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Rising Fuel and Environmental Costs Prompted Filing by Progress Energy

A significant run-up in the market price for coal and other fuels used in electricity generation -- caused by global demand and market conditions -- has prompted a request by Progress Energy Carolinas to increase the fuel component of the rates paid by the company's S.C. customers.

Progress Energy Carolinas' filing with the S.C. Public Service Commission also seeks recovery of the cost of reagents used to reduce fossil-fueled plant emissions, as well as the cost of emission allowances, as allowed under state law.

For a residential customer using 1,000 kilowatt-hours of electricity a month, the total increase, if approved, would be about $6. The total price for 1,000 kWh would rise to about $102.20 from the current $96.33.

After a slight increase in 2007, the prices of coal and other fuels used to produce electricity have risen sharply. The market price for coal has doubled since December and has set several records so far in 2008. Meanwhile, demand for coal in developing countries, particularly China and India, continues to rise.

Progress Energy Carolinas makes a fuel cost-recovery filing annually in South Carolina, based on the actual cost of fuel used to provide electric service to the company's customers. The Public Service Commission reviews fuel costs and adjusts the fuel component of customer rates accordingly. By law, the company makes no profit from the fuel component of rates.

Progress Energy Carolinas is asking the S.C. Public Service Commission to approve a $39 million increase in the fuel component of its rates. The company requested the change to recoup under-recovered fuel costs and to meet expected future fuel costs. Increased fuel costs represent about $5 of the requested increase. The other $1 increase on a 1,000-kWh residential bill is to recover the cost of emission allowances as well as limestone, ammonia and other materials used to reduce emissions of sulfur dioxide and nitrogen oxides from Progress Energy Carolinas' coal-fired power plants.

If approved by the commission, the average increase would be about 7.2 percent for commercial customers and 9.4 percent for industrial customers. The increase would take effect July 1.

The other major component of the rates, the base rate, has not been increased since 1988.

Progress Energy Carolinas' power plants, including the H.B. Robinson Nuclear Plant near Hartsville, have been recognized nationally for sustained reliable and efficient performance. That performance, coupled with the company's diversity of power plant resources, has helped to keep fuel expenses as low as possible for customers. Even with Progress Energy Carolinas' proposed increase, the average price of electricity for its customers in South Carolina would still be below the national average.

"We know that any price increase has an impact on our customers," said Emerson Gower, vice president of Progress Energy Carolina's Southern Region, which includes all of the company's South Carolina service area. "Sharply rising fuel prices -- at the gas pump and in fuel used to generate electricity -- are a new energy reality as we work to meet the challenges of a growing service area reliably, affordably and in an environmentally sound manner. We will continue to do all we can to operate our plants and facilities as efficiently as possible. Meanwhile, we encourage our customers to learn more about how they can use energy wisely every day."

Customers can save up to 20 percent on their energy costs by making simple changes at home. Cleaning air filters, replacing incandescent light bulbs with compact-fluorescent bulbs, adjusting the thermostat and sealing windows and doors can result in noticeable savings. For more than 100 energy-efficiency tips, visit the company's Web site at savethewatts.com.

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