha d ver yho t summer s an d verycol d winter s bu t hav e neve rachieve d th e 73 % annua l C F w e ar e currentl y plannin g to . "I n developin g th e appropriat e complianc e margi n multipl e scenario s wer e considere d tha t increase d NO xemissions , includin g force d outage s a t th e nuclea runit s an d unit s wit h SCR , increas e i n BP M sales . Throug h thi s analysi s i t was determine d tha t a 1,00 0 t o 1,50 0 ton s complianc e margi n wa s neede d goin g int o an yyear . Thoug h w e ar e installin g th e Marshal ! 3 SC R fo rth e Charlott e 8 hou rozon e attainmen t demonstration , i t als o provide s complianc e margi n fo rth e Nort h Carolin a Clea n Smokestac k

Ac t (N C CSA) . "Th e tota l NO xemission s an d ho weac h uni t i s performin g i s trende d o n a weekl y basis . I fth e syste m tota l NO xemission s wer e trendin g abov e th e fir m N C CS Acap , w e woul d attemp t t o achiev e lowe rNO xemission s fro m ou rgeneratio n station s withou t consideratio n o fperformance . W e woul d hav e th e optio n t o chang e th e dispatc h o f units , limi t BP M sale s an d a t a las t resort , purchas e powe ran d shu t dow n th e highes t emittin g generatio n units . Ou rpla n i s no t t o excee d th e N C CS Afir m ca p unles s unde ra forc e majeur e situation. " Summar yo fCommissio n Request : Th e Commissio n submitte d discovery request s t o Progres s Energ yan d Duk e Energ yo n Apri l 12 , 2007 . Th e informatio n requested, amon g othe rthings , concerne d curren t projecte d amortizatio n schedule s ove rth e remainin g year s ofth e seven-yea raccelerate d cost-recoveryperiod . Progres s Energ yResponse : Th e Ac t require s Progres s Energ yt o amortiz e $56 9 million , whic h represent s 70 % ofth e origina l cos t estimat e o f$81 3 million , b yth e en d o f2007 . Th e Compan yindicate d tha t $535. 2 millio n ha d bee n amortize d a s o f Decembe r31 , 2006 , leavin g a tota l o f$33. 8 millio n t o b e amortize d durin g 2007 . Wit h regar d t o th e amount s t o b e amortize d i n 200 8 an d 2009 , Progres s Energ y indicate d i n respons e t o th e Commission' s Apri l 12 , 200 7 discoveryreques t tha t i t projecte d estimate d amortizatio n o f$12 2 millio n pe ryea rfo reac h o f thos e tw o years . However , i n a Petitio n file d i n Docke t No . E-2 , Su b 900 , Progres s Energy , amon g othe r things , ha s requeste d tha t th e Commissio n satisfyth e requirement s o fG.S . 62-133.6(d ) b yallowin g i t t o amortiz e a tota l o f $24 4 millio n durin g calenda ryear s 200 8 an d 2009 , th e resul t bein g tha t Progres s Energ yha s requeste d th e discretio n t o amortiz e u p t o $17 4 millio n i n eithe ryear , a s currentl ypermitte d b yG.S . 62-133.6(b) , accordin g t o Progres s Energy . 1 1Progres s Energ ystate d tha t i t currentl yha s n o plan s t o writ e off o ramortiz e an y

amount s abov e $81 3 millio n i n 200 7 throug h 2009 . Rather , Progres s Energ yha s propose d tha t th e environmenta l complianc e cost s incurre d b yProgres s Energ yi n exces s o f $81 3 millio n b e include d i n it s rat e base . [DENR/COMWIISSIO N NOTE : A s previousl yindicated , Progres s Energ ycurrentl yestimate s it s tota l ne t environmenta l complianc e cost s t o b e approximatel y$1.35 5 billion. ] Subsectio n (d ) o f G.S . 62-133.6 , i n pertinen t part , provide s a s follows : Subjec t t o th e provision s o f subsectio n (f ) o f thi s section , th e Commissio n shal l hol d a hearin g t o revie wth e environmental complianc e cost s se t ou t i n subsectio n (b ) o f thi s section . Th e Commissio n may modif yan d revis e thos e cost s a s necessaryt o ensur e tha t the yar e just , reasonable , an d pruden t base d o n th e mos t recen t cos t informatio n availabl e an d determin e th e annua l cos t recoveryamount s tha t eac h investor-owne d publi cutilit yshal l b e require d t o recor d an d recove rdurin g calenda ryear s 200 8 an d 2009 . . . . Th e Commissio n shal l issu e a n orde r pursuan t t o thi s subsectio n n o late rtha n Decembe r31 , 2007 . Commissio n proceeding s ar e currentl yongoin g wit h respec t t o th e requirement s o f G.S . 62-133.6(d ) a s highlighte d above . Therefore , th e Commissio n ha s no t ye t rule d regardin g th e annua l amount s o f environmenta l complianc e cost s t o b e amortize d by Progres s Energ yi n 200 8 an d 2009 . However , th e Commissio n wil l d o s o no t late rtha n Decembe r31 , 2007 . Duk e Energ yResponse : Th e Ac t require s Duk e Energ yt o amortiz e $1,05 0 billion , whic h represent s 70 % ofth e origina l cos t estimat e o f $1. 5 billion , b yth e en d o f2007 . Th e Compan yindicate d tha t $86 2 millio n ha d bee n amortize d a s o f Decembe r31 , 2006 , leavin g a tota l o f $18 8 millio n t o b e amortize d durin g 2007 . Wit h regar d t o th e amount s t o b e amortize d i n 200 8 an d 2009 , Duke Energ y indicated , i n respons e t o th e Commission' s Apri l 12 , 200 7 discoveryrequest , tha t suc h amount s wer e t o b e determine d i n Docke t No . E-7 , Su b 829 . Tha t docke t wa s initiate d b yth e Commission , byOrde rissue d Marc h 9 , 2007 , fo rth e purpos e o f allowin g th e Commissio n t o compl ywit h th e provision s o f G.S . 62-133.6(d ) a s suc h statutory provision s pertai n t o Duk e Energy . Regardin g Duk e Energy' s pla n t o writ e off o ramortiz e an yamount s abov e $1. 5 billion , Duk e Energ ystate d tha t it " will , n o late rtha n Jun e 1 , 2007 , fil e testimon y an d exhibit s wit h th e Commissio n settin g fort h th e informatio n an d dat a supportin g it s positio n regardin g recoveryo f th e remainin g clea n ai rcomplianc e expenditures , tha t is , presumably , th e environmenta l complianc e cost s incurre d b yDuk e Energ yi n exces s of $1. 5 billion . [DENR/COMWIISSIO N NOTE : A s previousl yindicated , Duke Energ y currentl yestimate s it s tota l ne t environmenta l complianc e cost s t o b e approximatel y $1,96 5 billion. ] 

### 1 2Commissio n proceeding s ar e currentl yongoin g wit h respec t t o th e foregoin g

matters . Therefore , th e Commissio n ha s no t ye t rule d regardin g th e annua ! amount s o f environmenta l complianc e cost s t o b e amortize d b yDuk e Energ yi n 200 8 an d 2009 . However , th e Commissio n wil l d o s o no t late rtha n Decembe r31 , 2007 . III . Sectio n 1 0 o fth e Ac t provides : I t i s th e inten t o f th e Genera l Assembl ytha t th e Stat e us e al l availabl e resource s an d means , includin g negotiation , participatio n i n interstat e compact s an d multistat e an d interagenc yagreements, petition s pursuan t t o 4 2 U.S. C § 7426 , an d litigatio n t o induc e othe rstate s an d entities , includin g th e Tennesse e Valle yAuthority , t o achiev e reduction s i n emission s o foxide s o fnitroge n (NOx ) an d sulfu rdioxid e (SO2 ) comparabl e t o thos e require d b yG.S . 143-215.107D , a s enacte d b ySectio n 1 o fthi s act , o n a comparabl e schedule . Th e Stat e shal l giv e particula rattentio n t o thos e state s an d othe rentitie s whos e emission s negativel yimpac t ai rqualit yi n Nort h Carolin a o rwhos e failur e t o achiev e comparabl e reduction s woul d plac e th e econom yo fNort h Carolin a a t a competitiv e disadvantage . DENR/DA Q an d Departmen t o fJustic e (Attorne yGeneral ) Activitie s t o Implemen t thi s Section : Th e Stat e continue s t o pursu e opportunitie s t o carryforwar d th e Legislature' s objective s i n Sectio n 1 0 ofth e Act . Th e Stat e report s th e followin g recen t activitie s an d developments : 1 ) O n January30 , 2006 , th e State , throug h th e Attorne yGeneral , sue d th e Tennesse e Valle yAuthorit y(TVA ) i n federa l distric t court i n Asheville . Th e sui t allege s tha t emission s o fSO

2 an d NO xfro m TVA' s flee t o fcoal-fire d powe rplant s ar e inadequatel ycontrolle d an d therefor e creat e a publi cnuisance . Th e Attorne yGenera l ha s aske d th e Court t o requir e TV At o instal l NO xan d SO 2 control s t o abat e th e publi c nuisance . I n Jul y200 6 th e Distric t Court denie d TVA' s motion s t o dismis s th e case , bu t TV Aha s appeale d thes e ruling s t o th e U.S . Court o fAppeal s i n Richmond , Virginia . Ora l argumen t ha s no t ye t bee n schedule d an d i t i s uncertai n whe n th e appea l wil l b e decided . Meanwhile , th e partie s ar e continuin g t o prepar e fo ran d ar e o n schedul e fo ra tria l i n Ashevill e i n Octobe r2007 . TV Aha s recentl yannounce d plan s t o instal l NO xan d SO 2 control s o n it s Joh n Sevie rplant , whic h i s th e closes t TV Afacilit yt o Nort h Carolina. 2 ) O n Jul y8 , 2005 , th e Attorne yGenera l file d i n th e Unite d State s Court o fAppeal s fo rth e Distric t o fColumbi a Circui t (D.C . Circuit ) a petitio n fo rrevie wo fth e Unite d State s Environmenta l Protectio n Agency' s (EPA ) Clea n Ai rInterstat e Rul e (CAIR) . Amon g othe rthings , th e Stat e i s allegin g tha t CAI R fails t o tak e int o accoun t significan t ai r qualit yproblem s i n Nort h Carolina , fails t o guarante e a remed yt o Nort h Carolin a becaus e th e rul e relie s to o heavil yo n th e tradin g o fpollutio n credits , an d fail s t o requir e control s t o b e installe d expeditiously . Th e Court wil l likel yhea rargument s i n thi s matte r i n lat e 200 7 o rearl y2008 . 3 ) Als o o n Jul y8 , 2005 , th e Attorne yGenera l file d a petitio n wit h th e EP A requestin g tha t th e EP Aadministrativel yreconside rcertai n aspect s o fCAIR . EP A 

### 1 3denie d thi s petition . Th e Attorne yGenera l ha s aske d th e D.C . Circui t t o revie wthi s

actio n a s well , an d thi s reques t wil l b e hear d alon g wit h th e CAI R case. . 4 ) O n Marc h 18 , 2004 , th e Stat e file d a petitio n unde r§12 6 o fth e Clea n Ai rAc t requestin g tha t EP Aimpos e NO xand/o rSO 2 control s o n larg e coal-fire d utilit yboiler s i n 1 3 upwin d state s tha t impac t Nort h Carolina' s ai rquality . O n Marc h 15 , 2006 , th e EP A denie d th e State' s petition . Th e Attorne yGenera l ha s file d a petitio n i n th e D.C . Circui t seekin g revie wo fth e denia l o fth e petition . Th e matte rwil l likel yb e hear d b yth e Cour t i n earl y2008 . Th e Attorne yGenera l als o petitione d EP Afo radministrativ e reconsideratio n ofth e §12 6 petition . 5 ) Sinc e th e enactmen t o fth e Clea n Smokestack s Act , th e Attorne yGenera l an d th e Departmen t o fEnvironmen t an d Natura l Resource s hav e o n severa l occasion s presente d th e Clea n Smokestack s Ac t t o othe rjurisdiction s t o demonstrat e leadershi p an d promp t simila raction s i n surroundin g area s tha t impac t Nort h Carolina. O n Apri l 6 , 2006 , Governo rEhrlic h o fMarylan d signe d int o la wth e Health yAi rAc t (200 6 Md . Law s 301 ) - a Clea n Smokestacks-typ e la wtha t significantl ylimit s emission s o fSO 2 an d NO xfro m larg e coal-fire d utilit yboiler s i n Maryland . Marylan d als o i s i n th e proces s o fpromulgatin g rule s tha t wil l furthe rtighte n control s o n larg e NO xan d SO 2 sources . 6 ) Th e Attorne yGenera l i s als o seekin g a promp t resolutio n abou t whethe rlarg e stationarysource s o fNO xi n Georgi a mus t compl ywit h th e summertim e NO xca p unde r EPA' s "NO xSI P Call " rule , whic h i s designe d t o hel p downwin d State s reduc e ambien t level s o fozone . Thi s aspec t o fth e NO xSI P Cal l ha s bee n unde rrevie wb yEP Aan d EP Aha s faile d t o resolv e th e issu e i n a timel ymanner . IV . Sectio n 1 1 o fth e Ac t provides : Th e Environmenta l Managemen t Commissio n shal l stud yth e desirabilit yo frequirin g an d th e feasibilit yo fobtainin g reduction s i n emission s o foxide s o fNitroge n (NOx ) an d Sulfu rDioxid e (SO2 ) beyon d thos e require d b yG.S . 143-215.107D , a s enacte d b ySectio n 1 o fthi s act . Th e Environmenta l Managemen t Commissio n shal l conside rth e availabilit yo femissio n reductio n technologies , increase d cos t t o consumer s o felectri cpower , reliabilit yo felectri cpowe r supply , action s t o reduc e emission s o foxide s o fnitroge n (NOx ) an d sulfu rdioxid e (SO2 ) take n b ystate s an d othe rentitie s whos e emission s negativel yimpac t ai rqualit yi n Nort h Carolin a o rwhos e failur e t o achiev e comparabl e reduction s woul d plac e th e econom yo f Nort h Carolin a a t a competitiv e disadvantage , an d th e environment , an d th e natura l resources , includin g visibility . I n it s conduc t o fthi s study , th e Environmenta l Managemen t Commissio n ma yconsul t wit h th e Utilitie s Commissio n an d th e Publi c Staff . Th e Environmenta l Managemen t Commissio n shal l repor t it s finding s an d recommendation s t o th e Genera l Assembl yan d th e Environmenta l Revie wCommissio n annuall ybeginnin g 1 Septembe r2005 . Note : Sessio n La w2006-7 9 change d th e beginnin g dat e o fth e requirement s o fthi s Sectio n t o Septembe r1 , 2007 . 

### 1 4Environmenta l Managemen t Commissio n an d DEN R Response : Alette r

wa s submitte d t o th e Environmenta l Revie wCommissio n fro m Dr . Davi d Moreau , Environmenta l Managemen t Commissio n Chairman , date d Apri l 3 , 2006 , whic h state d th e following : Sinc e th e Clea n Smokestack s Ac t wa s passe d i n Jun e 2002 , significan t Federa l regulatorychange s hav e occurred . Specifically , th e Clea n Ai rInterstat e Rul e (CAIR ) require s Nort h Carolina' s neighborin g state s t o achiev e majo rreduction s i n NO xan d SO

2 - - reduction s tha t requir e installatio n o fstate-of-the-art contro l equipment . Althoug h ther e ma yb e question s abou t th e timin g an d emission s reduction s o f CAIR , th e Divisio n o fAi rQualit y(DAQ ) believe s CAI R wil l ultimatel yrequir e Duk e Energ yan d Progres s Energ yt o enhanc e existin g o rad d ne wcontrol s tha t ar e consisten t wit h th e lates t technology . Th e Clea n Smokestack s Ac t alread yrequire s tha t stat e o f th e art contro l equipmen t b e installe d o n man yunit s i n Nort h Carolina. CAI R annua l NO

xan d SO 2 emission s budget s ar e eve n lowe rtha n thos e se t b y th e Clea n Smokestack s Ac t an d thi s coul d resul t i n eve n mor e unit s i n Nort h Carolin a havin g stat e ofth e ar t contro l equipmen t applied . Give n th e recen t actio n b yth e Federa l governmen t regardin g powe rplan t emissions , i t i s recommende d tha t th e stud ya s t o whethe ro r no t furthe rStat e actio n i s require d b e extende d whil e evaluatio n i s mad e o fth e progres s o fNort h Carolin a i n complyin g wit h bot h th e clea n Smokestack s Ac t an d CAIR . Th e DENR/DA Q generall ybelieve s th e curren t complianc e plan s represen t a suit e o fstate-of-the-art controls , takin g int o consideratio n bot h emission s reduction s an d cost s o f control . Th e Environmenta l Managemen t Commissio n an d DENR/DA Q wil l continu e t o evaluat e contro l option s throug h th e requirement s ofthi s sectio n a s bot h th e Clea n Smokestack s Ac t complianc e date s an d th e CAI R complianc e date s dra w near . V . Sectio n 1 2 o fth e Ac t provides : Th e Genera l Assembl yanticipate s tha t measure s implemente d t o achiev e th e reduction s i n emission s o foxide s o fnitroge n (NOx ) an d sulfu rdioxid e (SO2 ) require d b yG.S . 143-215.107D , a s enacte d b ySectio n 1 o fthi s act , wil l als o resul t i n significan t reduction s i n th e emission s o fmercuryfro m coal fire d generatin g units . Th e Divisio n o f Ai rQualit yo fth e Departmen t o f Environmen t an d Natura l Resource s shal l stud yissue s relate d t o monitorin g emission s o f mercur yan d th e developmen t an d implementatio n o f standard s an d plan s t o implemen t program s t o contro l emission s o fmercur yfro m coal-fire d generatin g units . Th e Divisio n shal l evaluat e availabl e contro l technologie s an d shal l estimat e th e benefit s an d cost s o f alternativ e strategie s t o reduc e emission s o f mercury . Th e Divisio n shal l annuall yrepor t it s interi m finding s an d recommendation s t o th e Environmenta l Managemen t 

### 1 5Commissio n an d th e Environmenta l Revie wCommissio n beginnin g 1 Septembe r2003 .

Th e Divisio n shal l repor t it s fina l finding s an d recommendation s t o th e Environmenta l Managemen t Commissio n an d th e Environmenta l Revie wCommissio n n o late rtha n 1 Septembe r2005 . Th e cost s o fimplementin g an yai rqualit ystandard s an d plan s t o reduc e th e emissio n o f mercur yfro m coal-fire d generatin g unit s belo wth e standard s i n effec t o n th e dat e thi s ac t become s effective , excep t t o th e exten t tha t th e emissio n o f mercuryi s reduce d a s a resul t o f th e reduction s i n th e emission s o foxide s o f nitroge n (NOx ) an d sulfu rdioxid e (SO2 ) require d t o achiev e th e emission s limitation s se t ou t i n G.S . 143-215.107D , a s enacte d b ySectio n 1 o fthi s act , shal l no t b e recoverabl e pursuan t t o G.S . 62-133.6, a s enacte d b ySectio n 9 ofthi s act . DA Q Action s t o Implemen t thi s Section : Th e DA Q submitte d report s i n Septembe ro f2003 , 2004 , an d 2005 , a s require d b ythi s Section . Th e firs t repor t primaril yfocuse d o n th e "stat e o fknowledge " o f th e co-benefi t o f mercurycontro l tha t wil l resul t fro m th e contro l o fNO xan d SO 2 fro m coal-fire d utilit yboilers . Also , preliminaryestimate s wer e mad e fo rthi s co-benefi t fo rNort h Carolin a utilit yboiler s base d o n th e initia l plan s submitte d b yProgres s Energ yan d Duk e Energy . Th e secon d report primaril yfocuse d o n "definitio n o foptions" . Th e Divisio n ha s als o submitte d th e thir d an d fina l report title d MercuryEmission s an d MercuryControl s fo rCoal-Fire d Electrica l Utilit yBoilers . I n 2006 , DAQ develope d a stat e mercuryrul e tha t goe s beyon d th e federa l Clea n Ai rMercuryRul e (CAMR ) tha t too k effec t i n Novembe r2006 . Th e Nort h Carolin a mercuryrules , containe d i n Sectio n 15 ANCA C 02 D .2500 , becam e effectiv e January1 , 2007 . Th e coal-fire d unit s o fDuk e Energ yan d Progres s Energ y hav e tw o set s o findependen t requirement s tha t the yhav e t o meet . First , the yhav e t o satisf yth e requiremen t se t ou t i n th e EP Aguidelin e rule , whic h ha s bee n incorporate d int o th e State' s mercuryregulation . Thi s requiremen t i s tha t eac h unit' s accoun t contain s enoug h allowance s a t th e en d o fth e yea rt o equa l o rexcee d it s actua l emission s fo rtha t year . Second , thes e unit s hav e t o mee t a State-onl yrequirement . Thi s requiremen t i s tha t th e emission s o fmercur yfro m eac h coal-fire d uni t a t Duke Energ yan d Progres s Energ yhav e t o b e controlle d t o th e maximu m degre e tha t i s technicall yan d economicall yfeasibl e o rshu t dow n b ya prescribe d date . Bot h requirement s ar e independen t o feac h other . Meetin g th e firs t requiremen t does no t reliev e th e compan yfro m th e nee d t o mee t th e secon d requirement . However , meetin g th e secon d requirement , th e State-onl yrequirement , wil l greatl yai d th e companie s i n meetin g th e firs t requirement . VI . Sectio n 1 3 o fth e Ac t provides : Th e Divisio n o f Ai rQualit yo f th e Departmen t o f Environmen t an d Natura l Resource s shal l stud yissue s relate d t o th e developmen t an d implementatio n o fstandard s an d plan s t o implemen t program s t o contro l emission s o fcarbo n dioxid e (CO2 ) fro m coal-fire d generatin g unit s an d othe r stationar ysource s o f ai rpollution . Th e Divisio n shal l evaluat e availabl e contro l technologie s an d shal l estimat e th e benefit s an d cost s o falternativ e strategie s t o reduc e emission s o fcarbo n dioxid e (CO2) . Th e Divisio n shal l annuall yrepor t it s interi m finding s an d recommendation s t o th e Environmenta l Managemen t Commissio n an d th e Environmenta l Revie wCommissio n beginnin g 1 Septembe r2003 . Th e Divisio n shal l repor t it s fina l finding s an d recommendation s t o th e Environmenta l Managemen t 

### 1 6Commissio n an d th e Environmenta l Revie wCommissio n n o late rtha n

1 Septembe r2005 . Th e cost s o fimplementin g an yai rqualit ystandard s an d plan s t o reduc e th e emissio n o fcarbo n dioxid e (CO2 ) fro m coal-fire d generatin g unit s belo wth e standard s i n effec t o n th e dat e thi s ac t become s effective , excep t t o th e exten t tha t th e emissio n o fcarbo n dioxid e (CO2 ) i s reduce d a s a resul t o fth e reduction s i n th e emission s o foxide s o fnitroge n (NOx ) an d sulfu rdioxid e (SO2 ) require d t o achiev e th e emission s limitation s se t ou t i n G.S . 143-215.107D , a s enacte d b ySectio n 1 ofthi s act , shal l no t b e recoverabl e pursuan t t o G.S . 62-133.6 , a s enacte d b ySectio n 9 ofthi s act . DEN R Action s t o Implemen t thi s Section : Th e DA Q submitte d report s i n Septembe ro f2003 , 2004 , an d 2005 , a s require d bythi s Section . Th e firs t repor t primaril yfocuse d o n th e "stat e o f knowledge " an d action s bein g take n o rplanne d elsewher e regardin g CO 2 contro l fro m coal-fire d utilit yboilers . Th e secon d repor t primaril yfocuse d o n "definitio n o foptions" . Th e DA Q submitte d th e thir d an d fina l repor t titled , "Carbo n Dioxid e (CO2 ) Emissio n Reductio n Strategie s fo rNort h Carolina" , t o th e Environmenta l Managemen t Commissio n an d th e Environmenta l Revie wCommissio n a s required . Numerou s recommendation s wer e se t fort h i n thi s report , includin g a recommendatio n fo ra Nort h Carolin a Climat e Actio n Plan . Th e Nort h Carolin a Global Warming/Climat e Chang e Bil l (H B 1191/S B 1134 ) wa s enacte d durin g th e 200 5 Sessio n o fth e Genera l Assembly . Alon g wit h th e passag e o f th e bill , th e Nort h Carolin a 200 5 Sessio n o f th e Genera l Assembl ypasse d th e Globa l Climat e Chang e Act . Thi s act establishe d a Legislativ e Commissio n o n Globa l Climat e Chang e (LCGCC) . Additionally , a formalize d stakeholde rgroup , th e Climat e Actio n Pla n AdvisoryGrou p (CAPAG) , was forme d b yDENR . Th e CAPAG' s purpos e i s t o evaluate , discuss , an d formaliz e consensus-base d recommendation s fo rCO 2 an d othe r greenhous e ga s reduction s throug h a forma l stakeholde rprocess . Determinatio n o f economi cbenefit s t o Nort h Carolin a wil l b e assesse d fo reac h prospectiv e recommendation . Th e CAPA G wil l wor k i n conjunctio n wit h th e LCGC C i n providin g periodi cupdates . Th e inaugura l meetin g ofth e CAPA G was hel d o n February16 , 2006 . Th e CAPA G i s no wi n th e fina l stage s o f utilizin g technica l workgroups . Thes e technica l workgroup s contai n expert s i n th e followin g fiv e sectors : 1 ) Agriculture , Forestry , an d Waste ; 2 ) Energ ySupply ; 3 ) Transportatio n an d Lan d Use ; 4 ) Residential , Commercial , an d Industrial ; an d 5 ) Cros s Cuttin g (fo rissue s tha t cu t acros s differen t sectors , suc h a s establishin g a greenhous e ga s registry) . Th e CAPA G i s workin g diligentl ytoward s a comprehensiv e Nort h Carolin a Climat e Actio n Plan , wit h a curren t targe t t o complet e i t b yth e en d o f2007 . VII . Supplementar yInformation : A s note d i n earlie rreports , th e Publi cStaf f- Nort h Carolin a Utilitie s Commissio n (Publi cStaff ) wil l audi t th e book s an d record s o f Progres s Energ yan d Duk e Energ yo n a n ongoin g basi s i n regar d t o th e cost s incurre d an d amortize d i n complianc e wit h th e provision s o f th e Act . Th e Publi cStaff ha s undertake n suc h a review , focusin g o n th e verification o f cost s relate d t o complyin g wit h th e Act , th e amortizatio n o fthos e costs , an d th e operatin g result s o femissio n reductio n equipmen t installe d b yProgres s Energ yan d Duk e Energy . 

### 1 7Th e Publi cStaf ffile d it s mos t recen t report s i n th e presen t regar d wit h th e

Commissio n o n Ma y25 , 2007 . (Th e report regardin g PE C was subsequentl yrevise d o n May29 , 2007. ) Suc h reports , whic h ar e a continuatio n o fth e Publi cStaff s ongoin g review , presen t a n overvie wo fcertai n wor k performe d b yth e Publi cStaff an d it s finding s fo rth e 12-mont h perio d endin g Decembe r31 , 2006 . Attached , an d mad e par t o f thi s report , ar e th e Publi cStaff' s report s fo rDuk e Energ yan d Progres s Energy , Attachments C an d D , respectively . 

### Vlll . Conclusion s Th e DENR/DA Q carefull yreviewe d an d considere d th e informatio n provide d by Progres s Energ yan d Duk e Energ yi n thei rMarc h 30 , 200 7 complianc e pla n submittal s an d thei rMa y200 7 supplementa l submittal s i n respons e t o informationa l request s fro m DENR/DA Q o n Apri l 25 , 2007 . Th e informatio n i n th e submittals , includin g th e constructio n undertake n an d complete d throug h th e pas t yea ran d consideratio n o fth e fraction o fconstructio n remainin g an d permit s receive d an d applie d fo ri n th e pas t year , poin t towar d stead yprogres s i n meetin g th e prescribe d goal s o f th e Clea n Smokestack s Act . DENR/DA Q staf fals o analyze d th e emission s projection s an d assumption s o n growt h i n energ ysales . Aspecifi canalysi s o f th e NO xemission s relativ e t o th e 200 7 ca p wa s complete d usin g dat a fro m th e submittal s alon g wit h publicl yavailabl e 200 6 emission s dat a fro m USEPA' s Clea n Ai rMarket s Divisio n We b Site . Simila ranalysi s o f SO 2 emission s wil l b e possibl e i n futur e report s a s th e firs t SO 2 ca p i n 200 9 approaches . Additionaily , DENR/DA Q note s that , a s emissio n control s hav e com e onlin e fo rbot h Progres s Energ yan d Duk e Energy , thei rabilit yt o refin e th e expecte d futur e yea remissio n rate s fo rcontrol s ye t t o b e installe d i s enhance d base d o n operationa l performanc e o fsimila rtechnologie s alread ypu t int o service . Th e Commissio n ha s als o carefull yreviewe d an d considere d th e informatio n an d dat a provide d b yth e investor-owne d publi cutilitie s i n thei r200 7 Clea n Smokestack s annua l report s an d i n respons e t o th e Commission' s discoveryrequest s of Apri l 12 , 2007 . Base d upo n suc h information , i t appear s tha t bot h Progres s Energ yan d Duk e Energ yar e o n trac k t o mee t th e statutoril yimpose d 70 % accelerate d amortizatio n requiremen t durin g th e five-yea rrat e freez e perio d i n th e amount s o f $569. 1 millio n an d $1,05 0 billion , respectively . Further , a s require d byth e Act , th e Commissio n ha s schedule d hearing s fo rth e purpos e o f(1 ) determinin g th e annua l cos t recovery amount s tha t eac h investor-owne d publi cutilit yshal l b e require d t o recor d an d recove r durin g calenda ryear s 200 8 an d 2009 ; (2 ) reviewin g th e investor-owne d publi cutilities ' curren t estimate s o ftota l projecte d environmental complianc e cost s an d revisin g suc h costs , i f necessary , t o ensur e tha t the yar e just , reasonable , an d pruden t base d o n th e mos t recen t cos t informatio n available ; an d (3 ) consultin g wit h th e Secretaryo f DEN R t o receiv e advic e a s t o whethe rth e investor-owne rpubli cutilities ' actua l an d propose d modification s an d permittin g an d constructio n schedul e ar e adequat e t o achiev e th e emission s limitation s se t ou t i n G.S . 143-215.107D . Th e Commissio n wil l rul e o n th e aforesai d matter s no t late rtha n Decembe r31 , 2007 .


### 1 8I n summary , i t appear s tha t th e action s take n t o dat e b yProgres s Energ yan d

Duk e Energ yar e i n accordanc e wit h th e provision s an d requirement s o f th e Clea n Smokestack s Act . Further , th e complianc e plan s an d schedule s propose d b yProgres s Energ yan d Duk e Energ yappea radequat e t o achiev e th e emission s limitation s se t ou t i n G.S . 143-215.107D .

1 9ATTACHMENT S

Attachmen t A : Duk e Energ yCarolinas , LLC , Clea n Smokestack s Complianc e Pla n

Annua l Updat e fo r2007 , Submitte d b yCove rLette rDate d Marc h 30 , 200 7 Attachmen t B : Progres s Energ yCarolinas , Inc . Annua l Nort h Carolin a Clea n

Smokestack s Ac t Complianc e Report , Submitte d byCove rLette r Date d Marc h 30 , 200 7 Attachmen t C : Report o fth e Publi cStaffo n Cost s Incurre d an d Amortize d b yDuke

Energ yCarolinas , LL C i n Complianc e wit h Sessio n Law2002-4 , File d o n Ma y25 , 200 7 Attachmen t D : Report o fth e Publi cStaf fo n Cost s Incurre d an d Amortize d by

Progres s Energ yCarolinas , Inc . i n Complianc e Wit h Sessio n La w2002-4 , File d o n May25 , 200 7 (Revise d o n May29 , 2007 )

2 0

# f i ATTACHMEN T A PAG E1 O F1 7 nfllfr- O DUK E ENERG YCAROLINAS , LL C EnerOy ? 22 5 HiUsboroug h Street . Suit e 16 0

* * * Raleigh , N C 2760 3 91 9 23 5 099 5 91 9 82 8 524 0 fa

x Marc h30 , 200 7 Ms . Renn e C . Vance , Chie f Cler k p | | Nort hCarolin aUtilitie s Commissio n 432 5 Mai l Servic e Cente r 

### 3 0 200 7 Raleigh , N C 27699-432 5 . . U f Subject : Docke t No . E-7 , Su b 71 8 m ' Ss ' 0 n Duk e Energ y Carolinas , LL C NO xan dSO 2 Complianc e Pla nAnnua l Updat e Recor dNo . N C CA P00 6 Dea r Ms . Vance : Duk e Energ y Carolinas , LL C i s require db y Senat e Bil l 107 8 (th e "Nort hCarolin aClea nAi r Legislation" ) t o fil e infonnatio no no r befor e Apri l 1 o f

eac hyea r

t o updat e th e Nort hCarolin a Utilitie s Commissio no n("Commission*' ) ofth e progres s t o date , upcomin g activitie s an d expecte dplan s t o achiev e th e emission s limitation s se t ou t i nG.S . 143-215.107D . Enclose dfor filing ar e th e origina l an dthirt y (30 ) copie s o f Duk e Energ y Carolinas ' Complianc e Pla nAnnua l Updat e fo r

200 7 tha t

full y describ e th e Company' s effort s t o compl y wit hth e Nort hCarolin a Clea nAi r Legislation . Th e curren t

pla nt o mee t

th e emissio nrequirement s fo r NO xan dSO 2 includes : NO xContro l - Th e installatio no f Selectiv e Catalyti c Reductio n(SCR ) o nCliffsid e Stea m Statio nUni t

5 an dBelew s Cree k

Stea mStatio nUnit s 1 & 2 ha s bee ncompleted . Ou r NO x plan s continu e t o includ e th e installatio no f Selectiv e Non-Catalyti c Reductio n(SNCR ) o n1 5 unit s an dburne r

wor k at ou r remainin g smalle r

unit s wit hth e exceptio no f Cliffsid e Unit s 1 - 4 . Wit hthes e installations , th e compan y ca ndemonstrat e complianc e wit hth e 200 7 an d 200 9 NO xcap s unde r

Senat e Bil l 1078 . SO 2 Contro l - Th e installatio no f we t scrubber s o nou r

twelv e larges t

generatin g unit s continue s t o b e ou r

pla nfo r complianc e wit hth e 200 9 an d201 3 SO 2 cap s unde r th e Nort h Carolin aClea nAi r

Legislation . Th e compan y continue s t o wor k unde r a naccelerate d schedul e wit hrespec t

t o th e Alle nscrubbe r

projec t t o maintai ndesig nan dconstructio n continuit y throughou t

th e scrubbe r

progra man dals o assur e complianc e wit hth e federa l Clea nAi r Interstat e Rule . Estimate dcost s fo r th e scrubbe r

project s at

Cliffsid e Uni t

5 an d Plan t Alle ncontinu e t o rise du e t o escalatio no f labo r an dcommodit y price s a s wel l a s th e continue dru nu p o f

cost s i nth e powe r

generatio nan denvironmenta l retrofi t constructio n market .

www . duke-energy , co mATTACHMEN T A PAG E2 O F1 7

Exhibit s Aan dB outlin e curren t uni t specifi c technolog y selections , projecte doperationa l dates , expecte demissio nrates , an dth e correspondin g ton s o f emission s that

demonstrat e complianc e wit hth e legislativ e requirement s to th e bes t o f Duk e Energ y Carolinas ' knowledg e a t thi s time . Th e curren t

estimat e o f

Environmental Complianc e Cost s for thes e pollutio ncontro l project s ar e include di nExhibi t

C . Duke Energ y Carolina s wil l continu e to examin e th e technolog y selection , implementatio n schedul e an dassociate dcosts . Annual update s wil l b e provide dto th e Commissio na s required . If yo u hav e question s regardin g an y aspec t o f ou r plan , pleas e do no t

hesitat e to contac t

m y offic e a t 919-235-0955 . Sincerely , A Georg e T . Everett , Ph.D . Director , Environmental/Legislativ e Affair s Duk e Energ y Carolina s Enclosure s cc : Robert

P . Gruber Executiv e Directo r

- Publi c Staf

f 432 6 Mai l Servic e Center Raleigh , N C 27699-432 6ATTACHMEN T A PAG E3 O F1 7
VERIFICATIO N I , C^&^t.A ^ i outA^C ' 5 stat e an dattes t tha t th e attache dinformatio n updatin g th e Nort hCarolin aUtilitie s Commissio no nprogres s t o date , upcomin g activities , an dexpecte dstrategie s t o achiev e th e emission s limitation s se t ou t i nN.C.G.S . 143 - 215.107. D (Annua l Update ) i s filedo nbehal f o f Duk e Energ y Carolinas , LLC ; tha t I hav e reviewe dsai dAnnua l Updat e and , i nth e exercis e o f du e diligence , hav e mad e reasonabl e inquir y int o th e accurac y ofth e informatio nprovide dtherein ; an dthat , t o th e bes t o f m y knowledge , information , an dbelief , al l o f th e informatio ncontaine dtherei ni s accurat e an d true , an dn o materia l informatio no r fac t ha s bee nknowin g omitte do r misstate dtherein . qdorg e T . Everett , Ph.D . Director , Environmenta l an dLegislativ e Affair s



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^-^P^S- ^ATTACHMEN T A PAG E4 O F1 7 Duk e Energ yCarolinas . LL C Genera l Assembl yo fNort h Carolin a Sessio n 200 1 Senat e Bil l 107 8 - Improv e Ai rQuality/Electri cUtilitie s (N C Clea n Ai rLegislation ) 200 7 Annua l Dat a Submitta l 1 . Adetaile d repor t o n th e investor-owne d publi cutility' s plan s fo rmeetin g th e emission s limitation s se t ou t i n G.S . 143-215.107D . Exhibit s Aan d B outlin e th e pla n a s o fthi s dat e fo rtechnolog yselection s byfacilit yan d unit , projecte d operationa l dates , expecte d emissio n rates , an d th e correspondin g ton s ofemission s tha t demonstrat e complianc e wit h th e provision s o fG.S . 143-215.107D . Change s t o th e expecte d pla n fo rmeetin g thes e emission s limitation s a s compare d t o pas t complianc e plan s ar e describe d below : NO xComplianc e • Emissio n Rat e Change s - Expecte d rate s hav e bee n adjuste d i n thi s 200 7 updat e base d o n 200 6 operationa l performance : • Emissio n rate s fo rth e Alle n unit s wer e adjuste d base d o n 200 6 ozon e seaso n performanc e o fth e Unit s 1 , 3 & 4 SNC R equipment . Expecte d rate s wer e increase d by0.0 1 fo rUnit s 1 & 2 an d 0.0 2 fo rUnit s 3, 4 & 5 . • Th e Belew s Cree k

Uni t 1 expecte d rat e wa s increase d by0.0 1 base d o n 200 6 operationa l results . • Th e Buc k

Unit s 3 & 4 expecte d rate s i n 200 9 wer e increase d by0.0 1 base d o n operatio n o fth e simila rDa n Rive rUni t 2 wit h ne wSeparate d Over-fire d Ai r (SOFA ) burne requipmen t i n earl y2007 . Th e Buc k Uni t 3 expecte d rat e i n 200 7 wa s decrease d by0.0 2 base d o n th e timin g ofth e SOF Ainstallation . • Th e Buc k

Unit s 5 & 6 expecte d rate s wer e increase d by0.0 2 base d o n th e earl y200 7 performanc e o fth e recentl yinstalle d SNC R equipment . • Cliffsid e Unit s 1 - 4 expecte d rate s wer e change d base d o n 200 6 performance . • Th e Da n Rive rUnit s 1 & 2 expecte d rate s wer e increase d slightl ybase d o n operation s o fth e SOF Aequipmen t o n Uni t 2 i n earl y2007 . • Th e Marshal l Unit s 1 - 4 expecte d rate s wer e increase d by0.0 1 base d o n operatio n i n 200 6 an d th e effec t o n baselin e NO xo fth e coal s use d wit h th e scrubber . • Th e 200 9 expecte d rat e fo rMarshal l Uni t 3 wa s decrease d significantl ybase d o n th e expecte d additio n o fSC R equipment . Thi s SC R additio n i s expecte d t o b e operationa l i n 200 9 primaril yi n support o fth e 8-hou rozon e attainmen t demonstratio n fo rth e Charlott e region . Increase d mercur yremova l i n support o fth e federa l Clea n Ai rMercuryRul e (CAMR ) an d improve d abilityt o support existin g NOxemissio n limitation s ar e adde d benefit s associate d wit h thi s project . Simila rt o othe rSC R addition s attribute d primaril yt o complianc e wit h regulation s othe rtha n th e Nort h Carolin a Clea n Ai rLegislation , cost s associate d wit h thi s Marshal l Uni t 3 SC R project ar e no t "environmenta l complianc e costs " withi n th e meanin g o ftha t ter m a s use d i n th e Nort h Carolin a Clea n Ai rLegislation . • Th e Riverben d Unit s 4- 7 expecte d rate s wer e change d base d o n 200 6 an d earl y200 7 operationa l results .ATTACHMEN T A PAG E5 O F1 7 SO? Complianc e • Ne wPulverize d Coa l (PC ) Uni t - Thi s 200 7 updat e assume s th e additio n o f on e ne w80 0 M W coal uni t at th e Cliffsid e Stea m Station . Th e 201 3 expecte d complianc e pla n include s thi s uni t alon g wit h th e correspondin g retiremen t o f Cliffsid e Unit s 1-4 . • Schedul e Change s - Optimizatio n o f th e 200 9 scrubbe rtie-i n outage s fo rth e Alle n Unit s 1 - 5 ha s resulte d i n som e mino rchange s t o th e expecte d emissio n rate s fo r th e 200 9 year . • Emissio n Rat e Change s - Expecte d rat e change s hav e bee n adjuste d i n thi s 200 7 updat e fo rth e Buc k

an d Cliffsid e stations : • Th e Buc k

Unit s 3- 6 expecte d rate s wer e increased . Thes e ne wrate s assum e tha t th e us e o f lowe rsulfu rColombia n coa l i s discontinue d give n tha t i t i s no t cos t competitiv e i n th e curren t market . Forecaste d price s fo rthi s coa l d o no t currentl yprovid e a cos t effectiv e solutio n a s compare d t o domesti coptions . • Th e Cliffsid e Unit s 1 - 5 rate s wer e adjuste d base d o n th e expecte d sulfu r conten t i n th e coal . 2 . Th e actua l environmenta l complianc e cost s incurre d b yth e investor-owne d publi cutilit yi n th e previou s calenda ryear , includin g a descriptio n o f th e constructio n undertake n an d complete d durin g tha t year . I n th e 200 6 calenda ryear , Duke Energ yCarolina s spen t $427,984,40 0 o n activitie s i n support o f complianc e wit h th e provision s o fG.S . 143-215.107D . Exact amount s associate d wit h eac h project ar e provide d i n Exhibi t C , an d a descriptio n o fth e associate d activitie s i s provide d below : Alle n Stea m Statio n FG D • Provide d Limite d Notic e t o Procee d (LNTP ) t o EP C Contracto r4/3/0 6 • Provide d Ful l Notic e t o Procee d (FNTP ) t o EP C Contracto r8/31/0 6 • Awarde d Wastewate rTreatmen t engineerin g contract 3/1/0 6 • Awarde d Wastewate rTreatmen t constructio n contrac t 12/22/0 6 • Awarde d Stac k

constructio n contrac t 5/16/0 6 • Complete d relocatio n o f230kV Transmissio n Lin e 8/1/0 6 • Starte d sit e clearing , grubbin g an d earthwor k • Complete d relocatio n o fas h lin e 12/22/0 6 • Complete d relocatio n o fcoat handlin g railroa d spur s 11/29/0 6 • Place d purchas e order s fo ral l majo relectrica l an d mechanica l equipmen t Belew s Cree k

Stea m Statio n FG D • Complete d constructio n o fth e majo rfoundation s fo rth e FG D Syste m • Complete d constructio n o fth e concret e shel l fo rth e tw o ne wchimney s • Complete d 95 % o fconstructio n fo rth e Constructe d Wetland s (part o f th e wast e wate rtreatmen t system ) • Achieve d a completio n statu s o f72 % o n th e overal l project (54 % o f constructio n activities )ATTACHMEN T A PAG E6 O F1 7 Cliffsid e Stea m Statio n Uni t 5 FG D • Continue d preliminaryconstructio n plannin g an d developmen t ofconceptua l sit e layou t Marshal l Stea m Statio n FG D • Complete d tie-i n o f th e Uni t 4 Absorber ; bega n initia l operation s ofUni t 4 an d commo n equipmen t o n 10/30/06 ; achieve d substantia l completio n o n 12/20/0 6 • Complete d initia l tie-i n o f th e Uni t 3 ductwor k an d installatio n o fblankin g plat e • Complete d settin g al l ductwor k wit h th e exceptio n o fUni t 1 an d Uni t 2 tie-i n section s • Complete d linin g o f FG D gypsu m landfil l • Complete d engineere d wetland s installatio n • Complete d Uni t 4 CEM S RAT Atestin g an d certificatio n • Complete d NSP S testin g ofmateria l handlin g system s pe rai rpermi t Alle n Stea m Statio n SNCR . Uni t 2 • Complete d detaile d engineerin g • Complete d procurement , installatio n an d commissionin g associate d wit h th e site' s reagen t storag e equipmen t Alle n Stea m Statio n SNCR , Uni t 3 • Complete d remainin g smal l close-ou t activitie s Alle n Stea m Statio n SNCR , Uni t 4 • Complete d materia l deliveryan d installatio n o fth e Uni t 4 SNC R equipmen t includin g supportin g plan t ai ran d dilutio n wate requipmen t Alle n Stea m Statio n SNCR . Uni t 5 • N o significan t activit ycomplete d i n 200 6 Buc k Stea m Statio n Burners . Uni t 3 • Complete d detaile d engineerin g an d materia l procuremen t i n preparatio n fo r200 7 installatio n Buc k Stea m Statio n Burners , Uni t 4 • Complete d detaile d engineerin g an d materia l procuremen t i n preparatio n fo r200 7 installatio n Buc k Stea m Statio n SNCR , Uni t 5 • Complete d detaile d engineerin g • Complete d materia l deliveryan d installatio n o fth e Uni t 5 SNC R equipmen t includin g plan t air , dilutio n wate ran d reagen t storag e equipmen t require d fo rSNC R operatio n Buc k Stea m Statio n SNCR , Uni t 6 • Complete d detaile d engineering , materia l deliver yan d installatio n o fth e Uni t 6 SNC R equipmen tATTACHMEN T A PAG E7 O F1 7 Da n Rive rStea m Statio n Burners . Uni t 2 • Complete d installatio n o fburner s i n fal l o f200 6 Da n Rive rStea m Statio n Burners . Uni t 3 • Complete d installatio n o f burner s i n fal l o f200 6 Marshal l Stea m Statio n SNCR . Uni t 1 • Complete d installatio n ofth e Uni t 1 SNC R equipmen t Marshal l Stea m Statio n SNCR , Uni t 2 • Complete d materia l procuremen t an d deliver yi n preparatio n fo r200 7 installatio n • Complete d procurement , installatio n an d commissionin g associate d wit h th e site' s reagen t storag e equipmen t Marshal l Stea m Statio n SNCR , Uni t 3 • Complete d remainin g smal l close-ou t activitie s Marshal l Stea m Statio n SNCR . Uni t 4 • Complete d detaile d engineering , materia l procuremen t an d delivery , an d installatio n o f th e Uni t 4 SNC R equipmen t Riverben d Stea m Statio n SNCR . Uni t 4 • Complete d detaile d engineering , materia l procuremen t an d deliver yi n preparatio n fo r200 7 installatio n Riverben d Stea m Statio n SNCR . Uni t 5 • Complete d detaile d engineering , materia l procuremen t an d deliver yi n preparatio n fo r200 7 installatio n Riverben d Stea m Statio n SNCR . Uni t 6 • Complete d detaile d engineering , materia l procuremen t an d delivery , an d installatio n ofth e Uni t 6 SNC R equipmen t • Complete d procurement , installatio n an d commissionin g associate d wit h th e site' s reagen t storag e equipmen t Riverben d Stea m Statio n SNCR . Uni t 7 • Complete d detaile d engineering , materia l procuremen t an d delivery , an d installatio n ofth e Uni t 7 SNC R equipmen t • Complete d installatio n o fplan t ai ran d dilutio n wate requipmen t require d fo rSNC R operatio n

### ATTACHMEN T A PAGE8 O F1 7 3 . Th e amoun t o fth e investor-owne d publi cutility' s environmenta l complianc e cost s amortize d i n th e previou s calenda ryear . I n th e 200 6 calenda ryear , $225,236,00 0 wa s amortize d relate d t o constructio n wor k activit yi n support o fcomplianc e wit h th e provision s o f G.S . 143-215.107D . $862,665,14 3 ha s no wbee n amortize d i n tota l fo rth e progra m throug h year-en d 2006 . 4 . A n estimat e o f th e investor-owne d publi cutility' s environmenta l complianc e cost s an d th e basi s fo ran yrevision s o fthos e estimate s whe n compare d t o th e estimate s submitte d durin g th e previou s year . Th e estimate d 'environmenta l complianc e costs ' a s define d i n G.S . 143-215.107 D ar e provide d i n Exhibi t C . Change s t o th e expecte d cost s a s compare d t o pas t complianc e plan s ar e describe d below :
• Alle n FG D Project - Th e Alle n FG D estimat e ha s increase d sinc e th e previou s

200 6 filin g an d i s attributabl e t o continue d ram p u p i n th e powe rgeneratio n and/o r environmenta l retrofi t constructio n market , an d continue d escalatio n o flabo ran d commodit ycosts . • Cliffsid e Uni t 5 FG D Project - Like Allen , th e Cliffsid e 5 FG D estimat e is primaril y affecte d bylabor , commodit yan d marke t escalatio n an d thu s show s a n increas e i n tota l forecaste d cos t a s compare d t o th e estimat e include d i n th e 200 6 filing . I n addition , th e curren t estimat e nowinclude s a large rportio n o f th e cost s associate d wit h commo n FG D equipmen t an d infrastructur e assumin g onl yon e ne wCliffsid e uni t i s built , versu s assumin g tw o ne wunit s ar e buil t a s i n th e previou s year' s plan . • SNC R & Burne rProject s - Whil e ther e ha s bee n n o significan t chang e t o th e scop e o rtimin g o f th e NO xrelate d project s remainin g t o b e installed, al l o f th e curren t forecast s hav e increase d a s compare d t o th e 200 6 filing . I n eac h case , thes e increase s approac h 10 % a s compare d t o prio restimate s an d tak e int o accoun t th e continue d escalatio n o f labo rcost s an d ram p u p i n th e environmenta l retrofi t constructio n marke t a s note d fo rth e large rprojects . • Marshal l Uni t 4 SNC R Project - Th e Marshal l Uni t 4 SNC R equipmen t wa s installe d i n lat e 200 6 at a cos t significantl yles s tha n estimate d i n th e previou s year' s plan . Th e decisio n t o ad d th e SC R technolog yt o Marshal l Uni t 3 allowe d fo r thi s reductio n i n cost s a s selecte d SNC R equipmen t i n servic e o n Uni t 3 wa s redeploye d t o Uni t 4 . 5 . Adescriptio n o f al l permit s require d i n orde rt o compl ywit h th e provision s o f G.S . 143 - 215.107 D fo rwhic h th e investor-owne d publi cutilit yha s applie d an d th e statu s o f thos e permit s o rpermi t applications . Alle n Stea m Statio n FG D • Reques t t o revis e NPDE S Permi t t o includ e FG D wastewate r- Submitte d 1 /24/06 ; receive d revisio n 9/11/0 6 • Submitta l t o DENR/ACO E regardin g strea m crossin g o f entranc e roa d - Receive d permit s 5/25/0 6 • Ai rPermi t Applicatio n - Submitte d 4/10/06 ; receive d Permi t 6/30/0 6ATTACHMEN T A PAG E9 O F1 7
• Authorizatio n t o Construc t (ATC ) applicatio n fo rWastewate rTreatmen t Syste m - Submitte d 9/14/06 ; receive d Permi t t o Construct 12/15/0 6 • NOTE : al l erosio n contro l permit s ar e i n EP C contractor' s scop e fo rth e Alle n FG D Projec t an d wer e receive d i n 200 6 (7/13/0 6 an d 12/18/06) . EP C contracto rha s als o applie d fo rai rpermi t associate d wit h flu e line rfabricatio n o n 11/1/0 6 an d expect s t o receiv e permi t i n earl y2007 . Belew s Cree k

Stea m Statio n FG D • Reques t t o revis e NPDE S Permi t t o includ e FG D wastewate r- Submitte d 6/30/04 ; receive d Permi t Revisio n 5/16/0 5 • Initia l Erosio n Contro l Permi t - Submitte d 2/4/05 ; receive d Permi t 3/7/0 5 • Landfil l Sit e Suitabilit yApplicatio n - Submitte d 3/30/05 ; receive d Sit e Suitabilit y Approva l Lette r6/19/0 6 • Ai rPermi t Applicatio n fo rBelew s Cree k FG D project - Submitte d 4/18/05 ; receive d Ai rPermi t 2/6/0 6 • Authorizatio n t o Construc t (ATC ) applicatio n fo rWastewate rTreatmen t Syste m - Submitte d 7/21/05 ; receive d Permi t t o Construct 12/27/0 5 • Authorizatio n t o Construc t (ATC ) appiicatio n fo rConstructe d Wetland s - Submitte d 7/21/05 ; receive d Permi t t o Construct 12/27/0 5 • Revise d Landfil l Constructio n Pla n Applicatio n - Submitte d 9/30/05 ; receive d Permi t t o Construc t 6/29/0 6 • Ai rPermi t - Notic e o f Inten t t o Construct - Submitte d 10/11/05 ; receive d Permi t t o Construc t 10/24/0 5 • Authorizatio n t o Construc t Sanitar yWast e Lagoo n - Submitte d 3/23/06 ; receive d Permi t t o Construc t 9/1/0 6 • Existin g Sewag e Lagoo n Approva l t o Decommissio n - Submitte d 10/31/06 ; receive d permi t 1/25/0 7 • NOTE : Revision s t o Erosio n Contro l Permi t submitte d o n variou s dates ; mos t recen t revise d permi t receive d 3/30/0 6 Cliffsid e Stea m Statio n Uni t 5 FG D • Ai rPermi t Applicatio n - Submitte d 12/16/05 ; receive d 12/15/0 6 Marshal l Stea m Statio n FG D • Landfil l Constructio n Pla n Applicatio n - Submitte d 4/1/04 ; receive d 2/4/0 5 • Sedimentatio n an d Erosio n Contro l Pla n Permit s • Limestone/Gypsu m Conveyo r- Submitte d 6/17/04 ; receive d 7/9/0 4 • Limestone/Gypsu m Conveyo rExpansio n - Submitte d 12/15/04 ; receive d 12/30/0 4 • Constructe d Wetlan d Treatmen t Syste m - Submitte d 7/26/04 ; receive d 8/18/0 4 • Gypsu m Landfil l - Submitte d 3/31/04 ; receive d 4/21/0 4 • Authorizatio n t o Construc t (ATC ) applicatio n fo rSolid s Remova l Syste m - Submitte d 11/19/04 ; receive d 12/22/0 4 • Authorizatio n t o Construc t (ATC ) applicatio n fo rConstructe d Wetland s - Submitte d 5/21/04 ; receive d 8/10/0 4ATTACHMEN T A PAG E1 0 O F1 7

• Ai rPermi t Revision s (fo rmateria l handlin g issues ) - Submitte d 9/2/05 ; receive d 12/7/0 5 • Landfil l Permi t Document s (t o lin e landfill ) - Submitte d 12/15/05 ; receive d 6/5/0 6 • Permi t t o Operat e Marshal l FG D Landfil l - Submitte d 10/27/06 ; receive d 11/21/0 6 Alle n Stea m Statio n SNCR . Uni t 2 • Ai rPermi t Applicatio n - Submitte d 4/24/06 ; Receive d 6/30/0 6 Alle n Stea m Statio n SNCR . Uni t 3 • Ai rPermi t Applicatio n - Submitte d 7/15/04 ; Receive d 2/5/0 5 Alle n Stea m Statio n SNCR . Uni t 4 • Ai rPermi t Applicatio n - Submitte d 7/15/05 ; Receive d 1/15/0 6 • Building/Plumbin g permi t fro m Gasto n CountyBuildin g an d Standard s - Receive d 4/27/0 6 fo rmunicipa l wate rtie-in s Alle n Stea m Statio n SNCR . Unit s • Ai rPermi t Applicatio n - Submitte d 4/24/06 ; Receive d 6/30/0 6 Buc k Stea m Statio n Burners . Uni t 3 • Ai rPermi t Applicatio n - Submitte d 9/15/06 ; Receive d 2/15/0 7 Buc k Stea m Statio n Burners . Uni t 4 • Ai rPermi t Application-Submitte d 9/15/06 ; Receive d 2/15/0 7 Buc k Stea m Statio n SNCR . Uni t 5 • Ai rPermi t Applicatio n - Submitte d 3/10/06 ; Receive d 5/16/0 6 Buc k Stea m Statio n SNCR . Uni t 6 • Ai rPermi t Applicatio n - Submitte d 3/10/06 ; Receive d 5/16/0 6 Da n Rive rStea m Statio n Burners . Uni t 1 • Ai rPermi t Applicatio n - Submitte d 2/23/06 ; Receive d 9/11/0 6 Da n Rive rStea m Statio n Burners . Uni t 2 • Ai rPermi t Applicatio n - Submitte d 2/23/06 ; Receive d 9/11/0 6 Da n Rive rStea m Statio n Burners . Uni t 3 • Ai rPermi t Applicatio n - Submitte d 2/23/06 ; Receive d 9/11/0 6 Marshal l Stea m Statio n SNCR , Uni t 1 • Ai rPermi t Applicatio n - Submitte d 9/18/05 ; Receive d 12/20/0 5 Marshal l Stea m Statio n SNCR . Uni t 2 • Ai rPermi t Applicatio n - Submitte d 9/18/05 ; Receive d 12/20/0 5ATTACHMEN T A PAG E1 1 O F1 7 Marshal l Stea m Statio n SNCR . Uni t 3 • Ai rPermi t Applicatio n - Submitte d 5/14/04 ; Receive d 10/13/0 4 Marshal l Stea m Statio n SNCR . Uni t 4 • Ai rPermi t Applicatio n - Submitte d 4/28/06 ; Receive d 9/12/0 6 Riverben d Stea m Statio n SNCR . Uni t 4 • Ai rPermi t Applicatio n - Submitte d 3/20/05 ; Receive d 8/1/0 5 Riverben d Stea m Statio n Burners , Uni t 5 • Ai rPermi t Applicatio n - Submitte d 4/2/04 ; Receive d 4/30/0 4 Riverben d Stea m Statio n SNCR . Uni t 5 • Ai rPermi t Applicatio n - Submitte d 3/20/05 ; Receive d 8/1/0 5 Riverben d Stea m Statio n Burners . Uni t 6 • Ai rPermi t Applicatio n - Submitte d 5/14/03 ; Receive d Septembe r200 3 Riverben d Stea m Statio n SNCR . Uni t 6 • Ai rPermi t Applicatio n - Submitte d 11/5/05 ; Receive d 1/1/0 6 Riverben d Stea m Statio n SNCR . Uni t 7 • Ai rPermi t Applicatio n - Submitte d 11/5/05 ; Receive d 1/1/0 6 6 . Adescriptio n o f th e constructio n relate d t o complianc e wit h th e provision s o f G.S . 143 - 215.107 D tha t i s anticipate d durin g th e followin g year . Alle n Stea m Statio n FG D • Complet e relocatio n o f fue l oi l tan k an d transfe rsyste m • Complet e constructio n o f stac k shel l • Complet e constructio n o f newacces s drivewa y • Complet e al l majo rbuildin g foundation s an d stee l erectio n • Complet e initia l duc t tie-i n outage s fo rUnit s 1-5 • Complet e al l majo requipmen t foundation s • Mobiliz e FR P line rfabricatio n facilit y • Complet e majo rproces s equipmen t procuremen t • Receiv e auxiliar

ytransforme ro n sit e Belew s Cree k

Stea m Statio n FG D • Complet e constructio n an d commissionin g o f al l FG D System s • Plac e ne wSanitaryWast e Syste m int o operatio n • Achiev e Uni t 1 FG D Substantia l Completio n - Expect i n Februar y200 8 Cliffsid e Stea m Statio n Uni t 5 FG D • Complet e clearin g an d grubbin g require d t o begi n FG D constructio n • Begi n earthwor k

excavation , blastin g an d haulin g activitie s

### ATTACHMEN T A PAGE1 2 O F1 7 Begi n structural/foundatio n wor k fo rFG D equipmen t Complet e Uni t 5 chimne yfoundatio n Marshal l Stea m Statio n FG D

Complet e construction , turnove ran d commissionin g o fUni t 3 FG D system s Complet e fina l tie-i n o f Uni t 3 ductwork ; remov e blankin g plate ; an d begi n operations , testin g an d tunin g o f Uni t 3 FG D system s Achiev e substantia l completio n fo rUni t 3 Complet e construction , turnove ran d commissionin g o f Uni t 1/ 2 FG D system s Complet e fina l tie-i n o f Uni t 2 ductwor k an d begi n operations , testin g an d tunin g o f Uni t 1/ 2 FG D system s Complet e final tie-i n o f Uni t 1 ductwor k Achiev e Substantia l Completio n fo rUni t 1/ 2 Achiev e Marshal l FG D Project Completio n Alle n Stea m Statio n SNCR , Uni t 2 • Complet e materia l procurement , installatio n an d commissionin g o f SNC R equipmen t i n tim e t o support operatio n i n summe r200 7 Alle n Stea m Statio n SNCR . Uni t 5 • Complet e detaile d engineerin g an d materia l procuremen t activitie s • Begi n equipmen t installatio n activitie s i n suppor t o f a 200 8 project completio n dat e Buc k Stea m Statio n Burners . Uni t 3 • Complet e installatio n o f burner s i n earl y200 7 Buc k Stea m Statio n Classifiers . Uni t 3 • Complet e installatio n o f classifier s i n earl y200 7 Buc k Stea m Statio n Burners . Uni t 4 • Complet e installatio n o f burner s i n earl y200 7 Buc k Stea m Statio n Classifiers . Uni t 4 • Complet e installatio n o fclassifier s i n earl y200 7 Da n Rive rStea m Statio n Burners . Uni t 1 • Complet e detaile d engineerin g an d materia l procuremen t activitie s • Complet e installatio n o f burner s i n lat e 200 7 Da n Rive rStea m Statio n Classifiers . Uni t 1 • Complet e installatio n o f classifier s i n lat e 200 7 Marshal l Stea m Statio n SNCR . Uni t 2 • Complet e installatio n an d commissionin g o f SNC R equipmen t i n preparatio n fo r operatio n i n summe r200 7ATTACHMEN T A PAG E1 3 O F1 7 Riverben d Stea m Statio n SNCR , Uni t 4 • Complet e installatio n an d commissionin g ofSNC R equipmen t i n preparatio n fo r operatio n i n summe r200 7 Riverben d Stea m Statio n SNCR , Uni t 5 • Complet e installatio n an d commissionin g o fSNC R equipmen t i n lat e 200 7 Riverben d Stea m Statb n SNCR . Uni t 6 • Complet e commissionin g an d smal l project close-ou t activitie s Riverben d Stea m Statio n SNCR . Uni t 7 • Complet e commissionin g an d smal l projec t close-ou t activitie s 7 . Adescriptio n o fth e application s fo rpermit s require d i n orde rt o compl ywit h th e provision s o fG.S . 143-215.107 D tha t ar e anticipate d durin g th e followin g year . Belew s Cree k

Stea m Statio n FG D • Permi t t o operat e th e FG D Residu e Landfil l - Submi t Certificatio n Repor t 8/13/07 , Expec t permi t t o operat e b y10/23/0 7 Cliffsid e Stea m Statio n Uni t 5 FG D • Authorizatio n t o Construc t (ATC ) applicatio n anticipate d Septembe r200 7 8 . Th e result s o fequipmen t testin g relate d t o complianc e wit h G.S . 143-215.107D . N o additiona l equipmen t relate d testin g occurre d i n 2006 . Th e SNC R an d SC R test s tha t occurre d i n prio ryear s tha t wer e use d i n evaluatin g technolog yselection s ar e repeate d i n thi s 200 7 report fo r reference . Alle n Stea m Statio n SNCR . Uni t 1 • SNC R Equipmen t installatio n wa s complete d i n Ma y200 3 followe d b

yequipmen t acceptanc e testin g i n lat e 2003 . Durin g thi s tes t run , i t wa s determine d tha t th e SNC R syste m me t al l commercia l performanc e guarantee s wit h approximatel ya 25 % reductio n i n NO xwit h ammoni a sli p o fles s tha n 5 pp m a t ful l load . • Durin g th e 200 4 ozon e season , Alle n Uni t 1 achieve d a 0.162 # NOx/MMBT U outle t rate , 5 % bette rtha n th e 0.17#/MMBT U targe t establishe d fo rth e unit . Belew s Cree k

Stea m Statio n SC R • SC R Equipmen t installatio n wa s complete d i n 200 3 i n support o fth e EPA/SI P Cal l requirement s fo rNO

xreduction . Whil e Belew s Cree k ha d operationa l problem s i n th e firs t hal fo fth e 200 4 ozon e season , man yo f thes e issue s wer e addresse d o n Belew s Cree k

Uni t 1 byAugust , 2004 . Subsequently , test s performe d durin g th e month s o fAugus t an d Septembe rshowe d tha t whe n th e SC R Equipmen t wa s i n servic e durin g thi s time , emission s average d 0,07 # NO x /MMBT U

### ATTACHMEN T A PAGE1 4 O F1 7 9 . Th e numbe ro f ton s o f oxide s o f nitroge n (NOx) an d sulfu rdioxid e (SO2 ) emitte d durin g th e previou s calenda ryea rfro m th e coat-fire d generatin g unit s tha t ar e subjec t t o th e emission s limitation s se t ou t i n G.S . 143-215.107D . I n th e 200 6 calenda ryear , 54,335. 5 ton s o f NO xan d 286,639. 2 ton s o f SO 2 were emitte d fro m th e Nort h Carolin a base d Duke Energ yCarolina s coal-fire d unit s locate d i n Nort h Carolin a an d subjec t t o th e emission s limitation s se t ou t i n G. S 143-215.107D . 10 . Th e emission s allowance s describe d i n G.S . 143-215.107D(i ) tha t ar e acquire d b yth e investor-owne d publi cutilit ytha t resul t fro m complianc e wit h th e emission s limitation s se t outinG.S.143-215.107D . N o emission s allowance s hav e bee n acquire d byDuk e Energ yCarolina s resultin g fro m complianc e wit h th e emission s limitation s se t ou t i n G.S . 143-215.107D . 11 . An yothe rinformatio n requeste d b yth e Commissio n o rDepartmen t o f Environmen t an d Natura l Resources . N o additiona l informatio n ha s bee n requeste d t o b e include d i n thi s annua l dat a submittal .

### ATTACHMEN T A PAGE1 5 O F1 7

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# O Progress Energ y ATTACHMEN T B PAG E1 O F2 0 

# I L E Marc h30 . 200 7 MA R3 fl 200 7 Clerk's Offic e N.C. Utilitie s Commissio n Ms . Renn e Vanc e Chie f Cler k Nort hCarolin aUtilitie s Commissio n 432 5 Mai l Servic e Cente r Raleigh , N C 27699-432 5 Re : Annua l N C Clea nSmokestack s Ac t Complianc e Repor t DocketNo.E-2 , Sub81 5 Dea r Ms . Vance : Progres s Energ y Carolinas , Inc . submit s th e attache drepor t fo r calenda r yea r 200 6 regardin g th e statu s o f complianc e wit hth e provision s o f th e Nort hCarolin aClea n Smokestack s Act . Sectio n9(i ) o f th e Ac t require s tha t

a nannua l repor t

o f complianc e progres s b e submitte dt o th e Commissio nb y Apri l 1 o f eac hyea r

fo r th e previou s calenda r year . Ver y trul y yours , Le nS . Anthon y Deput y Genera l Counsel-Regulator y Affair s LSA:mh m Attachmen t 23282 2

Progres s Energ

y Servic e Company, LL

C Haieigh , N C m mATTACHMEN T B PAG E2 O F2 0 

# C ^ Progres s Energ y

Marc h30 , 200 7 Mr . WilliamG . Ross , Jr . Secretar y Nort hCarolin aDepartment

o f Environment

an dNatural Resource s 160 1 Mai l Servic e Center Raleigh , N C 27699-160 1 Dea r Sec 

# ^jJ i Progres s Energ y Carolinas , Inc . (PEC , Company ) submit s th e attache drepor t fo r calendar yea r 200 6 regardin g th e complianc e statu s wit hth e provision s o f

th e NorthCarolin aClea n Smokestack s Ac t

(Act) . A s yo u know , 200 7 i s asignifican t yea r fo r th e CleanSmokestack s Ac t - th e firs t year i n whic hth e nitroge noxide s (NOx ) emission s ca p i s effective . Beginnin g this year , th e Company' s annual NO x emission s fromit s coal unit s inNort hCarolin acanno t excee d 25,00 0 tons . W e hav e develope dplan s an dprocesse s to assur e w e mee t th e requirement , an dw e are ontrac k

to achiev e this milestone . Whil e th e Ac t

establishe dstringen t

NO x an dsulfu

r dioxid e (SO2 ) emission s limit s fro m coal-fire dpowe r

plants , it als o allowe dth e affecte dutilitie s to determin e ho w to mee t th e emission s limitations . We regularl y revie w an drefin e ou r complianc e strategy , weighin g anumbe r o f factor s suc ha s syste mloadprojections , expecte dfuel selection, availabl e contro l equipment , an danticipate dperformanc e an dcost s o f emission s controls . Fo r example , sinc e our

las t filing , w e hav e continue dou r evaluatio no f

Furnac e Sorben t Injectio n(FSI ) technology . FS I may offe r amor e cost-effectiv e complianc e solutio nfor ou r Cap e Fear

Plan t tha nth e original planto us e scrubbers . W e pla nto tes t th e FS I technolog y a

t our Robinso nPlan t

i nFlorence , S.C. , infall 2007 . Sinc e Robinso nUni t 1 i s similar i ndesig nto th e Cap e Fear units , w e believ e that

th e FS I tes t

wil l indicat e whethe r this technolog y wil l b e effectiv e a t Cap e Fear . W e are happ y t o provid e yo u an dyou r staf f mor e detai l abou t

ou r plan s an dth e tes t

results .

Progres s EnergyServic e Company , LL C I'. O Bo xifiS l Huleiyli , N C 'm mATTACHMEN T B PAG E3 O F2 0
W e appreciat e th e excellen t wor k o f th e Departmen t

staff , particularl y thos e inth e Ai r Quality an dWater

Quality divisions , wh o support our effort s to complet e th e project s i na timel y manne r

t o assur e complianc e withth e Act' s requirements . W e loo k forwardto continuin g our

positiv e workin g relationshi p to facilitate fulfillment ofth e Company' s obligation s wit

hthi s important

law . Pleas e don' t

hesitate to contac t

m e a t (919 ) 546-377 5 i f

yo u hav e any questions . Sincerely ,
Carolin e Cho i Director , Energ y Polic y an dStrateg y c : Nort hCarolin aUtilitie s Commissio n Keit hOvercash , DA Q Ala nKlimek , DW Q

### ATTACHMEN T B PAGE4 O F2 0 

## VERIFICATIO N STAT EO FNORT H CAROLIN A) ) 

### COUNT Y O FWAKE) NOW , BEFOR EME , th e undersigned , personall y cam e an dappeared , E . Michae l Williams , wh o firs t dul y swornb y me , di ddepos e an dsay : That h e i s E . Michae l Williams , Senio r Vic e President-Powe r Operation s o f

Carolin aPowe r

& Ligh t Company , d/b/ aProgres s Energ y Carolinas , Inc. ; h e ha s th e authority to verif y th e foregoin g Progres s Energ y Carolinas , Inc . NorthCarolin aCleanSmokestack s Ac t Calendar Year 200 6 Progres s Report ; that

h e ha s rea dsai dReport an dknow s th e content s thereof; are tru e an dcorrec t t o th e bes t

o f hi s knowledg e an dbeliefs .
E . Michae l Williams Senio r Vic e President-Powe

r Operation s Progres s Energy Carolinas , Inc . Subscribe dan dswornto m e thist^da y o f

March , 2007 .
Notar y Ptftbli

c 0 &^&&^5';c2-0D % >«> , 

# *f a NOTAR Y PUBLI C

- # • ^C0UH^ X N ^ '////MllW ^ 24637 3ATTACHMEN T B PAG E5 O F2 0 Progres s Energ y Carolinas , Inc . (PEC ) Nort hCarolin aClea nSmokestack s Ac t Calenda r Yea r 200 6 Progres s Repor t OnJun e 20 , 2002 , NorthCarolin aSenate Bil l 1078 , als o know na s th e "Clea n Smokestack s Act, " wa s signe dinto effect . Thi s law require s significan t reduction s inth e emission s o f

nitroge noxide s (NOx ) an dsulfur dioxid e (SO2 ) fro mutility owne dcoal fire dpowe r

plant s locate di nNorthCarolina . Sectio n9(1) , whic hi s no w incorporate da s Sectio n62-133.6(1 ) ofth e NorthCarolin aGeneral Statutes , require s tha t a nannual progres s report

regardin g complianc e withth e CleanSmokestack s Ac t b e submitte do no r before Apri l 1 o f

eac hyear . Th e report

mus t contai nth e followin g elements , take n verbati mfromth e statute : 1 . Adetaile dreport

o nth e investor-owne dpubli c utility' s plan s for meetin g th e emission s limitation s set

ou t i nG.S . 143-215.107D . 2 . Th e actual environmenta l complianc e cost s incurre dby th e investor-owne dpubli c utility inth e previou s calendar year , includin g adescriptio nofth e constructio n undertake nan dcomplete dthat year . 3 . Th e amoun t

ofth e investor-owne dpubli c utility' s environmenta l complianc e cost s amortize dinth e previou s calendar year . 4 . A nestimat e ofth e investor-owne dpubli c utility' s environmenta l complianc e cost s an dth e basi s fo

r any revision s o f

thos e estimate s whe ncompare dt o th e estimate s submitte ddurin g th e previou s year . 5 . Adescriptio no f

al l permit s require di norde r t o compl y withth e provision s o f G.S . 143-215.107 D fo

r whic hth e investor-owne dpubli c utility ha s applie dan d th e statu s o f

thos e permit s o r

permi t applications . 6 . Adescriptio nofth e constructio nrelate dto complianc e withth e provision s o f G.S . 143-215.107 D that

i s anticipate ddurin g th e followin g year . 7 . Adescriptio nofth e application s fo r permit s require dinorde r

to compl y wit

hth e provision s o f

G.S . 143-215.107 D that

are anticipate ddurin g th e followin g year . 8 . Th e result s o f

equipmen t

testin g relate dto complianc e withG.S . 143-215.107D. 9 . Th e numbe r

o f ton s o f oxide s o f nitroge n(NOx ) an dsulfur

dioxid e (SO2 ) emitte d durin g th e previou s calenda r yea r fromth e coal-fire dgeneratin g unit s that are subjec t t o th e emission s limitation s set ou t i nG.S . 143-215.107D . 10 . Th e emission s allowance s describe di nG.S . 143-215.107D(i ) that ar e acquire db y th e investor-owne dpubli c utility that resul t fromcomplianc e withth e emission s limitation s se t

ou t i nG.S . 143-215.107D . 11 . Any othe r

informatio nrequeste db y th e Commissio no r th e Departmen t

o f Environmen t

an dNatura l Resources . Infonnatio nresponsiv e to eac ho f thes e report

element s follows . Th e response s are give n by ite mnumbe r

inth e orde r

inwhic hthe y are presente dabove .ATTACHMEN T B PAG E6 O F2 0 1 . Adetaile drepor t

o nth e investor-owne dpubli c utility' s plan s fo r meetin g th e emission s limitation s se t ou t i nG.S . 143-215.107D . Unde r G.S . § 143-215.107D(f) , "eac hinvestor-owne dpubli c utility . ..ma y determin e ho w i t wil l achiev e th e collectiv e emission s limitation s impose db y thi s section. " PE C originall y submitte dit s complianc e pla no nJul y 29 , 2002 . Appendi x Acontain s a n update dversio nofthi s plan , effectiv e Apri l 1 , 2007 . W e continu e t o evaluat e variou s design , technolog y an dgeneratio noption s tha t coul daffec t

ou r futur e complianc e plans . 2 . Th e actua l environmenta l complianc e cost s incurre db y th e investor-owne d publi c utilit y i nth e previou s calenda r year , includin g adescriptio nofth e constructio nundertake nan dcomplete dtha t year . I n2006 , Progres s Energ y Carolinas , Inc . incurre dactua l capita l cost s o f $272,819,000 . Ashevill e W e successfull y place di nservic e th e we t scrubbe r o nAshevill e Uni t

2 i nMa y 2006 . A significan t

amoun t o f wor k wa s performe da t

th e Ashevill e plan t

i n200 5 an d200 6 i n orde r t o accomplis hthi s milestone . Thi s wor k include dth e installatio no f electrica l powe r an dcontro l cable s an dcircuits , piping , pumps , valves , oxidatio nai r compressors , instrument s an dcontrols , agitators , absorbe r towe r outle t hood , spra y headers , tray s an d othe r towe r internals . Wor k

effort s als o include dcompletin g ductwor k fro mth e precipitato r

t o th e scrubbe r

towe r an dfromth e scrubbe r

towe r t o th e stack . Th e stac k line r wa s connecte di n2006 . Mechanica l an delectrica l wor k fo r th e Uni t 1 SC Rwa s complete di npreparatio nfo r placin g th e SC Rint o servic e i nsprin g 2007 . Le e W e complete dprocuremen t an dinstallatio nofth e low-NO x burner s fo r Uni t 2 , placin g the mi nservic e i n2006 . W e als o complete ddesign , procuremen t an dinstallatio nofth e Rotami x equipmen t

fo r NO x contro l a t

Uni t 3 . Constructio nactivitie s relate dt o Uni t 3 Rotami x conclude di n2006 , wit hoperationa l statu s expecte di nearl y 2007 . May o Contract s fo r

th e absorbe r

towe r an dchimne y wer e executed , alon g wit hcontract s fo r th e overal l engineerin g an dconstruction . Engineerin g an ddesig nwor k continue dthroughou t th e year , an di nmid-Octobe r contractor s mobilize dan dbega nconstructio nactivities . Long-lea dprocuremen t

activitie s continue di norde r t o ensur e timel y receip t

o f equipmen t

on-sit e i nsuppor t

o f asprin g 200 9 in-servic e date . Durin g th e fourt hquarte r o f 2006 , on-sit e activitie s focuse do nexcavatio nan dbackfil l ofth e scrubbe r islan darea , installatio no f

rebar , an dplacemen t

o f bas e slab s fo r

th e auxiliar y an dstartu p transformer s an dbu s supports .ATTACHMEN T B PAG E7 O F2 0 Roxbor o Constructio nwor

k fo r th e scrubbe r

projec t continue do nth e four

unit s in2006 . I

nth e Commo narea , installationofth e pip e bridg e wa s complete da s wel l a s installatio nofth e equipmen t i nth e limeston e pre p buildin g an dgypsu mdewaterin g building . Th e limeston e unloadin g pi t

wa s completed , an dwor

k wa s starte do ninstallationo f conveyors . Th e limeston e slurry storag e tanks , vacuu mfilter fee dtanks , filtrate tanks , servic e wate r

tanks , blow-dow ntank , an demergenc y storag e tan k wer e complete da s wel l a s th e electrical equipmen t buildin g an dth e oxidatio nai r blowe r building . Commissionin g begano nmos t ofth e commo nsystem s i nsupport ofth e Uni t

2 outag e schedule dfor

sprin g 2007 . Specifi c uni t

constructio nactivitie s complete dinclud e th e following : Unit l Significant constructio ninclude dcompletio no f foundation s forth e absorber , recycl e pump house , primary hydr o cyclon e tank , an delectrica l building . Uni t 2 Significant constructio ninclude dcompletio no f the'recycl e pum p house , final assembl y ofth e absorbe r

discharg e to th e stack , installationofth e induce ddraf t fan s an dassociate d flue ga s ducting , installatio nofth e hydr o cyclon e tank , an dinstallatio nofth e transformers . Inaddition , w e starte dcommissionin g Uni t 2 system s i npreparatio nfor th e sprin g 200 7 outag e durin g whic htim e th e final scrubbe r tie-i nwil l b e complete dan dth e scrubbe r place dinto service . Uni t 3 Significant constructio ninclude dstartin g installatio no f ductin g fromth e existin g stac k t o th e ne w induce ddraf

t fans . Constructio nwa s starte do nfoundation s fo r duc t support stee l fromth e ne w induce ddraf

t fan s to th e absorber . W e continue dinstallatio nofth e absorbe r an dstarte dassembl y ofth e booste r fan . Wor k als o starte do nfabricatio nofth e ne w flue ga s ducting . Uni t 4 Significant constructio ninclude dcompletio nofth e absorbe r an dth e start

o f erectio no f th e recycl e pump hous e an dprimary hydr o cyclon e tank . Wastewate r

Projec t Significant constructio nactivity include dstartin g th e wastewate r settlemen t

an dflus h pond s whic hare schedule dfor completio ni nearl y 2007 . I nDecember , w e issue da reques t for bid s o nconstructio nofth e bioreacto r facilities . Sutto n W e complete dprocuremen t an dinstallatio nofth e low-NO x burner s for Uni t 2 an d place dthe mi nservic e durin g 2006 .ATTACHMEN T B PAG E8 O F2 0 3 . Th e amoun t

ofth e investor-owne dpubli c utility' s environmenta l complianc e cost s amortize di nth e previou s calenda r year . Progres s Energ y Carolinas , Inc . amortize d$14 0 millio ni n2006 . 4 . A nestimat e ofth e investor-owne dpubli c utility' s environmenta l complianc e cost s an dth e basi s fo r

an y revision s o f

thos e estimate s whe ncompare dt o th e estimate s submitte ddurin g th e previou s year . Appendi x B contain s th e capital cost s incurre dtowar dcomplianc e withG.S . § 143 - 215.107 D throug h200 6 an dth e projecte dcost s for future year s throug h2013 . Th e cost s show nare th e ne t

cost s t o PEC , excludin g th e portio nfor whic hth e Powe r

Agenc y i s responsible . Th e estimate dtotal capital costs , includin g escalation , ar e currentl y projecte d to b e betwee n$1. 1 an d$1. 4 billion . Th e curren t poin t estimat e i s $1,35 5 billion , asligh t decreas e fro mth e 200 6 cos t estimat e o f

$1,36 2 billion . Prio r

report s hav e discusse dth e cos t impac t o f projec t scop e change s an dth e impac t o f significan t

increases i

nth e cos t o f material s an dlabo r

whic hhav e impacte dconstructio nproject s acros s th e Southeast . Thes e factor s continue dto impac t th e cos t ofth e project s durin g 200 6 a s indicate db y th e curren t estimate s for

Roxboro , Mayo , an dSutton . Th e curren t

estimate s als o reflec t

update s to PEC' s complianc e planbase donth e expecte dperformanc e ofth e scrubber s a t Asheville , Roxboro , an dMayo , curren t resourc e plans , curren t

fuel forecasts , an dadvancement s i nSO2 remova l technology . Unde r G.S . § 143-215.107D(f) , "eac hinvestor-owne dpubli c utility...ma y detennin e ho w it wil l achiev e th e collectiv e emission s limitation s impose db y thi s section. " W e regularl y revie w an drefin e our

complianc e strategy , weighin g anumbe r o f factor s suc ha s syste m loadprojections , expecte dfue l selection, availabl e contro l equipment , anticipate d performanc e an dcost s o f

emission s controls , an dknowledg e o f an dexperienc e with emission s contro l options . Fo r example , sinc e our

las t filing, PE C ha s continue dit s evaluatio nofth e potentia l to us e Furnac e Sorben t

Injectio n(FSI ) technolog y a t our Cap e Fea r Plant . FS I technolog y may offe r amore cost-effectiv e complianc e solutio nfor Cap e Fea r Plan t tha nth e origina l pla n to us e scrubbe r

technology . Us e ofth e FS I technolog y als o eliminate s th e nee dfo r a costl y wastewate r

treatmen t system . W e pla nto tes t

th e FS I technolog y a

t PEC' s Robinso nUni t

1 infall 2007. Sinc e Robinso nUni t 1 i s similar

indesig nto th e Cap e Fear units , th e Robinso ntes t

wil l indicat e whethe r

th e us e ofthi s technolog y wil l b e effectiv e a t Cap e Fear . Th e curren t

complianc e planals o contemplate s th e us e o f adry scrubbe r

a t Sutto nUni t

3 . A dr y scrubbe r at tha t uni t represent s amor e cos t

effectiv e complianc e solutio nan dals o eliminate s th e nee dfo

r acostl y wastewate r

treatmen t system . Lastly , th e complianc e pla ncall s fo r th e us e o f Rotami x technolog y withcombustio n optimizatio na

t Le e 3 for NO x control . Prio r

plan s hadcontemplate dth e us e o f rotatin g opposed-fire dai r

(ROFA ) an dRotami x technolog y a t that unit . Engineerin g studie sATTACHMEN T B PAG E9 O F2 0 complete dinearl y 200 6 indicate dtha t combustio noptimizatio ncombine dwithth e existin g Low-NO x burner s wit hoverfired-ai r

woul dprovid e benefit s equivalen t t o th e ROFAan da

t les s cost . 5 . A descriptio no f

al l permit s require di norde r t o compl y wit hth e provision s o f G.S . 143-215.107 D fo r

whic hth e investor-owne dpubli c utilit y ha s applie dan dth e statu s o f thos e permit s o r

permi t applications . Progres s Energ y Carolinas , Inc . applie dfor th e followin g permit s in2006 : Ashevill e Plan t Ai r Permi t • Notificatio no f

502(b)(10 ) permi t

chang e fo r SO3 mitigatio nsyste msubmitte d Apri l 5 , 2006 . Notificatio nthat th e permi t

chang e wil l b e treate da s an"of f permi t change " rathe r

tha na502(b)(10 ) receive dJun e 30 , 2006 . Erosio nan dSedimentatio nContro l Plan • Several update s wer e submitted . Re v J fo r th e constructio nofth e de-mineralize d pipe , pump an dduc t

bank wa s approve dinJanuary 2006 . Roxbor o Plan t Ai r Permi t • Anupdate fo

r coal handlin g an dlimeston e handlin g wa s issue do nFebruary 9 , 2006 . A nadditional updat e wa s requeste do nNovembe r 10 , 2006 . Th e revise dai r permi t incorporatin g this revisio nwa s issue do nMarc h15 , 2007 . • Revision s to addres s fugitiv e emission s o f hydroge nsulfid e fro mth e wastewate r treatmen t syste mwer e approve dJun e 23 , 2006 . NPDE S Permi t • A nAuthorizationto Construc t (ATC ) for

th e gypsu msettlin g pon dwa s received Marc h3 , 2006 . • A nAT C for

th e bioreacto r

wa s receive dJul y 5 , 2006 . Erosio nan dSedimentatio nContro l Plan Several update s wer e submitted : • Re v K for th e hau l road , transformer , mai nplan t are awastewate r

pip e trenc han d gypsu mconveyo r

foundation s wa s submitte dJanuary 18 , 2006 , an dapprove d February 10,2006 . • Re v Lfor

buryin g th e wastewate r

pipelin e wa s submitte dApri l 19 , 2006 , an d approve dMay 2 , 2006 . • Re v M for

increase ddisturbe darea s for wastewate r

pon dconstructio nborrow an d stockpil e area , constructio nparkin g area , an dconstructio nroa dwidenin g wa s submitte dJun e 7 , 2006 , an dapprove dJun e 26 , 2006 .ATTACHMEN T B PAG E1 0 O F2 0
Mav o Plan t Ai r Permi t • Constructio npermi t

applicatio nfo

r th e flue ga s desulfurizatio nsyste mwa s submitte dMa

y 25 , 2006 , an dth e permi t

wa s issue dJul y 28 , 2006 . NPDE S Permi t • Permi t modificatio nfo

r wastewate r

treatmen t syste mwa s receive dSeptembe r 14 , 2006 . Erosio nan dSedimen t

Contro l Plan • Re v D fo

r th e installatio nofth e flu e ga s desulfurizatio nsyste mwa s approve d Novembe r 9 , 2006 . Le e Plan t Air Permi l • A preventio no f

significan t

deterioratio n(PSD ) permi t for th e installatio no f

lo w NO x burner s wa s approve dMarc h21 , 2006 . • Constructio npermi t

applicatio nfo

r th e installatio nofth e Rotami x Syste mfo r NO x contro l wa s submitte dApri l 5 , 2006 , an dwa s approve dJun e 30 , 2006 . NPDE S Permi t • Apermi t

applicatio namendmen t

fo r th e Rotami x Ure aInjectio nSyste monUni t 3 wa s submitte dMa

y 15 , 2006 . A revise damendmen t wa s the nsubmitte dOctobe r 24 , 2006 , an dapprove dDecembe r 18 , 2006 . 6 . Adescriptio nof

th e constructio nrelate dt o complianc e wit hth e provision s o f G.S . 143-215.107 D tha t

i s anticipate ddurin g th e followin g year . Ashevill e Constructio nactivitie s wil l continu e in200 7 fo r th e Ashevill e Uni t

1 SCR . Constructio n activitie s relate dto installatio no f electrica l power , contro l cable s an dcircuits , piping , instrument s an dcontrol s wil l occur . Installatio nofth e additiona l urea-to-ammoni a syste mmodification s for

Uni t 1 SC Ri s planned . Th e Uni t 1 SC Ri s schedule dto b e operationa l i nsprin g 2007 . Le e Fo r Uni t 3 , w e wil l complet e tunin g ofth e Rotami x equipmen t for NO x emission s contro l an dplac e th e syste minservic e inearl y 2007 .ATTACHMEN T B PAG E1 1 O F2 0 Mav o Durin g 2007 , constructio nactivitie s wil l focu s o ncompletio nofth e chimne y an d absorbe r foundation s an dsubsequen t erectio nofth e absorbe r

an dchimne y structures . Concurrently , equipmen t

suc ha s pumps , bal l mills , induce ddraf t fans , an dconveyor s wil l begi nto arriv e on-site . I nsupport o f major equipmen t

installation , numerou s foundation s wil l b e place ddurin g 200 7 includin g foundation s fo r th e recycl e pump house , limeston e pre p an ddewaterin g buildings . Engineerin g activitie s wil l continu e durin g 2007 , withth e focu s durin g th e latte r hal f o f th e year shiftin g fro mscrubbe r

t o wastewate r

treatmen t proces s flow s andequipment . Roxbor o Fo r 2007 , significan t

constructio nactivitie s planne di nth e Commo nare ainclud e completio nofth e limeston e conveyors . Specifi c uni t activitie s are describe dbelow : Unit l Significant constructio nactivitie s planne dinclud e constructio no f Uni t 1 absorber , electrical building , primary hydro-cyclon e tank , recycl e pump house , an dinduce ddraf t fa nfoundations . Uni t 2 Significant activitie s planne dinclud e completio no f commissionin g an dstartu p activitie s to support th e tie-i nofth e ne w flue ga s duc t t o th e absorber . Th e scrubbe r wil l b e place d inservic e i nsprin g 2007. Uni t 3 Significant constructio nactivitie s planne dinclud e completin g th e installationofth e booste r fans , final assembl y o f

flu e ga s duc t

fromth e existin g stac k

to th e absorber , an d th e star t o f duc t insulation . Additionally , wor k onth e foundatio nfo

r th e recycl e pump hous e wil l start

insprin g 2007 . Th e expecte dstart-u p ofth e scrubbe r i s sprin g 2008 . Uni t 4 Significant constructio nactivitie s planne dinclud e completio nofth e absorbe r internals , installatio no f

al l equipmen t

associate dwit

hth e recycl e pump house , an dinstallationo f booste r fan s an dassociate dflu e ga s ductin g fromth e existin g stac k to th e absorber . Commissionin g o f

Uni t 4 equipmen t

insupport o f scrubbe r start-u p planne dfor

fall 200 7 wil l b e complete da s well . Wastewate r Significant constructio nactivitie s planne dfor wastewate r

includ e completio nofth e wastewate r

settlemen t

an dflus hponds , constructio nan dcommissionin g ofth e bioreacto r facilities , an dcompletio nofth e wastewate r pipin g fromth e plant .ATTACHMEN T B PAG E1 2 O F2 0 7 , Adescriptio nofth e application s fo r permit s require di norde r t o compl y wit h th e provision s o f

G.S . 143-215.107 D tha t

ar e anticipate ddurin g th e followin g year . We appreciat e th e collaborativ e effort s th e DA Q an dDW Q staf f ha s mad e t o assur e ou r constructio nan dinstallatio nschedule s remai no ntrack . However , th e potential for longe r permi t processin g times continue s t o b e aseriou s concernfo r future projects . PE C wishe s to wor k collaborativel y withth e Departmen t to preven t delay s fromoccurring . Th e followin g permi t

applications an dpermi t

approval s are anticipate dfor 2007 : Ashevill e Plan t Ai r Permi t • Curren t

opacity rule s pre-dat e saturate dga s stream s fromwe t scrubber s an d requir e representative measurement s where condense dwate r vapo r i s no t present . W e wil l reques t

revision s to th e permi t

an dunderlyin g rule s for

opacity monitorin g to includ e reference s to curren t federal regulation s that

exemp t unit s wit hwe t scrubber s fromcontinuou s opacity monitorin g requirements . NPDE S Permi t • Areques t

for Samplin g Reductio na

t th e internal Outfal l 00 5 (treate dFGD we t scrubbe r wastewater ) wa s submitte dJanuary 25 , 2007 . A respons e i s expecte db y en do f first quarter . Roxboro Plan t Air Permi t • A penni t

applicatio nfo

r th e emergenc y fire wate r

diese l engin e wa s submitte di n January 2007 . Authorizationto construc t th e fir e wate r diese l engin e ha s bee n received ; however , th e operatin g permi t mus t b e receive dt o support

operatio no f th e Uni t 2 scrubbe r

durin g th e secon dquarte r

2007 . • Curren t

opacity rule s pre-dat e saturate dga s stream s fromwe t scrubber s an d requir e representative measurement s wher e condense dwate r vapo r i s no t present . W e wil l reques t

revision s t o th e permi t

an dunderlyin g rule s fo

r opacity monitorin g to includ e reference s t o curren t federa l regulation s that

exemp t unit s wit hwe t scrubber s fromcontinuou s opacity monitorin g requirements . Mav o Plan t NPDE S Permi t • A nAT C reques t

for th e wastewate r

treatmen t syste mi s expecte dt o b e submitte d inth e first quarte r wit hrespons e desire db y th e en dofth e secon dquarter . • AnAT C reques t

for ane w oil/wate r

separato r i s expecte dto b e submitte db y th e en dofth e first

quarte r withrespons e expecte db y th e en dofth e thir dquarter .ATTACHMEN T B PAG E1 3 O F2 0 Erosio nan dSedimentatio nContro l Plan • Re v F . for

th e increas e indisturbe dlan d(fro m3 5 acre s to 9 8 acres ) for th e flue ga s desulfurizatio nsyste mwa s submitte dJanuary 29 , 2007 . Additiona l pla n revision s wil l b e necessary a s constructio nplan s are developed . Le e Plan t Ai r Permi t • A Titl e V permi t

applicatio ni s du e t o b e submitte dinJul y 200 7 inaccordanc e wit hpermi t requirement s associate dwithth e low-NO x burne r installation . 8 . Th e result s o f

equipmen t

testin g relate dt o complianc e wit hG.S . 143-215.107D . Durin g 2006 , performanc e testin g ofth e SO 2 scrubber s a

t Ashevill e Unit s 1 an d2 wa s completed . Th e testin g confirme dthat th e scrubber s hadachieve dthei r performanc e guarante e o f

97 % remova l efficiency . Durin g 2006 , performanc e testin g ofth e low-NO x burner s (LNBs ) a t Sutto nUni t

2 an d Le e Uni t 2 wa s completed . Th e testin g demonstrate dthat th e LNB s me t

thei r respectiv e performanc e guarantees . 9 . Th e numbe r

of ton s of oxide s o f nitroge n(NOx ) an dsulfu r dioxid e (SO2 ) emitte d durin g th e previou s calenda r yea r fro mth e coal-fire dgeneratin g unit s tha t ar e subjec t t o th e emission s limitation s se t ou t i nG.S . I43-215.107D . Th e total calendar

yea r 200 6 emission s fromth e affecte dcoal-fire dProgres s Energ y Carolina s unit s are : NO x 46,50 1 ton s SO 2 175,22 6 ton s 10 . Th e emission s allowance s describe dinG.S . 143-215.107D(i ) tha t ar e acquire db y th e investor-owne dpubli c utilit y tha t resul t fro mcomplianc e wit hth e emission s limitation s se t

ou t i nG.S . 143-215.107D . Durin g 2006 , PE C di dno t

acquir e any allowance s a s aresul t o f complianc e withth e emissio nlimitation s set

ou t i nN.C . General Statut e 143-215.107D . 11 . An y othe r

informatio nrequeste db y th e Commissio no r th e Departmen t

o f Environmen t

an dNatura l Resources . Ther e hav e bee nn o additiona l request s for informatio nfro mth e NorthCarolin aUtilitie s Commissio no r

th e Departmen t

o f Environmen t

an dNatura l Resource s sinc e th e las t report .ATTACHMEN T B PAG E1 4 O F2 0 

## Appendi x A Progres s Energ y Carolinas , Inc' s (PEC ) Ai r Qualit y Improvemen t

Pla nSupplemen t Apri l 1 , 200 7 O nJun e 20 , 2002 , Governo r Easle y signe dint o law S B 1078 , whic hcap s emission s o f nitroge noxide s (NOx ) an dsulfur dioxid e (SO2 ) fromutility owne dcoal-fire dpowe r plant s locate dinNorthCarolina . Under th e law , G.S . § 143-215.107D , PEC' s annual NO x emission s mus t

no t excee d25,00 0 ton s beginnin g in200 7 an dannual SO2 emission s mus t no t excee d100,00 0 ton s beginnin g i n200 9 an d50,00 0 ton s beginnin g in2013 . Thes e cap s represen t

a56 % reductio ninNO x emission s from200 1 level s an da74 % reductio ninSO

2 emission s from200 1 level s for PEC . PE C own s an doperate s 1 8 coal-fire dunit s a t seve nplant s inNorthCarolina . Th e location s o f

thes e plant s are show no nAttachmen t 1 . Under G.S . § 143-215.107D(f) , "eac hinvestor-owne dpubli c utility. . .may determin e ho w it wil l achiev e th e collectiv e emission s limitation s impose db y this section. " Nitroge nOxide s Emission s Contro l Pla n PE C ha s bee nevaluatin g an dinstallin g NO x emission s control s o nit s coal-fire dpowe r plant s sinc e 199 5 i norder

to compl y withTitle I

V ofth e CleanAi r

Ac t an dth e NO x SI P Cal l rul e adopte db y th e Environmental Managemen t Commissio n(EMC) . Substantia l NO x emission s reduction s hav e already bee nachieve d(46,50 0 ton s o f NO x in200 6 compare dwith112,00 0 ton s i n1997 ) an dfurther

reduction s wil l ensur e complianc e with th e CleanSmokestack s Act' s 25,00 0 to nca p incalenda

r year 2007 . Thi s targe t

wil l b e achieve dwithami x o f

combustio ncontrol s (whic hminimiz e th e formatio no f NOx) , suc ha s low-NO x burner s an dover-fire ai r technologies , an dpost-combustio ncontrol s (whic hreduc e NO x produce ddurin g th e combustio no f fossi l fue l t o molecular

nitrogen) , suc ha s selectiv e catalyti c reductio n(SCR ) an dselectiv e non-catalyti c reductio n(SNCR ) technologies . Attachmen t

2 detail s PEC' s NorthCarolin acoal-fire delectri c generatin g units , thei r nam e plat e generatio ncapacity , installe dNO x contro l technologie s an dthos e planne dfor installation . A s technologie s evolv e or other circumstance s change , adifferent mi x o f control s may b e selected . Attachmen t 2 als o project s annual NO x emission s o naunit-by uni t basi s base do nth e energ y deman dforecas t an dexpecte defficiencie s ofth e NO x emission s control s employed . Thi s informatio ni s provide donl y to sho w ho w complianc e may b e achieve dan di s no t intende dinany way to sugges t unit-specifi c emissio nlimits . Actual emission s fo

r eac huni t may b e substantiall y different .ATTACHMEN T B PAG E1 5 O F2 0 Sulfu r Dioxid e Emission s Contro l Pla n PE C wil l b e installin g we t

flu e ga s desulfurizatio nsystem s (FG D o r "scrubbers" ) t o remov e 97 % ofth e SO

2 fromth e flu e ga s o f

it s Asheville , Roxbor o an dMay o boilers . Sinc e our las t filing, PE C ha s continue dit s evaluatio nofth e potential t o us e Furnac e Sorben t Injectio n(FSI ) technolog y a t our Cap e Fear

Plant . FS I technolog y may offe r a mor e cost-effectiv e complianc e solutio nfor th e Cap e Fear

Plan t tha nth e origina l pla nt o us e scrubbe r

technology . Us e ofth e FS I technolog y als o eliminate s th e nee dfor acostl y wastewate r

treatmen t system . W e planto tes t

th e FS I technolog y a

t PEC' s Robinso nUni t 1 infall 2007 . Sinc e Robinso nUni t 1 i s simila

r indesig nto th e Cap e Fea

r units , th e Robinso ntes t

wil l indicat e whethe r

th e us e ofthi s technolog y wil l b e effectiv e a t Cap e Fear . Th e curren t

complianc e pla nals o contemplate s th e us e o f adr y scrubbe r at Sutto n Uni t 3 . Adr y scrubbe r a t that uni t represent s amor e cos t

effectiv e complianc e solutio n an dals o eliminate s th e nee dfor acostl y wastewate r

treatmen t system . We t scrubber s produc e uniqu e wast e an dbyproduc t streams . Issue s relate dto wastewate r permittin g an dsoli dwast e disposal are bein g addresse dfor eac hsite . PE C i s treatin g th e scrubbe r wastewate r

streama t th e Ashevill e Plan t

usin g a ninnovativ e constructe d wetland s treatmen t

syste mto ensur e complianc e withdischarg e limits . Abioreacto r technolog y wil l b e use dfor th e Roxbor o an dMay o Plants . A contrac t ha s bee nexecute dwithagypsu mproduc t end-use r that wil l construc t

a facilit y nea r th e Roxbor o Plan t

to us e th e syntheti c gypsu mproduce db y th e Roxbor o an d May o Plant s for

th e manufactur e o f

drywal l products . PE C als o ha s entere dint o a n agreemen t that enable s PE C to marke t

an dsel l syntheti c gypsu mproduce da t th e Ashevill e Plant . Attachmen t

3 detail s PEC' s NorthCarolin acoal-fire delectri c generatin g units , thei r nam e plat e generatio ncapacity , installe dSO2 contro l technologie s an dthos e planne dfo r installation . A s technologie s evolv e o r other circumstance s change , adifferent mi x o f control s may b e selected . Attachmen t 3 als o project s annual SO

2 emission s o naunit-by uni t basi s base do nth e energ y deman dforecas t an dexpecte defficiencie s ofth e SO 2 emission s control s employed . Thes e projection s are base do nth e planne dremova l technologie s an dPEC' s curren t fue l an doperatin g forecasts . Thi s informatio ni s provide d onl y to sho w ho w complianc e may b e achieve dan di s no t intende dinany way to sugges t unit-specifi c emissio nlimits . Actual emission s for eac huni t may b e substantiall y different .ATTACHMEN T B PAG E1 6 O F2 0

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m T 3 O u C OATTACHMEN T C PAG E1 O F3 REPOR TO F TH E PUBLI C STAF F O N COST S INCURRE D AN D AMORTIZE D B YDUK E ENERG YCAROLINAS , LL C

I N COMPLIANC E WIT H SESSIO N LA W 2002- 4

Docke t No . E-7 , Su b 71 8 Ma y25 , 200 7 Sectio n 1 4 o fSessio n La w2002- 4 ("th e Clea n Smokestack s Act " o r"th e Act" ) require s th e Departmen t o f Environmen t an d Natura l Resource s {"DENR" ) an d th e Utilitie s Commissio n ("Commission" ) t o report , byJun e 1 o feac h year , o n th e implementatio n o f th e Ac t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie wCommittee . Th e May30 , 2003 , report o fDEN R an d th e Commissio n state s tha t th e Publi cStaf fwil l audi t th e book s an d record s o fth e investo r owne d utilitie s o n a n ongoin g basi s i n regar d t o th e cost s incurre d an d amortize d i n complianc e wit h th e Act . Th e Publi cStaffha s undertake n suc h a review , focusin g o n th e verification o fcost s relate d t o complyin g wit h th e Act , th e amortizatio n o fthos e costs , an d th e operatin g result s o f emissio n reductio n equipmen t installe d b yDuk e Energ yCarolinas , LL C ("Duke") . Thi s report present s th e Publi cStaff' s finding s fo rth e twelv e month s ende d Decembe r31 , 2006 . I . Complianc e Pla n Summary Duke' s origina l pla n t o instal l Selectiv e Non-catalyti cReductio n ("SNCR" ) technolog yt o remov e NO xan d flue-ga s desulfurizatio n technolog y("scrubbers" ) t o remov e SO2 t o compl ywit h th e Ac t remain s practicall yth e sam e wit h onl ymino r change s t o th e complianc e schedule an d plan . Duke ha s indicate d tha t i t i s installin g Selectiv e Catalyti cReductio n ("SCR" ) technolog ya t it s Marshal l Uni t 3 t o compl ywit h othe rregulatoryrequirement s fo rNO xreduction s i n th e Charlott e region . Th e ne wSC R replace s th e SNC R equipmen t tha t was installe d a t Marshal l Uni t 3 t o compl ywit h th e Act . Duk e ha s redeploye d th e SNC R equipmen t fro m Marshal l Uni t 3 t o Uni t 4 . Th e Publi cStaffi s no t awar e o fothe rsimila rmodification s t o th e complianc e plan . II . Environmenta l Complianc e Cost s Duk e i s require d b yth e Ac t t o submi t a report t o th e Commissio n an d t o DEN R o n o rbefor e Apri l 1 o feac h yea rcontainin g it s actua l environmenta l complianc e cost s incurre d durin g th e previou s calenda ryear . A s define d b yG.S . 62-133.6(a)(2) , "environmenta l complianc e costs " includ e onl ycapital costs . I n it s Complianc e Pla n Annua l Updat e fo r200 7 ("200 7 Complianc e Update") , Duk e reporte d tha t it s actua l environmental complianc e cost s i n calenda ryea r200 6 wer e $427,984,429 . Th e cumulativ e environmenta l complianc e cost s incurre d b yDuk e throug h 200 6 wer e $901,380,056 , a s follows :ATTACHMEN T C PAG E2 O F3 Yea r200 1 $ 692,43 3 Yea r200 2 1,024,22 3 Yea r200 3 18,424.92 1 Yea r200 4 106,834,47 9 Yea r200 5 346,420,00 0 Yea r200 6 427,984.42 9 Tota l $901,380,48 5 Duke' s expenditure s t o dat e involv e emissio n reductio n technologie s a t it s Allen , Belew s Creek , Buck , Cliffside , Da n River , Marshall , an d Riverben d facilities . Environmenta l complianc e cost s wer e incurre d primaril yfo rengineering , equipmen t procurement , contracting , construction , an d fiel d performanc e testing . A s part o fit s review , th e Publi cStaffrequeste d informatio n fro m Duk e o n th e projec t costs , invoice s documentin g costs , an d th e purpos e ofth e costs . Duk e provide d projec t cos t sheet s delineatin g actua l projec t cost s byyea rint o th e followin g categories : (1 ) direc t labo rcosts ; (2 ) labo rloads ; (3 ) contrac t costs ; (4 ) materia l costs ; (5 ) overhea d costs ; and , (6 ) othe rcosts . Thes e cost s ar e a s follows :

Direct Labo r$ 4,579,14 6 Labo rLoad s 1,306,85 6 Contract s 407,124,52 2 Material s 1,419,49 7 Overhead s 213,82 2 Othe r13.340.58 6 Tota l $427,984,42 9 Th e projec t cos t sheet s wer e supporte d b yprojec t detai l report s tha t incorporate d al l expenditure s fo ra particula rcategoryo rgroup . Th e Publi cStaffselecte d invoice s i n eac h categoryfro m th e detaile d spreadsheet s an d requeste d Duk e t o provid e specifi c informatio n o n th e selecte d costs . Th e Publi cStaffals o ha d discussions wit h Duke personne l t o gai n a bette runderstandin g o fth e cos t item s charge d t o eac h specifi c project . Duk e provide d documentatio n t o support eac h selecte d cost . Duk e ha s estimate d it s environmental complianc e cost s a t $1,965,260,200 , a s se t fort h o n Exhibi t C i n it s 200 7 Complianc e Update , compare d t o a n estimat e o f $1,731,510,40 0 file d a s part o fDuke' s 200 6 update . Th e 200 7 projectio n represent s a n increas e o f$465,260,20 0 o r31 % ove rDuke' s origina l estimat e o f$1,500,000,000 , as se t fort h i n G.S . 62-133.6(b) . Accordin g t o Duke personnel , severa l factor s hav e contribute d t o th e increas e i n th e estimate , includin g a n industry-wid e ramp-u p o fsimila r environmenta l complianc e wor k nationwid e an d it s effec t o n labo ravailability , an d increase s i n th e price s fo rmaterials . Duk e i s usin g thir d part yverification t o ensur e tha t it s fixe d pric e estimate s fo r eac h projec t ar e consisten t wit h marke t prices . Th e Publi cStaffwil l revie wth eATTACHMEN T C PAG E3 O F3 verification s an d wil l continu e t o monito rth e factor s causin g increase s i n th e environmenta l complianc e cos t estimates . III . Amortizatio n o fCost s I n Sectio n 9 o f th e Ac t [G.S . 62-133.6(b)] , th e investo rowne d utilitie s ar e allowe d t o accelerat e th e recoveryo fthei restimate d environmenta l complianc e cost s ove ra seven-yea rperiod , beginnin g January1 , 2003 , an d endin g Decembe r31 , 2009 . Th e statut e require s tha t a minimu m o f70 % o fth e environmenta l complianc e cost s b e amortize d befor e Decembe r31 , 2007 , whe n th e rat e freez e perio d expires . I n Duke' s case , thi s amoun t i s $1,050,000,000 . Th e annua l levelize d amoun t i s $214,285,714 . Th e maximu m amoun t tha t ca n b e amortize d i n an ygive n yea ri s 150 % o fth e annua l levelize d environmenta l complianc e cost s o r$321,428,000 . Usin g th e protocol s establishe d byth e Ac t an d subsequen t Commissio n orders , Duk e reporte d tha t it s environmenta l complianc e cost s amortizatio n fo r200 6 was $225,236,000 . Th e Publi cStaf freviewe d Duke' s quarterl yamortizatio n filing s an d supportin g journa l entrie s an d conclude d tha t th e amount s appea rt o b e accurate . Th e cumulativ e amortizatio n t o dat e i s $862,665,142 . IV . Contract s N o contract s wer e reviewe d durin g thi s audi t period . V . Sit e Inspection s O n Ma y8 , 2007 , th e Publi cStaffconducte d a n inspectio n o fDuke' s Marshal l Stea m Statio n i n Mooresville , Nort h Carolina . Al l bu t on e o fth e scrubber s wer e complete d an d operational . Th e remainin g scrubbe ri s schedule d fo rtie-i n late rb yth e en d o fMay . Al l o fth e relate d facilitie s (reagen t storag e an d processing , wastewate r disposa l system , an d byproduc t removal ) fo rSNCR s an d scrubber s wer e installe d an d operational . Onc e th e remainin g scrubbe ri s brough t online , all ofth e wor k intende d fo r th e Marshal l Stea m Statio n t o compl ywit h th e Ac t wil l hav e bee n completed . Th e Publi cStaffwil l continu e t o inspect othe rfacilitie s a s Duk e implement s it s complianc e plan .ATTACHMEN T D PAG E1 O F4 REPOR TO F TH E PUBLI C STAF F O N COST S INCURRE D AN D AMORTIZE D B YPROGRES S ENERG YCAROLINAS , INC .

I N COMPLIANC E WIT H SESSIO N LA W2002- 4

Docke t No . E-2 , Su b 81 5 Ma y25 , 200 7 Sectio n 1 4 o fSessio n Law2002- 4 ("th e Clea n Smokestack s Act " o r"th e Act" ) require s th e Departmen t o fEnvironmen t an d Natura l Resource s ("DENR" ) an d th e Utilitie s Commissio n t o report , b yJun e 1 o f eac h year , o n th e implementatio n o fth e Ac t t o th e Environmenta l Revie wCommissio n an d th e Join t Legislativ e Utilit yRevie w Committee . Th e Ma y30 , 2003 , report o fDEN R an d th e Commissio n state s tha t th e Publi cStaffwil l audi t th e book s an d record s o f th e investo rowne d utilitie s o n a n ongoin g basi s i n regar d t o th e cost s incurre d an d amortize d i n complianc e wit h th e Act . Th e Publi cStaffha s undertake n suc h a review , focusin g o n th e verification o f cost s relate d t o complyin g wit h th e Act , th e amortizatio n o fthos e costs , an d th e operatin g result s o femissio n reductio n equipmen t installe d b yProgres s Energ yCarolinas , Inc . ("PEC") . Thi s report present s th e Publi cStaff' s finding s fo rth e twelv e month s ende d Decembe r31 , 2006 . I . Complianc e Pla n Summar y PEC' s origina l pla n t o instal l Selectiv e Catalyti cReductio n ("SCR" ) technolog yt o remov e NO xan d flue-ga s desulfurizatio n technolog y("scrubbers" ) t o remov e SO 2 t o compl ywit h th e Act , remain s practicall yth e sam e wit h mino rchange s bein g mad e t o th e complianc e schedule an d plan . Th e scrubbe ra t Ashevill e Uni t 2 wa s place d int o operatio n i n May2006 . Th e SC R o n Ashevill e Uni t 1 i s expecte d t o b e onlin e i n 2007 . Th e Roxbor o (Unit s 1 , 3 , an d 4 ) an d May o scrubbe rconstructio n project s continu e wit h substantial wor k bein g don e a t bot h facilities . Th e scrubbe rfo rRoxbor o Uni t 2 starte d operatio n i n May2007 . Le e Uni t 2 an d Sutto n Uni t 2 initiate d operatio n o f lo wNO xburner s i n 2006 . Le e Uni t 3 i s expecte d t o begi n operatio n o f a "Rotamix " syste m i n 2007 . PE C i s als o lookin g int o installin g Furnac e Sorben t Injectio n (FSI ) technolog ytha t promise s a lowe rcos t mean s o fSO 2 removal . PE C indicate s tha t testin g o fsimila r equipmen t a t it s Robinso n facilit yi n Sout h Carolin a wil l affec t it s decisio n t o pursu e FS I technolog yrathe rtha n scrubber s a t th e Cap e Fea runits . II . Environmenta l Complianc e Cost s PE C i s require d b yth e Ac t t o submi t a report t o th e Commissio n an d t o DEN R o n o rbefor e Apri l 1 o feac h yea rcontainin g th e actua l environmental complianc e cost sATTACHMEN T D PAG E2 O F4 incurre d durin g th e previou s calenda ryear . A s define d b yG.S . 62-133.6(a)2 , "environmenta l complianc e costs " includ e onl ycapita l costs . I n it s calenda ryea r200 6 Progres s Report ("200 6 Report") , PE C reporte d tha t it s actua l environmenta l complianc e cost s i n calenda ryea r200 6 wer e $272,819,398 . Th e cumulativ e environmenta l complianc e cost s incurre d b yPE C throug h 200 6 ar e $560,410,636 , a s follows :

Yea r200 2 $ 1,391,731 1 Yea r200 3 26,604,19 9 Yea r200 4 78,321,74 2 Yea r200 5 181,273,56 6 Yea r200 6 272.819.39 8 Tota l $560,410,636 2 PEC' s expenditure s t o dat e involv e emissio n reductio n technologie s a t it s Asheville , Mayo , Roxboro , Sutton , an d Le e facilities . Environmenta l complianc e cost s wer e incurre d fo rprojec t studie s an d investigations , engineering , contracting , construction , an d equipmen t acquisition . A s part o f it s review , th e Publi cStaf frequeste d informatio n fro m PE C o n th e projec t costs , invoice s documentin g costs , an d th e purpos e o fth e costs . PE C provide d projec t cos t sheet s delineatin g actua l project cost s byyea rint o th e followin g categories : (1 ) compan ylabo rcosts ; (2 ) material s costs ; (3 ) outsid e service s costs ; (4 ) burdens ; an d (5 ) othe rcosts . Thes e cost s ar e a s follows :

Compan yLabo r$ 2,964,09 9 Materia l 128,130,61 8 Outsid e Service s 126,479,79 6 Labo rLoads/Overhead s 4,877,74 0 Othe r10.367.14 5 Tota l $272,819,39 8 Th e projec t cos t shee t was supporte d b ydetaile d spreadsheet s fo ra particula r category . Th e Publi cStaf f selecte d invoice s fro m th e detaile d spreadsheet s an d
1 Pe rAppendi xB , cost s fo r2002 , 2003 , an d 200 4 ar e slightl ydifferen t fro m th e cost s reporte d fo rthos e year s i n previou s reports . Fo r2004 , a majorit yo fth e differenc e relate s t o a Compan yadjustmen t t o includ e Ashevill e wastewate rtreatmen t {WWT ) cost s i n th e FG D lin e item s fo rAsheville . I n 2005 , PE C bega n reportin g WW Tprojec t cost s separately . 2 PEC' s estimate d an d reporte d environmenta l complianc e cost s exclud e certai n cost s attributabl e t o th e portion s o f it s May o an d Roxbor o facilitie s tha t ar e owne d b yth e N C Easter n Municipa l Powe rAgency (NCEMPA) . Accordin g t o PEC' s FER C For m No . 1 fo r2005 , PE C entere d int o a n agreemen t wit h NCEMP Ai n 200 5 t o limi t it s aggregat e cos t associate d wit h PEC' s environmenta l complianc e cost s t o approximatel y$38,000,000 . I n a Novembe r2 , 2006 , filin g wit h th e Commissio n i n thi s docket , PE C state d tha t it s estimate d complianc e cost s hav e no wfurthe rincrease d an d tha t th e $37. 9 millio n ca p i s $29. 1 millio n les s tha n NCEMPA' s ful l ownershi p shar e o fth e tota l Clea n Smokestack s costs.

### ATTACHMEN T D PAGE3 O F4

REVISE D requeste d PE C t o provid e specifi cinformatio n o n th e selecte d costs . Th e Publi cStaff ha s ha d discussions wit h PE C personne l regardin g th e cos t item s charged t o projects . PE C ha s provide d documentatio n t o support th e selecte d costs . PE C ha s estimate d it s environmenta l complianc e cost s a t $1,354,577,000 , a s se t fort h o n Appendi xB i n it s 200 6 Report . Thi s represent s a n increas e o f$541,577,00 0 o r66.6 % ove rPEC' s origina l estimat e o f $813,000,000 , a s se t fort h i n G.S . 62-133.6(b) . Accordin g t o PE C personnel , severa l factor s continu e t o contribut e t o th e increas e i n th e estimate , includin g significan t increase s i n th e pric e o fskille d labo ran d materials , increase s i n equipmen t cost s du e t o th e limite d numbe ro fsupplier s available , an d adjustment s o ffutur e cost s base d o n actua l cost s o fproject s alread ycomplete d o r substantiall ycompleted . PE C ha s previousl ycite d it s decisio n t o chang e th e scrubbe rtechnolog yo n it s unit s fro m a dryscrubbe rt o a we t scrubber . Thi s decisio n ha s furthe rincrease d th e cost s becaus e o fth e nee d fo rwastewate rtreatment . I n it s 200 6 Report , PE C ha s indicate d tha t i t i s no wconsiderin g a dr yscrubbe rfo rSutto n Uni t 3 , an d tha t thi s represent s a mor e cos t effectiv e complianc e solution . Whil e n o expenditure s hav e bee n mad e t o dat e o n developin g th e scrubbe rfo rSutto n Uni t 3 , th e Publi cStaffunderstand s tha t uni t specifi ccriteria , system-wid e emissio n targets , existin g scrubbe rperformance , an d cost s ar e al l factor s involve d i n th e decision-makin g process . Th e Publi cStaf fwil l continu e t o monito rthi s development . III . Amortizatio n o f Cost s I n Sectio n 9 ofth e Ac t [G.S . 62-133.6(b)] , th e investo rowne d utilitie s ar e allowe d t o accelerat e th e cos t recoveryo f thei restimate d environmenta l complianc e cost s ove r a seven-yea rperiod , beginnin g January1 , 2003 , an d endin g Decembe r31 , 2009 . Th e statut e require s tha t a minimu m o f70 % o fth e environmenta l complianc e cost s b e amortize d befor e Decembe r31 , 2007 , whe n th e rat e freez e perio d expires . I n PEC' s case , thi s amoun t i s $569,100,000 . Th e annua l levelize d amoun t i s $116,142,857 . Th e maximu m amoun t tha t ca n b e amortize d i n an ygive n yea ri s 150 % o f th e annua l levelize d environmenta l complianc e cost s o r$174,214,285 . Usin g th e protocol s establishe d b yth e Ac t an d subsequen t Commissio n orders , PE C reporte d tha t it s environmenta l complianc e cost s amortizatio n fo r200 6 i s $140,000,000 . Th e Publi cStaf f ha s reviewe d PEC' s quarterl yamortizatio n filings , a s wel l a s th e journa l entrie s recorded , an d conclude d tha t th e reporte d amount s appea rt o b e accurate . Th e cumulativ e amortizatio n t o dat e i s $535,218,808 . IV . Contract s N o contract s wer e reviewe d durin g thi s audi t period .

### ATTACHMEN T D PAGE4 O F4 V . Sit e Inspection s O n Ma y21 , 2007 , th e Publi cStaf fconducte d a sit e inspectio n o fPEC' s May o an d Roxbor o facilitie s i n Perso n County , Nort h Carolina. Significan t constructio n i s occurrin g a t bot h facilities . Roxbor o Uni t 2 i s no wbein g scrubbed , wit h gypsu m bein g temporaril ytrucke d t o a holdin g are a unti l th e wallboar d facilit yi s completed . Th e wallboar d facilit ywil l tak e ownershi p o fth e gypsu m onc e i t i s conveye d acros s th e intak e canal . Mos t o f th e othe rsupport equipmen t commo n t o all scrubber s i s i n plac e an d th e remainin g unit s wil l b e place d i n servic e a s eac h uni t enter s a schedule d outag e perio d ove rth e next tw o years . Wit h respec t t o th e May o facility , foundatio n wor k i s progressin g o n th e scrubbe r itself , th e buildin g housin g th e equipment , an d th e stack . Constructio n o n limeston e handlin g an d gypsu m remova l facilitie s ha s no t ye t started . PE C plan s t o truc k limeston e an d gypsu m t o an d fro m th e May o facilit yt o th e Roxbor o facility . I t i s th e inten t o f th e Publi cStafft o continu e inspection s o fothe rcoal-fire d generatin g facilitie s a s PE C continue s t o instal l emissio n reductio n equipmen t i n it s boile runits .