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Progress Energy Sells Plants to Southern; Unit in Tolling Pacts

Progress Energy has agreed to sell a total of 1,245 MW of merchant generation in Florida and North Carolina to Southern Power, a subsidiary of Southern Co., one of several transactions that Progress has entered into with two subsidiaries of Southern having a total value of approximately $1 billion.

Along with the power plant sales, Progress Energy's subsidiary, Progress Ventures (PV), has entered into new contracts to sell 1,039 MW of combustion turbine resources in a tolling contract to Georgia Power, a subsidiary of Southern, for 2009-2024 and purchase 621 MW of combined-cycle resources in a tolling contract from Southern Power for 2009-2015.

PV has entered into definitive agreements to sell its DeSoto County Generating Co. LLC and Rowan County Power LLC subsidiaries, including certain existing power supply contracts to Southern Power for a total purchase price of $405 million in cash, subject to adjustments as provided in the purchase agreements. DeSoto owns a 320 MW dual-fuel combustion turbine electric generation facility in DeSoto County, FL. The sale of DeSoto is expected to close during the second quarter of 2006. Rowan owns a 925 MW dual-fuel combined-cycle and combustion turbine electric generation facility in Rowan County, NC.

The sale of Rowan is expected to close during the third quarter of 2006. Southern Power has the option to terminate the contract to purchase Rowan at any time on or before June 15, permitting Southern Power to complete negotiations for additional wholesale agreements. The closings of both the DeSoto and Rowan transactions are subject to state and federal regulatory approvals and customary closing conditions.

The $405 million of proceeds will be used for debt reduction at the holding company, Progress Energy said.

As a result of the decision to divest DeSoto and Rowan, Progress Energy anticipates recording a noncash after-tax impairment charge in the second quarter of approximately $70 million.

Progress Energy said that as part of the strategy to reduce PV's risk profile, PV has entered into several transactions, which produce in excess of $500 million in revenue over the term of the contracts.

Specifically, during March and April, subsidiaries of PV entered into three tolling agreements for the sale of approximately 1,039 MW of combustion turbine capacity and associated energy to Georgia Power. The three separate tolling agreements were executed by PV subsidiaries Washington County Power LLC (302 MW), Walton County Power LLC (436 MW) and MPC Generating LLC (301 MW).

The term of each of the agreements is from June 1, 2009, until May 31, 2024. Under the tolling agreements, PV will receive payments for capacity, variable operating and maintenance costs, and startup costs. Georgia Power will deliver fuel (gas or oil as applicable) and receive electrical energy delivered onto the Georgia Integrated Transmission System (GITS) at each plant's transmission interconnection.

Also during April 2006, PV entered into a tolling agreement for the purchase of approximately 621 MW of combined-cycle capacity from Southern Power. The term of the tolling agreement with Southern Power is from Jan. 1, 2009 until Dec. 31, 2015. Under the tolling agreement, PV will pay for capacity, variable operating and maintenance costs, and startup costs. PV will also deliver fuel to the combined-cycle facility and receive electrical energy delivered onto the GITS.

Progress Energy said the combination of the tolling contracts result in: (1) a long-term revenue stream established from the Georgia Power contracts on over 1,000 MW of simple-cycle combustion turbines through 2024, and (2) contractual rights to 621 MW of combined-cycle resources on the GITS to provide PV with an optimal generation resource mix to cost effectively meet the growing needs of its Georgia Electric Membership Cooperative customers.

Southern noted that all of the output of the DeSoto power plant is sold through a wholesale contract to Florida Power and Light (FP&L). Once the transaction is completed, Southern Power will assume responsibility for this contract. Southern Power has existing long-term wholesale power agreements with FP&L, as well as with other customers in Florida.

The Rowan facility supplies electricity through long-term wholesale power contracts to Duke Power and North Carolina Municipal Power Agency Number 1. Southern Power will assume responsibility for these contracts once the transaction is completed.

In related news last week, Georgia Power filed with the Georgia Public Service Commission (PSC) seeking certification for approximately 1,039 MW of capacity for use beginning June 1, 2009. The utility noted the new contracted electric capacity will come from three existing combustion turbine facilities, all owned by Progress Energy Ventures.

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