EXHIBIT J
August 3, 2000
Mr. Robert P. Wason, Chief Financial Analyst
Division of Investment Management
Office of Public Utility Regulation
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Dear Mr. Wason:
This letter is to address the issue of whether or not a new accounting and
reporting basis for the separate financial statements of Florida Power
Corporation ("Florida Power") is required subsequent to the proposed acquisition
of Florida Progress Corporation ("FPC") by CP&L Energy, Inc. (the "Company").
The Company made its evaluation based on guidance provided by Securities and
Exchange Commission ("SEC") SAB Topic 5.J. The provisions of SAB Topic 5.J
indicate that the SEC staff "believes that purchase transactions that result in
an entity becoming substantially wholly owned establish a new basis of
accounting for the purchased assets and liabilities." However, SAB Topic 5.J
also allows for an exemption in the SEC staff's response to Question 2: "The
staff recognizes that the existence of outstanding public debt, preferred stock
or a significant minority interest in a subsidiary might impact the parent's
ability to control the form of ownership. Although encouraging its use, the
staff generally does not insist on the application of push down accounting in
these circumstances."
In addition, we noted remarks made by Eric W. Casey of the SEC at the 1999 AIPCA
Conference on Current SEC Developments:
"While SAB 54 does not explicitly refer to significance of public debt, the
staff believes that it is reasonable and consistent with the general
principles in SAB 54 to consider the significance of public debt in
assessing the applicability of push down accounting. To do otherwise would
also appear to establish a different threshold for investors in public debt
than for minority interest holders without an obvious conceptual basis for
creating such a distinction. In evaluating the significance of public debt,
the staff believes that it is reasonable and appropriate to consider both
the quantitative and qualitative significance of the public debt."
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Subsequent to the acquisition of FPC by the Company, Florida Power will continue
to file separate financial statements with the SEC because it has in excess of
$1 billion of publicly held debt and publicly traded preferred stock securities
outstanding. All of Florida Power's debt is publicly held, and all of its
preferred stock is publicly traded. Florida Power's various issues of
outstanding debt securities generally require regulatory approval prior to
issuance, generally require regulatory or security holder approval prior to any
significant modification of terms, and have superior claims to the parent with
respect to the right to receive assets upon liquidation or reorganization of
Florida Power. Florida Power's indentures also include restrictions on
additional bonded indebtedness and other restrictive covenants common to such
agreements. In addition, the Company's management has no intent to redeem
Florida Power's public debt or preferred stock after the acquisition is
consummated.
Based on the significance of the publicly held debt that is expected to remain
outstanding after the transaction and the preferences and limitations which
limit the Company's ability to exercise its rights and privileges as the common
equity holder and to take other actions with respect to controlling the form of
ownership of Florida Power, management of the Company has concluded that it will
not be required to establish a new accounting and reporting basis for the
separate financial statements of Florida Power.
Our conclusion has been discussed with and concurred to by Deloitte & Touche LLP
("D&T"), the Company's external auditors, through our engagement partner, Jan
Umbaugh. In addition, the Company requested and has received from D&T a letter
documenting its concurrence.
If you have other questions regarding this matter, please let me know.
Yours very truly
Original Signed by
Robert H. Bazemore, Jr.
RHB/mdf
