UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3382
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CAROLINA POWER & LIGHT COMPANY
------------------------------
(Exact name of registrant as specified in its charter)
411 Fayetteville Street
North Carolina 56-0165465 Raleigh, North Carolina 27601
- ---------------- ---------- ----------------------- -----
(State or other (I.R.S. Employer (Address of principal (Zip Code)
jurisdiction of Identification No.) executive offices)
incorporation or
organization)
919-546-6111
------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock (Without Par Value) New York Stock Exchange
Pacific Stock Exchange
Quarterly Income Capital Securities New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Preferred Stock (Without Par Value, Cumulative)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X . No .
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common stock held by
non-affiliates at February 27, 1998, was $6,318,461,450.
Shares of Common Stock (Without Par Value) outstanding at February 27, 1998:
151,340,394.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Company's 1998 definitive proxy statement dated March 30, 1998,
are incorporated into Part III, Items 10, 11, 12 and 13 hereof.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS 3
PART I
ITEM 1. BUSINESS 4
General 4
Generating Capability 5
Interconnections with Other Systems 8
Competition 9
Capital Requirements 12
Financing Program 13
Retail Rate Matters 15
Wholesale Rate Matters 17
Environmental Matters 17
Nuclear Matters 20
Fuel 24
Diversified Businesses 26
Other Matters 27
Operating Statistics 29
ITEM 2. PROPERTIES 30
ITEM 3. LEGAL PROCEEDINGS 31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 32
EXECUTIVE OFFICERS OF THE REGISTRANT 33
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 35
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 47
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 70
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 70
ITEM 11. EXECUTIVE COMPENSATION 70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 70
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 70
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 70
</TABLE>
2
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
- ------------------------------------------
The matters discussed throughout this Form 10-K that are not historical facts
are forward-looking and, accordingly, involve estimates, projections, goals,
forecasts, assumptions and uncertainties that could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements.
Examples of forward-looking statements discussed in this Form 10-K, ITEM 1,
"BUSINESS", include, but are not limited to, statements under the following
headings: 1) "General" relating to forecasted capacity margins over anticipated
system peak loads; 2) "Generating Capability" regarding the forecasted system
sales growth and planned generation additions schedule; 3) "Interconnections
with Other Systems" relating to future energy cost savings resulting from
amendments to agreements with Cogentrix and relating to estimated minimum annual
payments for long-term purchase contracts; 4) "Competition" regarding the effect
on the Company of increased competition at the wholesale level and the
likelihood of additional restructuring-related bills being introduced in
Congress in 1998; 5) "Capital Requirements" relating to estimated capital
requirements for 1998-2000; 6) "Financing Program" relating to expected external
funding requirements; 7) "Environmental Matters" relating to future capital
expenditures to meet nitrogen oxide emission requirements, emerging regulatory
requirements and the materiality of future costs related to environmental
matters; 8) "Nuclear Matters" relating to future capital expenditures for
modifications at the Company's nuclear units, future increase in low-level
radioactive waste disposal costs, materiality of various nuclear-related matters
and the date of replacement of the Harris Plant steam generators; 9) "Fuel"
regarding the percentages of future coal burn requirements from intermediate and
long-term agreements, effect of amendments to the Clean Air Act on the price of
low sulfur coal, sufficiency of existing uranium contracts and regarding total
decontamination and decommissioning fund fees expected to be paid; and 10)
"Diversified Businesses" relating to future services to be provided by Interpath
Communications, Inc., future investments in affordable housing and Strategic
Resource Solutions Corp.'s enhanced ability to deliver energy-management
products.
In addition, examples of forward-looking statements discussed in this Form 10-K,
ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS", include, but are not limited to, statements under the following
headings: 1) "Liquidity and Capital Resources" about estimated capital
requirements and 2) "Other Matters" about the effects of new environmental
regulations, nuclear decommissioning costs, the effect of deregulation and the
outcome of the Year 2000 compliance.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made.
Examples of factors that should be considered with respect to any
forward-looking statements made throughout this document include, but are not
limited to, the following: Governmental policies and regulatory actions
(including those of the Federal Energy Regulatory Commission, the Environmental
Protection Agency, the Nuclear Regulatory Commission, the Department of Energy,
the North Carolina Utilities Commission and the South Carolina Public Service
Commission); general industry trends; operation of nuclear power facilities;
nuclear storage facilities; nuclear decommissioning costs; general economic
growth; weather conditions and catastrophic weather-related damage;
deregulation; market demand for energy; inflation; capital market conditions;
unanticipated changes in operating expenses and capital expenditures and legal
and administrative proceedings. All such factors are difficult to predict,
contain uncertainties that may materially affect actual results, and may be
beyond the control of the Company. New factors emerge from time to time and it
is not possible for management to predict all of such factors, nor can it assess
the effect of each such factor on the Company.
3
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
GENERAL
- -------
1. Company. Carolina Power & Light Company (the Company) is a public
--------
service corporation formed under the laws of North Carolina in 1926,
and is primarily engaged in the generation, transmission, distribution
and sale of electricity in portions of North and South Carolina. The
Company had approximately 6,900 employees at December 31, 1997. The
principal executive offices of the Company are located at 411
Fayetteville Street, Raleigh, North Carolina 27601, telephone number:
919-546-6111.
2. Franchises. The Company is a regulated public utility and holds
-----------
franchises to the extent necessary to operate in the municipalities and
other areas it serves.
3. Service.
--------
a) The territory served, an area of approximately 30,000 square
miles, includes a substantial portion of the coastal plain of
North Carolina extending to the Atlantic coast between the
Pamlico River and the South Carolina border, the lower
Piedmont section of North Carolina, an area in northeastern
South Carolina and an area in western North Carolina in and
around the City of Asheville. The estimated total population
of the territory served is approximately 3.8 million.
b) The Company provides retail electricity in over 200
communities, each having an estimated population of 500 or
more, and at wholesale to North Carolina Eastern Municiple
Power Agency consisting of 32 members, 3 municipalities,
French Broad Electric Membership Corporation and North
Carolina Electric Membership Corporation consisting of 27
members (17 of which are served by the Company's system). At
December 31, 1997, the Company was furnishing electric service
to approximately 1,153,000 customers.
4. Sales. During 1997, 33% of operating revenues were derived from
------
residential sales, 21% from commercial sales, 24% from industrial
sales, 13% from wholesale sales and 9% from other sources. Of such
operating revenues, approximately 68% were derived from North Carolina
retail customers, 13% from South Carolina retail customers, 13% from
North Carolina wholesale customers, less than 1% from South Carolina
wholesale customers and 6% from sales to other utilities and other
sources.
5. Peak Demand.
------------
a) A 60-minute system peak demand record of 10,156 megawatts (MW)
was reached on August 14, 1995. At the time of this peak
demand, the Company's capacity margin, based on installed
capacity (less unavailable capacity) and scheduled firm
purchases and sales, was approximately 7.0%.
b) Total system peak demand for 1995 increased by .12%, for 1996
decreased by 3.4%, and for 1997 increased by 2.2%, as compared
with the preceding year. The Company currently projects that
system peak demand will increase at an average annual growth
rate of approximately 2.6% over the next ten years. The
year-to-year change in actual peak demand is influenced by the
specific weather conditions during those years and may not
exhibit a consistent pattern. Total system load
4
<PAGE>
factors, expressed as the ratio of the average load supplied
to the peak load demand, for the years 1995-1997 were 59.2%,
60.8% and 60.6%, respectively. The Company forecasts capacity
margins of 9.6% over anticipated system peak load for 1998 and
9.6% for 1999. This forecast assumes normal weather conditions
in each year consistent with long-term experience, and is
based upon the rated Maximum Dependable Capacity of generating
units in commercial operation and scheduled firm purchases of
power. See PART I, ITEM 1, "Generating Capability" and
"Interconnections With Other Systems". However, some of the
generating units included in arriving at these capacity
margins may be unavailable as a result of scheduled outages,
environmental modifications or unplanned outages. See PART I,
ITEM 1, "Environmental Matters" and "Nuclear Matters". The
data contained in this paragraph includes North Carolina
Eastern Municipal Power Agency's (Power Agency) load
requirements and capability from its ownership interests in
certain of the Company's generating facilities. See PART I,
ITEM 1, "Generating Capability", paragraph 1.
GENERATING CAPABILITY
- ---------------------
1. Facilities. At December 31, 1997, the Company had a total system
-----------
installed generating capability (including Power Agency's share) of
9,853 MW, with generating capacity provided primarily from the
installed generating facilities listed in the table below. The Maximum
Dependable Capacity of the Company's Brunswick Nuclear Plant was
increased by 110 MW effective January 1, 1998. The remainder of the
Company's generating capacity is composed of 53 coal, hydro and
combustion turbine units ranging in size from a 2.5 MW hydro unit to a
78 MW coal-fired unit. Pursuant to certain agreements with the Company,
Power Agency, which is comprised of former North Carolina municipal
wholesale customers of the Company and Virginia Electric and Power
Company (Virginia Power), has acquired undivided ownership interests of
18.33% in Brunswick Unit Nos. 1 and 2, 12.94% in Roxboro Unit No. 4 and
16.17% in Harris Unit No. 1 and Mayo Unit No. 1 (collectively, the
Joint Facilities). Of the total system installed generating capability
of 9,853 MW, 54% is coal, 31% is nuclear, 2% is hydro and 13% is fired
by other fuels including No. 2 oil, natural gas and propane.
<TABLE>
MAJOR INSTALLED GENERATING FACILITIES
AT DECEMBER 31, 1997
<CAPTION>
Year Maximum
Commercial Dependable
Plant Location Unit No. Operation Primary Fuel Capacity
- -------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Asheville 1 1964 Coal 198 MW
(Skyland,N.C.) 2 1971 Coal 194 MW
Cape Fear 5 1956 Coal 143MW
(Moncure, N.C.) 6 1958 Coal 173MW
Darlington County Plant 12 1997 Gas/Oil 120MW
(Hartsville, S.C.) 13 1997 Gas/Oil 120MW
H.F. Lee 1 1952 Coal 79MW
(Goldsboro, N.C.) 2 1951 Coal 76MW
3 1962 Coal 252MW
5
<PAGE>
H.B. Robinson 1 1960 Coal 174MW
(Hartsville, S.C.) 2 1971 Nuclear 683MW
Roxboro 1 1966 Coal 385MW
(Roxboro, N.C.) 2 1968 Coal 670MW
3 1973 Coal 707MW
4 1980 Coal 700MW<F1>
L.V. Sutton 1 1954 Coal 97MW
(Wilmington, N.C.) 2 1955 Coal 106MW
3 1972 Coal 410MW
Brunswick 1 1977 Nuclear 767MW<F1>
(Southport, N.C.) 2 1975 Nuclear 754MW<F1>
Mayo 1 1983 Coal 745MW<F1>
(Roxboro N.C.)
Harris 1 1987 Nuclear 860MW<F1>
(New Hill, N.C.)
<FN>
<F1>
Facilities are jointly owned by the Company and Power Agency,
and the capacity shown includes Power Agency's share.
</FN>
</TABLE>
2. Maintenance of Properties. The Company maintains all of its properties
--------------------------
in good operating condition in accordance with sound management
practices. The average life expectancy for rate making and accounting
purposes of the Company's generating facilities (excluding combustion
turbine units and hydro units) is approximately 40 years from the date
of commercial operation.
3. Generation Additions Schedule. The Company's energy and load forecasts
------------------------------
were revised in December 1997. Over the next ten years, system sales
growth is forecasted to average approximately 2.6% per year and annual
growth in system peak demand is projected to average approximately
2.6%. The Company's generation additions schedule, which is updated
annually, provides for the addition of 2,887 megawatts of combustion
turbine capacity and 3,600 megawatts of combined cycle capacity over
the period 1998 to 2011. Additions planned through 2003 are discussed
below.
a) The Company received a Certificate of Public Convenience and
Necessity from the North Carolina Utilities Commission (NCUC)
on March 21, 1996 granting permission to construct
approximately 500 MW of combustion turbine capacity adjacent
to the Company's Lee Steam Electric Plant in Wayne County,
North Carolina. The units will primarily be used during
periods of summer and winter peak demands. Under the current
schedule for the combustion turbine capacity, construction is
to begin in August 1998. Commercial operation is anticipated
to begin in June 2000, with the aggregate cost of these units
expected to approximate $130 million. In the interim, peaking
requirements will be met with power purchases.
b) The Company issued a Notice of Inquiry (NOI) on March 12, 1996
concerning short-term power purchases for the peak winter
months of 1998-1999 and the peak summer months of 1998. The
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<PAGE>
NOI was sent to a number of electric utilities, independent
power producers and power marketers. The Company received a
number of bids, which resulted in contract purchases for the
summer of 1998.
c) In June 1996, the Company issued Requests for Proposal (RFP)
for purchased power of 700 to 1,000 MW of capacity to meet the
Company's future generation needs in its service territory and
to replace contract purchases terminating in 1998-1999. The
Company projected a need of approximately 200 to 350 MW in its
western service territory, and approximately 350 to 650 MW in
its eastern service territory. The capacity was requested to
be available for delivery by June 1, 1999. Proposals were
invited from all potential suppliers who were capable of
meeting the conditions of the RFP. In January 1997 the Company
decided, based on the proposals received, to purchase
approximately one-third of the necessary peaking capacity, and
on July 14, 1997, the Company and PECO Power Team, a division
of PECO Energy Co. (PECO), announced an agreement for the
Company to purchase up to 300 megawatts of peaking power from
PECO for the summer periods of 1999 to 2003. The other
two-thirds of capacity for 1999 will be supplied by a
combination of short-term purchases, and power from the
Buncombe County combustion turbine, as described in paragraph
3.e. below.
d) In April 1997, the Company issued a RFP for purchased power of
400 to 800 MW of capacity to meet the Company's future
generation needs beginning in the years 2000 and 2001.
Proposals were invited from all potential suppliers who were
capable of meeting the conditions of the RFP. On July 30,
1997, 11 proposals were received from 9 bidders, offering
approximately 2,300 MW of capacity. The Company is continuing
to evaluate the proposals.
e) Due to increased economic activity and load growth in its
western service territory, on September 4, 1996, the Company
filed with the NCUC its preliminary plans to construct
approximately 320 MW of combustion turbine generating capacity
in Buncombe County, North Carolina at the Company's existing
Asheville Steam Electric Plant, with an in-service date of the
summer of 1999. Pursuant to those plans, on January 31, 1997,
the Company filed with the NCUC an Application for a
Certificate of Public Convenience and Necessity for one
combustion turbine unit of approximately 160 MW at the
Asheville Plant. A Certificate of Public Convenience and
Necessity was issued by the NCUC on August 1, 1997, to
construct the combustion turbine unit. On August 15, 1997, the
Company contracted with General Electric Company to
manufacture and install this combustion turbine unit. The
expected in-service date is June 1999. (This turbine, along
with certain power purchases described in paragraph 3.c.
above, will satisfy the Company's anticipated future
generation needs in its western service territory. As a
result, plans to construct the additional 160 MW of combustion
turbines in Buncombe County have been indefinitely postponed.)
The Company cannot predict the outcome of this matter.
7
<PAGE>
INTERCONNECTIONS WITH OTHER SYSTEMS
- -----------------------------------
1. Interconnections. The Company's facilities in Asheville and vicinity
-----------------
are integrated into the total system through the facilities of Duke
Energy Corporation (Duke) via interconnection agreements that permit
transfer of power to and from the Asheville area. The Company also has
major interconnections with the Tennessee Valley Authority (TVA),
Appalachian Power Company (APCO), Virginia Power, South Carolina
Electric and Gas Company (SCE&G), South Carolina Public Service
Authority (SCPSA) and Yadkin, Inc. (Yadkin). Major interconnections
include 115 kV and 230 kV ties with SCE&G and SCPSA; 115 kV, 230 kV and
500 kV ties with Duke and Virginia Power; a 115 kV tie with Yadkin; a
161 kV tie with TVA; and three 138 kV ties and one 230 kV tie with
APCO. See paragraph 3.b. below.
2. Interchange and Power Purchase/Sale Agreements.
-----------------------------------------------
a) The Company has interchange agreements with APCO, Duke, SCE&G,
SCPSA, TVA, Virginia Power and Yadkin which provide for the
purchase and sale of power for hourly, daily, weekly, monthly
or longer periods. In addition to the interchange agreements,
the Company has executed individual purchase agreements and
sales agreements with more than 100 companies beyond the
Virginia-Carolinas Subregion described in paragraph 2.b.
below. Purchases and sales under these agreements may be made
due to economic or reliability considerations.
By letter dated May 24, 1996, the Company provided Duke with
written notice that effective June 1, 1999, it will terminate
Schedule G to the Interchange Agreement between the Company
and Duke. Schedule G provides for the wheeling of electricity
between the Company's eastern area and its western area.
By letter dated December 30, 1996, Duke provided the Company
with written notice that effective December 31, 1999, it will
terminate the Standby Concurrent Exchange Agreement (Standby
Agreement) between the Company and Duke. The Standby Agreement
provides for the simultaneous exchange of up to 70 MW of
electricity during periods of scheduled maintenance or
breakdown.
On December 31, 1996, pursuant to the Federal Energy
Regulatory Commission (FERC) Order 888, which directs that no
bundled economy energy coordination transactions occur after
December 31, 1996, the Company submitted to the FERC a
compliance filing to unbundle transmission charges from rate
schedules that are applicable to the power sales agreements
between the Company and others. See PART I, ITEM 1,
"Competition", paragraph 2, for further discussion of the FERC
Order 888.
b) The Virginia-Carolinas Subregion of the Southeastern Electric
Reliability Council is made up of the Company, Duke, Nantahala
Power & Light Company, SCE&G, SCPSA, Virginia Power,
Southeastern Power Administration and Yadkin. Electric service
reliability is promoted by arrangements among the members of
electric reliability organizations at the subregional level.
3. Long-Term Purchase Power Contracts.
-----------------------------------
a) In March 1987, the Company entered into an agreement with
Duke, which has been accepted by the FERC, whereby Duke would
provide 400 MW of firm capacity to the Company's system over
the period January 1, 1992, through December 31, 1997.
Pursuant to an amendment of the contract,
8
<PAGE>
commencement of the purchase of power by the Company was
delayed until July 1993 and termination was extended through
June 1999. The estimated minimum annual payment for power
purchases under the six-year agreement is approximately $48
million, representing capital-related capacity costs.
Purchases under this agreement, including transmission use
charges, totaled $69.5 million in 1997.
b) The Company has entered into an agreement, which has been
approved by the FERC, with APCO and Indiana Michigan Power
Company (Indiana Michigan), operating subsidiaries of American
Electric Power Company, to upgrade a transmission
interconnection with APCO in the Company's western service
area, establish a new interconnection in the Company's eastern
service area and purchase 250 MW of generating capacity from
Indiana Michigan's Rockport Unit No. 2 through 2009. The
upgrade to the transmission interconnection in the Company's
western service area was completed in 1992, and the Company
recently announced plans to upgrade an existing 138 kV
transmission line between Person County, North Carolina and
Danville, Virginia, rather than establish a new
interconnection in its eastern service area. The upgrade is
currently expected to be completed by mid-1998. The estimated
minimum annual payment for power purchases under the agreement
is approximately $31 million, representing capital-related
capacity costs. In 1997, purchases under this agreement,
including transmission use charges, totaled $61.9 million.
c) In 1996, the Company agreed with Cogentrix of North Carolina,
Inc. and Cogentrix Eastern Carolina Corporation (collectively
referred to as Cogentrix) to amend electric power purchase
agreements related to five plants owned by Cogentrix. The
amendments, which became effective on September 26, 1996,
permit the Company to dispatch the output of the five plants.
In return, the Company gave up its right to purchase two of
the five plants in 1997. As a result of the amendments, energy
cost savings are expected during each of the years 1997
through 2002.
4. Power Agency. Pursuant to the terms of a 1981 Power Coordination
--------------
Agreement, as amended, between the Company and Power Agency, the
Company is obligated to purchase a percentage of Power Agency's
ownership capacity of, and energy from, the Mayo and Harris Plants
through 1997 and 2007, respectively. The buyback period ended in 1997
for Mayo. The Harris Plant buyback will continue through 2007. The
estimated minimum annual payments for these purchases, representing
capital-related capacity costs, total approximately $26 million.
Purchases under the agreement with Power Agency totaled $36.2 million
in 1997.
COMPETITION
- -----------
1. General
-------
In recent years, the electric utility industry has experienced a
substantial increase in competition at the wholesale level, caused by
changes in federal law and regulatory policy. Several states have also
decided to deregulate aspects of retail electric service. The issue of
retail deregulation and competition is being reviewed by a number of
states and bills have been introduced in Congress that seek to
introduce retail deregulation in all states.
Allowing increased competition in the generation and sale of electric
power will require resolution of many complex issues. One of the major
issues to be resolved is who will pay for stranded costs (those costs
and investments made by utilities in order to meet their statutory
obligation to provide electric service) if the market price of
electricity following industry restructuring is not sufficient to cover
those costs. The amount of such stranded costs the Company might
experience would depend on the timing of, and the
9
<PAGE>
extent to which, direct competition is introduced, and the
then-existing market price of energy. If electric utilities were no
longer subject to cost-based regulation and it were not possible to
recover stranded costs, the results of operations and financial
position of the Company would be adversely affected.
2. Wholesale Competition
----------------------
Since passage of the National Energy Act of 1992 (Energy Act),
competition in the wholesale electric utility industry has
significantly increased due to greater participation by traditional
electricity suppliers, wholesale power marketers and brokers, and due
to the trading of energy futures contracts on various commodities
exchanges. This increased competition could affect the Company's load
forecasts, plans for power supply and wholesale energy sales and
related revenues. The impact could vary depending on the extent to
which additional generation is built to compete in the wholesale
market, new opportunities are created for the Company to expand its
wholesale load, or current wholesale customers elect to purchase from
other suppliers after existing contracts expire.
To assist in the development of wholesale competition, the FERC, in
1996, issued standards for wholesale wheeling of electric power through
its rules on open access transmission and stranded costs and on
information systems and standards of conduct (Orders 888 and 889). The
rules require all transmitting utilities to have on file an open access
transmission tariff, which contains provisions for the recovery of
stranded costs and numerous other provisions that could affect the sale
of electric energy at the wholesale level. The Company filed its open
access transmission tariff with the FERC in mid-1996. Shortly
thereafter, Power Agency and other entities filed protests challenging
numerous aspects of the Company's tariff and requesting that an
evidentiary proceeding be held. The FERC set the matter for hearing and
set a discovery and procedural schedule. In July 1997, the Company
filed an offer of settlement in this matter. The administrative law
judge certified the offer to the full FERC in September 1997. The offer
is pending before the FERC. The Company cannot predict the outcome of
this matter.
In November 1997, the Company applied to the FERC for authority to sell
power at market-based rates. In January 1998, the FERC issued an order
accepting the Company's application and permitting the Company to sell
power at market-based rates.
3. Retail Competition
------------------
The Energy Act prohibits the FERC from ordering retail wheeling -
transmitting power on behalf of another producer to an individual
retail customer. Several states, including California and Pennsylvania,
have changed their laws and regulations to allow retail electric
customers to buy power from suppliers other than the local utility.
Other states are considering similar changes, and some have instituted
experimental programs to allow a limited number of customers to select
electric suppliers. These changes and proposals have taken differing
forms and included disparate elements. The Company believes changes in
existing laws in both North and South Carolina would be required to
permit competition in the Company's retail jurisdictions.
10
<PAGE>
4. North Carolina Activities
-------------------------
Since 1995, the NCUC has been considering the impact of increased
competition in the electric industry. In May 1996, the NCUC issued an
order stating that the FERC Orders 888 and 889 would provide a new
focus for NCUC proceedings with respect to competition in the electric
industry. As a result, the NCUC held Docket No. E-100, Sub 77, which
concerned retail competition, in abeyance pending further order and
established a new docket (Docket No. E-100, Sub 78) to address the FERC
Orders 888 and 889. The NCUC has received several rounds of comments in
this docket; the Company filed its most recent comments and reply
comments in November 1997 and December 1997, respectively. The Company
cannot predict the outcome of this matter.
In April 1997, the North Carolina General Assembly (General Assembly)
approved legislation establishing a 23-member study commission to
evaluate the future of electric service in the state. The commission is
comprised of 12 state legislators, two residential customers, two
industrial customers, a commercial customer, a power marketer, an
environmentalist and representatives from each of the four major power
suppliers in the state. The commission is examining a wide range of
issues related to the cost and delivery of electric service. The
commission will make an interim report to the 1998 General Assembly and
a final report in 1999. The Company cannot predict the outcome of this
matter.
5. South Carolina Activities
-------------------------
In February 1997, representatives in the South Carolina General
Assembly introduced a bill calling for a transition to full competition
in the electric utility industry beginning in 1998. No action was taken
on this bill. In addition, by letter dated May 6, 1997, the Speaker of
the South Carolina House of Representatives requested that the South
Carolina Public Service Commission (SCPSC) prepare a proposal for the
deregulation and restructuring of electricity in South Carolina. On
February 3, 1998, the SCPSC issued a report to the South Carolina
General Assembly recommending caution and more study on the issue of
deregulation. The report outlines a five-year transition plan that it
recommends be followed if the South Carolina legislators decide to go
forward with deregulation. The South Carolina General Assembly's
Utility Subcommittee has completed six hearings around the state in
order to receive citizen input on the deregulation issue. The
subcommittee will continue to meet. The Company cannot predict the
outcome of this matter.
6. Federal Activities
------------------
Numerous bills were introduced in the 105th Congress concerning the
restructuring of the electric utility industry. Key provisions of the
bills vary widely. Committee Chairs have held workshops and hearings to
discuss various aspects of restructuring. No legislation was passed
during the 1997 session of Congress, and more restructuring-related
bills are expected to be introduced in Congress during 1998. The
Company cannot predict the outcome of this matter.
7. Company Activities
------------------
The developments described above have created greater planning
uncertainty and risks for the Company. The Company has been addressing
these risks by securing long-term contracts with its wholesale
customers and by continuing to work to meet the energy needs of its
industrial customers. To position itself to better address these risks,
the Company internally organized into separate business units in early
1998. The
11
<PAGE>
business units include Energy Supply, Energy Delivery and Retail Sales
and Services. The focus of these business units will be to further the
development of a corporate culture that is necessary to compete in a
deregulated environment. Other elements of the Company's strategy to
respond to the changing market for electricity include promoting
economic development, implementing new marketing strategies, improving
customer satisfaction and increasing the focus on managing and reducing
costs (and, consequently, avoiding future rate increases).
In late 1996, the Company and North Carolina Electric Membership
Corporation (NCEMC) entered into a revised Power Coordination Agreement
(PCA) under which NCEMC will receive discounted capacity in exchange
for long-term commitments to the Company for its supplemental power. As
a result of this revised agreement, the Company provided 100 MW of
baseload power to NCEMC in 1997, and will provide a block of 225 MW
from 1998 to 2010, an additional block of 225 MW from 2000 to 2004 and
a third block of 225 MW from 2001 to 2008. The remainder of the NCEMC
capacity provided by the Company, not separately contracted for in the
revised agreement, will be billed at fixed rates through the year 2003,
rather than at the formula rates established in the original PCA. The
FERC has accepted the revised PCA. When NCEMC seeks future supplies,
the Company will respond and expects to remain competitive in the
pursuit and retention of wholesale load.
In August 1996, Power Agency notified the Company of its intention to
discontinue certain contractual purchases of power from the Company
effective September 1, 2001. Power Agency's notice indicated that it
intends to replace these contractual obligations through purchases of
capacity and energy and related services in the open market, and that
the Company will be considered as a potential supplier for those
purchases. Under the 1981 Power Coordination Agreement, as amended,
between the Company and Power Agency, Power Agency can reduce its
purchases from the Company with an appropriate five-year notice. The
Company and Power Agency have agreed on a process for determining the
sufficiency of the August 1996 notice. The Company cannot predict the
outcome of this matter.
As a regulated entity, the Company is subject to the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," (SFAS-71). Accordingly, the
Company records certain regulatory assets and liabilities resulting
from the effects of the ratemaking process. These assets and
liabilities would not be recorded under generally accepted accounting
principles for unregulated entities. The Company's ability to continue
to meet the criteria for application of SFAS-71 may be affected in the
future by competitive forces, deregulation and restructuring in the
electric utility industry. In the event that SFAS-71 no longer applied
to a separable portion of the Company's operations, related regulatory
assets and liabilities would be eliminated unless an appropriate
regulatory recovery mechanism is provided. Additionally, these factors
could result in an impairment of electric utility plant assets as
determined pursuant to Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
CAPITAL REQUIREMENTS
- --------------------
Capital Requirements. During 1997 the Company expended approximately
----------------------
$549 million for capital requirements. Estimated capital requirements
for 1998 through 2000 primarily reflect construction expenditures that
will be made to meet customer growth by adding generating, transmission
and distribution facilities, as well as upgrading existing facilities.
The Company's capital requirements, excluding expenditures of
diversified businesses, for those years are reflected in the following
table (in millions).
12
<PAGE>
<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Construction Expenditures $398 $494 $526
Nuclear Fuel Expenditures 93 83 96
AFUDC (6) (5) (7)
----- ----- -----
Net Expenditures <F1> 485 572 615
Mandatory Retirements of Long-Term Debt 208 53 197
TOTAL $693 $625 $812
- ----- ===== ===== =====
<FN>
<F1> Reflects reductions of approximately $11 million, $18 million and
$7 million for 1998, 1999 and 2000, respectively, in net capital
requirements resulting from Power Agency's projected payment of its
ownership share of capital expenditures related to the Joint
Facilities.
</FN>
</TABLE>
This table includes Clean Air Act expenditures of approximately $32
million, and generating facility addition expenditures of approximately
$405 million. The generating facility addition expenditures will
primarily be used to construct new combustion turbine units, which are
intended for use during periods of high demand. These units are
scheduled to be placed in service during 1999 through 2002. See PART I,
ITEM 1, "Environmental Matters", paragraph 2, and "Generating
Capability," paragraph 3, for further discussion of the impact of the
Clean Air Act on the Company and planned generation additions,
respectively.
In addition, total projected cash requirements of diversified
businesses for the years 1998 through 2000 approximate $362 million.
These expenditures include affordable housing investments,
telecommunications infrastructure development, acquisitions and other
capital requirements of the Company's diversified businesses. These
projections are periodically reviewed and may change significantly.
FINANCING PROGRAM
- -----------------
1. Financing Requirements. Based on the Company's most recent estimate of
-----------------------
capital requirements, external funding requirements, which do not
include early redemptions of long-term debt or redemptions of preferred
stock, are expected to approximate $220 million in 1998. These funds
will be required for construction, mandatory retirements of long-term
debt and general corporate purposes, including the repayment of
short-term debt. The Company expects to have external funding
requirements of $100 million and $200 million in 1999 and 2000,
respectively. The amount and timing of future sales of the Company's
securities will depend upon market conditions and the specific needs of
the Company. The Company may from time to time sell securities beyond
the amount needed to meet capital requirements in order to allow for
the early redemption of long-term debt, the redemption of preferred
stock, the reduction of short-term debt or for other general corporate
purposes. See PART II, ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", for further analysis
and discussion of the Company's financing plans and capital resources
and liquidity.
13
<PAGE>
2. SEC Filings.
------------
a) The Company has on file with the Securities and Exchange
Commission (SEC) a shelf registration statement (File No.
33-57835), under which $250 million principal amount of first
mortgage bonds and $125 million principal amount of first
mortgage bonds and/or unsecured debt securities of the Company
remain available for issuance.
b) The Company has on file with the SEC a shelf registration
statement (File No. 33-5134) enabling the Company to issue up
to $180 million of Serial Preferred Stock.
3. Issuances of Bonds, Preferred Stock and Debentures.
---------------------------------------------------
External financings during 1997 included:
The issuance on August 26, 1997, of $200 million principal
amount of First Mortgage Bonds, 6.80% Series due on August 15,
2007. The net proceeds of approximately $199 million were used
to reduce the outstanding balance of commercial paper and
other short-term debt and for other general corporate
purposes.
4. Redemptions/Retirements of Bonds, Preferred Stock and Debentures.
-----------------------------------------------------------------
Redemptions and retirements during 1997 included:
a) The retirement on January 24, 1997, of $60 million principal
amount of First Mortgage Bonds, 7.75% Secured Medium-Term
Notes, Series C, which matured on that date.
b) The redemption on July 1, 1997, of all 500,000 shares of
Serial Preferred Stock, $7.72 Series, at a redemption price of
$101.00 per share.
c) The redemption on July 1, 1997, of all 350,000 shares of
Serial Preferred Stock, $7.95 Series, at a redemption price of
$101.00 per share.
d) The retirement on October 1, 1997, of $40 million principal
amount of First Mortgage Bonds, 6-3/8% Series, which matured
on that date.
5. Credit Facilities. As of December 31, 1997, the Company's revolving
-------------------
credit facilities totaled $515 million, substantially all of which are
long-term agreements supporting its commercial paper borrowings. The
Company is required to pay minimal annual commitment fees to maintain
its credit facilities. Consistent with management's intent to maintain
a portion of its commercial paper on a long-term basis, and as
supported by its long-term revolving credit facilities, the Company has
included in its long-term debt $245.9 million of commercial paper
outstanding as of December 31, 1997. See PART II, ITEM 8, "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", Note 3, for a more
detailed discussion of the Company's revolving credit facilities.
14
<PAGE>
RETAIL RATE MATTERS
- -------------------
1. General. The Company is subject to regulation in North Carolina by the
--------
NCUC and in South Carolina by the SCPSC with respect to, among other
things, rates and service for electric energy sold at retail, retail
service territory and issuances of securities.
2. Current Retail Rates. The rates of return granted to the Company in its
---------------------
most recent general rate cases are as follows:
<TABLE>
1988 North Carolina Utilities Commission Order (test year ended March 31, 1987)
- -------------------------------------------------------------------------------
<CAPTION>
Capital Weighted Weighted
Capital Structure Ratio Cost Rate Cost
- ----------------- ------- --------- --------
<S> <C> <C> <C>
Long-Term Debt 48.57% 8.62% 4.19%
Preferred Stock 7.43 8.75 .65
Common Equity 44.00 12.75 5.61
-----
Rate of Return 10.45%
=====
</TABLE>
<TABLE>
1988 South Carolina Public Service Commission Order (test year ended
September 30, 1987)
- -------------------------------------------------------------------------------
<CAPTION>
Capital Weighted Weighted
Capital Structure Ratio Cost Rate Cost
- ----------------- ------- --------- --------
<S> <C> <C> <C>
Long-Term Debt 47.82% 8.62% 4.12%
Preferred Stock 7.46 8.75 .65
Common Equity 44.72 12.75 5.71
-----
Rate of Return 10.48%
=====
</TABLE>
A petition was filed on July 19, 1996 by the Carolina Industrial Group
for Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC
conduct an investigation of the Company's base rates or treat its
petition as a complaint against the Company (Docket No. E-2, Sub. 699).
The petition alleged that the Company's return on equity (which was
authorized by the NCUC in the Company's last general rate proceeding in
1988), and earnings are too high. By order dated December 6, 1996, the
NCUC approved the Company's proposal to accelerate amortization of
certain regulatory assets over a three year period beginning January 1,
1997. The accelerated amortization of these regulatory assets reduced
income by approximately $43 million, after tax, in each of the 3 years.
The NCUC also authorized the Company to defer operation and maintenance
expenses associated with Hurricane Fran. On December 27, 1996, the NCUC
issued an order denying CIGFUR's petition and stating that it
tentatively found no reasonable grounds to proceed with CIGFUR's
petition as a complaint. On January 10, 1997, CIGFUR filed a motion for
reconsideration with the NCUC, to which the Company responded on
January 23, 1997. On February 6, 1997, the NCUC issued an order denying
CIGFUR's motion for reconsideration. On February 25, 1997, CIGFUR filed
a Notice of Appeal of the NCUC order with the North Carolina Court of
Appeals. The Company filed its brief with the North Carolina Court of
Appeals on July 18, 1997, and oral argument was held before the North
Carolina Court of Appeals on November 19, 1997. The Company cannot
predict the outcome of this matter.
15
<PAGE>
3. Integrated Resource Planning. Integrated resource planning is a process
-----------------------------
that systematically compares all reasonably available resources, both
demand-side and supply-side, in order to develop that mix of resources
that allows a utility to meet customer demand in a cost-effective
manner, giving due regard to system reliability, safety and the
environment. In the past, utilities were required to file their
Integrated Resource Plans (IRP) with the NCUC and the SCPSC once every
three years. The Company regularly reviews its IRP in light of changing
conditions and evaluates the impact these changes have on its resource
plans, including purchases and other resource options. By Order issued
September 16, 1997, the NCUC initiated a rulemaking proceeding
regarding its existing IRP process. By order issued January 27, 1998,
the NCUC notified all interested parties that given the pending
rulemaking the utilities should not anticipate an IRP filing in 1998
under the current IRP rules. The NCUC stated that an IRP filing may be
required later in 1998, but if such a filing is required, the utilities
will be given sufficient time to prepare such a filing. The utility
companies operating in South Carolina have filed a petition with the
SCPSC to revise and streamline the South Carolina IRP process. The
Company cannot predict the outcome of these matters.
4. Fuel Cost Recovery.
-------------------
a) In the North Carolina retail jurisdiction, the NCUC
establishes base fuel costs in general rate cases and holds
hearings annually to determine whether a rider should be added
to base fuel rates to reflect increases or decreases in the
cost of fuel and the fuel cost component of purchased power as
well as changes in the fuel cost component of sales to other
utilities. The NCUC considers the changes in the Company's
cost of fuel during a historic test period ending March 31 of
each year and corrects any past over- or under-recovery. On
June 5, 1997, the Company filed its 1997 application proposing
to lower the Company's billing fuel factor from 1.109
cents/kWh to 1.097 cents/kWh. The fuel factor hearing was held
on August 5, 1997 and the NCUC issued a final order approving
the billing fuel factor of 1.097 cents/kWh on September 8,
1997. This new factor became effective on September 15, 1997.
b) In the South Carolina retail jurisdiction, fuel rates are set
by the SCPSC. At the fuel hearings, any past over- or
under-recovery of fuel costs is taken into account in
establishing the new rate. On February 25, 1998, the Company
filed a proposal with the SCPSC to continue the existing fuel
factor of 1.122 cents/kWh. In accordance with the modified
fuel cost recovery statute, the Company's South Carolina fuel
proceeding was held on March 25, 1998. The approved fuel
factor will be effective for the period April 1, 1998 through
March 31, 1999.
5. Avoided Cost Proceedings. In 1996, the NCUC opened Docket No. E-100,
--------------------------
Sub 79 for its biennial proceeding to establish the avoided cost rates
for all electric utilities in North Carolina. Avoided cost rates are
intended to reflect the costs that utilities are able to "avoid" by
purchasing power from qualifying facilities. The Company's initial
filing in this docket was made on November 4, 1996. Intervenor comments
on the utilities' filings were made on January 10, 1997. By order
issued June 19, 1997, the NCUC approved the updated avoided cost rates
and provisions that were proposed by the Company.
16
<PAGE>
WHOLESALE RATE MATTERS
- ----------------------
1. General. The Company is subject to regulation by the FERC with respect
--------
to rates for transmission and sale of electric energy at wholesale, the
interconnection of facilities in interstate commerce (other than
interconnections for use in the event of certain emergency situations),
the licensing and operation of hydroelectric projects and, to the
extent the FERC determines, accounting policies and practices. The
Company and its wholesale customers last agreed to a general increase
in wholesale rates in 1988; however, wholesale rates have been adjusted
since that time through contractual negotiations.
2. FERC Matters.
-------------
a) On July 7, 1995, Smithfield Foods, Inc., doing business as
Carolina Foods Processors, Inc. (Carolina Foods), filed a
Complaint with the FERC (Docket No. EL95-60) alleging that
certain charges imposed upon NCEMC under the PCA between the
Company and NCEMC are unreasonable. These charges are related
to generation installed by Carolina Foods, which receives
electric service from Four County EMC (a customer of NCEMC).
The Company filed its response to the Complaint on August 10,
1995. The Company cannot predict the outcome of this matter.
b) On March 1, 1996, the Company and Power Agency entered into a
contractual agreement which provides that Power Agency will
delay construction and startup of its 183.7 MW combustion
turbine generating project until 2004. (That project was
scheduled to begin commercial operation in June 1998.)
Pursuant to a 1981 Power Coordination Agreement, as amended,
between Power Agency and the Company, Power Agency is
obligated to purchase this electricity from the Company from
1995 through May 31, 1998. As a result of the new agreement,
Power Agency will purchase peaking capacity from the Company
as follows: 110 MW from June 1, 1998 through December 31,
1998, 116 MW in 1999 and 183.7 MW from 2000 through 2003. The
Company filed the agreement with the FERC on June 6, 1997. The
agreement was accepted by the FERC by order dated June 27,
1997.
c) On November 13, 1997, the Company applied to the FERC for
authority to sell power at market-based rates. On January 12,
1998, the FERC issued an order accepting the Company's
application and permitting the Company to sell power at
market-based rates.
ENVIRONMENTAL MATTERS
- ---------------------
1. General. In the areas of air quality, water quality, control of toxic
--------
substances and hazardous and solid wastes and other environmental
matters, the Company is subject to regulation by various federal, state
and local authorities. The Company considers itself to be in
substantial compliance with those environmental regulations currently
applicable to its business and operations and believes it has all
necessary permits to conduct such operations. Environmental laws and
regulations, however, are constantly evolving and the character, scope
and ultimate costs for compliance with such evolving laws and
regulations cannot now be accurately estimated. The costs associated
with compliance with pollution control laws and regulations at the
Company's existing facilities that the Company expects to incur from
1998 through 2000 are included in the estimates of capital requirements
under PART I, ITEM 1, "Capital Requirements".
2. Clean Air Legislation. The 1990 amendments to the Clean Air Act (Act)
-----------------------
require substantial reductions in sulfur dioxide and nitrogen oxides
emissions from fossil-fueled electric generating plants. The Act will
17
<PAGE>
require the Company to meet more stringent provisions effective January
1, 2000. The Company plans to meet the sulfur dioxide emissions
requirements by utilizing the most economical combination of
fuel-switching and sulfur dioxide emission allowances. Installation of
additional equipment will be necessary to reduce nitrogen oxide
emissions. The Company estimates that future capital expenditures
necessary to meet these nitrogen oxide emission requirements will
approximate $32 million. Increased operation and maintenance costs,
including emission allowance expenses, and increased fuel costs are not
expected to be material to the results of operations of the Company.
In addition, there are emerging regulatory requirements that may
require utilities to install additional controls on nitrogen oxide
emissions and controls on toxics and particulate matter. The Company
cannot predict the outcome of these matters.
With regard to revisions to existing air quality standards, the
Environmental Protection Agency (EPA) issued final regulations revising
the ozone standard and establishing a new fine-particulate standard in
July, 1997. These regulations may require the installation of
additional control equipment at some of the Company's fossil-fueled
electric generating plants. The Company is evaluating the impact of the
new regulations on its facilities and cannot determine, at this time,
the estimated costs of additional controls that may be required for
compliance with the new standards. The Company cannot predict the
outcome of this matter.
3. Superfund. The provisions of the Comprehensive Environmental Response,
----------
Compensation and Liability Act of 1980, as amended (CERCLA), authorize
the EPA to require clean up of hazardous waste sites. This statute
imposes retroactive joint and several liability. States including North
and South Carolina have similar types of legislation. There are
presently several sites with respect to which the Company has been
notified by the EPA or the State of North Carolina of its potential
liability, as described below in greater detail.
a) In 1986, the EPA notified the Company of its potential
liability pursuant to CERCLA for the investigation and cleanup
activities associated with the Maxey Flats Nuclear Disposal
Site, a low-level nuclear waste disposal site located in
Fleming County, Kentucky. The Company has signed a Consent
Decree as part of the Maxey Flats Steering Committee, which
together with several federal agencies will perform the
Initial Remediation Phase. The State of Kentucky will
thereafter perform the Balance of Remediation Phase. The
Consent Decree has been approved by the U. S. District Court
for Eastern District of Kentucky and the work it requires is
in progress. Although the Company cannot predict the outcome
of this matter, it does not anticipate that costs associated
with this site will be material to the results of operations
of the Company.
b) By letter dated May 21, 1991, the EPA notified the Company
that it is a Potentially Responsible Party (PRP) with respect
to the disposal of hazardous substances at the Benton Salvage
site in Little Rock, Arkansas. The Company has been unable to
identify any records of shipments by the Company to that site.
Until any such documentation can be produced, the Company does
not intend to participate in cleanup activities at the site.
The Company cannot predict the outcome of this matter.
c) In 1991, the North Carolina Department of Environment and
Natural Resources (DENR), formerly North Carolina Department
of Environment, Health, and Natural Resources (DEHNR),
notified the Company that it is a PRP with respect to the
disposal of hazardous waste at the Seaboard Chemical
Corporation (Seaboard) site in Jamestown, North Carolina.
Seaboard is in bankruptcy. The wastes sent from the Company's
facilities to the Seaboard site consisted primarily of
cleaning and degreasing solvents, solvent contaminated oils
and paint-related waste.
18
<PAGE>
As part of the Seaboard Group (a group of PRPs with respect to
the Seaboard Site), the Company has entered into two
Administrative Orders of Consent (AOC) with DENR, Division of
Waste Management, to investigate and remediate the site.
Although the Company cannot predict the outcome of this
matter, it does not anticipate that costs associated with this
site would be material to the results of operations of the
Company.
d) In 1994, Crown Cork & Seal Company, Inc. and Clark Equipment
Co. filed a motion to add the Company as a defendant in an
ongoing lawsuit in the U. S. District Court for the Middle
District of North Carolina concerning the Macon-Dockery site,
located near Cordova, North Carolina. The lawsuit seeks to
recover costs incurred in undertaking the Remedial
Investigation Feasibility Study and the Remedial Design for
the Macon-Dockery site. Wastes disposed of at the
Macon-Dockery site include antifreeze, used oils, metals,
paint, solvent wastes and waste acids and bases. The Company
made arrangements in the past for the transportation and sale
of some petroleum products to C & M Oil Distributors, a
company that operated an oil reprocessing facility at the
Macon-Dockery site. However, the information available to the
Company indicates that no CERCLA hazardous wastes from Company
facilities were sent to the site. The court has dismissed this
action. The Company anticipates that this lawsuit will be
refiled shortly. The Company cannot predict the outcome of
this matter.
e) Various organic materials associated with the production of
manufactured gas, generally referred to as coal tar, are
regulated under various federal and state laws. There are
several manufactured gas plant (MGP) sites to which the
Company and certain entities that were later merged into the
Company had some connection. In this regard, the Company,
along with others, is participating in a cooperative effort
with the DENR, Division of Waste Management (DWM) to establish
a uniform framework for addressing these MGP sites. The
investigation and remediation of specific MGP sites will be
addressed pursuant to one or more Administrative Orders on
Consent between the DWM and the PRP. The Company continues to
investigate the identities of parties connected to individual
MGP sites, the relative relationships of the Company and other
parties to those sites and the degree which the Company will
undertake efforts with others at individual sites.
The Company has been notified by regulators of its involvement
or potential involvement in several sites, other than MGP
sites, that require remedial action. Although the Company
cannot predict the outcome of these matters, it does not
expect costs associated with these sites to be material to the
results of operations of the Company.
f) In 1996, the EPA notified the Company that it is a PRP with
respect to the disposal of hazardous substances at the
Cherokee Oil Company (Cherokee) sites in Charlotte, North
Carolina. The materials sent from the Company's facilities to
the Cherokee sites were associated with tank cleanings at the
Company's former Wilmington Oil Terminal. In 1997, a consent
decree resolving the Company's and many other entities'
liability at the site was entered with the United States
District Court for the Western District of North Carolina.
4. Other Environmental Matters. In 1989, the DENR, Division of Water
------------------------------
Quality, formerly the Division of Environmental Management, requested
that the Company address groundwater contamination at its Wilmington
Oil Terminal in New Hanover County, North Carolina. DENR approved the
Company's Corrective Action Plan modifications, which allowed the
Company to demonstrate to DENR's satisfaction that natural attenuation
will address this contamination. The Company has since sold the
terminal, and does not anticipate that costs associated with this site
will be material to the results of operations of the Company.
19
<PAGE>
The Company has filed claims with its general liability insurance
carriers to recover costs arising out of actual or potential
environmental liabilities. The Company cannot predict the outcome of
these matters.
5. Environmental Accrual. The Company carries a liability for the
------------------------
estimated costs associated with remedial activities, except for MGP
site remediation costs. This liability is not material to the financial
position of the Company. The MGP site remediation costs are not
currently determinable; however, the Company does not expect those
costs to be material to the financial position of the Company.
NUCLEAR MATTERS
- ---------------
1. General. Under the Atomic Energy Act of 1954 and the Energy
--------
Reorganization Act of 1974, as amended, operation of nuclear plants is
intensively regulated by the Nuclear Regulatory Commission (NRC), which
has broad power to impose nuclear safety and security requirements. In
the event of noncompliance, the NRC has the authority to impose fines,
set license conditions, or shut down a nuclear unit, or some
combination of these, depending upon its assessment of the severity of
the situation, until compliance is achieved. The electric utility
industry in general has experienced challenges in a number of areas
relating to the operation of nuclear plants, including substantially
increased capital outlays for modifications; the effects of inflation
upon the cost of operations; increased costs related to compliance with
changing regulatory requirements; renewed emphasis on achieving
excellence in all phases of operations; unscheduled outages; outage
durations; and uncertainties regarding both disposal facilities for
low-level radioactive waste and storage facilities for spent nuclear
fuel. See paragraphs 2 and 3 below. The Company experiences these
challenges to varying degrees. Capital expenditures for modifications
at the Company's nuclear units, excluding Power Agency's ownership
interests, during 1998, 1999 and 2000 are expected to total
approximately $50 million, $45 million, and $36 million, respectively
(including AFUDC).
2. Spent Fuel and Other High-Level Radioactive Waste. The Nuclear Waste
-----------------------------------------------------
Policy Act of 1982 (Nuclear Waste Act) provides the framework for
development by the federal government of interim storage and permanent
disposal facilities for high-level radioactive waste materials. The
Nuclear Waste Act promotes increased usage of interim storage of spent
nuclear fuel at existing nuclear plants. The Company will continue to
maximize the use of spent fuel storage capability within its own
facilities for as long as feasible. Pursuant to the Nuclear Waste Act,
the Company, through a joint agreement with the U. S. Department of
Energy (DOE) and the Electric Power Research Institute, has built a
demonstration facility at the Robinson Plant that allows for the dry
storage of 56 spent nuclear fuel assemblies. As of December 31, 1997,
sufficient on-site spent nuclear fuel storage capability is available
for the full-core discharge of Brunswick Unit No. 1 through 1999,
Brunswick Unit No. 2 through 1998, and Robinson Unit No. 2 through 2000
assuming normal operating and refueling schedules. The Harris Plant
spent fuel storage facilities, with certain modifications, together
with the spent fuel storage facilities at the Brunswick and Robinson
Units, are sufficient to provide storage space for spent fuel generated
on the Company's system through the expiration of the current operating
licenses for all of the Company's nuclear generating units. Subsequent
to the expiration of the licenses, dry storage may be necessary in
conjunction with the decommissioning of the units. The Company is
maintaining full-core discharge capability for the Brunswick Units and
Robinson Unit No. 2 by transferring spent nuclear fuel by rail to the
Harris Plant. As a contingency to the shipment by rail of spent nuclear
fuel, on April 27, 1989, the Company filed an application with the NRC
for the issuance of a license to construct and operate an independent
spent fuel storage facility for the dry storage of spent nuclear fuel
at the Brunswick Plant. Due to the success of the Company's shipping
efforts to date, however, at the Company's request, the NRC suspended
review of the Company's license application pending notification by the
Company of its desire to continue the application process. The Company
cannot predict the outcome of this matter.
20
<PAGE>
As required by the Nuclear Waste Act, the Company entered into a
contract with the DOE in June 1983 under which the DOE agreed to
dispose of the Company's spent nuclear fuel. In December 1996, the DOE
notified the Company and other similarly situated utilities that the
agency anticipated that it would be unable to begin acceptance of spent
nuclear fuel by January 31, 1998. In January 1997, the Company,
together with 35 other utilities, filed a Joint Petition for Review
with the United States Court of Appeals (the Court) requesting the
Court review the final decision of the DOE and the DOE's failure to
meet its unconditional obligation under the Nuclear Waste Act. In
November 1997, the Court found that the DOE had an unconditional
obligation to begin disposal of spent nuclear fuel by January 31, 1998,
and issued a writ of mandamus precluding the DOE from advancing any
construction of the contract that would excuse the DOE's delinquency on
the grounds that it has not yet established a permanent repository or
an interim storage program. The DOE defaulted on its obligation to
begin taking spent nuclear fuel by January 31, 1998, and a group of
utilities, including the Company, is considering measures to force the
DOE to take spent nuclear fuel or to pay damages from monies other than
the Nuclear Waste Fund. As of December 31, 1997, the Company has paid
$324 million (including Power Agency's share), to the DOE. The Company
cannot predict the outcome of this matter.
By order issued August 20, 1997, the NCUC requested comments from
interested parties regarding the utilities' spent fuel storage and
disposal activities and costs and the reasonableness of the utilities'
continuing to pay a disposal fee to the DOE after January 31, 1998.
Initial comments were filed by the Company and other interested parties
on September 30, 1997. Reply comments were filed on October 21, 1997.
The Company cannot predict the outcome of this matter.
In October of 1997, the U.S. House of Representatives voted 307 to 120
in favor of legislation calling for the construction of an interim
nuclear waste storage site in Nevada by 2002. A similar waste bill was
approved by the U.S. Senate in April of 1997. The Company cannot
predict the outcome of this matter.
3. Low-Level Radioactive Waste. Disposal costs for low-level radioactive
-----------------------------
waste that result from normal operation of nuclear units have increased
significantly in recent years and are expected to continue to rise.
Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, as
amended in 1985, each state is responsible for disposal of low-level
waste generated in that state. States that do not have existing sites
may join in regional compacts. The States of North and South Carolina
were participants in the Southeast regional compact and disposed of
waste at a disposal site in South Carolina along with other members of
the compact. Effective July 1, 1995, South Carolina withdrew from the
Southeast regional compact and excluded North Carolina waste generators
from the existing disposal site in South Carolina. As a result, the
State of North Carolina does not have access to a low-level radioactive
waste disposal facility. The North Carolina Low-Level Radioactive Waste
Management Authority, which is responsible for siting and operating a
new low-level radioactive waste disposal facility for the Southeast
regional compact, has submitted a license application for the site it
selected in Wake County, North Carolina to the North Carolina Division
of Radiation Protection. In December 1997, the Southeast Regional
Compact Commission suspended funding for the proposed low-level
radioactive waste facility in Wake County. The future funding for this
project remains uncertain. Although the Company does not control the
future availability of low-level waste disposal facilities, the cost of
waste disposal or the development process, it supports the development
of new facilities and is committed to a timely and cost-effective
solution to low-level waste disposal. The Company's nuclear plants in
North Carolina are currently storing low-level waste on site and are
developing additional storage capacity to accommodate future needs. The
Company's nuclear plant in South Carolina has access to the existing
disposal site in South Carolina. Although the Company cannot predict
the outcome of this matter, it does not expect the cost of providing
additional on-site storage capacity for low-level radioactive waste to
be material to the results of operations or financial position of the
Company.
21
<PAGE>
4. Decommissioning.
----------------
a) Pursuant to an NRC rule, licensees of nuclear facilities are
required to submit decommissioning funding plans to the NRC
for approval to provide reasonable assurance that the licensee
will have the financial ability to implement its
decommissioning plan for each facility. The rule requires
licensees to do one of the following: prepay at least an
NRC-prescribed minimum amount immediately; set up an external
sinking fund for accumulation of at least that minimum amount
over the operating life of the facility; or provide a surety
to guarantee financial performance in the event of the
licensee's financial inability to perform actual
decommissioning. On July 26, 1990, the Company submitted its
decommissioning funding plans to the NRC. In this regard, the
Company entered into a Master Decommissioning Trust Agreement
dated July 19, 1990 (Trust), with Wachovia Bank of North
Carolina, N.A., as Trustee, as a vehicle to achieve such
decommissioning funding. In June 1991, the Company began
depositing funds into the Trust.
With regard to the Company's recovery through rates of nuclear
decommissioning costs, in the Company's retail jurisdictions,
provisions for nuclear decommissioning costs were approved by
the NCUC and the SCPSC in the Company's 1988 general rate
cases, and were based on site-specific estimates that included
the costs for removal of all radioactive and other structures
at the site. In the wholesale jurisdiction, the provisions for
nuclear decommissioning costs are based on amounts agreed upon
in applicable rate agreements. Decommissioning cost
provisions, which are included in depreciation and
amortization expense, were $33.2 million, $33.1 million and
$31.2 million in 1997, 1996 and 1995, respectively.
Accumulated decommissioning costs, which are included in
accumulated depreciation, were $428.7 million and $326 million
at December 31, 1997 and 1996, respectively. These costs
include amounts retained internally and amounts funded in an
external decommissioning trust. The balance of the nuclear
decommissioning trust was $245.5 million and $145.3 million at
December 31, 1997 and 1996, respectively. Trust earnings
increase the trust balance with a corresponding increase in
the accumulated decommissioning balance. These balances are
adjusted for net unrealized gains and losses. Based on the
site-specific estimates discussed below and using an assumed
after-tax earnings rate of 8.5% and an assumed cost escalation
rate of 4%, current levels of rate recovery for nuclear
decommissioning costs are adequate to provide for
decommissioning of the Company's nuclear facilities.
b) The Company's most recent site-specific estimates of
decommissioning costs were developed in 1993 using 1993 cost
factors, and are based on prompt dismantlement
decommissioning, which reflects the cost of removal of all
radioactive and other structures currently at the site, with
such removal occurring shortly after operating license
expiration. See paragraph 5 below for expiration dates of
operating licenses. These estimates, in 1993 dollars, are
$257.7 million for Robinson Unit No. 2, $235.4 million for
Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2,
and $284.3 million for the Harris Plant. These estimates are
subject to change based on a variety of factors, including,
but not limited to, cost escalation, changes in technology
applicable to nuclear decommissioning, and changes in federal,
state or local regulations. The cost estimates exclude the
portion attributable to Power Agency, which holds an undivided
ownership interest in the Brunswick and Harris nuclear
generating facilities. To the extent of its ownership
interests, Power Agency is responsible for satisfying the
NRC's financial assurance requirements for decommissioning
costs. See PART I, ITEM 1, "Generating Capabilities",
paragraph 1.
c) The Financial Accounting Standards Board has reached several
tentative conclusions with respect to its project regarding
accounting practices related to closure and removal of
long-lived assets. It
22
<PAGE>
is uncertain when the final statement will be issued and what
impacts it may ultimately have on the Company's accounting for
nuclear decommissioning and other closure and removal costs.
5. Operating Licenses. Facility Operating Licenses, issued by the NRC, for
-------------------
the Company's nuclear units allow for a full 40 years of operation.
Expiration dates for these licenses are set forth in the following
table.
<TABLE>
Facility Operating License
<CAPTION>
Facility Expiration Date
-------- ---------------
<S> <C>
Robinson Unit No. 2 July 31, 2010
Brunswick Unit No. 1 September 8, 2016
Brunswick Unit No. 2 December 27, 2014
Harris Plant October 24, 2026
</TABLE>
6. Other Nuclear Matters.
----------------------
a) In 1991, the NRC issued a final rule on nuclear plant
maintenance that became effective on July 10, 1996. In general
terms, the new maintenance rule prescribes the establishment
of performance criteria for each safety system based on the
significance of that system. The rule also requires monitoring
of safety system performance against the established
acceptance criteria, and provides that remedial action be
taken when performance falls below the established criteria.
The Company has been working closely with the Nuclear Energy
Institute (formerly the Nuclear Management and Resources
Council) and with other utilities to develop its compliance
approach and to minimize the financial and operational impacts
of the new rule. The Company anticipates its compliance will
be on schedule and is evaluating the magnitude of the
financial and operational impacts of this new rule. Although
the Company cannot predict the outcome of this matter, it does
not expect the impacts of the new rule to be material to the
Company's results of operations.
b) On November 23, 1988, the NRC requested in Generic Letter
88-20 that utilities perform Individual Plant Examinations
(IPEs) to determine potential vulnerabilities to severe
accidents beyond the design basis accidents for which the
plants are designed. These are considered to be very low
probability events. The Company submitted the results of the
first phase (for internally initiated events) in August 1992
for the Brunswick and Robinson Plants. Based on those results,
potential enhancements for the Robinson Plant were evaluated
and several enhancements were made to the Robinson Plant.
These changes had insignificant financial and operational
impacts. For the Brunswick Plant, no modifications were
required to meet the guidelines of the IPE. On August 20,
1993, the Company submitted the results of the Harris Plant
IPE. While some Harris Plant procedural changes were made due
to the IPE results, the IPE did not result in any significant
financial or operational impacts or identify any need for
plant modifications. In June 1995, the Company completed and
submitted the results of the second phase of the IPEs (for
externally initiated events) for the Company's three nuclear
plants. The results of the IPEs indicated that some procedural
changes may be required for the Harris and Brunswick Plants.
Those results also indicated that both minor procedural
changes and minor plant modifications will be required for the
Robinson Plant. All IPE items and findings have been
addressed, with implementation completed in all areas, except
for those items which are being addressed through the Severe
Accident Management Guideline programs at each of the
Company's nuclear plants. The programs are targeted to be
fully implemented by year-end 1998. Although the Company
23
<PAGE>
cannot predict at this time the exact magnitude of the
financial and operational impacts of the second phase of the
IPEs, it does not expect those impacts to be material to the
results of operations or financial position of the Company.
c) Degradation of tubing internal to steam generators in
pressurized water reactor power plants due to intergranular
stress corrosion cracking has been an on-going industry
phenomenon. The Company has determined that the steam
generators at the Harris Plant are subject to steam generator
degradation and the Company is closely monitoring the steam
generator performance. Experience and testing conducted to
date indicate that the Harris Plant steam generators will not
require replacement before 2000. The steam generators at the
H.B. Robinson plant were replaced in 1984 and are expected to
perform until the plant's operating license expires. Although
the Company cannot predict the outcome of this matter, it does
not expect the cost of replacing the steam generators at the
Harris Plant to be material to the results of operations or
financial position of the Company.
d) The Company is insured against public liability for a nuclear
incident up to $8.9 billion per occurrence, which is the
maximum limit on public liability claims pursuant to the
Price-Anderson Act. In the event that public liability claims
from an insured nuclear incident exceed $200 million, the
Company would be subject to a pro rata assessment of up to
$75.5 million, plus a 5% surcharge, for each reactor owned for
each incident. Payment of such assessment would be made over
time as necessary to limit the payment in any one year to no
more than $10 million per reactor owned. Power Agency would be
responsible for its ownership share of the assessment on
jointly-owned nuclear units. For a more detailed discussion of
nuclear liability insurance, see PART II, ITEM 8,
"CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA",
Note 11 b.
FUEL
- ----
1. Sources of Generation. Total system generation (including Power
------------------------
Agency's share) by primary energy source, along with purchased power,
for the years 1994 through 1998 is set forth below:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(estimated)
<S> <C> <C> <C> <C> <C>
Fossil 43% 44% 45% 46% 51%
Nuclear 42 42 41 43 39
Purchased Power 13 13 12 10 9
Hydro 2 1 2 1 1
</TABLE>
2. Coal. a) The Company has intermediate and long-term agreements from
-----
which it expects to receive approximately 73% of its coal burn
requirements in 1998. During both 1996 and 1997, the Company obtained
approximately 68% (7,181,257 tons and 7,398,850 tons in 1996 and 1997,
respectively), of its coal burn requirements from intermediate and
long-term agreements. Existing agreements have expiration dates ranging
from 1998 to 2006. During 1997, the Company maintained from 25 to 62
system days' supply of coal, based on anticipated burn rate. All of the
coal that the Company is currently purchasing under intermediate and
long-term agreements is considered to be low sulfur coal by industry
standards. Recent amendments to the Clean Air Act may result in
increases in the price of low sulfur coal. See PART I, ITEM 1,
"Environmental
24
<PAGE>
Matters", paragraph 2. The Company purchased approximately 3,340,000
tons of coal in the spot market during 1996 and 3,125,000 tons in 1997.
The Company's contract coal purchase prices during 1997 ranged from
approximately $21.64 to $41.5 per ton (F.O.B. mine adjusted to 12,000
Btu/lb.). The average cost (including transportation costs) to the
Company of coal delivered for the past five years is as follows:
<TABLE>
<CAPTION>
Year Dollars/Ton Cents/Million BTU
---- ----------- -----------------
<S> <C> <C>
1993 43.10 172
1994 43.36 174
1995 44.46 179
1996 42.21 170
1997 41.42 169
</TABLE>
b) The Company and certain subsidiaries of Zeigler Coal Holding
Company (Zeigler) have renegotiated their existing contract.
Under the revised agreement, which expires in 2006, the
Company will continue to purchase approximately 2.75 million
tons of coal annually from Zeigler's Marrowbone mine, and will
purchase approximately 6 million tons of additional, lower
cost coal from Zeigler over a period of several years under a
new contract. The coal will be required to meet the same
technical specifications for sulfur and thermal content as the
coal supplied from the Marrowbone mine, and is expected to
save the Company more than $100 million over the life of the
contract.
3. Oil. The Company uses No. 2 oil primarily for its combustion turbine
----
units, which are used for emergency backup and peaking purposes, and
for boiler start-up and flame stabilization. The Company burned
approximately 12.1 million gallons and 18.3 million gallons of No. 2
oil during 1996 and 1997, respectively. The Company has a No. 2 oil
supply contract for its normal requirements. In the event base-load
capacity is unavailable during periods of high demand, the Company may
increase the use of its combustion turbine units, thereby increasing
No. 2 oil consumption. The Company intends to meet any additional
requirements for No. 2 oil through additional contract purchases or
purchases in the spot market. There can be no assurance that adequate
supplies of No. 2 oil will be available to meet the Company's
requirements. To reduce the Company's vulnerability to dislocations in
the oil market, seven combustion turbine units with a total generating
capacity of 364 MW have been converted to burn either propane or No. 2
oil. In addition, fourteen combustion turbine units with a total
generating capacity of 665 MW can burn natural gas when available. Over
the last five years, No. 2 oil, natural gas and propane accounted for
2.4% of the Company's total burned fuel cost. In 1997, No. 2 oil,
natural gas and propane accounted for 3.7% of the Company's total
burned fuel cost. The availability and cost of fuel oil could be
adversely affected by energy legislation enacted by Congress,
disruption of oil or gas supplies, labor unrest and the production,
pricing and embargo policies of foreign countries.
4. Nuclear. The nuclear fuel cycle requires the mining and milling of
--------
uranium ore to provide uranium oxide concentrate (U3O8), the conversion
of U3O8 to uranium hexafluoride (UF6), the enrichment of the UF6 and
the fabrication of the enriched uranium into fuel assemblies. Existing
uranium contracts are expected to supply the necessary nuclear fuel to
operate Robinson Unit No. 2 through 1998, Brunswick Unit No. 1 through
1998, Brunswick Unit No. 2 through 1998 and the Harris Plant through
1999.
The Company expects to meet its future U3O8 requirements from inventory
on hand and amounts received under contract. Although the Company
cannot predict the future availability of uranium and nuclear fuel
services, the Company does not currently expect to have difficulty
obtaining U3O8 and the services
25
<PAGE>
necessary for its conversion, enrichment and fabrication into nuclear
fuel. For a discussion of the Company's plans with respect to spent
fuel storage, see PART I, ITEM 1, "Nuclear Matters", paragraph 2.
5. DOE Enrichment Facilities Decontamination and Decommissioning Fund.
-----------------------------------------------------------------------
Under Title XI of the Energy Policy Act of 1992, Public Law 102-486,
Congress established a decontamination and decommissioning (D&D) fund
for the DOE's gaseous diffusion enrichment plants. Contributions to
this fund are being made by U.S. domestic utilities which have
purchased enrichment services from DOE since it began sales to
non-Department of Defense customers. Each utility's share of the
contributions will be based on that utility's past purchases of
services as a percentage of all purchases of services by U.S.
utilities, with total annual contributions capped at $150 million per
year, indexed to inflation, and an overall cap of $2.25 billion over 15
years, also indexed to inflation. The Company has paid approximately
$29 million in D&D fees through 1997, and expects to pay a cumulative
total of approximately $83 million over the 15 year period ending
September 30, 2007 (excluding Power Agency's ownership share). The
Company is recovering these costs as a component of fuel cost.
On or about March 4, 1997, the Company filed a claim with the DOE
seeking a refund of part of the price paid by the Company for
enrichment services purchased from the DOE in 1993. It is the Company's
position that the contract price it paid to DOE in 1993 for uranium
purchases included the cost of D&D, and that DOE's collection of
additional D&D fees pursuant to the Energy Act resulted in an
overpayment of fees by the Company totaling approximately $1.4 million.
The Company cannot predict the outcome of this matter.
Additionally, on or about March 21, 1997, the Company, along with other
entities, filed an administrative claim with the DOE, and a Complaint
against the DOE in the United States Court of Federal Claims, seeking
the recovery of approximately $27 million (including Power Agency's
ownership share) representing D&D assessments paid by the Company
through 1996, and the elimination of future D&D fund assessments. It is
the Company's position that the D&D assessments constitute a breach of
contract, a taking of vested contract rights, a violation of property
rights, illegal exaction and a violation of the Fifth Amendment of the
United States Constitution. The Company's action has been stayed
pending the outcome of a similar case, Yankee Atomic Electric Company
v, United States (33 Fed.Cl. 580 (Cl.Ct. 1995) in which the United
States Court of Claims found that a portion of the D&D assessments made
against Yankee Atomic were unlawful. The government appealed that case
to the District of Columbia Circuit Court of Appeals, which
subsequently overturned the favorable Court of claims decision. After
the Circuit Court of Appeals refused to rehear the matter, Yankee
Atomic filed a petition for a certiorari to seek a review by the United
States Supreme Court. The Company cannot predict the outcome of these
matters.
6. Purchased Power. The Company purchased 5,886,722 MWh in 1997, 6,792,340
----------------
MWh in 1996 and 6,974,597 MWh in 1995 or approximately 10%, 12% and
13%, respectively, of its system energy requirements (including Power
Agency) and had available 1,839 MW in 1997, 1,536 MW in 1996 and 1,596
MW in 1995 of firm purchased capacity under contract at the time of
peak load. The Company may acquire purchased power capacity in the
future to accommodate a portion of its system load needs.
DIVERSIFIED BUSINESSES
- ----------------------
1. Interpath Communications, Inc. (formerly CaroNet, LLC). In 1997, the
----------------------------------------------------------
Company created a new subsidiary, Interpath Communications, Inc.
(Interpath). All of CaroNet, LLC's assets, liabilities and operating
certificates are being transferred to Interpath. Interpath has acquired
Capitol Information Services, Inc., a regional Internet service
provider based in Raleigh, North Carolina. Interpath will provide
26
<PAGE>
Internet retail telecommunications solutions and will expand services
to include more telecommunications business solutions, including voice
and data applications for small and medium-sized businesses.
Interpath also owns a 10% limited partnership interest in BellSouth
Carolinas PCS, L.P. BellSouth Personal Communications, Inc. manages the
partnership as the general partner. PCS is a wireless communications
technology that provides high-quality mobile communications. The
partnership serves PCS subscribers in North and South Carolina and a
small portion of Georgia pursuant to a license issued by the Federal
Communications Commission.
2. CaroHome, LLC. In 1995, the Company established CaroHome, LLC, a
---------------
limited liability company, to further the Company's investments in
affordable housing. These investments are designed to earn tax credits
while helping communities meet their needs for affordable housing. The
Company, principally through CaroHome, LLC, has invested or committed
to invest a total of $58 million in affordable housing and anticipates
investing up to a total of $125 million in affordable housing by the
year 2000.
3. Strategic Resource Solutions Corp. (formerly CaroCapital, Inc.). In
--------------------------------------------------------------------
1997, CaroCapital, Inc. (CaroCapital), a wholly owned subsidiary of the
Company, acquired the remaining interest in Knowledge Builders, Inc.
(KBI) and entered into a merger agreement under which KBI, was merged
into CaroCapital. KBI was an energy-management software and control
systems company in which CaroCapital purchased a 40% interest in 1996.
Pursuant to the merger agreement the remaining KBI stock was exchanged
for shares of common stock of the Company according to a market value
formula. Initial payments under the merger agreement totaled
approximately $22 million, payable primarily in unregistered restricted
shares of the Company's common stock. The merger agreement also
provides for other incentive payments that may be earned by the KBI
founders based on CaroCapital's future results of operations. If
earned, these additional payments will be made primarily in
unregistered, restricted shares of the Company's common stock (valued
according to a market value formula). Following the completion of the
merger, CaroCapital's name was changed to Strategic Resource Solutions
Corp. (SRS), a North Carolina Enterprise Corporation. SRS is a
technology-based energy services company delivering facility-management
and energy-management products and services to the educational,
commercial, industrial and governmental markets nationwide. During
1997, SRS purchased Diversified Control Systems, a building automation
systems company, and made a minority investment in Remote Source
Lighting International, Inc., a fiber optic lighting company. Also, in
January 1998, SRS acquired the assets of Parke Industries, Inc. (Parke)
a lighting technology and management company. Parke was the fourth
largest lighting company in the United States. These investments
enhance SRS's ability to deliver energy-management solutions and
value-added products into the marketplace.
OTHER MATTERS
- -------------
1. Safety Inspection Reports. On April 3, 1990, the FERC sent a letter to
---------------------------
the Company providing comments on its review of the Company's Fifth
(1987) Independent Consultant's Safety Inspection Report, which is
required every five years under the FERC Regulation 18 CFR Part 12, for
the Walters Hydroelectric Project and requesting the Company to
undertake certain supplemental analyses and investigations regarding
the stability of the dam under extreme and improbable loading
conditions. Similar letters were sent by the FERC on May 30, 1990, with
respect to the Company's Blewett and Tillery Hydroelectric Plants. With
the independent consultant, the Company has begun addressing the issues
raised by the FERC and is working with the FERC to complete
investigations and analyses with respect to each of these matters. On
November 30, 1994, the Company submitted the independent consultant's
report to the FERC regarding the stability of the dam at the Walters
Project. The independent consultant concluded that the Walters dam has
adequate structural stability and reserve capacity to resist both usual
and unusual loading conditions without failure and that structural
remediation is neither warranted nor recommended. While the Company
does not believe that there are any stability concerns that would be
cause for any imminent safety concerns, the FERC's review and analysis
of the consultant's report are pending. The consultant's
27
<PAGE>
final reports regarding the Blewett and Tillery Hydroelectric Plants
are not yet completed. On February 27, 1997, the Company received a
letter from the FERC pertaining to the Company's inspection report
filed in November 1994. The FERC submitted comments on the inspection
report and requested that further analysis be conducted. The Company
filed a response on April 24, 1997, to the FERC's letter dated February
27, 1997. In its response, the Company agreed with some of the FERC's
comments and took exception to others. The Company has not received a
reply from the FERC as of this date. Depending on the outcome of these
matters, the Company could be required to undertake efforts to enhance
the stability of the dams. The cost and need for such efforts have not
been determined. The Company cannot predict the outcome of these
matters.
2. Marshall Hydroelectric Project. On November 21, 1991, the FERC notified
-------------------------------
the Company that the 5 MW Marshall Hydroelectric Project is no longer
exempt from 18 CFR Part 12, Subpart C and D, dam safety regulations and
that the plant's regulatory jurisdiction was being transferred from the
NCUC to the FERC. This change resulted from updated dambreak flood
studies which identified the potential impact on new downstream
development, thus indicating the need to reclassify the project from a
low hazard to a high hazard classification. In accordance with the
change in regulatory jurisdiction, the Company developed an emergency
action plan which meets the FERC guidelines and engaged its independent
consultant to perform a safety inspection. On April 6, 1992 the
inspection report was submitted to the FERC for approval. In March 1995
the Company received comments on the inspection report from the FERC.
As a result of these comments, and a meeting with the FERC officials,
the Company was requested to perform further analyses and submit its
findings to the FERC. The Company subsequently submitted the first
phase of the requested analyses to the FERC by letter dated September
15, 1995. Depending on the outcome of the FERC's review, the Company
could be required to undertake efforts to enhance the stability of the
Marshall dam and/or powerhouse. The cost and need for such efforts have
not been determined. The Company cannot predict the outcome of this
matter.
3. Stone Container Dispute. On April 20, 1994, the Company filed a
--------------------------
Complaint with the FERC (Docket No. EL-94-62-000 and QF85-102-005) and
in the United States District Court for the Eastern District of North
Carolina in Raleigh, North Carolina (Civil Action No. 5:94-CV-285-DI)
claiming that the rate the Company pays for power it purchases from
Stone Container Corporation (Stone Container) is invalid. The Company
entered into a twenty-year purchase power agreement with Stone
Container in 1984, and in 1987 began receiving power from a
cogeneration facility operated by Stone Container in Florence, South
Carolina. It is the Company's position that when Stone Container
elected to sell the facility's gross output under a "buy all/sell all"
option in 1991, the facility lost its status as a "qualified facility"
under the Public Utilities Regulatory Policies Act and became a public
utility. As a result, the contract rate the Company pays for power
purchased from the facility is no longer valid, and a just and
reasonable rate should be established by the FERC under the Federal
Power Act. On February 12, 1998, the FERC issued an order denying the
Company's claim that the rate it pays for power it purchases from Stone
Container is invalid. As a result, the Company will file a motion to
dismiss the District Court action. The Company will continue to
purchase electricity from Stone Container at the current contract rate.
4. Tax Refund Dispute. On April 28, 1994, the Company filed a Complaint
--------------------
against the U.S. Government in the United States District Court for the
Eastern District of North Carolina in Raleigh, North Carolina (Civil
Action No. 5:94-CV-313-BR3) seeking a refund of approximately $188
million representing tax and interest related to depreciation
deductions the Internal Revenue Service (IRS) previously disallowed for
the years 1986 and 1987 on the Company's Harris Plant. The Company
maintains that under applicable laws and regulations the Harris Plant
was ready and available for operation in 1986. The IRS has previously
denied some of the depreciation deductions on the Company's tax returns
for the years in question on the ground that in its view the plant was
not placed in service until 1987. On December 19, 1995, the jury
returned a verdict in favor of the U.S. Government. The Company has
filed an appeal of the jury's verdict. The Company cannot predict the
outcome of this matter.
28
<PAGE>
<TABLE>
OPERATING STATISTICS
- --------------------
<CAPTION>
Years Ended December 31
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Energy supply (millions of kWh)
Generated - coal 25,545 24,859 23,517 21,001 25,807
nuclear 21,690 20,284 19,949 18,511 13,691
hydro 799 882 824 884 784
combustion turbines 189 68 56 67 84
Purchased 6,318 7,292 7,433 7,039 7,110
----------- ----------- ----------- ----------- -----------
Total energy supply (Company share) 54,541 53,385 51,779 47,502 47,476
Power Agency share <F1> 4,101 3,616 3,828 3,236 2,402
----------- ----------- ----------- ----------- -----------
Total system energy supply 58,642 57,001 55,607 50,738 49,878
=========== =========== =========== =========== ===========
Average fuel cost (per million BTU)
Fossil $ 1.75 $ 1.75 $ 1.83 $ 1.78 $ 1.75
Nuclear fuel 0.46 0.45 0.46 0.47 0.46
All fuels 1.14 1.14 1.17 1.14 1.28
Energy sales (millions of kWh)
Residential 12,488 12,611 12,074 11,147 11,398
Commercial 10,010 9,615 9,276 8,690 8,548
Industrial 15,073 14,456 14,312 14,030 13,557
Government and municipal 1,294 1,263 1,288 1,263 1,248
Power Agency contract requirements 2,072 2,523 2,338 2,589 3,505
NCEMC 4,174 3,947 5,454 4,885 4,778
Other wholesale 2,120 2,014 1,915 1,983 2,144
Other utilities 5,534 4,899 3,233 985 327
----------- ----------- ----------- ----------- -----------
Total energy sales 52,765 51,328 49,890 45,572 45,505
Company uses and losses 1,776 2,057 1,889 1,930 1,971
----------- ----------- ----------- ----------- -----------
Total energy requirements 54,541 53,385 51,779 47,502 47,476
=========== =========== =========== =========== ===========
Customers billed
Residential 972,385 945,703 920,495 894,616 873,377
Commercial 172,821 167,151 159,064 155,349 151,242
Industrial 5,072 5,066 4,863 4,845 4,825
Government and municipal 2,785 2,774 2,328 2,302 2,214
Resale 43 27 17 12 26
----------- ----------- ----------- ----------- -----------
Total customers billed 1,153,106 1,120,721 1,086,767 1,057,124 1,031,684
=========== =========== =========== =========== =============
Operating revenues (in thousands)
Residential $ 986,835 $ 992,152 $ 969,112 $ 915,986 $ 943,697
Commercial 648,440 627,880 618,394 595,573 592,973
Industrial 738,084 721,588 733,448 741,662 744,016
Government and municipal 77,150 75,391 78,400 78,317 78,616
Power Agency contract requirements 71,318 96,795 100,951 115,262 134,258
NCEMC 225,951 234,653 299,171 266,733 253,859
Other wholesale 92,084 87,463 82,407 84,775 100,062
Other utilities 129,085 105,077 78,147 33,789 11,232
Miscellaneous revenue 55,142 54,716 46,523 44,492 36,670
----------- ----------- ----------- ----------- -----------
Total operating revenues $ 3,024,089 $ 2,995,715 $ 3,006,553 $ 2,876,589 $ 2,895,383
=========== =========== =========== =========== ===========
Peak demand of firm load (thousands of kW)
System 10,030 9,812 10,156 10,144 9,589
Company 9,344 9,264 9,500 9,642 9,107
Total capability at year-end (thousands of kW) <F2>
Fossil plants 6,571 6,331 6,331 6,331 6,331
Nuclear plants 3,064 3,064 3,064 3,064 3,064
Hydro plants 218 218 218 218 218
Purchased 1,588 1,603 1,592 1,596 1,289
----------- ----------- ----------- ----------- -----------
Total system capability 11,441 11,216 11,205 11,209 10,902
Less Power Agency-owned portion <F1> 690 686 682 654 627
----------- ----------- ----------- ----------- -----------
Total Company capability 10,751 10,530 10,523 10,555 10,275
=========== =========== =========== =========== ===========
<FN>
<F1>
Net of the Company's purchases from Power Agency.
<F2>
Represents peak generating capability, based on summer peak conditions
Assuming all generating units are available for operation. Amounts include
capacity under contract with cogenerators, small power producers and other
utilities.
</FN>
</TABLE>
29
<PAGE>
ITEM 2. PROPERTIES
- ------- ----------
In addition to the major generating facilities listed in PART I, ITEM 1,
"Generating Capability", the Company also operates the following plants:
Plant Location
----- --------
1. Walters North Carolina
2. Marshall North Carolina
3. Tillery North Carolina
4. Blewett North Carolina
5. Weatherspoon North Carolina
6. Morehead North Carolina
The Company's sixteen power plants represent a flexible mix of fossil, nuclear
and hydroelectric resources, with a total generating capacity (including Power
Agency's share) of 9,853 MW. The Company's strategic geographic location
facilitates purchases and sales of power with many other electric utilities,
allowing the Company to serve its customers more economically and reliably.
Major industries in the Company's service area include textiles, chemicals,
metals, paper, automotive components and electronic machinery and equipment.
At December 31, 1997, the Company had 5,586 pole miles of transmission lines
including 292 miles of 500 kV lines and 2,916 miles of 230 kV lines, and
distribution lines of approximately 43,764 pole miles of overhead lines and
approximately 11,604 miles of underground lines. Distribution and transmission
substations in service had a transformer capacity of approximately 36,253 kVA in
2,245 transformers. Distribution line transformers numbered 413,269 with an
aggregate 17,204,000 kVA capacity.
Power Agency has acquired undivided ownership interests of 18.33% in Brunswick
Unit Nos. 1 and 2, 12.94% in Roxboro Unit No. 4 and 16.17% in Harris Unit No. 1
and Mayo Unit No. 1. Otherwise, the Company has good and marketable title to its
principal plants and important units, subject to the lien of its Mortgage and
Deed of Trust, with minor exceptions, restrictions, and reservations in
conveyances, as well as minor defects of the nature ordinarily found in
properties of similar character and magnitude. The Company also owns certain
easements over private property on which transmission and distribution lines are
located.
The Company believes that its generating facilities are suitable, adequate,
well-maintained and in good operating condition.
Plant Accounts (including nuclear fuel) - During the period January 1, 1993
- -------------------------------------------
through December 31, 1997, there was $2,434,308,343 added to the Company's
utility plant accounts, there was $689,400,439 of property retired and there
were transfers and adjustments of $(51,673,030) resulting in net additions
during the period of $1,693,234,874, an increase of approximately 15.55%.
30
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
Legal and regulatory proceedings are included in the discussion of the Company's
business in PART I, ITEM 1 and incorporated by reference herein.
31
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of security holders in the fourth quarter of
1997.
32
<PAGE>
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
Name Age Recent Business Experience
<S> <C> <C>
William Cavanaugh III 59 President and Chief Executive
Officer, October 1996 to present;
President and Chief Operating
Officer, September 1992 to October
1996. Before joining the Company, Mr.
Cavanaugh held various senior
management and executive positions
during a 23-year career with Entergy
Corporation, an electric utility
holding company with operations in
Arkansas, Louisiana and Mississippi.
Member of the Board of Directors of
the Company since 1993.
Glenn E. Harder 47 Executive Vice President and Chief
Financial Officer, Financial
Services, August 1995 to present;
Senior Vice President, Group
Executive - Financial Services,
October 1994 to August 1995. Before
joining the Company, Mr. Harder held
various senior management and
executive positions with Entergy
Corporation, an electric utility
holding company with operations in
Arkansas, Louisiana and Mississippi,
and related entities.
William S. Orser 53 Executive Vice President and Chief
Nuclear Officer, Energy Supply,
December 1996 to present; Executive
Vice President - Nuclear Generation,
April 1993 to December 1996;
Executive Vice President - Nuclear
Generation, Detroit Edison Company,
April 1993; Senior Vice President -
Nuclear Generation, Detroit Edison
Company. Prior to 1987, Mr. Orser
held various other positions with
Detroit Edison, and with Portland
General Electric Company, Southern
California Edison, and the U. S.
Navy.
James M. Davis, Jr. 61 Senior Vice President, Group
Executive - Power Operations, June
1986 to present; Senior Vice
President - Operations Support Group,
August 1983.
Fred N. Day, IV 54 Senior Vice President, Energy
Delivery, July 1997 to present; Vice
President, Western Region, 1995 to
July 1997; Manager, Total Quality
Performance, 1993 to 1995.
Cecil L. Goodnight 54 Senior Vice President and Chief
Administrative Officer,
Administrative Services, December
1996 to present; Senior Vice
President, Human Resources and
Support Services, March 1995-
December 1996; Vice President - Human
Resources (formerly Employee
Relations Department), May 1983 to
March 1995.
John E. Manczak 50 Senior Vice President, Retail Sales
and Services, June 1997 to present;
Vice President, Retail Marketing,
Consumers Energy, an electric and gas
utility, October 1994 to June 1997;
President, Michigan Gas Utilities, a
division of Utilicorp United, a
natural gas utility, October 1991 to
September 1994.
33
<PAGE>
Robert B. McGehee 55 Senior Vice President and General
Counsel, Public and Corporate
Relations, May 1997 to present; From
1974 to May 1997, Mr. McGehee was a
practicing attorney with Wise Carter
Child & Caraway, a law firm in
Jackson Mississippi. He primarily
handled corporate contract, nuclear
regulatory and employment matters.
From 1987 to 1997 he managed the
firm, serving as chairman of its
Board from 1992 to May 1997.
Bonnie V. Hancock 36 Vice President and Controller,
February 1997 to present; Manager,
Tax Department, September 1995 to
February 1997; Director, Corporate
Income Tax, Treasury Department,
September 1993 to September 1995.
Before joining the Company, Ms.
Hancock held various management
positions in the Tax Department at
Potomac Electric Power Company.
</TABLE>
34
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
- ------- MATTERS
-----------------------------------------------------------------
The Company's Common Stock is listed on the New York and Pacific Stock
Exchanges. The high and low sales prices per share, as reported as composite
transactions in The Wall Street Journal, and dividends paid per share are as
follows:
<TABLE>
<CAPTION>
1996 High Low Dividends Paid
- ----- ---- --- --------------
<S> <C> <C> <C>
First Quarter $38 3/8 $34 1/2 $ .455
Second Quarter 38 34 7/8 .455
Third Quarter 38 1/4 34 1/8 .455
Fourth Quarter 37 34 1/4 .455
</TABLE>
<TABLE>
<CAPTION>
1997 High Low Dividends Paid
- ----- ---- --- --------------
<S> <C> <C> <C>
First Quarter $37 7/8 $36 1/8 $ .47
Second Quarter 36 1/4 33 .47
Third Quarter 36 5/8 33 3/4 .47
Fourth Quarter 42 1/2 34 5/16 .47
</TABLE>
The December 31 closing price of the Company's Common Stock was $36 1/2 in 1996
and $42 3/8 in 1997.
As of February 27, 1998, the Company had 71,017 holders of record of Common
Stock.
On July 13, 1994, the Board of Directors of the Company authorized the
repurchase of up to 10 million shares of the Company's Common Stock on the open
market. Under this stock repurchase program, the Company purchased approximately
0.7 million shares in 1997 and 1996, 4.2 million shares in 1995 and 4.4 million
shares in 1994. The program was completed in 1997.
35
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ------- ------------------------------------
The selected consolidated financial data should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere in
this report.
<TABLE>
Years Ended December 31
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ------------ ----------- ------------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Operating results
- -----------------
Operating revenues $ 3,024,089 $ 2,995,715 $ 3,006,553 $ 2,876,589 $ 2,895,383
Net income $ 388,317 $ 391,277 $ 372,604 $ 313,167 $ 346,496
Earnings for common stock $ 382,265 $ 381,668 $ 362,995 $ 303,558 $ 336,887
Ratio of earnings to fixed charges 4.17 4.12 3.67 3.31 3.23
- ----------------------------------
Per share data
- --------------
Basic and diluted earnings per
common share $ 2.66 $ 2.66 $ 2.48 $ 2.03 $ 2.10
Dividends declared per common
share $ 1.895 $ 1.835 $ 1.775 $ 1.715 $ 1.655
Assets $ 8,220,728 $ 8,364,862 $ 8,227,150 $ 8,211,163 $ 8,194,018
- ------
Capitalization
- --------------
Common stock equity $ 2,818,807 $ 2,690,454 $ 2,574,743 $ 2,586,179 $ 2,632,116
Preferred stock - redemption
not required 59,376 143,801 143,801 143,801 143,801
Long-term debt, net 2,415,656 2,525,607 2,610,343 2,530,773 2,584,903
----------- ----------- ------------ ----------- ------------
Total capitalization $ 5,293,839 $ 5,359,862 $ 5,328,887 $ 5,260,753 $ 5,360,820
=========== =========== ============ =========== ============
</TABLE>
36
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- RESULTS OF OPERATIONS
---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Operating Revenues
- ------------------
Operating revenue fluctuations as compared to the prior year are due to the
following factors (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Customer growth/changes in usage patterns $ 124 $ 87
Sales to other utilities 24 34
Weather (55) 4
NCEMC load loss - (96)
Price (39) (36)
Sales to Power Agency (26) (4)
----- -----
$ 28 $ (11)
===== =====
</TABLE>
The increase in the customer growth/changes in usage patterns component of
revenue for both comparison periods is primarily a result of continued economic
growth within the Company's service territory. Sales to other utilities
increased in both comparison periods as a result of the Company's active pursuit
of opportunities in the wholesale power market. The 1997 decrease in the weather
component of revenue is the result of milder than normal temperatures in the
current period. Both the customer growth/changes in usage patterns and weather
components of revenue were affected by lost revenues caused by Hurricanes Fran
and Bertha in 1996. Beginning in January 1996, the Company lost 200 megawatts of
load from North Carolina Electric Membership Corporation (NCEMC), resulting in a
$96 million decrease in revenues. For 1997, the price-related decrease is
primarily attributable to a combination of decreases in the fuel cost component
of revenue and changes to the Power Coordination Agreement, which were effective
January 1, 1997, between the Company and NCEMC. The 1996 price-related decrease
is primarily attributable to decreases in the fuel cost component of revenue.
The 1997 decrease in revenue related to sales to North Carolina Eastern
Municipal Power Agency (Power Agency) is primarily due to the impacts of milder
weather, along with the increased availability in the current period of
generating units owned jointly by the Company and Power Agency.
Operating Expenses
- ------------------
Fuel expense increased in 1997 primarily due to a 4.6% increase in generation.
Fuel expense decreased in 1996 due to renegotiated coal contracts, spot market
coal purchases at lower market prices and the refunding of over-recovered fuel
costs. This decrease more than offset the increase in fuel expense related to a
3.9% increase in generation during 1996.
The decrease in purchased power in 1997 is primarily a result of amendments to
electric purchase power agreements between the Company and Cogentrix of North
Carolina, Inc. and Cogentrix Eastern Carolina Corporation, which became
effective in September 1996. This decrease is partially offset by increased
purchases from other utilities due to the Company's more active participation in
wholesale power marketing.
Other operation and maintenance expense decreased for both comparison periods
reflecting the Company's continued cost reduction efforts. Also contributing to
the decrease in 1997 were lower expenses resulting from one less nuclear
refueling outage and fewer fossil outages. Other operation and maintenance
expense in 1996 includes storm-related expenses of approximately $6 million
incurred as a result of severe ice storms experienced in early 1996 and the
impact of Hurricane Bertha, which struck the Company's service territory in July
1996. Hurricane
37
<PAGE>
Fran struck significant portions of the Company's service territory in September
1996. In December 1996, the North Carolina Utilities Commission (NCUC)
authorized the Company to defer operation and maintenance expenses associated
with Hurricane Fran. See further discussion of Hurricane Fran below. In December
1996, the NCUC authorized the Company to accelerate amortization of certain
regulatory assets over a three-year period beginning January 1, 1997. In March
1997, the South Carolina Public Service Commission (SCPSC) approved a similar
plan for the Company to accelerate the amortization of certain regulatory
assets, including plant abandonment costs related to the Harris Plant, over a
three-year period beginning January 1, 1997. Depreciation and amortization
increased approximately $68 million in 1997 as a result of the accelerated
amortization of these regulatory assets. Depreciation and amortization expense
also includes amortization of deferred operation and maintenance expenses
associated with Hurricane Fran of approximately $12 million and $4 million in
1997 and 1996, respectively.
Income tax expense decreased in 1997 primarily due to the impact of current and
prior period tax provision adjustments recorded for potential audit issues in
open tax years.
Other Income
- ------------
Interest income increased in 1997 primarily as a result of interest income of
$11 million related to an income tax refund.
Other income, net, decreased in 1997 primarily due to losses incurred on certain
diversified investments which are in start-up phases. In 1996, other income,
net, increased primarily due to an adjustment of $22.9 million to the
unamortized balance of abandonment costs related to the Harris Plant. In
anticipation of approval by the SCPSC of the Company's December 1996 proposal to
accelerate amortization of certain regulatory assets, the unamortized balance of
plant abandonment costs related to the Harris Plant was adjusted in 1996 to
reflect the present value impact of the shorter recovery period. In March 1997,
the SCPSC approved the Company's accelerated amortization proposal.
Interest Charges
- ----------------
Interest charges on long-term debt have decreased since 1995 primarily due to
reductions of long-term debt balances. Also contributing to the decrease in 1996
were refinancings of long-term debt with lower-interest commercial paper
borrowings which are backed by the Company's long-term revolving credit
facilities. See discussion of credit facilities in PART II, ITEM 7, "LIQUIDITY
AND CAPITAL RESOURCES".
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash Flow and Financing
- -----------------------
The net cash requirements of the Company arise primarily from operational needs
and support for investing activities, including replacement or expansion of
existing facilities, construction to comply with pollution control laws and
regulations, and diversified investments.
The Company has on file with the Securities and Exchange Commission (SEC) a
shelf registration statement under which $250 million principal amount of first
mortgage bonds and $125 million principal amount of first mortgage bonds and/or
unsecured debt securities of the Company remain available for issuance. The
Company can also issue up to $180 million of additional preferred stock under a
shelf registration statement on file with the SEC.
38
<PAGE>
The Company's ability to issue first mortgage bonds and preferred stock is
subject to earnings and other tests as stated in certain provisions of its
mortgage, as supplemented, and charter. The Company has the ability to issue an
additional $4.3 billion in first mortgage bonds and an additional 32 million
shares of preferred stock at an assumed price of $100 per share and a $6.05
annual dividend rate. The Company also has 10 million authorized preference
stock shares available for issuance that are not subject to an earnings test.
In July 1997, the Company redeemed all 500,000 shares of $7.72 Serial Preferred
Stock and all 350,000 shares of $7.95 Serial Preferred Stock, at a redemption
price of $101 per share. The redemptions were funded with additional commercial
paper borrowings and/or internally generated funds.
In August 1997, the Company issued $200 million of first mortgage bonds. The net
proceeds from this issuance were used to reduce the outstanding balance of
commercial paper and other short-term debt and for other general corporate
purposes.
As of December 31, 1997, the Company's revolving credit facilities totaled $515
million, substantially all of which are long-term agreements supporting its
commercial paper borrowings. The Company is required to pay minimal annual
commitment fees to maintain its credit facilities. Consistent with management's
intent to maintain a portion of its commercial paper on a long-term basis, and
as supported by its long-term revolving credit facilities, the Company included
in long-term debt $245.9 million and $350 million of commercial paper
outstanding as of December 31, 1997 and 1996, respectively.
The proceeds from the issuance of commercial paper related to the credit
facilities mentioned above, net cash inflow from the company-owned life
insurance program, and/or internally generated funds, financed the retirement of
long-term debt totaling $103 million in 1997. External funding requirements,
which do not include early redemptions of long-term debt or redemptions of
preferred stock, are expected to approximate $220 million, $100 million and $200
million in 1998, 1999 and 2000, respectively. These funds will be required for
construction, mandatory retirements of long-term debt and general corporate
purposes, including the repayment of short-term debt.
The Company's access to outside capital depends on its ability to maintain its
credit ratings. The Company's first mortgage bonds are currently rated A2 by
Moody's Investors Service, A by Standard & Poor's and A+ by Duff & Phelps. The
Company's commercial paper is currently rated P-1, A-1 and D-1 by Moody's
Investors Service, Standard & Poor's and Duff & Phelps, respectively.
The amount and timing of future sales of Company securities will depend upon
market conditions and the specific needs of the Company. The Company may from
time to time sell securities beyond the amount needed to meet capital
requirements in order to allow for the early redemption of long-term debt, the
redemption of preferred stock, the reduction of short-term debt or for other
general corporate purposes.
In 1994, the Board of Directors of the Company authorized the repurchase of up
to 10 million shares of the Company's common stock on the open market. Under
this stock repurchase program, the Company purchased approximately 0.7 million
shares in both 1997 and 1996, 4.2 million shares in 1995 and 4.4 million shares
in 1994. The program was completed in 1997.
Capital Requirements
- --------------------
Estimated capital requirements for 1998 through 2000 primarily reflect
construction expenditures that will be made to meet customer growth by adding
generating, transmission and distribution facilities, as well as upgrading
existing facilities. The Company's capital requirements, excluding expenditures
of diversified businesses, for those years are
39
<PAGE>
reflected in the following table (in millions).
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Construction expenditures $ 398 $ 494 $ 526
Nuclear fuel expenditures 93 83 96
AFUDC (6) (5) (7)
Mandatory retirements of long-term debt 208 53 197
------ ------ ------
Total $ 693 $ 625 $ 812
====== ====== ======
</TABLE>
This table includes Clean Air Act expenditures of approximately $32 million and
generating facility addition expenditures of approximately $405 million. The
generating facility addition expenditures will primarily be used to construct
new combustion turbine units, which are intended for use during periods of high
demand. These units are scheduled to be placed in service during 1999 through
2002.
In addition, total projected cash requirements of diversified businesses for the
years 1998 through 2000 approximate $362 million. These expenditures include
affordable housing investments, telecommunications infrastructure development,
acquisitions and other capital requirements of the Company's diversified
businesses. These projections are periodically reviewed and may change
significantly.
The Company has two long-term agreements for the purchase of power and related
transmission services from other utilities. The first agreement provides for the
purchase of 250 megawatts of capacity through 2009 from Indiana Michigan Power
Company's Rockport Unit No. 2 (Rockport). The second agreement is with Duke
Energy (Duke) for the purchase of 400 megawatts of firm capacity through
mid-1999. The estimated minimum annual payments for power purchases under these
agreements are approximately $31 million for Rockport and $48 million for Duke,
representing capital-related capacity costs. In 1997, total purchases (including
transmission use charges) under the Rockport and Duke agreements amounted to
$61.9 million and $69.5 million, respectively.
In addition, pursuant to the terms of the 1981 Power Coordination Agreement, as
amended, between the Company and Power Agency, the Company is obligated to
purchase a percentage of Power Agency's ownership capacity of, and energy from,
the Mayo and Harris Plants. For Mayo, the buyback period ended in 1997. The
Harris Plant buyback period will continue through 2007. The estimated minimum
annual payments for these purchases, representing capital-related capacity
costs, total approximately $26 million. Purchases under the agreement with Power
Agency totaled $36.2 million in 1997.
OTHER MATTERS
- -------------
Retail Rate Matters
- -------------------
A petition was filed in July 1996 by the Carolina Industrial Group for Fair
Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an
investigation of the Company's base rates or treat its petition as a complaint
against the Company. The petition alleged that the Company's return on equity
(which was authorized by the NCUC in the Company's last general rate proceeding
in 1988) and earnings are too high. In December 1996, the NCUC issued an order
denying CIGFUR's petition and stating that it tentatively found no reasonable
grounds to proceed with CIGFUR's petition as a complaint. In January 1997,
CIGFUR filed its Comments and Motion for Reconsideration, to which the Company
responded. In February 1997, the NCUC issued an order denying CIGFUR's Motion
for Reconsideration. CIGFUR filed a Notice of Appeal of the NCUC Order with the
North Carolina Court of Appeals. The Company filed its brief in this matter in
July 1997, and oral argument was held before the North Carolina Court of Appeals
in November 1997. The Company cannot predict the outcome of this matter.
40
<PAGE>
Environmental
- -------------
The Company is subject to federal, state and local regulations addressing air
and water quality, hazardous and solid waste management and other environmental
matters.
Various organic materials associated with the production of manufactured gas,
generally referred to as coal tar, are regulated under various federal and state
laws. There are several manufactured gas plant (MGP) sites to which the Company
and certain entities that were later merged into the Company had some
connection. In this regard, the Company, along with others, is participating in
a cooperative effort with the North Carolina Department of Environment and
Natural Resources, Division of Waste Management (DWM), to establish a uniform
framework for addressing these MGP sites. The investigation and remediation of
specific MGP sites will be addressed pursuant to one or more Administrative
Orders on Consent between the DWM and the potentially responsible party or
parties. The Company continues to investigate the identities of parties
connected to individual MGP sites, the relative relationships of the Company and
other parties to those sites and the degree to which the Company will undertake
efforts with others at individual sites.
The Company has been notified by regulators of its involvement or potential
involvement in several sites, other than MGP sites, that require remedial
action. Although the Company cannot predict the outcome of these matters, it
does not expect costs associated with these sites to be material to the results
of operations of the Company.
The Company carries a liability for the estimated costs associated with remedial
activities, except for MGP site remediation costs. This liability is not
material to the financial position of the Company. The MGP site remediation
costs are not currently determinable; however, the Company does not expect those
costs to be material to the financial position of the Company.
The 1990 amendments to the Clean Air Act (Act) require substantial reductions in
sulfur dioxide and nitrogen oxides emissions from fossil-fueled electric
generating plants. The Act will require the Company to meet more stringent
provisions effective January 1, 2000. The Company plans to meet the sulfur
dioxide emissions requirements by utilizing the most economical combination of
fuel-switching and sulfur dioxide emission allowances. Installation of
additional equipment will be necessary to reduce nitrogen oxide emissions. The
Company estimates that future capital expenditures necessary to meet the
nitrogen oxide emission requirements will approximate $32 million. Increased
operation and maintenance costs, including emission allowance expense, and
increased fuel costs are not expected to be material to the results of
operations of the Company.
In addition, there are emerging regulatory requirements that may require
utilities to install additional controls on nitrogen oxide emissions and
controls on toxics and particulate matter. The Company cannot predict the
outcome of these matters.
With regard to revisions to existing air quality standards, the Environmental
Protection Agency issued final regulations revising the ozone standard and
establishing a new fine-particulate standard in July 1997. These regulations may
require the installation of additional control equipment at some of the
Company's fossil-fueled electric generating plants. The Company is evaluating
the impact of the new regulations on its facilities and cannot determine, at
this time, the estimated costs of additional controls that may be required for
compliance with the new standards. The Company cannot predict the outcome of
this matter.
41
<PAGE>
Nuclear
- -------
In the Company's retail jurisdictions, provisions for nuclear decommissioning
costs are approved by the NCUC and the SCPSC and are based on site-specific
estimates that include the costs for removal of all radioactive and other
structures at the site. In the wholesale jurisdiction, the provisions for
nuclear decommissioning costs are based on amounts agreed upon in applicable
rate agreements. Based on the site-specific estimates discussed below, and using
an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate
of 4%, current levels of rate recovery for nuclear decommissioning costs are
adequate to provide for decommissioning of the Company's nuclear facilities.
The Company's most recent site-specific estimates of decommissioning costs were
developed in 1993, using 1993 cost factors, and are based on prompt
dismantlement decommissioning, which reflects the cost of removal of all
radioactive and other structures currently at the site, with such removal
occurring shortly after operating license expiration. These estimates, in 1993
dollars, are $257.7 million for Robinson Unit No. 2, $235.4 million for
Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2 and $284.3 million
for the Harris Plant. The estimates are subject to change based on a variety of
factors including, but not limited to, cost escalation, changes in technology
applicable to nuclear decommissioning and changes in federal, state or local
regulations. The cost estimates exclude the portion attributable to Power
Agency, which holds an undivided ownership interest in the Brunswick and Harris
nuclear generating facilities. Operating licenses for the Company's nuclear
units expire in the year 2010 for Robinson Unit No. 2, 2016 for Brunswick Unit
No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the Harris Plant.
The Financial Accounting Standards Board has reached several tentative
conclusions with respect to its project regarding accounting practices related
to closure and removal of long-lived assets. It is uncertain when the final
statement will be issued and what impacts it may ultimately have on the
Company's accounting for nuclear decommissioning and other closure and removal
costs.
As required under the Nuclear Waste Policy Act of 1982, the Company entered into
a contract with the U.S. Department of Energy (DOE) under which the DOE agreed
to dispose of the Company's spent nuclear fuel. In December 1996, the DOE
notified the Company and other similarly situated utilities that the agency
anticipated that it would be unable to begin acceptance of spent nuclear fuel by
January 31, 1998. In January 1997, the Company, together with 35 other
utilities, filed a Joint Petition for Review with the United States Court of
Appeals (the Court) requesting that the Court review the final decision of the
DOE and the DOE's failure to meet its unconditional obligation under the Nuclear
Waste Act. In November 1997, the Court found that the DOE has an unconditional
obligation to begin disposal of spent nuclear fuel by January 31, 1998, and
issued a writ of mandamus precluding the DOE from advancing any construction of
the contract that would excuse the DOE's delinquency on the grounds that it has
not yet established a permanent repository or an interim storage program. The
DOE defaulted on its obligation to begin taking spent nuclear fuel by January
31, 1998, and a group of utilities, including the Company, is considering
additional measures to force the DOE to take spent nuclear fuel or to pay
damages from monies other than the Nuclear Waste Fund. The Company cannot
predict the outcome of this matter.
With certain modifications, the Company's spent nuclear fuel storage facilities
will be sufficient to provide storage space for spent nuclear fuel generated on
the Company's system through the expiration of the current operating licenses
for all of the Company's nuclear generating units. Subsequent to the expiration
of these licenses, dry storage may be necessary.
42
<PAGE>
Other Business
- --------------
In 1997, CaroCapital, Inc. (CaroCapital), a wholly owned subsidiary of the
Company, acquired the remaining interest in Knowledge Builders, Inc. (KBI) and
entered into a merger agreement under which KBI was merged into CaroCapital. KBI
was an energy-management software and control systems company in which
CaroCapital purchased a 40% interest in 1996. Following the completion of the
merger, CaroCapital's name was changed to Strategic Resource Solutions Corp.
(SRS). SRS is a technology-based energy services company delivering
facility-management and energy-management products and services to the
educational, commercial, industrial and governmental markets nationwide. During
the year, SRS purchased Diversified Control Systems, a building automation
systems company, and made a minority investment in Remote Source Lighting
International, Inc., a fiber optic lighting company. Also, in January 1998, SRS
purchased Parke Industries, Inc., the fourth largest lighting company in the
United States. These investments enhance SRS's ability to deliver
energy-management solutions and value-added products to the marketplace.
In 1997, the Company created a new subsidiary, Interpath Communications, Inc.
(Interpath). All of CaroNet, LLC's assets, liabilities and operating
certificates are being transferred to this new subsidiary. Interpath has
acquired Capitol Information Services, Inc., a regional Internet service
provider based in Raleigh, North Carolina. Interpath will provide Internet
retail telecommunications solutions and will expand services to include more
telecommunications business solutions, including voice and data applications for
small and medium-sized businesses.
Interpath also owns a 10% limited partnership interest in BellSouth Carolinas
PCS, L.P. BellSouth Personal Communications, Inc. manages the partnership as the
general partner. PCS is a wireless communications technology that provides
high-quality mobile communications. The partnership serves PCS subscribers in
North and South Carolina, and a small portion of Georgia, pursuant to a license
issued by the Federal Communications Commission.
In 1995, the Company established CaroHome, LLC, a limited liability company, to
further the Company's investments in affordable housing. These investments are
designed to earn tax credits while helping communities meet their needs for
affordable housing. The Company, principally through CaroHome, LLC, has invested
or committed to invest a total of $58 million in affordable housing and
anticipates investing up to a total of $125 million in affordable housing by the
year 2000.
Competition
- -----------
General
- -------
In recent years, the electric utility industry has experienced a substantial
increase in competition at the wholesale level, caused by changes in federal law
and regulatory policy. Several states have also decided to deregulate aspects of
retail electric service. The issue of retail deregulation and competition is
being reviewed by a number of states and bills have been introduced in Congress
that seek to introduce retail deregulation in all states.
Allowing increased competition in the generation and sale of electric power will
require resolution of many complex issues. One of the major issues to be
resolved is who will pay for stranded costs (those costs and investments made by
utilities in order to meet their statutory obligation to provide electric
service) if the market price of electricity following industry restructuring is
not sufficient to cover those costs. The amount of such stranded costs the
Company might experience would depend on the timing of, and the extent to which,
direct competition is introduced, and the then-existing market price of energy.
If electric utilities were no longer subject to cost-based regulation and it
were not possible to recover stranded costs, the results of operations and
financial
43
<PAGE>
position of the Company would be adversely affected.
Wholesale Competition
- ---------------------
Since passage of the National Energy Act of 1992 (Energy Act), competition in
the wholesale electric utility industry has significantly increased due to
greater participation by traditional electricity suppliers, wholesale power
marketers and brokers, and due to the trading of energy futures contracts on
various commodities exchanges. This increased competition could affect the
Company's load forecasts, plans for power supply and wholesale energy sales and
related revenues. The impact could vary depending on the extent to which
additional generation is built to compete in the wholesale market, new
opportunities are created for the Company to expand its wholesale load, or
current wholesale customers elect to purchase from other suppliers after
existing contracts expire.
To assist in the development of wholesale competition, the Federal Energy
Regulatory Commission (FERC), in 1996, issued standards for wholesale wheeling
of electric power through its rules on open access transmission and stranded
costs and on information systems and standards of conduct (Orders 888 and 889).
The rules require all transmitting utilities to have on file an open access
transmission tariff, which contains provisions for the recovery of stranded
costs and numerous other provisions that could affect the sale of electric
energy at the wholesale level. The Company filed its open access transmission
tariff with the FERC in mid-1996. Shortly thereafter, Power Agency and other
entities filed protests challenging numerous aspects of the Company's tariff and
requesting that an evidentiary proceeding be held. The FERC set the matter for
hearing and set a discovery and procedural schedule. In July 1997, the Company
filed an offer of settlement in this matter. The administrative law judge
certified the offer to the full FERC in September 1997. The offer is pending
before the FERC. The Company cannot predict the outcome of this matter.
In November 1997, the Company applied to the FERC for authority to sell power at
market-based rates. In January 1998, the FERC issued an order accepting the
Company's application and permitting the Company to sell power at market-based
rates.
Retail Competition
- ------------------
The Energy Act prohibits the FERC from ordering retail wheeling - transmitting
power on behalf of another producer to an individual retail customer. Several
states, including California and Pennsylvania, have changed their laws and
regulations to allow retail electric customers to buy power from suppliers other
than the local utility. Other states are considering similar changes, and some
have instituted experimental programs to allow a limited number of customers to
select electric suppliers. These changes and proposals have taken differing
forms and included disparate elements. The Company believes changes in existing
laws in both North and South Carolina would be required to permit competition in
the Company's retail jurisdictions.
North Carolina Activities
- -------------------------
Since 1995, the NCUC has been considering the impact of increased competition in
the electric industry. In May 1996, the NCUC issued an order stating that the
FERC Orders 888 and 889 would provide a new focus for NCUC proceedings with
respect to competition in the electric industry. As a result, the NCUC held
Docket No. E-100, Sub 77, which concerned retail competition, in abeyance
pending further order and established a new docket (Docket No. E-100, Sub 78) to
address the FERC Orders 888 and 889. The NCUC has received several rounds of
comments in this docket; the Company filed its most recent comments and reply
comments in November 1997 and December 1997, respectively. The Company cannot
predict the outcome of this matter.
44
<PAGE>
In April 1997, the North Carolina General Assembly (General Assembly) approved
legislation establishing a 23-member study commission to evaluate the future of
electric service in the state. The commission is comprised of 12 state
legislators, two residential customers, two industrial customers, a commercial
customer, a power marketer, an environmentalist and representatives from each of
the four major power suppliers in the state. The commission is examining a wide
range of issues related to the cost and delivery of electric service. The
commission will make an interim report to the 1998 General Assembly and a final
report in 1999. The Company cannot predict the outcome of this matter.
South Carolina Activities
- -------------------------
In February 1997, representatives in the South Carolina General Assembly
introduced a bill calling for a transition to full competition in the electric
utility industry beginning in 1998. No action was taken on this bill. In
addition, by letter dated May 6, 1997, the Speaker of the South Carolina House
of Representatives requested that the SCPSC prepare a proposal for the
deregulation and restructuring of electricity in South Carolina. On February 3,
1998, the SCPSC issued a report to the South Carolina General Assembly
recommending caution and more study on the issue of deregulation. The report
outlines a five-year transition plan that it recommends be followed if the South
Carolina legislators decide to go forward with deregulation. The South Carolina
General Assembly's Utility Subcommittee has completed six hearings around the
state in order to receive citizen input on the deregulation issue. The
subcommittee will continue to meet. The Company cannot predict the outcome of
this matter.
Federal Activities
- ------------------
Numerous bills were introduced in the 105th Congress concerning the
restructuring of the electric utility industry. Key provisions of the bills vary
widely. Committee Chairs have held workshops and hearings to discuss various
aspects of restructuring. No legislation was passed during the 1997 session of
Congress, and more restructuring-related bills are expected to be introduced in
Congress during 1998. The Company cannot predict the outcome of this matter.
Company Activities
- ------------------
The developments described above have created greater planning uncertainty and
risks for the Company. The Company has been addressing these risks by securing
long-term contracts with its wholesale customers and by continuing to work to
meet the energy needs of its industrial customers. To position itself to better
address these risks, the Company internally organized into separate business
units in early 1998. The business units include Energy Supply, Energy Delivery
and Retail Sales and Services. The focus of these business units will be to
further the development of a corporate culture that is necessary to compete in a
deregulated environment. Other elements of the Company's strategy to respond to
the changing market for electricity include promoting economic development,
implementing new marketing strategies, improving customer satisfaction, and
increasing the focus on managing and reducing costs (and, consequently, avoiding
future rate increases).
In late 1996, the Company and NCEMC entered into a revised Power Coordination
Agreement (PCA) under which NCEMC will receive discounted capacity in exchange
for long-term commitments to the Company for its supplemental power. As a result
of this revised agreement, the Company provided 100 MW of baseload power to
NCEMC in 1997, and will provide a block of 225 MW from 1998 to 2010, an
additional block of 225 MW from 2000 to 2004 and a third block of 225 MW from
2001 to 2008. The remainder of the NCEMC capacity provided by the Company, not
separately contracted for in the revised agreement, will be billed at fixed
rates through the year 2003, rather than at the formula rates established in the
original PCA. The FERC has accepted the revised PCA. When NCEMC seeks future
supplies, the Company will respond and expects to remain competitive in the
pursuit and retention of wholesale load.
45
<PAGE>
In August 1996, Power Agency notified the Company of its intention to
discontinue certain contractual purchases of power from the Company effective
September 1, 2001. Power Agency's notice indicated that it intends to replace
these contractual obligations through purchases of capacity and energy and
related services in the open market, and that the Company will be considered as
a potential supplier for those purchases. Under the 1981 Power Coordination
Agreement, as amended, between the Company and Power Agency, Power Agency can
reduce its purchases from the Company with an appropriate five-year notice. The
Company and Power Agency have agreed on a process for determining the
sufficiency of the August 1996 notice. The Company cannot predict the outcome of
this matter.
As a regulated entity, the Company is subject to the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," (SFAS-71). Accordingly, the Company records certain
regulatory assets and liabilities resulting from the effects of the ratemaking
process. These assets and liabilities would not be recorded under generally
accepted accounting principles for unregulated entities. The Company's ability
to continue to meet the criteria for application of SFAS-71 may be affected in
the future by competitive forces, deregulation and restructuring in the electric
utility industry. In the event that SFAS-71 no longer applied to a separable
portion of the Company's operations, related regulatory assets and liabilities
would be eliminated unless an appropriate regulatory recovery mechanism is
provided. Additionally, these factors could result in an impairment of electric
utility plant assets as determined pursuant to Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
Year 2000 Computer Issues
- -------------------------
The Company initiated steps in 1994 to bring its computer systems into Year 2000
compliance. Only a few of the Company's core business applications remain to be
brought into compliance. All remaining computer systems, including equipment and
devices containing microprocessors, are being evaluated and will be brought into
compliance or replaced if necessary. Estimated costs to be incurred will be
determined as this evaluation is finalized.
The Year 2000 issue may affect other entities with which the Company transacts
business. The Company cannot estimate or predict the potential adverse
consequences, if any, that could result from such entities' failure to address
this issue.
46
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The Company is exposed to certain market risks that are inherent in the
Company's financial instruments, which arise from transactions entered into in
the normal course of business. The Company's primary exposures are to earnings,
cash flow and fair value risks due to changes in interest rates with respect to
its long-term debt. The Company manages its interest rate risks through use of a
combination of fixed and variable rate debt. Variable rate debt has rates that
adjust in periods ranging from daily to monthly. For the Company's long-term
debt obligations at December 31, 1997, including current portions, the table
below presents principal cash flows and related weighted-average interest rates,
by expected maturity date.
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total Fair Value
(Dollars in millions) ------- ------- ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate long-term debt $ 208 $ 53 $ 197 - $ 100 $1,219 $1,777 $1,846
Average interest rate 5.57% 7.11% 5.92% - 6.75% 7.41% 6.98%
Variable rate long-term debt - - - - - $ 620 $ 620 $ 622
Average interest rate - - - - - 3.75% 3.75%
</TABLE>
The table above excludes commercial paper classified as long-term debt.
Commercial paper does not have associated significant interest rate risk due to
the short maturity of that instrument.
47
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- --------------------------------------------------------
The following consolidated financial statements, supplementary data and
consolidated financial statement schedules are included herein:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 49
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 50
Consolidated Balance Sheets as of December 31, 1997 and 1996 51
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996
and 1995 52
Consolidated Schedules of Capitalization as of December 31, 1997 and 1996 53
Consolidated Statements of Retained Earnings for the Years Ended December 31, 1997, 1996
and 1995 54
Consolidated Quarterly Financial Data (Unaudited) 54
Notes to Consolidated Financial Statements 55
Consolidated Financial Statement Schedules for the Years Ended December 31,
1997, 1996 and 1995:
II- Valuation and Qualifying Accounts 67
All other schedules have been omitted as not applicable or not required or
because the information required to be shown is included in the Consolidated
Financial Statements or the accompanying Notes to Consolidated Financial
Statements.
</TABLE>
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CAROLINA POWER & LIGHT COMPANY:
We have audited the accompanying consolidated balance sheets and schedules of
capitalization of Carolina Power & Light Company and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income, retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedules
listed in the Index at Item 8. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Carolina Power & Light and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
We have also previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets and schedules of capitalization as of
December 31, 1995, 1994, and 1993, and the related consolidated statements of
income, retained earnings, and cash flows for the years ended December 31, 1994
and 1993 (none of which are presented herein); and we expressed unqualified
opinions on those financial statements.
In our opinion, the information set forth in the selected financial data for
each of the five years in the period ended December 31, 1997, and appearing at
Item 6, is fairly presented in all material respects in relation to the
consolidated financial statements from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Raleigh, North Carolina
February 9, 1998
49
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31
(In thousands except per share data) 1997 1996 1995
- --------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Operating revenues $ 3,024,089 $ 2,995,715 $ 3,006,553
- --------------------------------------------------------------- ------------ ------------ -----------
Operating expenses
- --------------------------------------------------------------- ------------ ------------ -----------
Fuel 534,268 515,050 529,812
Purchased power 387,296 412,554 409,940
Other operation and maintenance 661,466 730,140 738,031
Depreciation and amortization 481,650 386,927 364,527
Taxes other than on income 139,478 140,479 144,043
Income tax expense 253,048 269,763 259,224
Harris Plant deferred costs, net 24,296 26,715 28,128
- --------------------------------------------------------------- ------------ ------------ -----------
Total operating expenses 2,481,502 2,481,628 2,473,705
- --------------------------------------------------------------- ------------ ------------ -----------
Operating income 542,587 514,087 532,848
- --------------------------------------------------------------- ------------ ------------ -----------
Other income
- --------------------------------------------------------------- ------------ ------------ -----------
Allowance for equity funds used during construction - 11 3,350
Income tax credit 19,332 13,847 18,541
Harris Plant carrying costs 4,626 7,299 8,297
Interest income 18,335 4,063 8,680
Other income, net (19,275) 37,340 9,063
- --------------------------------------------------------------- ------------ ------------ -----------
Total other income 23,018 62,560 47,931
- --------------------------------------------------------------- ------------ ------------ -----------
Income before interest charges 565,605 576,647 580,779
- --------------------------------------------------------------- ------------ ------------ -----------
Interest charges
- --------------------------------------------------------------- ------------ ------------ -----------
Long-term debt 163,468 172,622 187,397
Other interest charges 18,743 19,155 25,896
Allowance for borrowed funds used during construction (4,923) (6,407) (5,118)
- --------------------------------------------------------------- ------------ ------------ -----------
Total interest charges, net 177,288 185,370 208,175
- --------------------------------------------------------------- ------------ ------------ -----------
Net income $ 388,317 $ 391,277 $ 372,604
- --------------------------------------------------------------- ------------ ------------ -----------
Preferred stock dividend requirements (6,052) (9,609) (9,609)
- --------------------------------------------------------------- ------------ ------------ -----------
Earnings for common stock $ 382,265 $ 381,668 $ 362,995
- --------------------------------------------------------------- ------------ ------------ -----------
Average common shares outstanding 143,645 143,621 146,232
- --------------------------------------------------------------- ------------ ------------ -----------
Basic and diluted earnings per common share $ 2.66 $ 2.66 $ 2.48
- --------------------------------------------------------------- ------------ ------------ -----------
Dividends declared per common share $ 1.895 $ 1.835 $ 1.775
- --------------------------------------------------------------- ------------ ------------ -----------
See notes to consolidated financial statements.
</TABLE>
50
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In thousands) December 31
ASSETS 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electric utility plant
- -------------------------------------------------------------------------------------------------------
Electric utility plant in service $ 10,113,334 $ 9,783,442
Accumulated depreciation (4,181,417) (3,796,645)
- -------------------------------------------------------------------------------------------------------
Electric utility plant in service, net 5,931,917 5,986,797
Held for future use 12,255 12,127
Construction work in progress 158,347 196,623
Nuclear fuel, net of amortization 190,991 204,372
- -------------------------------------------------------------------------------------------------------
Total electric utility plant, net 6,293,510 6,399,919
- -------------------------------------------------------------------------------------------------------
Current assets
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents 14,426 10,941
Accounts receivable 406,872 384,318
Fuel 47,551 60,369
Materials and supplies 136,253 122,809
Deferred fuel cost (credit) 20,630 (4,339)
Prepayments 62,040 65,794
Other current assets 47,034 27,808
- -------------------------------------------------------------------------------------------------------
Total current assets 734,806 667,700
- -------------------------------------------------------------------------------------------------------
Deferred debits and other assets (Note 6)
- -------------------------------------------------------------------------------------------------------
Income taxes recoverable through future rates 328,818 384,336
Abandonment costs 38,557 65,863
Harris Plant deferred costs 63,727 83,397
Unamortized debt expense 48,407 69,956
Nuclear decommissioning trust funds 245,523 145,316
Miscellaneous other property and investments 256,291 344,018
Other assets and deferred debits 211,089 204,357
- -------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 1,192,412 1,297,243
- -------------------------------------------------------------------------------------------------------
Total assets $ 8,220,728 $ 8,364,862
- -------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
- -------------------------------------------------------------------------------------------------------
Capitalization (see consolidated schedules of
capitalization)
- -------------------------------------------------------------------------------------------------------
Common stock equity $ 2,818,807 $ 2,690,454
Preferred stock - redemption not required 59,376 143,801
Long-term debt, net 2,415,656 2,525,607
- -------------------------------------------------------------------------------------------------------
Total capitalization 5,293,839 5,359,862
- -------------------------------------------------------------------------------------------------------
Current liabilities
- -------------------------------------------------------------------------------------------------------
Current portion of long-term debt 207,979 103,345
Short-term debt - 64,885
Accounts payable 290,352 375,216
Interest accrued 43,620 39,436
Dividends declared 72,266 73,469
Other current liabilities 116,609 74,668
- -------------------------------------------------------------------------------------------------------
Total current liabilities 730,826 731,019
- -------------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
- -------------------------------------------------------------------------------------------------------
Accumulated deferred income taxes 1,722,908 1,827,693
Accumulated deferred investment tax credits 222,028 232,262
Other liabilities and deferred credits 251,127 214,026
- -------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 2,196,063 2,273,981
- -------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 11)
- -------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 8,220,728 $ 8,364,862
- -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
51
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 388,317 $ 391,277 $ 372,604
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 565,212 446,508 446,662
Harris Plant deferred costs 19,670 19,416 19,831
Deferred income taxes (66,546) 130,818 89,681
Investment tax credit (10,232) (10,445) (9,344)
Allowance for equity funds used during construction - (11) (3,350)
Deferred fuel credit (24,969) (23,156) (849)
Net increase in receivables, inventories and prepaid expenses (111,216) (64,793) (77,849)
Net increase (decrease) in payables and accrued expenses (6,414) 4,671 (39,592)
Miscellaneous 64,223 17,922 75,308
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 818,045 912,207 873,102
- -------------------------------------------------------------------------------------------------------------------------
Investing activities
- -------------------------------------------------------------------------------------------------------------------------
Gross property additions (388,676) (369,308) (266,400)
Nuclear fuel additions (61,509) (87,265) (77,346)
Contributions to nuclear decommissioning trust (30,726) (30,683) (38,075)
Contributions to retiree benefit trusts (21,096) (24,700) (2,400)
Net cash flow of company-owned life insurance program 138,508 46,930 (39,679)
Allowance for equity funds used during construction - 11 3,350
Miscellaneous 6,706 (28,046) (28,515)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (356,793) (493,061) (449,065)
- -------------------------------------------------------------------------------------------------------------------------
Financing activities
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of long-term debt 199,075 - 180,713
Net increase (decrease) in short-term debt (maturity less than 90 (62,224) (8,858) 5,643
days)
Net increase (decrease) in commercial paper classified as long-term (104,100) 350,000 -
debt (Note 3)
Retirement of long-term debt (103,410) (467,810) (276,144)
Redemption of preferred stock (85,850) - -
Purchase of Company common stock (23,418) (25,208) (132,439)
Dividends paid on common and preferred stock (277,840) (270,818) (267,560)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (457,767) (422,694) (489,787)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,485 (3,548) (65,750)
Cash and cash equivalents at beginning of year 10,941 14,489 80,239
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 14,426 $ 10,941 $ 14,489
- -------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year - interest $ 171,511 $ 194,391 $ 203,296
income taxes $ 289,693 $ 141,350 $ 177,163
Noncash Activities In June 1997, Strategic Resource Solutions Corp. (formerly
CaroCapital, Inc.), a wholly-owned subsidiary, purchased all remaining shares of
Knowledge Builders, Inc. (KBI). In connection with the purchase of KBI, the
Company issued $20.5 million in common stock and paid $1.9 million in cash.
See notes to consolidated financial statements.
</TABLE>
52
<PAGE>
<TABLE>
CONSOLIDATED SCHEDULES OF CAPITALIZATION
<CAPTION>
December, 31
(Dollars in thousands except per share data) 1997 1996
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
<S> <C> <C>
Common stock equity
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Common stock without par value, authorized 200,000,000 shares, issued and
outstanding 151,340,394 and 151,415,722 shares, respectively (Note 7) $ 1,371,520 $ 1,366,100
Unearned ESOP common stock (165,804) (178,514)
Capital stock issuance expense (790) (790)
Retained earnings (Note 5) 1,613,881 1,503,658
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Total common stock equity $ 2,818,807 $ 2,690,454
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Cumulative preferred stock, without par value (entitled to $100 a share plus accumulated
dividends in the event of liquidation; outstanding shares are as of December 31, 1997)
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Preferred stock - redemption not required:
Authorized - 300,000 shares $5.00 Preferred Stock; 20,000,000 shares
Serial Preferred Stock
$5.00 Preferred - 237,259 shares outstanding (redemption price $110.00) $ 24,376 $ 24,376
4.20 Serial Preferred - 100,000 shares outstanding (redemption price $102.00) 10,000 10,000
5.44 Serial Preferred - 250,000 shares outstanding (redemption price $101.00) 25,000 25,000
7.95 Serial Preferred - 35,000
7.72 Serial Preferred - 49,425
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Total preferred stock - redemption not required $ 59,376 $ 143,801
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Long-term debt (interest rates are as of December 31, 1997)
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
First mortgage bonds:
6.375% due 1997 $ - $ 40,000
5.375% and 6.875% due 1998 140,000 140,000
6.125% due 2000 150,000 150,000
6.75% due 2002 100,000 100,000
5.875% and 7.875% due 2004 300,000 300,000
6.80% due 2007 200,000 -
6.875% to 8.625% due 2021-2023 500,000 500,000
First mortgage bonds - secured medium-term notes:
7.75% due 1997 - 60,000
5.00% to 5.06% due 1998 65,000 65,000
7.15% due 1999 50,000 50,000
First mortgage bonds - pollution control series:
6.30% to 6.90% due 2009-2014 93,530 93,530
3.80% and 4.00% due 2024 122,600 122,600
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Total first mortgage bonds 1,721,130 1,621,130
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Other long-term debt:
Pollution control obligations backed by letter of credit, 3.70% to 5.40% due 2014-2017 442,000 442,000
Other pollution control obligations, 3.90% due 2019 55,640 55,640
Unsecured subordinated debentures, 8.55% due 2025 125,000 125,000
Commercial paper reclassified to long-term debt (Note 3) 245,900 350,000
Miscellaneous notes 53,486 56,858
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Total other long-term debt 922,026 1,029,498
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Unamortized premium and discount, net (19,521) (21,676)
Current portion of long-term debt (207,979) (103,345)
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Total long-term debt, net $ 2,415,656 $ 2,525,607
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
Total capitalization $ 5,293,839 $ 5,359,862
- ------------------------------------------------------------------------------------------- --- -------------- --- -------------
See notes to consolidated financial statements.
</TABLE>
53
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
Years ended December 31
(In thousands except per share data) 1997 1996 1995
- --------------------------------------------------------- ---- --------------- ---- --------------- ---- --------------
<S> <C> <C> <C>
Retained earnings at beginning of year $ 1,503,658 $ 1,385,378 $ 1,280,960
- --------------------------------------------------------- ---- --------------- ---- --------------- ---- --------------
Net income 388,317 391,277 372,604
Preferred stock dividends at stated rates (4,627) (9,609) (9,609)
Common stock dividends at annual per share rate of
$1.895, $1.835 and $1.775, respectively (272,011) (263,388) (258,577)
Other adjustments (1,456) - -
- --------------------------------------------------------- ---- --------------- ---- --------------- ---- --------------
Retained earnings at end of year $ 1,613,881 $ 1,503,658 $ 1,385,378
- --------------------------------------------------------- ---- --------------- ---- --------------- ---- --------------
</TABLE>
<TABLE>
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 716,084 $ 666,023 $ 906,841 $ 735,141
Operating income 122,762 86,988 211,281 121,556
Net income 82,262 54,289 167,829 83,937
Common stock data:
Basic and diluted earnings per common share .56 .37 1.15 .58
Dividend paid per common share .470 .470 .470 .470
Price per share - high 37 7/8 36 1/4 36 5/8 42 1/2
low 36 1/8 33 33 3/4 34 5/16
------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
------------------------------------------------------------------------------------------------------------
Operating revenues $ 783,585 $ 685,968 $ 831,590 $ 694,572
Operating income 154,428 94,966 164,125 100,568
Net income 118,346 62,656 129,159 81,116
Common stock data:
Basic and diluted earnings per common share .81 .42 .88 .55
Dividend paid per common share .455 .455 .455 .455
Price per share - high 38 3/8 38 38 1/4 37
low 34 1/2 34 7/8 34 1/8 34 1/4
See notes to consolidated financial statements.
</TABLE>
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
a. Organization
Carolina Power & Light Company (the Company) is a public service corporation
primarily engaged in the generation, transmission, distribution and sale of
electricity in portions of North and South Carolina. The Company has no other
material segments of business.
b. Basis of Presentation
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles. The accounting records of the Company are
maintained in accordance with uniform systems of accounts prescribed by the
Federal Energy Regulatory Commission (FERC), the North Carolina Utilities
Commission (NCUC) and the South Carolina Public Service Commission (SCPSC).
Certain amounts for 1996 and 1995 have been reclassified to conform to the 1997
presentation, with no effect on previously reported net income or common stock
equity.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The consolidated financial statements include the activities of the Company and
majority-owned subsidiaries. These subsidiaries have invested in areas such as
communications technology, energy-management services and affordable housing.
Significant intercompany balances and transactions have been eliminated.
b. Use of Estimates and Assumptions
In preparing financial statements that conform with generally accepted
accounting principles, management must make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and amounts of
revenues and expenses reflected during the reporting period. Actual results
could differ from those estimates.
c. Electric Utility Plant
The cost of additions, including betterments and replacements of units of
property, is charged to electric utility plant. Maintenance and repairs of
property, and replacements and renewals of items determined to be less than
units of property, are charged to maintenance expense. The cost of units of
property replaced, renewed or retired, plus removal or disposal costs, less
salvage, is charged to accumulated depreciation. Generally, electric utility
plant other than nuclear fuel is subject to the lien of the Company's mortgage.
The balances of electric utility plant in service at December 31 are listed
below (in millions).
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Production plant $ 6,297 $ 6,161
Transmission plant 952 940
Distribution plant 2,327 2,179
General plant and other 537 503
------- -------
Electric utility plant in service $10,113 $ 9,783
======= =======
</TABLE>
55
<PAGE>
As prescribed in regulatory uniform systems of accounts, an allowance for the
cost of borrowed and equity funds used to finance electric utility plant
construction (AFUDC) is charged to the cost of plant. Regulatory authorities
consider AFUDC an appropriate charge for inclusion in the Company's utility
rates to customers over the service life of the property. The equity funds
portion of AFUDC is credited to other income and the borrowed funds portion is
credited to interest charges. The composite AFUDC rate was 5.6% in 1997, 5.8% in
1996 and 8.0% in 1995.
d. Depreciation and Amortization
For financial reporting purposes, depreciation of electric utility plant other
than nuclear fuel is computed on the straight-line method based on the estimated
remaining useful life of the property, adjusted for estimated net salvage.
Depreciation provisions, including decommissioning costs (see Note 2e), as a
percent of average depreciable property other than nuclear fuel, were
approximately 3.9% in 1997 and 1996 and 3.8% in 1995. Depreciation expense
totaled $382.1 million, $363.2 million and $344.0 million in 1997, 1996 and
1995, respectively.
Depreciation and amortization expense also includes amortization of deferred
operation and maintenance expenses associated with Hurricane Fran, which struck
significant portions of the Company's service territory in September 1996. In
December 1996, the NCUC authorized the Company to defer these expenses
(approximately $40 million) with amortization over a 40-month period.
In December 1996, the NCUC authorized the Company to accelerate amortization of
certain regulatory assets over a three-year period beginning January 1, 1997. In
March 1997, the SCPSC approved a similar plan for the Company to accelerate the
amortization of certain regulatory assets, including plant abandonment costs
related to the Harris Plant, over a three-year period beginning January 1, 1997.
The accelerated amortization of these regulatory assets results in additional
depreciation and amortization expenses of approximately $68 million in each year
of the three-year period. Depreciation and amortization expense also includes
amortization of plant abandonment costs (see Note 6c).
Amortization of nuclear fuel costs, including disposal costs associated with
obligations to the U.S. Department of Energy (DOE), is computed primarily on the
unit-of-production method and charged to fuel expense. Costs related to
obligations to the DOE for the decommissioning and decontamination of enrichment
facilities are also charged to fuel expense.
e. Nuclear Decommissioning
In the Company's retail jurisdictions, provisions for nuclear decommissioning
costs are approved by the NCUC and the SCPSC and are based on site-specific
estimates that include the costs for removal of all radioactive and other
structures at the site. In the wholesale jurisdiction, the provisions for
nuclear decommissioning costs are based on amounts agreed upon in applicable
rate agreements. Decommissioning cost provisions, which are included in
depreciation and amortization expense, were $33.2 million, $33.1 million and
$31.2 million in 1997, 1996 and 1995, respectively.
Accumulated decommissioning costs, which are included in accumulated
depreciation, were $428.7 million and $326 million at December 31, 1997 and
1996, respectively. These costs include amounts retained internally and amounts
funded in an external decommissioning trust. The balance of the nuclear
decommissioning trust was $245.5 million and $145.3 million at December 31, 1997
and 1996, respectively. Trust earnings increase the trust balance with a
corresponding increase in the accumulated decommissioning balance. These
balances are adjusted for net unrealized gains and losses. Based on the
site-specific estimates discussed below, and using an assumed after-tax earnings
rate of 8.5% and an assumed cost escalation rate of 4%, current levels of rate
recovery for nuclear decommissioning costs are adequate to provide for
decommissioning of the Company's nuclear facilities.
56
<PAGE>
The Company's most recent site-specific estimates of decommissioning costs were
developed in 1993, using 1993 cost factors, and are based on prompt
dismantlement decommissioning, which reflects the cost of removal of all
radioactive and other structures currently at the site, with such removal
occurring shortly after operating license expiration. These estimates, in 1993
dollars, are $257.7 million for Robinson Unit No. 2, $235.4 million for
Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2 and $284.3 million
for the Harris Plant. The estimates are subject to change based on a variety of
factors including, but not limited to, cost escalation, changes in technology
applicable to nuclear decommissioning and changes in federal, state or local
regulations. The cost estimates exclude the portion attributable to North
Carolina Eastern Municipal Power Agency (Power Agency), which holds an undivided
ownership interest in the Brunswick and Harris nuclear generating facilities.
Operating licenses for the Company's nuclear units expire in the year 2010 for
Robinson Unit No. 2, 2016 for Brunswick Unit No. 1, 2014 for Brunswick Unit No.
2 and 2026 for the Harris Plant.
The Financial Accounting Standards Board has reached several tentative
conclusions with respect to its project regarding accounting practices related
to closure and removal of long-lived assets. It is uncertain when the final
statement will be issued and what impacts it may ultimately have on the
Company's accounting for nuclear decommissioning and other closure and removal
costs.
f. Other Policies
Customers' meters are read and bills are rendered on a cycle basis. Revenues are
accrued for services rendered but unbilled at the end of each accounting period.
Fuel expense includes fuel costs or recoveries that are deferred through fuel
clauses established by the Company's regulators. These clauses allow the Company
to recover fuel costs and the fuel component of purchased power costs through
the fuel component of customer rates.
Other property and investments are stated principally at cost. The Company
maintains an allowance for doubtful accounts receivable, which totaled $3.4
million and $3.7 million at December 31, 1997 and 1996, respectively. Fuel
inventory and materials and supplies inventory are carried on a first-in,
first-out or average cost basis. Long-term debt premiums, discounts and issuance
expenses are amortized over the life of the related debt using the straight-line
method. Any expenses or call premiums associated with the reacquisition of debt
obligations are amortized over the remaining life of the original debt using the
straight-line method, except that December 31, 1996 balances are being amortized
on a three-year accelerated basis (see Note 6a). The Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.
3. Short-Term Debt and Revolving Credit Facilities
As of December 31, 1997, the Company's revolving credit facilities totaled $515
million, substantially all of which are long-term agreements supporting its
commercial paper borrowings. The Company is required to pay minimal annual
commitment fees to maintain its credit facilities. Consistent with management's
intent to maintain a portion of its commercial paper on a long-term basis, and
as supported by its long-term revolving credit facilities, the Company included
in long-term debt $245.9 million and $350 million of commercial paper
outstanding as of December 31, 1997 and 1996, respectively. Also, at December
31, 1996, the Company had other short-term debt which totaled $64.9 million. The
weighted-average interest rates of these borrowings were 5.85% and 5.41% at
December 31, 1997 and 1996, respectively, including commercial paper
reclassified as long-term debt.
4. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents and short-term debt
approximate fair value due to the short maturities of these instruments. The
carrying amount of the Company's long-term debt was $2.66 billion and $2.67
billion at December 31, 1997 and 1996, respectively. The estimated fair value of
this debt, as obtained
57
<PAGE>
from an independent pricing service, was $2.71 billion and $2.67 billion at
December 31, 1997 and 1996, respectively. There are inherent limitations in any
estimation technique, and these estimates are not necessarily indicative of the
amount the Company could realize in current transactions.
External funds have been established, as required by the Nuclear Regulatory
Commission, as a mechanism to fund certain costs of nuclear decommissioning (see
Note 2e). These nuclear decommissioning trust funds are invested in U.S. stocks,
bonds and cash equivalents. "Nuclear decommissioning trust funds" are presented
at amounts that approximate fair value.
5. Capitalization
In 1994, the Board of Directors of the Company authorized the repurchase of up
to 10 million shares of the Company's common stock on the open market. Under
this stock repurchase program, the Company purchased approximately 0.7 million
shares in both 1997 and 1996, 4.2 million shares in 1995 and 4.4 million shares
in 1994. The program was completed in 1997.
As of December 31, 1997, the Company had 20,163,180 shares of authorized but
unissued common stock reserved and available for issuance, primarily to satisfy
the requirements of the Company's stock plans. The Company intends, however, to
meet the requirements of these stock plans with issued and outstanding shares
presently held by the Trustee of the Stock Purchase-Savings Plan or with open
market purchases of common stock shares, as appropriate.
The Company's mortgage, as supplemented, and charter contain provisions limiting
the use of retained earnings for the payment of dividends under certain
circumstances. As of December 31, 1997, there were no significant restrictions
on the use of retained earnings.
As of December 31, 1997, long-term debt maturities for the years 1998, 1999,
2000 and 2002 are $208 million, $53 million, $197 million and $100 million,
respectively. There are no long-term debt maturities in 2001.
6. Regulatory Matters
a. Regulatory Assets
As a regulated entity, the Company is subject to the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," (SFAS-71). See Note 11c for additional discussion of
SFAS-71. Accordingly, the Company records certain assets resulting from the
effects of the ratemaking process, which would not be recorded under generally
accepted accounting principles for unregulated entities. At December 31, 1997,
the balances of the Company's regulatory assets were as follows (in millions):
Income taxes recoverable through future rates* $ 329
Harris Plant deferred costs 64
Abandonment costs* 38
Loss on reacquired debt (included in unamortized debt expense)* 42
Deferred fuel 21
Items included in other assets and deferred debits:
Deferred DOE enrichment facilities-related costs 49
Deferred hurricane-related costs 24
Emission allowance carrying costs* 8
-----
Total $ 575
=====
* Beginning in 1997, all or certain portions of these regulatory assets are
subject to accelerated amortization (see Note 2d).
58
<PAGE>
b. Retail Rate Matters
A petition was filed in July 1996 by the Carolina Industrial Group for Fair
Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an
investigation of the Company's base rates or treat its petition as a complaint
against the Company. The petition alleged that the Company's return on equity
(which was authorized by the NCUC in the Company's last general rate proceeding
in 1988) and earnings are too high. In December 1996, the NCUC issued an order
denying CIGFUR's petition and stating that it tentatively found no reasonable
grounds to proceed with CIGFUR's petition as a complaint. In January 1997,
CIGFUR filed its Comments and Motion for Reconsideration, to which the Company
responded. In February 1997, the NCUC issued an order denying CIGFUR's Motion
for Reconsideration. CIGFUR filed a Notice of Appeal of the NCUC Order with the
North Carolina Court of Appeals. The Company filed its brief in this matter in
July 1997, and oral argument was held before the North Carolina Court of Appeals
in November 1997. The Company cannot predict the outcome of this matter.
c. Plant-related Deferred Costs
The Company abandoned efforts to complete Mayo Unit No. 2 in March 1987. The
NCUC and SCPSC each allowed the Company to recover the cost of the abandoned
unit over a ten-year period without a return on the unamortized balance. In the
1988 rate orders, the Company was ordered to remove from rate base and treat as
abandoned plant certain costs related to the Harris Plant. Abandoned plant
amortization related to the 1988 rate orders will be completed in 1998 for the
North Carolina retail and wholesale jurisdictions and in 1999 for the South
Carolina retail jurisdiction.
Amortization of plant abandonment costs is included in depreciation and
amortization expense and totaled $30.8 million, $17.6 million and $18.3 million
in 1997, 1996 and 1995, respectively. The unamortized balances of plant
abandonment costs are reported at the present value of future recoveries of
these costs. The associated accretion of the present value was $3.5 million,
$26.4 million and $4.3 million in 1997, 1996 and 1995, respectively, and is
reported in other income, net. The accretion for 1996 includes a $22.9 million
adjustment to the unamortized balance of plant abandonment costs related to the
Harris Plant. This adjustment was made to reflect the present value impact of
the shorter recovery period resulting from accelerated amortization of this
asset (see Note 2d).
7. Employee Stock Ownership Plan
The Company sponsors the Stock Purchase-Savings Plan (SPSP) for which
substantially all full-time employees and certain part-time employees are
eligible. The SPSP, which has Company matching and incentive goal features,
encourages systematic savings by employees and provides a method of acquiring
Company common stock and other diverse investments. The SPSP, as amended in
1989, is an employee stock ownership plan (ESOP) that can enter into acquisition
loans to acquire Company common stock to satisfy SPSP common share needs.
Qualification as an ESOP did not change the level of benefits received by
employees under the SPSP. Common stock acquired with the proceeds of an ESOP
loan is held by the SPSP Trustee in a suspense account. The common stock is
released from the suspense account and made available for allocation to
participants as the ESOP loan is repaid. Such allocations are used to partially
meet common stock needs related to participant contributions, Company matching
and incentive contributions and/or reinvested dividends. Dividends paid on ESOP
suspense shares and on ESOP shares allocated to participants are used to repay
ESOP acquisition loans. These dividends are deductible for income tax purposes.
There were 7,536,600 ESOP suspense shares at December 31, 1997, with a fair
value of $319.4 million. ESOP shares allocated to plan participants totaled
13,252,988 at December 31, 1997. The Company has a long-term note receivable
from the SPSP Trustee related to the purchase of common stock from the Company
in 1989. The balance of the note receivable from the SPSP Trustee is included in
the determination of unearned ESOP common stock, which reduces common stock
equity. ESOP shares that have not been committed to be released to participants'
accounts are not considered outstanding for the determination of earnings per
common share.
59
<PAGE>
Interest income on the note receivable and dividends on unallocated ESOP shares
are not recognized for financial statement purposes.
8. Postretirement Benefit Plans
The Company has a noncontributory defined benefit retirement (pension) plan for
substantially all full-time employees, and funds the pension plan in amounts
that comply with contribution limits imposed by law. Pension plan benefits
reflect an employee's compensation, years of service and age at retirement.
The components of net periodic pension cost are (in thousands):
1997 1996 1995
---- ---- ----
Actual return on plan assets $ (110,346) $ (76,347) $ (103,381)
Variance from expected return,
deferred 57,368 27,056 59,425
----------- ---------- ----------
Expected return on plan assets (52,978) (49,291) (43,956)
Service cost 18,643 19,257 16,344
Interest cost on projected benefit
obligation 42,468 39,505 35,592
Net amortization 1,037 466 (3,580)
----------- ----------- -----------
Net periodic pension cost $ 9,170 $ 9,937 $ 4,400
=========== =========== ===========
Reconciliations of the funded status of the pension plan at December 31 are (in
thousands):
1997 1996
---- ----
Actuarial present value of benefits for services
rendered to date:
Accumulated benefits based on salaries to date,
including vested benefits of $463.1 million for
1997 and $415.1 million for 1996 $ 497,517 $ 452,552
Additional benefits based on estimated future
salary levels 100,643 106,136
---------- ----------
Projected benefit obligation 598,160 558,688
Fair market value of plan assets, invested
primarily in equity and fixed-income
securities 768,297 683,508
---------- ----------
Funded status 170,137 124,820
Unrecognized prior service costs 10,916 8,023
Unrecognized actuarial gain (212,419) (155,145)
Unrecognized transition obligation, amortized
over 18.5 years beginning January 1, 1987 793 899
---------- ----------
Accrued pension costs $ (30,573) $ (21,403)
========== ==========
60
<PAGE>
The weighted-average discount rate used to measure the projected benefit
obligation was 7.75% in both 1997 and 1996. The assumed rate of increase in
future compensation used to measure the projected benefit obligation was 4.20%
in both 1997 and 1996. The expected long-term rate of return on pension plan
assets used in determining the net periodic pension cost was 9.25% in both 1997
and 1996 and 9% in 1995.
In addition to pension benefits, the Company provides contributory
postretirement benefits (OPEB), including certain health care and life insurance
benefits, for substantially all retired employees.
The components of net periodic OPEB cost are (in thousands):
1997 1996 1995
---- ---- ----
Actual return on plan assets $ (4,628) $ (2,656) $ (2,514)
Variance from expected return,
deferred 2,186 726 1,420
----------- ---------- ----------
Expected return on plan assets (2,442) (1,930) (1,094)
Service cost 7,988 8,412 7,498
Interest cost on accumulated benefit
obligation 11,065 10,629 10,595
Net amortization 5,889 5,889 5,530
---------- ---------- ----------
Net periodic OPEB cost $ 22,500 $ 23,000 $ 22,529
====================================
Reconciliations of the funded status of the OPEB plans at December 31 are (in
thousands):
1997 1996
--------- ---------
Actuarial present value of benefits
for services rendered to date:
Current retires $ 60,588 $ 60,534
Active employees eligible to retire 23,009 19,607
Active employees not eligible to retire 97,727 84,346
--------- ---------
Accumulated postretirement
benefit obligation 181,324 164,487
Fair market value of plan assets,
invested primarily in equity and
fixed-income securities 33,427 28,799
--------- ---------
Funded status (147,897) (135,688)
Unrecognized actuarial gain (10,506) (11,339)
Unrecognized transition obligation,
amortized over 20 years beginning
January 1, 1993 88,336 94,225
---------- ----------
Accrued OPEB costs $ (70,067) $ (52,802)
========== ==========
61
<PAGE>
The assumptions used to measure the accumulated postretirement benefit
obligation are:
1997 1996
---- ----
Weighted-average discount rate 7.75% 7.75%
Initial medical cost trend rate for
pre-Medicare benefits 7.20% 7.70%
Initial medical cost trend rate for
post-Medicare benefits 7.00% 7.50%
Ultimate medical cost trend rate 5.25% 5.25%
Year ultimate medical cost trend rate is achieved 2005 2005
The expected long-term rate of return on plan assets used in determining the net
periodic OPEB cost was 9.25% in both 1997 and 1996 and 9% in 1995. Assuming a 1%
increase in the medical cost trend rates, the aggregate of the service and
interest cost components of the net periodic OPEB cost for 1997 would increase
by $3.3 million, and the accumulated postretirement benefit obligation at
December 31, 1997, would increase by $20.8 million. In general, OPEB costs are
paid as claims are incurred and premiums are paid; however, the Company is
partially funding retiree health care benefits in a trust created pursuant to
Section 401(h) of the Internal Revenue Code.
9. Income Taxes
Deferred income taxes are provided for temporary differences between book and
tax bases of assets and liabilities. Income taxes are allocated between
operating income and other income based on the source of the income that
generated the tax. Investment tax credits related to operating income are
amortized over the service life of the related property.
Net accumulated deferred income tax liabilities at December 31 are (in
thousands):
1997 1996
---- ----
Accelerated depreciation and property
cost differences $ 1,676,505 $ 1,734,001
Deferred costs, net 87,829 122,580
Miscellaneous other temporary
differences, net 300 23
----------- -----------
Net accumulated deferred income
tax liability $ 1,764,634 $ 1,856,604
=========== ===========
Total deferred income tax liabilities were $2.24 billion and $2.30 billion at
December 31, 1997, and 1996, respectively. Total deferred income tax assets were
$472 million at December 31, 1997, and $439 million at December 31, 1996.
A reconciliation of the Company's effective income tax rate to the statutory
federal income tax rate is as follows:
62
<PAGE>
1997 1996 1995
---- ---- ----
Effective income tax rate 37.5% 39.5% 39.2%
State income taxes, net of federal
income tax benefit (4.9) (4.9) (5.0)
Investment tax credit amortization 1.7 1.6 1.6
Other differences, net 0.7 (1.2) (0.8)
Statutory federal income tax rate 35.0% 35.0% 35.0%
The provisions for income tax expense are comprised of (in thousands):
1997 1996 1995
---- ---- ----
Included in Operating Expenses
Income tax expense (credit)
Current - federal $ 272,570 $ 132,570 $ 143,440
state 59,308 29,380 41,826
Deferred - federal (59,618) 97,303 75,442
state (8,980) 20,955 7,860
Investment tax credit (10,232) (10,445) (9,344)
---------- ---------- ---------
Subtotal 253,048 269,763 259,224
---------- ---------- ---------
Harris Plant deferred costs
Investment tax credit (151) (286) (297)
---------- ---------- ---------
Total included in operating
expenses 252,897 269,477 258,927
---------- ---------- ---------
Included in Other Income
Income tax expense (credit)
Current - federal (14,520) (22,382) (20,669)
state (2,561) (4,025) (4,251)
Deferred - federal (1,766) 10,286 5,254
state (485) 2,274 1,125
---------- ---------- ---------
Total included in other income (19,332) (13,847) (18,541)
----------- -------- --------
Total income tax expense $ 233,565 $ 255,630 $ 240,386
=========== ========== ==========
10. Joint Ownership of Generating Facilities
Power Agency holds undivided ownership interests in certain generating
facilities of the Company. The Company and Power Agency are entitled to shares
of the generating capability and output of each unit equal to their respective
ownership interests. Each also pays its ownership share of additional
construction costs, fuel inventory purchases and operating expenses. The
Company's share of expenses for the jointly owned units is included in the
appropriate expense category.
The Company's share of the jointly owned generating facilities is listed below
with related information as of December 31, 1997 (dollars in millions):
63
<PAGE>
Company
Megawatt Ownership Plant Accumulate Under
Facility Capability Interest Investment Depreciation Construction
- -------- ---------- --------- ---------- ------------ ------------
Mayo Plant 745 83.83% $ 450 $ 180 $ 1
Harris Plant 860 83.83% $ 3,014 $ 933 $ 16
Brunswick Plant 1,521 81.67% $ 1,420 $ 910 $ 4
Roxboro Unit No. 4 700 87.06% $ 231 $ 104 $ 4
In the table above, plant investment and accumulated depreciation, which
includes accumulated nuclear decommissioning, are not reduced by the regulatory
disallowances related to the Harris Plant.
11. Commitments and Contingencies
a. Purchased Power
Pursuant to the terms of the 1981 Power Coordination Agreement, as amended,
between the Company and Power Agency, the Company is obligated to purchase a
percentage of Power Agency's ownership capacity of, and energy from, the Mayo
and Harris Plants. For Mayo, the buyback period ended in 1997. In 1993, the
Company and Power Agency entered into an agreement to restructure portions of
their contracts covering power supplies and interests in jointly owned units.
Under the terms of the 1993 agreement, the Company increased the amount of
capacity and energy purchased from Power Agency's ownership interest in the
Harris Plant, and the buyback period was extended six years through 2007. The
estimated minimum annual payments for these purchases, which reflect
capital-related capacity costs, total approximately $26 million. Contractual
purchases from the Mayo and Harris plants totaled $36.2 million, $36.7 million
and $39.4 million for 1997, 1996 and 1995, respectively. In 1987, the NCUC
ordered the Company to reflect the recovery of the capacity portion of these
costs on a levelized basis over the original 15-year buyback period, thereby
deferring for future recovery the difference between such costs and amounts
collected through rates. In 1988, the SCPSC ordered similar treatment, but with
a 10-year levelization period. At December 31, 1997, and 1996, the Company had
deferred purchased capacity costs, including carrying costs accrued on the
deferred balances, of $63.7 million and $69.7 million, respectively. Increased
purchases (which are not being deferred for future recovery) resulting from the
1993 agreement with Power Agency were approximately $17 million, $13 million and
$10 million for 1997, 1996 and 1995, respectively.
The Company has two long-term agreements for the purchase of power and related
transmission services from other utilities. The first agreement provides for the
purchase of 250 megawatts of capacity through 2009 from Indiana Michigan Power
Company's Rockport Unit No. 2 (Rockport). The second agreement is with Duke
Energy (Duke) for the purchase of 400 megawatts of firm capacity through
mid-1999. The estimated minimum annual payments for power purchases under these
agreements are approximately $31 million for Rockport and $48 million for Duke,
representing capital-related capacity costs. Total purchases (including
transmission use charges) under the Rockport agreement amounted to $61.9
million, $60.9 million and $61.8 million for 1997, 1996 and 1995, respectively.
Total purchases (including transmission use charges) under the agreement with
Duke amounted to $69.5 million, $65.4 million and $63.8 million for 1997, 1996
and 1995, respectively.
b. Insurance
The Company is a member of Nuclear Electric Insurance Limited (NEIL), which
provides primary and excess insurance coverage against property damage to
members' nuclear generating facilities. Under the primary program, the Company
is insured for $500 million at each of its nuclear plants. In addition to
primary coverage, NEIL also provides decontamination, premature decommissioning
and excess property insurance with limits of $1.4 billion on the Brunswick
Plant, $2 billion on the Harris Plant and $800 million on the Robinson Plant.
64
<PAGE>
Insurance coverage against incremental costs of replacement power resulting from
prolonged accidental outages at nuclear generating units is also provided
through membership in NEIL. The Company is insured thereunder for six weeks
(beginning 17 weeks after the outage begins) in the amount of $3.5 million per
week. For accidental outages extending beyond 23 weeks, the Company is covered
for the next 52 weeks in weekly amounts of $1.5 million at Brunswick Unit No. 1,
$1.45 million at Brunswick Unit No. 2, $1.59 million at the Harris Plant and
$1.34 million at Robinson Unit No. 2. An additional 104 weeks of coverage is
provided at 80% of the above weekly amounts. For the current policy period, the
Company is subject to retrospective premium assessments of up to approximately
$15.5 million with respect to the primary coverage, $20 million with respect to
the decontamination, decommissioning and excess property coverage and $6.1
million for the incremental replacement power costs coverage, in the event
covered expenses at insured facilities exceed premiums, reserves, reinsurance
and other NEIL resources. These resources at present total more than $3.9
billion. Pursuant to regulations of the Nuclear Regulatory Commission, the
Company's property damage insurance policies provide that all proceeds from such
insurance be applied, first, to place the plant in a safe and stable condition
after an accident and, second, to decontamination costs, before any proceeds can
be used for decommissioning, plant repair or restoration. The Company is
responsible to the extent losses may exceed limits of the coverage described
above. Power Agency would be responsible for its ownership share of such losses
and for certain retrospective premium assessments on jointly owned nuclear
units.
The Company is insured against public liability for a nuclear incident up to
$8.9 billion per occurrence, which is the maximum limit on public liability
claims pursuant to the Price-Anderson Act. In the event that public liability
claims from an insured nuclear incident exceed $200 million, the Company would
be subject to a pro rata assessment of up to $75.5 million, plus a 5% surcharge,
for each reactor owned for each incident. Payment of such assessment would be
made over time as necessary to limit the payment in any one year to no more than
$10 million per reactor owned. Power Agency would be responsible for its
ownership share of the assessment on jointly owned nuclear units.
c. Applicability of SFAS-71
The Company's ability to continue to meet the criteria for application of
SFAS-71 (see Note 6a) may be affected in the future by competitive forces,
deregulation and restructuring in the electric utility industry. In the event
that SFAS-71 no longer applied to a separable portion of the Company's
operations, related regulatory assets and liabilities would be eliminated unless
an appropriate regulatory recovery mechanism is provided. Additionally, these
factors could result in an impairment of electric utility plant assets as
determined pursuant to Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."
d. Claims and Uncertainties
1. The Company is subject to federal, state and local regulations addressing
air and water quality, hazardous and solid waste management and other
environmental matters.
Various organic materials associated with the production of manufactured
gas, generally referred to as coal tar, are regulated under various federal
and state laws. There are several manufactured gas plant (MGP) sites to
which the Company and certain entities that were later merged into the
Company had some connection. In this regard, the Company, along with others,
is participating in a cooperative effort with the North Carolina Department
of Environment and Natural Resources, Division of Waste Management (DWM) to
establish a uniform framework for addressing these MGP sites. The
investigation and remediation of specific MGP sites will be addressed
pursuant to one or more Administrative Orders on Consent between the DWM and
the potentially responsible party or parties. The Company continues to
investigate the identities of parties connected to individual MGP sites, the
relative relationships of the Company and other parties to those sites and
the degree to which the Company will undertake efforts with others at
individual sites.
65
<PAGE>
The Company has been notified by regulators of its involvement or potential
involvement in several sites, other than MGP sites, that require remedial
action. Although the Company cannot predict the outcome of these matters, it
does not expect costs associated with these sites to be material to the
results of operations of the Company.
The Company carries a liability for the estimated costs associated with
remedial activities, except for MGP site remediation costs. This liability
is not material to the financial position of the Company. The MGP site
remediation costs are not currently determinable; however, the Company does
not expect those costs to be material to the financial position of the
Company.
2. As required under the Nuclear Waste Policy Act of 1982, the Company entered
into a contract with the U.S. Department of Energy (DOE) under which the DOE
agreed to dispose of the Company's spent nuclear fuel by January 31, 1998.
The DOE defaulted on its January 31, 1998 obligation to begin taking spent
nuclear fuel, and a group of utilities, including the Company, is
considering measures to force the DOE to take spent nuclear fuel or to pay
damages from monies other than the Nuclear Waste Fund. The Company cannot
predict the outcome of this matter.
With certain modifications, the Company's spent nuclear fuel storage
facilities will be sufficient to provide storage space for spent nuclear
fuel generated on the Company's system through the expiration of the current
operating licenses for all of the Company's nuclear generating units.
Subsequent to the expiration of these licenses, dry storage may be
necessary.
3. In the opinion of management, liabilities, if any, arising under other
pending claims would not have a material effect on the financial position,
results of operations or cash flows of the Company.
66
<PAGE>
<TABLE>
CAROLINA POWER & LIGHT COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------------
Balance at (1) (2) Deductions Balance at
Beginning Charged to Charged to from Close of
Description of Period Income Other Accounts Reserves Period
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
related assets on the
balance sheet:
Uncollectible accounts $ 3,689,783 $ 6,296,392 $ -0- $ 6,619,814 $ 3,366,361
=============== =============== =============== =============== ================
Reserves other than those
deducted from assets on
the balance sheet:
Injuries and damages $ 1,277,888 $ 714,353 $ -0- $ 672,577 $ 1,319,664
=============== =============== =============== =============== ================
Reserve for possible coal
mine investment losses $ 7,625,008 $ -0- $ -0- $ 119,014 $ 7,505,994
=============== =============== =============== =============== ================
Reserve for employee
retirement and
compensation plans $ 107,569,407 $ 39,690,015 $ -0- $ 5,026,451 $ 142,232,971
=============== =============== =============== =============== ================
Reserve for environmental
investigation and
remediation costs $ 1,815,909 $ -0- $ -0- $ -0- $ 1,815,909
=============== =============== =============== =============== ================
</TABLE>
67
<PAGE>
<TABLE>
CAROLINA POWER & LIGHT COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------------
Balance at (1) (2) Deductions Balance at
Beginning Charged to Charged to from Close of
Description of Period Income Other Accounts Reserves Period
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
related assets on the
balance sheet:
Uncollectible accounts $ 2,323,808 $ 8,525,513 $ -0- $ 7,159,538 $ 3,689,783
================ ================ ================ ================ ===============
Reserves other than those
deducted from assets on
the balance sheet:
Injuries and damages $ 1,270,881 $ 1,033,504 $ -0- $ 1,026,497 $ 1,277,888
================ ================ ================ ================ ===============
Reserve for possible coal
mine investment losses $ 7,797,250 $ -0- $ -0- $ 172,242 $ 7,625,008
================ ================ ================ ================ ===============
Reserve for employee
retirement and
compensation plans $ 91,779,866 $ 41,816,846 $ -0- $ 26,027,305 $ 107,569,407
================ ================ ================ ================ ===============
Reserve for environmental
investigation and
remediation costs $ 1,906,730 $ -0- $ -0- $ 90,821 $ 1,815,909
================ ================ ================ ================ ===============
</TABLE>
68
<PAGE>
<TABLE>
CAROLINA POWER & LIGHT COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------------
Balance at (1) (2) Deductions Balance at
Beginning Charged to Charged to from Close of
Description of Period Income Other Accounts Reserves Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
related assets on the
balance sheet:
Uncollectible accounts $ 2,520,785 $ 4,622,288 $ -0- $ 4,819,265 $ 2,323,808
=============== ================ =============== =============== ================
Reserves other than those
deducted from assets on
the balance sheet:
Injuries and damages $ 2,212,161 $ 566,718 $ -0- $ 1,507,998 $ 1,270,881
=============== ================ =============== =============== ================
Reserve for possible coal
mine investment losses $ 8,004,970 $ -0- $ -0- $ 207,720 $ 7,797,250
=============== ================ =============== =============== ================
Reserve for employee
retirement and
compensation plans $ 88,015,413 $ 36,288,787 $ -0- $ 32,524,334 $ 91,779,866
=============== ================ =============== =============== ================
Reserve for environmental
investigation and
remediation costs $ 1,976,716 $ -0- $ -0- $ 69,986 $ 1,906,730
=============== ================ =============== =============== =================
</TABLE>
69
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- FINANCIAL DISCLOSURE
---------------------------------------------------------------
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
a) Information on the Company's directors is set forth in the
Company's 1998 definitive proxy statement dated March 30,
1998, and incorporated by reference herein.
b) Information on the Company's executive officers is set forth
in Part I and incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information on executive compensation is set forth in the Company's
1998 definitive proxy statement dated March 30, 1998, and incorporated
by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
a) The Company knows of no person who is a beneficial owner of
more than five (5%) percent of any class of the Company's
voting securities except for Wachovia Bank of North Carolina,
N.A., Post Office Box 3099, Winston-Salem, North Carolina
27102 which as of December 31, 1997, owned 8,098,921 shares of
Common Stock (5.3% of Class) as Trustee of the Company's Stock
Purchase-Savings Plan.
b) Information on security ownership of the Company's management
is set forth in the Company's 1998 definitive proxy statement
dated March 30, 1998, and incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information on certain relationships and related transactions is set
forth in the Company's 1998 definitive proxy statement dated March 30,
1998, and incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- -------- ON FORM 8-K.
-----------------------------------------------------------------
a) The following documents are filed as part of the report:
1. Consolidated Financial Statements Filed:
See ITEM 8 - Consolidated Financial Statements and
Supplementary Data.
2. Consolidated Financial Statement Schedules Filed:
See ITEM 8 - Consolidated Financial Statements and
Supplementary Data
70
<PAGE>
3. Exhibits Filed:
---------------
See EXHIBIT INDEX (page 74)
b) Reports on Form 8-K filed during or with respect to the last
quarter of 1997 and the portion of the first quarter of 1998
prior to the filing of this Form 10-K:
NONE
71
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 26th day of March,
1998.
CAROLINA POWER & LIGHT COMPANY
------------------------------
(Registrant)
By: /s/ Glenn E. Harder
------------------------------
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ William Cavanaugh III Principal Executive 3/18/98
- -------------------------------
(William Cavanaugh III, Officer and Director
President and Chief Executive
Officer)
/s/ Glenn E. Harder Principal Financial 3/18/98
- -------------------------------
(Glenn E. Harder Officer
Executive Vice President and
Chief Financial Officer)
/s/ Bonnie V. Hancock Principal Accounting 3/18/98
- -------------------------------
(Bonnie V. Hancock Officer
Vice President and Controller)
/s/ Sherwood H. Smith, Jr. Director 3/18/98
- -------------------------------
(Sherwood H. Smith, Jr., Chairman)
/s/ Leslie M. Baker, Jr. Director 3/18/98
- -------------------------------
(Leslie M. Baker, Jr)
/s/ Edwin B. Borden Director 3/18/98
- -------------------------------
(Edwin B. Borden)
/s/ Felton J. Capel Director 3/18/98
- -------------------------------
(Felton J. Capel)
72
<PAGE>
/s/ Charles W. Coker Director 3/18/98
- -------------------------------
(Charles W. Coker)
/s/ Richard L. Daugherty Director 3/18/98
- -------------------------------
(Richard L. Daugherty)
/s/ Walter Y. Elisha Director
- -------------------------------
Walter Y. Elisha
/s/ Robert L. Jones Director
- -------------------------------
(Robert L. Jones)
/s/ Estell C. Lee Director 3/18/98
- -------------------------------
(Estell C. Lee)
/s/ William O. McCoy Director 3/18/98
- -------------------------------
(William O. McCoy)
/s/ J. Tylee Wilson Director 3/18/98
- -------------------------------
(J. Tylee Wilson)
73
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Number Description
<S> <C>
*3a(1) Restated Charter of the Company, as amended
May 10, 1996 (filed as Exhibit No. 3(i) to
quarterly report on Form 10-Q for the
quarterly period ended June 30, 1995, File
No. 1-3382).
*3a(2) Restated Charter of Carolina Power & Light
Company as amended on May 10, 1996 (filed as
Exhibit 3(i) to quarterly report on Form 10-Q
for the quarterly period ended June 30, 1997,
File No. 1-3382).
*3b(1) By-laws of the Company, as amended May 10,
1996 (filed as Exhibit No. 3(ii) to quarterly
report on Form 10-Q for the quarterly period
ended June 30, 1995, File No. 1-3382).
*3b(2) By-Laws of Carolina Power & Light Company as
amended on September 18, 1996 (filed as
Exhibit 3(ii) to quarterly report on Form
10-Q for the quarterly period ended June 30,
1997, File No.1-3382).
*4a(1) Resolution of Board of Directors, dated
December 8, 1954, authorizing the issuance
of, and establishing the series designation,
dividend rate and redemption prices for the
Company's Serial Preferred Stock, $4.20
Series (filed as Exhibit 3(c), File No.
33-25560).
*4a(2) Resolution of Board of Directors, dated
January 17, 1967, authorizing the issuance
of, and establishing the series designation,
dividend rate and redemption prices for the
Company's Serial Preferred Stock, $5.44
Series (filed as Exhibit 3(d), File No.
33-25560).
*4a(3) Statement of Classification of Shares dated
January 13, 1971, relating to the
authorization of, and establishing the series
designation, dividend rate and redemption
prices for the Company's Serial Preferred
Stock, $7.95 Series (filed as Exhibit 3(f),
File No. 33-25560).
*4a(4) Statement of Classification of Shares dated
September 7, 1972, relating to the
authorization of, and establishing the series
designation, dividend rate and redemption
prices for the Company's Serial Preferred
Stock, $7.72 Series (filed as Exhibit 3(g),
File No. 33-25560).
*4b Mortgage and Deed of Trust dated as of May 1,
1940 between the Company and The Bank of New
York (formerly, Irving Trust Company) and
Frederick G. Herbst (W.T. Cunningham,
Successor), Trustees and the First through
Fifth Supplemental Indentures thereto
(Exhibit 2(b), File No. 2-64189); and the
Sixth through Sixty-fourth Supplemental
Indentures (Exhibit 2(b)-5, File No. 2-16210;
Exhibit 2(b)-6, File No. 2-16210; Exhibit
4(b)-8, File No. 2-19118; Exhibit 4(b)-2,
File No. 2-22439; Exhibit 4(b)-2, File No.
2-24624; Exhibit 2(c), File No. 2-27297;
Exhibit 2(c), File No. 2-30172; Exhibit 2(c),
File No. 2-35694;
74
<PAGE>
Exhibit 2(c), File No. 2-37505; Exhibit 2(c),
File No. 2-39002; Exhibit 2(c), File No.
2-41738; Exhibit 2(c), File No. 2-43439;
Exhibit 2(c), File No. 2-47751; Exhibit 2(c),
File No. 2-49347; Exhibit 2(c), File No.
2-53113; Exhibit 2(d), File No. 2-53113;
Exhibit 2(c), File No. 2-59511; Exhibit 2(c),
File No. 2-61611; Exhibit 2(d), File No.
2-64189; Exhibit 2(c), File No. 2-65514;
Exhibits 2(c) and 2(d), File No. 2-66851;
Exhibits 4(b)-1, 4(b)-2, and 4(b)-3, File No.
2-81299; Exhibits 4(c)-1 through 4(c)-8, File
No. 2-95505; Exhibits 4(b) through 4(h), File
No. 33-25560; Exhibits 4(b) and 4(c), File
No. 33-33431; Exhibits 4(b) and 4(c), File
No. 33-38298; Exhibits 4(h) and 4(i), File
No. 33-42869; Exhibits 4(e)-(g), File No.
33-48607; Exhibits 4(e) and 4(f), File No.
33-55060; Exhibits 4(e) and 4(f), File No.
33-60014; Exhibits 4(a) and 4(b), File No.
33-38349; Exhibit 4(e), File No. 33-50597;
Exhibit 4(e) and 4(f), File No. 33-57835);
and Exhibit to Current Report on Form 8-K
dated August 28, 1997, File No. 1-3382.)
*4c(1) Indenture, dated as of March 1, 1995, between
the Company and Bankers Trust Company, as
Trustee, with respect to Unsecured
Subordinated Debt Securities (filed as
Exhibit No. 4(c) to Current Report on Form
8-K dated April 13, 1995, File No. 1-3382).
*4c(2) Resolutions adopted by the Executive
Committee of the Board of Directors at a
meeting held on April 13, 1995, establishing
the terms of the 8.55% Quarterly Income
Capital Securities (Series A Subordinated
Deferrable Interest Debentures) (filed as
Exhibit 4(b) to Current Report on Form 8-K
dated April 13, 1995, File No. 1-3382).
*10a(1) Purchase, Construction and Ownership
Agreement dated July 30, 1981 between
Carolina Power & Light Company and North
Carolina Municipal Power Agency Number 3 and
Exhibits, together with resolution dated
December 16, 1981 changing name to North
Carolina Eastern Municipal Power Agency,
amending letter dated February 18, 1982, and
amendment dated February 24, 1982 (filed as
Exhibit 10(a), File No. 33-25560).
*10a(2) Operating and Fuel Agreement dated July 30,
1981 between Carolina Power & Light Company
and North Carolina Municipal Power Agency
Number 3 and Exhibits, together with
resolution dated December 16, 1981 changing
name to North Carolina Eastern Municipal
Power Agency, amending letters dated August
21, 1981 and December 15, 1981, and amendment
dated February 24, 1982 (filed as Exhibit
10(b), File No. 33-25560).
*10a(3) Power Coordination Agreement dated July 30,
1981 between Carolina Power & Light Company
and North Carolina Municipal Power Agency
Number 3 and Exhibits, together with
resolution dated December 16, 1981 changing
name to North Carolina Eastern Municipal
Power Agency and amending letter dated
January 29, 1982 (filed as Exhibit 10(c),
File No. 33-25560).
*10a(4) Amendment dated December 16, 1982 to
Purchase, Construction and Ownership
Agreement dated July 30, 1981 between
Carolina Power & Light Company and North
Carolina Eastern Municipal Power Agency
(filed as Exhibit 10(d), File No. 33-25560).
75
<PAGE>
*10a(5) Agreement Regarding New Resources and Interim
Capacity between Carolina Power & Light
Company and North Carolina Eastern Municipal
Power Agency dated 13, 1987 (filed as
Exhibit 10(e), File No. 33-25560).
*10a(6) Power Coordination Agreement - 1987A between
North Carolina Eastern Municipal Power Agency
and Carolina Power & Light Company for
Contract Power From New Resources Period
1987-1993 dated October 13, 1987 (filed as
Exhibit 10(f), File No. 33-25560).
+*10b(1) Directors Deferred Compensation Plan
effective January 1, 1982 as amended (filed
as Exhibit 10(g), File No. 33-25560).
+*10b(2) Supplemental Executive Retirement Plan
effective January 1, 1984 (filed as Exhibit
10(h), File No. 33-25560).
+*10b(3) Retirement Plan for Outside Directors (filed
as Exhibit 10) (I), File No. 33-25560).
+*10b(4) Executive Deferred Compensation Plan
effective May 1, 1982 as amended (filed as
Exhibit 10(j), File No. 33-25560).
+*10b(5) Key Management Deferred Compensation Plan
(filed as Exhibit 10(k), File No. 33-25560).
+*10b(6) Resolutions of the Board of Directors, dated
March 15, 1989, amending the Key Management
Deferred Compensation Plan (filed as Exhibit
10(a), File No. 33-48607).
+*10b(7) Resolutions of the Board of Directors dated
May 8, 1991, amending the Directors Deferred
Compensation Plan (filed as Exhibit 10(b),
File No. 33-48607).
+*10b(8) Resolutions of the Board of Directors dated
May 8, 1991, amending the Executive Deferred
Compensation Plan (filed as Exhibit 10(c),
File No. 33-48607).
+*10b(9) 1997 Equity Incentive Plan, approved by the
company's shareholders May 7, 1997, effective
as of January 1, 1997 (filed as Appendix A to
the Company's 1997 Proxy Statement, File No.
1-03382).
+*10b(10) Performance Share Sub-Plan of the 1997 Equity
Incentive Plan, adopted by the personnel,
Executive Development and compensation
committee of the Board of Directors, March
19, 1997, subject to shareholder approval of
the 1997 Equity Incentive Plan, which was
obtained on May 7, 1997, (filed as Exhibit
10(b), File No. 1-03382).
+10b(11) Resolutions of Board of Directors dated July
9, 1997, amending the Deferred Compensation
Plan for Key Management Employees of Carolina
Power & Light Company.
76
<PAGE>
+10b(12) Resolutions of Board of Directors dated July
9, 1997, amending the Supplemental Executive
Retirement Plan of Carolina Power & Light
Company.
+10b(13) Amended Management Incentive Compensation
Program of Carolina Power & Light Company, as
amended December 10, 1997.
+10b(14) Carolina Power & Light Company Restoration
Retirement Plan, effective January 1, 1998.
+10b(15) Carolina Power & Light Company Non-Employee
Director Stock Unit Plan, effective January
1, 1998.
+10b(16) Employment Agreement dated September 1, 1992,
by and between the Company and William
Cavanaugh III.
+10b(17) Employment Agreement dated April 1, 1993, by
and between the Company and William S. Orser.
+10b(18) Employment Arrangement dated September 27,
1994 by and between the Company and Glenn E.
Harder.
+10b(19) Personal Services Agreement dated September
18, 1996, by and between the Company and
Sherwood H. Smith, Jr.
+10b(20) Employment Agreement dated June 2, 1997, by
and between the Company and Robert B.
McGehee.
+10b(21) Employment Agreement dated September 24,
1997, by and between the Company and John E.
Manczak.
12 Computation of Ratio of Earnings to Fixed
Charges and Preferred Dividends Combined and
Ratio of Earnings to Fixed Charges.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of William D. Johnson.
27 Financial Data Schedule
*Incorporated herein by reference as indicated.
+Management contract or compensation plan or arrangement required to be filed as
an exhibit to this report pursuant to Item 14 (c) of Form 10-K.
</TABLE>
77
<PAGE>
EXHIBIT NO. 10b(11)
[Excerpts from Minutes of Meeting of Board of Directors - July 9, 1997]
AMENDMENT TO DEFERRED COMPENSATION PLAN
FOR KEY MANAGEMENT EMPLOYEES OF
CAROLINA POWER & LIGHT COMPANY
Mr. Smith referred to the Deferred Compensation Plan for Key Management
Employees of Carolina Power & Light Company (Plan) and stated that, under
ARTICLE XI AMENDMENT AND TERMINATION, the Company has the right to amend the
Plan. He stated that deferrals under the Plan cannot exceed fifteen percent
(15%) of the Participant's Total Compensation for the year in which such
deferral election is made, and that additional flexibility was appropriate where
justified in the discretion of the Company's Chief Executive Officer.
An Amendment One to the Plan was presented to the Board. Amendment One
was marked as Exhibit C to the minutes of the Board of Directors meeting and
filed with and made a part of the minutes of the meeting. Amendment One will
allow Participants to defer more than fifteen percent (15%) of the Participant's
Total Compensation for the year in which such deferral election is made, but
only when justified in the sole discretion of the Company's Chief Executive
Officer. Mr. Smith recommended that the Board ratify Amendment One to the Plan.
Whereupon, after discussion and upon motion duly made and seconded, it was
unanimously:
RESOLVED, that Amendment One to the Plan substantially in the form of
Exhibit C to the minutes of this meeting, with such changes, if any,
as the officers of the Company may deem advisable, be, and the same
hereby is, ratified; and further
RESOLVED, that the officers of the Company be, and hereby are, fully
authorized and empowered to do any and all things and to take any and
all actions in their judgment necessary or desirable in order to fully
carry out, perform and make effective the matters and things covered
by the foregoing resolution and the purposes and intent thereof.
EXHIBIT C TO
BOARD OF DIRECTORS
MEETING MINUTES
AMENDMENT ONE
TO
DEFERRED COMPENSATION PLAN
FOR
KEY MANAGEMENT EMPLOYEES OF
CAROLINA POWER & LIGHT COMPANY
Pursuant to ARTICLE XI AMENDMENT AND TERMINATION of Deferred Compensation Plan
for Key Management Employees of Carolina Power & Light Company, as amended and
restated November 1, 1991, (the "Plan"), the Board of Directors hereby amends
the Plan. The following changes to the Plan shall become effective on July 9,
1997, and shall apply to all Deferred Compensation Agreements entered into by
the Company and any Eligible Employee on or after November 1, 1991.
A. Section 2.(a) of ARTICLE III ELIGIBILITY AND PARTICIPATION is hereby deleted
and replaced with the following:
"(a) An Eligible Employee participates in the Deferred
Compensation feature of the Plan by irrevocably electing, in the manner
specified herein, to defer future Salary in an annual amount for one
(1) or four (4) consecutive calendar years (or for such fewer years as
remain until the Employee's Normal or Early Retirement Date; or for
such fewer years as approved by the Chief Executive Officer of the
Company; or if the Chief Executive Officer is the affected Participant
then for such fewer years as approved by the Committee). An Eligible
Employee may defer a minimum of $1,000 per year under the four (4) year
election and $3,000 per year under the one (1) year election. No
deferral election shall be permitted which would have the result of
causing to be deferred under this Plan in any calendar year (as a
result of such deferral election and, where applicable, any previous
deferral elections pursuant to this Plan or the predecessor Plan
provisions) amounts of Salary which exceed fifteen percent (15%) of
such Eligible Employee's Total Compensation for the year in which such
deferral election is made; except when approved in advance on a
case-by-case basis by the Company's Chief Executive Officer, or if the
Chief Executive Officer is the affected Participant then when approved
in advance on a case-by-case basis by the Committee. Should the amount
of any deferral election made by any Eligible Employee exceed the
fifteen percent (15%) limitation without the prior approval of the
Company's Chief Executive Officer, the amount of such deferrals so
elected shall be automatically reduced to the maximum level permitted
by the Plan.
B. In Section 5 of Exhibit A to the Plan, in the chart delete the references to
Calendar Years 1992, 1993, 1994 and 1995. The references to specific Calendar
Years are to be filled in on a case-by-case basis.
Except as amended herein, the Deferred Compensation Plan for Key
Management Employees of Carolina Power & Light Company shall continue in full
force and effect.
EXHIBIT NO. 10b(12)
[Excerpts from Minutes of Meeting of Board of Directors - July 9, 1997]
AMENDMENT TO SUPPLEMENTAL
SENIOR EXECUTIVE RETIREMENT PLAN OF
CAROLINA POWER & LIGHT COMPANY
Mr. Smith referred to the Supplemental Senior Executive Retirement Plan
of Carolina Power & Light Company (Plan) and stated that, under ARTICLE VIII
AMENDMENT AND TERMINATION, the Company has the right to amend the Plan. He
stated that the Plan does not permit the Company to grant additional years of
Service, and that it was important to be able to grant additional years of
Service under the Plan as a means of attracting and hiring employees at the
senior management level.
Mr. Smith also stated that benefits payable to Participants who retire
between ages 60 and 65 will receive payments that are actuarially reduced. This
method of reducing payments is excessive, and is not consistent with CP&L's
Supplemental Retirement Plan. Mr. Smith recommended that a fixed discount rate
of 2.5% per be applied for every year before the Participant's Normal Retirement
Date, instead of the current actuarial reduction.
An Amendment One to the Plan was presented to the Board. Amendment One
was marked as Exhibit D to the minutes of the Board of Directors meeting and
filed with and made a part of the minutes of the meeting. Amendment One will
allow the company to grant additional years of Service to new employees that are
eligible to participate in the Plan, provided that those additional years of
Service are granted under the terms of a written employment agreement entered
into at the time of their employment with the Company. Amendment One will also
replace the current actuarial reduction in early retirement benefits with a
fixed discount rate of 2.5% per year. Whereupon, after discussion and upon
motion duly made and seconded, it was unanimously:
RESOLVED, that Amendment One to the Plan substantially in the form of
Exhibit D to the minutes of this meeting, with such changes, if any,
as the officers of the Company may deem advisable, be, and the same
hereby is, ratified; and further
RESOLVED, that the officers of the Company be, and hereby are, fully
authorized and empowered to do any and all things and to take any and
all actions in their judgment necessary or desirable in order to fully
carry out, perform and make effective the matters and things covered
by the foregoing resolution and the purposes and intent thereof.
EXHIBIT D TO
BOARD OF DIRECTORS
MEETING MINUTES
AMENDMENT ONE
TO
SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN
OF
CAROLINA POWER & LIGHT COMPANY
Pursuant to ARTICLE VIII AMENDMENT AND TERMINATION of the Supplemental
Senior Executive Retirement Plan of Carolina Power & Light Company, as amended
and restated September 21, 1994, (the "Plan"), the Board of Directors hereby
amends the Plan. The following changes to the Plan shall become effective on
July 1, 1997.
1. Section 2.16 of ARTICLE II DEFINITIONS is hereby deleted and replaced
with the following:
"2.16. Service shall have the same meaning as "Eligibility Service,"
determined as provided in Sections 2.02 and 3.01 of the
Retirement Plan, plus any additional years of service that
may be granted to the Participant in connection with this
Plan under the terms of a written employment agreement
entered into at the time the Participant becomes employed
with the Company."
2. Section 4.02 (b) of ARTICLE IV RETIREMENT BENEFITS is hereby deleted
and replaced with the following:
"(b) Amount. The eligible Participant's early retirement benefit
shall be a monthly amount equal to his Target Early Retirement
Benefit reduced by the sum of (1) his Assumed Early Retirement
Pension Benefit and (2) his Social Security Benefit; provided,
however, such benefit will be reduced, where applicable, by
the following:
(i) the amount of 2.5% of his early retirement benefit
for each year that such benefit is received prior to
his Normal Retirement Date; and
(ii) If such eligible Participant's projected years of
Service at his Normal Retirement Date are less than
fifteen (15), his Target Early Retirement Benefit and
his Assumed Early Retirement Pension Benefit shall be
calculated based upon his years of Service at his
Early Retirement Date rather than upon his projected
years of Service at his Normal Retirement Date.
Except as amended herein, the Supplemental Senior Executive Retirement
Plan of Carolina Power & Light Company shall continue in full force and effect.
EXHIBIT NO. 10b(13)
EXHIBIT ____ TO THE
ORGANIZATION AND COMPENSATION
COMMITTEE
MEETING MINUTES
AMENDED MANAGEMENT INCENTIVE COMPENSATION PROGRAM
OF
CAROLINA POWER & LIGHT COMPANY
AS AMENDED DECEMBER 10, 1997
TABLE OF CONTENTS
Page
ARTICLE I PURPOSE.............................................1
ARTICLE II DEFINITIONS.........................................1
ARTICLE III ADMINISTRATION......................................4
ARTICLE IV PARTICIPATION.......................................5
ARTICLE V AWARDS..............................................5
ARTICLE VI DISTRIBUTION AND DEFERRAL OF AWARDS.................9
ARTICLE VII TERMINATION OF EMPLOYMENT...........................15
ARTICLE VIII MISCELLANEOUS.......................................16
ARTICLE I
PURPOSE
The purpose of the Management Incentive Compensation Program (the
"Program") of Carolina Power & Light Company (the "Company") is to promote the
financial interest of the Company, including its growth, by (i) attracting and
retaining executive officers and other management-level employees who can have a
significant positive impact on the success of the Company; (ii) motivating such
personnel to help the Company achieve annual incentive, performance and safety
goals; (iii) motivating such personnel to improve their own as well as their
business unit/work group's performance through the effective implementation of
human resource strategic initiatives; and (iv) providing annual cash incentive
compensation opportunities that are competitive with those of other major
corporations.
ARTICLE II
DEFINITIONS
The following definitions are applicable to the Program:
1. "Award": The benefit payable to a Participant hereunder, consisting
of a Corporate Component and a Noncorporate Component.
2. "Company": Carolina Power & Light Company, a North Carolina
corporation, and its corporate successors.
3. "Compensation Committee": The Organization and Compensation
Committee of the Board of Directors of the Company.
4. "Corporate Factor": The factor determined by the Compensation
Committee to be utilized in calculating the Corporate Component of an Award
pursuant to Article V, Section 3.a. hereof, which can range from 0 to 1.5.
5. "Corporate Component": That portion of an Award based upon the
overall performance of the Company, as determined in Article V, Section 3.a.
hereof.
6. "Date of Retirement": The first day of the calendar month
immediately following the Participant's Retirement.
7. "Noncorporate Component": That portion of an Award based upon the
level of attainment of business unit/group, departmental, and individual
Performance Measures, as provided in Article V, Section 3 .b. hereof, which can
range from 0 to 1.5.
8. "Participant": An employee of the Company who is selected pursuant
to Article IV hereof to be eligible to receive an Award under the Program.
9. "Performance Measure": A goal or goals established for measuring the
performance of a business unit/group, department, or individual used for the
purpose of computing the Noncorporate Component of an Award for a Participant.
10. "Performance Unit": A unit or credit, linked to the value of the
Company's Common Stock under the terms set forth in Article VI hereof.
11. "Program": The Management Incentive Compensation Program of
Carolina Power & Light Company as contained herein, and as it may be amended
from time to time.
12. "Retirement": A Participant's termination of employment with the
Company after having met the requirements for early, normal or postponed
retirement under the Supplemental Retirement Plan of Carolina Power & Light
Company.
13. "Salary": The compensation paid by the Company to a Participant in
a relevant Year, consisting of regular or base compensation, such compensation
being understood not to include bonuses, if any, or incentive compensation, if
any. Provided, that such compensation shall not be reduced by any cash deferrals
of said compensation made under any other plans or programs maintained by the
Company.
14. "Section 16 Participants": Those Participants who are subject to
the provisions of Section 16 of the Securities Exchange Act of 1934, as amended
(the "1934 Act"). Individuals who are subject to Section 16 of the 1934 Act
include, without limitation, directors and certain officers of the Company, and
any individual who beneficially owns more than ten percent of a class of the
Company's equity securities registered under Section 12 of the 1934 Act.
15. "Senior Management Committee": The Senior Management Committee of
the Company.
16. "Target Award Opportunity": The target for an Award under this
Program as set forth in Section 2 of Article V hereof.
17. "Year": A calendar year.
ARTICLE III
ADMINISTRATION
The Program shall be administered by the Chief Executive Officer of the
Company. Except as otherwise provided herein, the Chief Executive Officer shall
have sole and complete authority to (i) select the Participants; (ii) establish
and adjust (either before or during the relevant Year) a Participant's
Performance Measures, their relative percentage weight, and the performance
criteria necessary for attainment of various performance levels; (iii) approve
Awards; (iv) establish from time to time regulations for the administration of
the Program; and (v) interpret the Program and make all determinations deemed
necessary or advisable for the administration of the Program, all subject to its
express provisions. Notwithstanding the foregoing, with respect to Participants
who are at or above the Department Head level in the Company, the performance
criteria and Awards shall be subject to the specific approval of the
Compensation Committee. In addition, the Compensation Committee shall have the
sole authority to determine the total payout under the Program up to a maximum
of two percent (2%) of the Company's after-tax income for a relevant Year.
A majority of the Compensation Committee shall constitute a quorum, and
the acts of a majority of the members present at any meeting at which a quorum
is present, or acts approved in writing by a majority of the members of the
Committee without a meeting, shall be the acts of such Committee.
ARTICLE IV
PARTICIPATION
The Chief Executive Officer shall select from time to time the
Participants in the Program for each Year from those employees of the Company
who, in his opinion, have the capacity for contributing in a substantial measure
to the successful performance of the Company that Year. No employee shall at any
time have a right to be selected as a Participant in the Program for any Year
nor, having been selected as a Participant for one Year, have the right to be
selected as a Participant in any other Year.
ARTICLE V
AWARDS
1. Eligibility. In order for any Participant to be eligible to receive
an Award, two conditions must be met. First, a contribution must be earned by
one or more groups of employees under the corporate incentive feature of the
Company's Stock Purchase-Savings Plan. Second, the Company must also meet
minimum threshold performance levels for return on common equity, revenue per
kilowatt hour, and other measures for the relevant Year as may be established by
the Compensation Committee. Threshold performance for return on common equity
and revenue per kilowatt hour is the weighted average of a peer group of
utilities, consisting of all major utilities with nuclear and fossil generation
in the eastern portion of the United States, averaged over the most recent
three-year period. To satisfy threshold performance, the Company must be above
the three-year average with respect to return on common equity and below the
three-year average with respect to cost per kilowatt hour.
2. Target Award Opportunities. The following table sets forth Target
Award Opportunities, expressed as a percentage of Salary, for various levels of
participation in the Program:
--------------------------------------------------- ---------------
Participation Target Award 0pportunities
--------------------------------------------------- ---------------
Chief Executive Officer 40%
--------------------------------------------------- ---------------
Chief Operating Officer 40%
--------------------------------------------------- ---------------
Executive Vice Presidents 30%
--------------------------------------------------- ---------------
Senior Vice Presidents 25%
--------------------------------------------------- ---------------
Department Heads 20%
--------------------------------------------------- ---------------
Other Participants:
Key Managers 15%
Other Managers 10%
--------------------------------------------------- ---------------
The Target Award Opportunity for the Chief Executive Officer shall be 40%;
however, the Compensation Committee of the Board shall be authorized to change
that amount from year to year, or to award an amount of compensation based on
other considerations, in its complete discretion.
3. Award Components. Awards under the Program to which Participants are
eligible consist of the sum of a Corporate Component and a Noncorporate
Component. The portion of the Target Award Opportunities attributable to the
Corporate Component and Noncorporate Component, respectively, for various levels
of participation, is set forth in the following table:
- ---------------------------------------- ------------- --------------
Participants Corporate Noncorporate
Component Component
- ---------------------------------------- ------------- --------------
Chief Executive Officer 100% -
- ---------------------------------------- ------------- --------------
Chief Operating Officer 100% -
- ---------------------------------------- ------------- --------------
Executive Vice Presidents 75% 25%
- ---------------------------------------- ------------- --------------
Senior Vice Presidents 75% 25%
- ---------------------------------------- ------------- --------------
Department Heads 50% 50%
- ---------------------------------------- ------------- --------------
Other Participants 50% 50%
- ---------------------------------------- ------------- --------------
a. Corporate Component. The Corporate Component of an Award is
based upon the overall performance of the Company. In the event the conditions
set forth in Section 1 of Article V are met and the Compensation Committee, in
its discretion, determines an appropriate Corporate Factor, that Corporate
Factor shall be multiplied by the portion of a Participant's Target Award
Opportunity attributable to the Corporate Component in order to determine the
percentage of such Participant's Salary which will comprise the Corporate
Component of his or her Award. Notwithstanding the foregoing, if the second
condition set forth in Section 1 of Article V is not fully met, the Compensation
Committee may nevertheless in its discretion determine an appropriate Corporate
Factor and grant a Corporate Component of an Award to the Participants.
b. Noncorporate Component. The Noncorporate Component of an
Award for a Participant is based upon the level of attainment of business
unit/group, departmental and individual Performance Measures. Performance
Measures for each Participant and their relative weight are determined pursuant
to authority granted in Article III hereof.
(i) Performance Levels. There are levels of
performance related to each of a Participant's Performance Measures:
outstanding, target, and threshold. The specific performance criteria for each
level of a Participant's Performance Measures shall be set forth in writing
prior to the beginning of an applicable Year, or within thirty (30) days after a
Participant first becomes eligible to participate in the Program, and shall be
determined pursuant to authority granted in Article III hereof. The payout
percentages to be applied to each Participant's Target Award Opportunity are as
follows:
Performance Level Payout Percentage
Outstanding 150%
Target 100%
Threshold 50%
Payout percentages shall be adjusted for performance between the designated
performance levels, provided, however, that performance which falls below the
"Threshold" performance level results in a payout percentage of zero unless the
Chief Executive Officer directs otherwise.
(ii) Determination of Noncorporate Component. In order
to determine a Participant's Noncorporate Component, if any, for a particular
Year, the Chief Executive Officer initially shall determine the appropriate
payout percentage for each of such Participant's Performance Measures.
Thereafter, each payout percentage is multiplied by the percentage weight
assigned to each such Performance Measure and the results added together. That
aggregate amount is multiplied by the Participant's Target Award Opportunity for
the Noncorporate Award Component for the respective Year and the result is
multiplied by the Participant's Salary.
(iii) Change of Job Status. Participants who change
organizations during a Year will have their Noncorporate Component prorated
based upon the Performance Measures achieved in each organization and the length
of time served in each organization. In the discretion of the Chief Executive
Officer employees may become Participants during a Year based on promotions and
may receive an Award prorated based on the length of time served in the
qualifying job and the Performance Measures achieved while in the qualifying
job.
4. New Participants. For Participants selected after May 1, any Award
that is earned during the Year of selection shall be pro rated based on the
length of time served in the qualifying job.
5. Reduction of Award Amount. In the event of documented performance
deficiencies of a Participant during a Year, the Chief Executive Officer, in his
discretion, may reduce the Award payable to such Participant for such Year.
6. Example. Attached as Exhibit A and incorporated by reference is an
example of the process by which an Award is granted hereunder. Said exhibit is
intended solely as an example and in no way modifies the provisions of this
Article V.
ARTICLE VI
DISTRIBUTION AND DEFERRAL OF AWARDS
1. Distribution of Awards. Unless a Participant elects to defer an
award pursuant to the remaining provisions of this Article VI, awards under the
Program earned during any Year shall be paid in cash in the succeeding Year,
normally no later than March 15 of such succeeding Year.
2. Deferral Election. A Participant may elect to defer the Program
Award he or she has earned for any Year by completing and submitting to the Vice
President, Human Resources, a deferral election form by the later of (1)
November 30 of the Year in which the Award is earned or (2) the thirtieth (30th)
day after first becoming eligible to participate in the deferral election
provisions of the Program; provided, however, that for the 1995 Plan Year,
deferral elections shall be made by no later than November 30, 1995. Such
election shall apply to the Participant's Award, if any, otherwise to be paid as
soon as practicable after the Year during which it was earned. A Participant's
deferral election may apply to 100%, 75%, 50%, or 25% of the Program Award;
provided, however, that in no event shall the amount deferred be less than
$1,000.
The election to defer shall be irrevocable as to the Award earned
during the particular Year.
3. Period of Deferral. At the time of a Participant's deferral
election, a Participant must also select a distribution date. Subject to Section
6, the distribution date may be: (a) any date that is at least five (5) years
subsequent to the date the Program Award would otherwise be payable, but not
later than the second anniversary of the Participant's Date of Retirement; or
(b) any date that is within two years following the Participant's Date of
Retirement. Subject to Section 6, a Participant may extend the distribution date
for one or more additional Year(s) by making a new deferral election at least
one (1) year before the previously selected distribution date occurs; provided,
however, that in no event shall the subsequent distribution date be a date that
is more than two years beyond the Participant's Date of Retirement.
4. Performance Units. All Awards which are deferred under the Program
shall be recorded in the form of Performance Units. Each Performance Unit is
generally equivalent to a share of the Company's Common Stock. In converting the
cash award to Performance Units, the number of Performance Units granted shall
be determined by dividing the amount of the Award by 85% of the average value of
the opening and closing price of a share of the Company's Common Stock on the
last trading day of the month preceding the date of the Award. The Performance
Units attributable to the 15% discount from the average value of the Company's
Common Stock shall be referred to as the "Incentive Performance Units." The
Incentive Performance Units and any adjustments or earnings attributable to
those Performance Units shall be forfeited by the Participant if he or she
terminates employment either voluntarily or involuntarily other than for death
or retirement prior to five years from March 15 of the Year in which payment
would have been made if the Award had not been deferred.
5. Program Accounts. A Program Deferral Account will be established on
behalf of each Participant, and the number of Performance Units awarded to a
Participant shall be recorded in each Participant's Program Deferral Account as
of the first of the month coincident with or next following the month in which a
deferral becomes effective. The number of Performance Units recorded in a
Participant's Program Deferral Account shall be adjusted to reflect any splits
or other adjustments in the Company's Common Stock, the payment of any cash
dividends paid on the Company's Common Stock and the payment of Awards under
this Program to the Participant. To the extent that any cash dividends have been
paid on the Company's Common Stock, the number of Performance Units shall be
adjusted to reflect the number of Performance Units that would have been
acquired if the same dividend had been paid on the number of Performance Units
recorded in the Participant's Program Deferral Account on the dividend record
date. For purposes of determining the number of Performance Units acquired with
such dividend, the average of the opening and closing price of the Company's
Common Stock on the payment date of the Company's Common Stock dividend shall be
used.
Each Participant shall receive an annual statement of the balance of
his Program Deferral Account, which shall include the Incentive Performance
Units and associated earnings and adjustments that are subject to being
forfeited as provided above.
6. Payment of Deferred Program Awards. Subject to Section 4 related to
forfeiture of Incentive Performance Units, Deferred Program Awards shall be paid
in cash beginning no later than the next April 1 following the distribution date
or the deferred distribution date specified by the Participant in accordance
with Section 3. To convert the Performance Units in a Participant's Program
Deferral Account to a cash payment amount, Performance Units shall be multiplied
by the average of the opening and closing price of the Company's Common Stock on
the last trading day preceding the payment of the Deferred Program Award. Except
as otherwise provided below, deferred amounts will be paid either in a single
lump-sum payment or in up to five (5) annual payments.
In the event that a Participant elects to receive the deferred Program
Award in equal annual payments, the amount of the Award to be received in each
year shall be determined as follows:
(a) To determine the amount of the initial annual payment, the
number of Performance Units in the Participant's Program Deferral Account will
be divided by the total number of annual payments to be received, and the result
will be multiplied by the average of the opening and closing price of the
Company's Common Stock on the last trading day preceding the due date of the
initial payment.
(b) To determine the amount of each successive annual payment,
the Program Deferral Account balance will be divided by the number of annual
payments remaining, and the result will be multiplied by the average of the
opening and closing price of the Company's Common Stock on the last trading day
preceding the due date of the annual payment.
7. Termination of Employment/Effect on Deferral Election. If the
employment of a Participant terminates prior to the last day of a Year for which
a Program Award is determined, then any deferral election made with respect to
such Program Award for such Year shall not become effective and any Program
Award to which the Participant is otherwise entitled shall be paid as soon as
practicable after the end of the Year during which it was earned, in accordance
with paragraph 1 of this Article VI.
8. Termination of Employment/Acceleration of Deferral. Notwithstanding
the foregoing, if a Participant terminates employment by reason other than death
or Retirement, full payment of all amounts due to the Participant shall be
accelerated and paid on the first day of the month following the date of
termination. Incentive Performance Units shall be subject to forfeiture as
provided in Section 4.
9. Financial Hardship Payments. In the event of a severe financial
hardship occasioned by an emergency, including, but not limited to, illness,
disability or personal injury sustained by the Participant or a member of the
Participant's immediate family, a Participant may apply to receive a
distribution earlier than initially elected. The Chief Executive Officer or his
designee may, in his sole discretion, either approve or deny the request. The
determination made by the Chief Executive Officer will be final and binding on
all parties. If the request is granted, the payments will be accelerated only to
the extent reasonably necessary to alleviate the financial hardship. Incentive
Performance Units shall not be subject to early distribution under this Section
9 until five years from March 15 of the Year in which payment would have been
made if the Award had not been deferred.
10. Death of a Participant. If the death of a Participant occurs before
a full distribution of the Participant's Program Deferral Account is made,
payment shall be made to the beneficiary designated by the Participant to
receive such amounts in accordance with the schedule specified in the
Participant's Deferral Election form. Said payment shall be made as soon as
practical following notification that death has occurred. In the absence of any
such designation, payment shall be made to the personal representative, executor
or administrator of the Participant's estate.
11. Non-Assignability of Interests. The interests herein and the right
to receive distributions under this Article VI may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any
charge or legal process, and if any attempt is made to do so, or a Participant
becomes bankrupt, the interests of the Participant under this Article VI may be
terminated by the Chief Executive Officer, which, in his sole discretion, may
cause the same to be held or applied for the benefit of one or more of the
dependents of such Participant or make any other disposition of such interests
that he deems appropriate.
12. Unfunded Deferrals. Nothing in this Program, including this Article
VI, shall be interpreted or construed to require the Company in any manner to
fund any obligation to the Participants, terminated Participants or
beneficiaries hereunder. Nothing contained in this Program nor any action taken
hereunder shall create, or be construed to create, a trust of any kind, or a
fiduciary relationship between the Company and the Participants, terminated
Participants, beneficiaries, or any other persons. Any funds which may be
accumulated in order to meet any obligation under this Program shall for all
purposes continue to be a part of the general assets of the Company; provided,
however, that the Company may establish a trust to hold funds intended to
provide benefits hereunder to the extent the assets of such trust become subject
to the claims of the general creditors of the Company in the event of bankruptcy
or insolvency of the Company. To the extent that any Participant, terminated
Participant, or beneficiary acquires a right to receive payments from the
Company under this Program, such rights shall be no greater than the rights of
any unsecured general creditor of the Company.
ARTICLE VII
TERMINATION OF EMPLOYMENT
A Participant must be actively employed by the Company on the next
January 1 immediately following the Year for which a Program Award is earned in
order to be entitled to payment of the full amount of any Award for that Year.
In the event the active employment of a Participant shall terminate or be
terminated for any reason before the next January 1 immediately following the
Year for which a Program Award is earned, such Participant shall receive his or
her Award for the year, if any, in an amount that the Chief Executive Officer
deems appropriate.
ARTICLE VIII
MISCELLANEOUS
1. Assignments and Transfers. The rights and interests of a Participant
under the Program may not be assigned, encumbered or transferred except, in the
event of the death of a Participant, by will or the laws of descent and
distribution.
2. Employee Rights Under the Program. No Company employee or other
person shall have any claim or right to be granted an Award under the Program or
any other incentive bonus or similar Plan of the Company. Neither the Program,
participation in the Program nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Company.
3. Withholding. The Company shall have the right to deduct from all
amounts paid in cash any taxes required by law to be withheld with respect to
such cash payments.
4. Amendment or Termination. The Compensation Committee may in its sole
discretion amend suspend or terminate the Program or any portion thereof at any
time.
5. Governing Law. This Program shall be construed and governed in
accordance with the laws of the state of North Carolina.
6. Effective Date. This Program, as amended, shall be effective as of
December 10, 1997.
7. Entire Agreement. This document (including the exhibit attached
hereto and any future amendments to said exhibit that may be made by the Chief
Executive Officer) sets forth the entire Program.
EXHIBIT A
(to be supplied)
DESIGNATION OF BENEFICIARY
MANAGEMENT INCENTIVE COMPENSATION PROGRAM
OF
CAROLINA POWER & LIGHT COMPANY
As provided in the Management Incentive Compensation Program of
Carolina Power & Light Company, I hereby designate the following person as my
beneficiary in the event of my death before a full distribution of my Deferral
Account is made.
PRIMARY BENEFICIARY:
-------------------------------
-------------------------------
-------------------------------
CONTINGENT BENEFICIARY:
-------------------------------
-------------------------------
-------------------------------
Any and all prior designations of one or more beneficiaries by me under the
Management Incentive Compensation Program of Carolina Power & Light Company are
hereby revoked and superseded by this designation. I understand that the primary
and contingent beneficiaries named above may be changed or revoked by me at any
time by filing a new designation in writing with the Company's Human Resources
Department.
DATE:
----------------------------------------
SIGNATURE OF PARTICIPANT:
-----------------------------------------
The Participant named above executed this document in our presence on the date
set forth above
WITNESS: WITNESS:
-------------------------- ------------------------------
EXHIBIT NO. 10b(14)
Carolina Power & Light Company
Restoration Retirement Plan
Carolina Power & Light Company (the "Company") hereby
establishes the Carolina Power & Light Company Restoration Retirement Plan (the
"Plan"), effective as of January 1, 1998 (the "Effective Date").
ARTICLE I.
PURPOSE
The purpose of the Plan is to provide a means by which certain
employees may be provided benefits which otherwise would be provided under the
Carolina Power & Light Company Supplemental Retirement Plan, as amended (the
"Retirement Plan"), in the absence of certain restrictions imposed by applicable
law on benefits which may be provided under the Retirement Plan. The Plan is
intended to constitute an unfunded retirement plan for a select group of
management or highly compensated employees within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, as amended.
ARTICLE II
DEFINITIONS
Capitalized terms which are not defined herein shall have the meaning
ascribed to them in the Retirement Plan.
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3 "Committee" shall mean a committee selected by the Plan
Administrator to hear claim disputes under Article IV of the Plan.
2.4 "Company" shall mean Carolina Power & Light Company and any
successor in interest.
2.5 "Compensation and Benefit Limitations" shall mean (a) the
limitation on compensation under the Retirement Plan in accordance with Section
401(a)(17) of the Code and (b) any limits on benefits paid under the Retirement
Plan that are necessary for compliance with Section 415 of the Code.
2.6 "Continuing Directors" shall mean the members of the Board as of
the Effective Date; provided, however, that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by 75 percent or more of the directors who then comprised Continuing Directors
shall be considered to be a Continuing Director.
2.7 "Eligible Employee" shall mean any member of the Retirement Plan
who is not immediately eligible for a Target Early, Target Normal, or Target
Severance Benefit under the provisions of the Company's Supplemental Senior
Executive Retirement Plan and who has not retired or terminated his or her
employment with the Company prior to the Effective Date.
2.8 "Participant" shall mean an Eligible Employee who participates in
the Plan pursuant to Article III. An Eligible Employee shall remain a
Participant under the Plan until the earlier of (a) all amounts payable on his
or her behalf under the Plan have been paid, (b) the Eligible Employee no longer
has a Restoration Accrued Benefit, (c) the Eligible Employee has a Termination
without a Vested Restoration Accrued Benefit, or (d) the Eligible Employee
becomes immediately eligible for a Target Early, Target Normal, or Target
Severance Benefit under the Company's Supplemental Senior Executive Retirement
Plan.
2.9 "Restoration Accrued Benefit" shall mean, as of any determination
date, the excess of (a) a Participant's Accrued Benefit calculated under the
Retirement Plan without regard to the Compensation and Benefit Limitations, over
(b) a Participant's Accrued Benefit calculated under the Retirement Plan.
2.10 "Retirement Plan" shall mean the Carolina Power & Light Company
Supplemental Retirement Plan, as it may be amended from time to time, or any
successor plan.
2.11 "Spouse" shall mean, (i) for purposes of Section 3.2 of the Plan,
the spouse of a Participant at the Participant's Annuity Starting Date, and (ii)
for purposes of Section 3.3 of the Plan, the spouse of a participant within the
meaning of Section 4.04 of the Retirement Plan (or any successor provisions).
2.12 "Termination" shall mean a termination of employment with the
Company and all Affiliated Companies.
2.13 "Vested Restoration Accrued Benefit" shall mean a Participant's
Restoration Accrued Benefit when the Participant becomes fully vested under the
provisions of Section 4.02 of the Retirement Plan (or any successor provisions)
or as provided in Article VI of the Plan.
Unless the context clearly indicates to the contrary in interpreting
the Plan, any references to the masculine alone shall include the feminine and
the singular shall include the plural.
ARTICLE III
PARTICIPATION AND BENEFITS
3.1 Participation. An Eligible Employee will participate in the Plan
when he or she has a Restoration Accrued Benefit.
3.2 Amount of Benefit Payable. Subject to the Restoration Accrued
Benefit forfeiture contained in Section 3.4 of the Plan, a Participant who
becomes eligible for a Pension under Article 4 of the Retirement Plan, shall be
entitled (together with the Participant's Spouse or Beneficiary when entitled to
benefits under the Retirement Plan) to a monthly benefit payment in the same
form as elected under the Retirement Plan, equal to the Participant's
Restoration Accrued Benefit calculated immediately prior to the Benefit
Commencement Date (except as otherwise provided in Section 3.4). The Restoration
Accrued Benefit shall be adjusted to take into account any alternative form of
retirement benefit received under the Retirement Plan. The amount of any such
adjustments shall be determined under the applicable provisions of the
Retirement Plan.
3.3 Pre-Retirement Death Benefit. If a surviving Spouse of a deceased
Participant would have been eligible for a pre-retirement death benefit under
the Retirement Plan, then upon such Participant's death, such Spouse shall be
entitled to a monthly benefit payment under the Plan commencing on the first day
of the month in which he or she commences to receive a monthly benefit under the
Retirement Plan, equal to the amount, if any, by which (a) exceeds (b) each
month, where (a) is the Spouse's monthly benefit that would be payable in
accordance with the provisions of the Retirement Plan determined as if the
Compensation and Benefit Limitations did not apply, and (b) is the actual
monthly benefit paid under the Retirement Plan.
3.4 Other Termination of Employment; Forfeitures. Neither Eligible
Employees, Participants nor their Spouses or Beneficiaries are entitled to any
benefits under the Plan except as otherwise provided in this Article III and
under Article VI of the Plan. Any Participant who terminates employment with the
Company and any of its Affiliated Companies prior to a Change in Control (as
defined in Article VI) and without being 100% vested under the Retirement Plan
shall not be eligible to receive any benefits under the Plan and shall forfeit
his or her Restoration Accrued Benefit. Any Participant ceasing to be an
Eligible Employee because he or she becomes immediately eligible for a Target
Early, Target Normal or Target Severance Benefit under the provisions of the
Supplemental Senior Executive Retirement Plan shall forfeit his or her
Restoration Accrued Benefit.
Notwithstanding any other provision of the Plan, no benefit shall be
payable under the Plan with respect to an Eligible Employee whose employment
with the Company is terminated for Cause. As used herein, the term "Cause" shall
be limited to (a) action by the Eligible Employee involving willful malfeasance
having a material adverse effect on the Company (b) substantial and continuing
willful refusal by the Eligible Employee to perform the duties ordinarily
performed by an employee in the same position and having similar duties as the
Eligible Employee, (c) the Eligible Employee being convicted of a felony, or (d)
willful failure to comply with the Company's Code of Conduct or other Company
Policy or Procedure.
ARTICLE IV
PLAN ADMINISTRATION
4.1 Administration. The Plan shall be administered by the Company's
Vice President, Human Resources (the "Plan Administrator"). The Plan
Administrator and the Committee shall have full authority to administer and
interpret the Plan, determine eligibility for benefits, make benefit payments
and maintain records hereunder, all in their sole and absolute discretion,
subject to the allocation of responsibilities set forth below.
4.2 Delegated Responsibilities. The Plan Administrator shall have the
authority to delegate any of his or her responsibilities to such persons as he
or she deems proper.
4.3 Claims.
(a) Claims Procedure. If any Participant, Spouse or Beneficiary has a
claim for benefits which is not being paid, such claimant may file with the Plan
Administrator a written claim setting forth the amount and nature of the claim,
supporting facts, and the claimant's address. The Plan Administrator shall
notify each claimant of its decision in writing by registered or certified mail
within sixty (60) days after its receipt of a claim or, under special
circumstances, within ninety (90) days after its receipt of a claim. If a claim
is denied, the written notice of denial shall set forth the reasons for such
denial, refer to pertinent Plan provisions on which the denial is based,
describe any additional material or information necessary for the claimant to
realize the claim, and explain the claim review procedure under the Plan.
(b) Claims Review Procedure. A claimant whose claim has been denied or
such claimant's duly authorized representative may file, within sixty (60) days
after notice of such denial is received by the claimant, a written request for
review of such claim by the Committee. If a request is so filed, the Committee
shall review the claim and notify the claimant in writing of its decision within
sixty (60) days after receipt of such request. In special circumstances, the
Committee may extend for up to sixty (60) additional days the deadline for its
decision. The notice of the final decision of the Committee shall include the
reasons for its decision and specific references to the Plan provisions on which
the decision is based. The decision of the Committee shall be final and binding
on all parties.
ARTICLE V
MISCELLANEOUS
5.1 Amendment and Termination. The Board may amend, modify or terminate
the Plan at any time, provided, however, that no such amendment or termination
shall reduce any Participant's Vested Restoration Accrued Benefit under the Plan
as of the date of such amendment or termination, unless at the time of such
amendment or termination, affected Participants and spouses become entitled to
an amount equal to the equivalent actuarial value, to be determined in the sole
discretion of the Committee, of such Vested Restoration Accrued Benefit under
another plan, program or practice adopted by the Company. In the event the Plan
is terminated, the Company shall determine whether to pay Vested Restoration
Accrued Benefits in the form of an actuarial equivalent lump sum payment or
defer the payment of Vested Restoration Accrued Benefits until the payment of
Early Retirement Pensions or Normal Retirement Pensions under the Retirement
Plan.
5.2 Source of Payments. The Company will pay all benefits arising under
the Plan and all costs, charges and expenses relating thereto out of its general
assets.
5.3 Non-Assignability of Benefits. Except as otherwise required by law,
neither any benefit payable hereunder nor the right to receive any future
benefit under the Plan may be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or legal process, and
if any attempt is made to do so, or a person eligible for any benefits under the
Plan becomes bankrupt, the interest under the Plan of the person affected may be
terminated by the Plan Administrator which, in his or her sole discretion, may
cause the same to be held or applied for the benefit of one or more of the
dependents of such person or make any other disposition of such benefits that it
deems appropriate.
5.4 Plan Unfunded. Nothing in the Plan shall be interpreted or
construed to require the Company in any manner to fund any obligation to the
Participants, terminated Participants, or beneficiaries hereunder. Nothing
contained in the Plan nor any action taken hereunder shall create, or be
construed to create, a trust of any kind, or a fiduciary relationship between
the Company and the Participants, terminated Participants, beneficiaries, or any
other persons. Any funds which may be accumulated in order to meet any
obligations under the Plan shall for all purposes continue to be a part of the
general assets of the Company; provided, however, that the Company may establish
a trust to hold funds intended to provide benefits hereunder to the extent the
assets of such trust become subject to the claims of the general creditors of
the Company in the event of bankruptcy or insolvency of the Company. To the
extent that any Participant, terminated Participant, or beneficiary acquires a
right to receive payments from the Company under the Plan, such rights shall be
no greater than the rights of any unsecured general creditor of the Company.
5.5 Applicable Law. All questions pertaining to the construction,
validity and effect of the Plan shall be determined in accordance with the laws
of the State of North Carolina to the extent not preempted by Federal law.
5.6 Limitation of Rights. The Plan is a voluntary undertaking on the
part of the Company. Neither the establishment of the Plan nor the payment of
any benefits hereunder, nor any action of the Company or the Plan Administrator
shall be held or construed to be a contract of employment between the Company
and any Eligible Employee or to confer upon any person any legal right to be
continued in the employ of the Company. The Company expressly reserves the right
to discharge, discipline or otherwise terminate the employment of any Eligible
Employee at any time. Participation in the Plan gives no right or claim to any
benefits beyond those which are expressly provided herein and all rights and
claims hereunder are limited as set forth in the Plan.
5.7 Severability. In the event any provision of the Plan shall be held
illegal or invalid, or the inclusion of any Participant would serve to
invalidate the Plan as an unfunded plan for a select group of management or
highly compensated employees under ERISA, then the illegal or invalid provision
shall be deemed to be null and void, and the Plan shall be construed as if it
did not contain that provision and in the case of the inclusion of any such
Participant, a separate plan, with the same provisions as the Plan, shall be
deemed to have been established for the Participant or Participants ultimately
determined not to constitute a select group of management or highly compensated
employees.
5.8 Headings. The headings to the Articles and Sections of the Plan are
inserted for reference only, and are not to be taken as limiting or extending
the provisions hereof.
5.9 Incapacity. If the Plan Administrator shall determine that a
Participant, or any other person entitled to a benefit under the Plan (the
"Recipient") is unable to care for his or her affairs because of illness,
accident, or mental or physical incapacity, or because the Recipient is a minor,
the Plan Administrator may direct that any benefit payment due the Recipient be
paid to his or her duly appointed legal representative, or, if no such
representative is appointed, to the Recipient's spouse, child, parent, or other
blood relative, or to a person with whom the Recipient resides or who has
incurred expense on behalf of the Recipient. Any such payment so made shall be a
complete discharge of the liabilities of the Plan with respect to the Recipient.
5.10 Binding Effect and Release. All persons accepting benefits under
the Plan shall be deemed to have consented to the terms of the Plan. Any payment
or distribution to any person entitled to benefits under the Plan shall be in
full satisfaction of all claims against the Plan, the Committee, and the Company
arising by virtue of the Plan.
ARTICLE VI
CHANGE IN CONTROL
The provisions of this Article VI shall become effective
immediately upon occurrence of a Change in Control (as defined in Section 6.1).
6.1 Definition. For the purposes of the Plan, a Change in Control of
the Company shall be deemed to have occurred in the following circumstances:
(a) the acquisition by any person (including a group, within
the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act
of 1934) of beneficial ownership of 15% or more of the Company's then
outstanding voting securities;
(b) a tender offer is made and consummated for the ownership
of 51% or more of the Company's then outstanding voting securities;
(c) the first day on which less than 66 2/3 percent of the
total membership of the Board are Continuing Directors; or
(d) approval by stockholders of the Company of a merger,
consolidation, liquidation or dissolution of the Company, or of the
sale of all or substantially all of the assets of the Company.
A Change in Control shall not be deemed to have occurred until
the Plan Administrator receives written certification from the President and
Chief Executive Officer or, in the event of his or her inability to act, the
Chief Financial Officer, or any Executive or Senior Vice President of the
Company that one of the events set forth above in (a) through (d) of this
Section 6.1 has occurred. The officers referred to in the previous sentence
shall be those officers in office immediately prior to the occurrence of one of
the events set forth above in (a) through (d) of this Section 6.1. Any
determination that an event described above in (a) through (d) of this Section
6.1 has occurred shall, if made in good faith on the basis of information
available at that time, be conclusive and binding on the Plan Administrator, the
Committee, the Company and the Eligible Employees and their beneficiaries for
all purposes of the Plan.
6.2 Effect of Change in Control. Notwithstanding any other provisions
of the Plan to the contrary, if a Change in Control occurs (i) there shall be
full Vesting of each Participant's Restoration Accrued Benefit, regardless of
any termination of employment prior to eligibility for an Early Retirement
Pension under the Retirement Plan, if he or she is otherwise vested under the
Retirement Plan, and (ii) no amendment or termination of the Plan may reduce any
Participant's Restoration Accrued Benefit as of the date of such amendment or
termination.
EXHIBIT NO. 10b(15)
CAROLINA POWER & LIGHT COMPANY
NON-EMPLOYEE DIRECTOR STOCK UNIT PLAN
1.0 RECITALS
1.1 Whereas, Carolina Power & Light Company (the "Company") adopted the
Carolina Power & Light Company Retirement Plan for Outside
Directors (the "Directors Retirement Plan") in 1986, which provided
for a fixed-dollar retirement benefit for non-employee directors of
the Company following their termination of service as a member of
the Company's Board of Directors.
1.2 Whereas, the Company has determined to freeze the Directors
Retirement Plan so that no further benefits under such plan will
accrue.
1.3 Whereas, the Company desires to adopt the Carolina Power & Light
Company Non-Employee Director Stock Unit Plan, the purpose of which
is to provide deferred compensation to the Company's non-employee
directors based on the value of the Company's common stock.
1.4 Whereas, the Company desires to allow participants in the frozen
Directors Retirement Plan to roll over their accrued benefit under
the Directors Retirement Plan into the Non-Employee Director Stock
Unit Plan
1.5 Now, therefore, effective January 1, 1998, the Company adopts the
Non-Employee Director Stock Unit Plan.
2.0 PURPOSE
2.1 Purpose. The purpose of the Plan is to attract and retain highly
qualified individuals as non-employee directors of the Company, and
to provide deferred compensation to the Company's non-employee
directors based on the value of the Company's stock.
3.0 DEFINITIONS
The following terms shall have the following meanings unless the
context indicates otherwise:
3.1 "Annual Stock Unit Grant" shall mean a grant of Stock Units as
described in Section 5.2 below.
3.2 "Board" shall mean the Board of Directors of the Company.
3.3 "Change-in-Control" shall mean the first to occur of the following
circumstances:
(1) the acquisition by any person (including a group, within
the meaning of Section 13(d) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended of beneficial
ownership of 15 percent or more of the Company's then
outstanding voting securities;
(2) a tender offer is made and consummated for the ownership
of 51 percent or more of the Company's then outstanding
voting securities;
(3) the first day on which less than 66 2/3 percent of the
total membership of the Board are Continuing Directors;
or
(4) approval by the stockholders of the Company of a merger,
consolidation, liquidation or dissolution of the Company,
or of the sale of all or substantially all of the assets
of the Company.
A Change-in-Control shall not be deemed to have occurred until
the Committee receives written certification from the Company's
President and Chief Executive Officer or, in the event of his or
her inability to act, the Company's Chief Financial Officer, or
any Executive or Senior Vice President of the Company that one of
the events set forth in Sections 2.5(1) through 2.5(4) above has
occurred. The officers referred to in the previous sentence shall
be those officers in office immediately prior to the occurrence
of one of the events set forth above in Sections 2.5(1) through
2.5(4) above. Any determination that an event described in
Sections 2.5(1) through 2.5(4) above has occurred shall, if made
in good faith on the basis of information available at that time,
be conclusive and binding on the Committee, the Company and the
Participant and their Beneficiaries for all purposes of the Plan.
3.4 "Committee" shall mean the Board's Committee on Organization and
Compensation.
3.5 "Common Stock" shall mean the common stock of the Company.
3.6 "Company" shall mean Carolina Power & Light Company, a North
Carolina corporation, including any successor entity.
3.7 "Continuing Directors" shall mean the members of the Board as of
the Effective Date; provided, however, that any person becoming a
director subsequent to such date whose election or nomination for
election was supported by 75 percent or more of the directors who
then comprised Continuing Directors shall be considered to be a
Continuing Director.
3.8 "Distribution Date" shall mean the later of (i) the date a
Participant is no longer a member of the Board or (ii) the date
such Participant attains age 65.
3.9 "Effective Date" shall mean January 1, 1998.
3.11 "Common Stock Value" shall mean:
(1) the average of the highest and lowest selling prices
of Common Stock on the relevant date (or on the last
preceding trading date if Common Stock was not traded on
the relevant date) if Common Stock is readily tradable on
a national securities exchange or other market system; or
(2) an amount determined in good faith by the Board as the
fair market value of Common Stock on the date of
determination if Common Stock is not readily tradable on a
national securities exchange or other market system.
3.12 "Initial Stock Unit Grant" shall mean a grant of Stock Units us
described in Section 5.1 below.
3.13 "Matching Stock Unit Grant" shall mean a grant of Stock Units as
described in Section 5.3 below.
3.14 "Participant" shall mean a member of the Board who is not an
employee of the Company or any of its Subsidiaries.
3.15 "Stock Unit" shall mean a unit maintained by the Company for
bookkeeping purposes, equal in value to one (1) share of Common
Stock.
3.16 "Stock Unit Account" shall mean a bookkeeping account established
and maintained (or caused to be established and maintained) by the
Company for the Participant which shall record the number of Stock
Units granted to the Participant under Section 5 below. This
account shall be established (or caused to be established) by the
Company for bookkeeping purposes only, and no separate funds shall
be segregated by the Company for the benefit of the Participant.
3.17 "Plan shall mean the Carolina Power & Light Company Non-Employee
Director Stock Unit Plan.
3.18 "Subsidiary" shall mean a corporation of which the Company directly
or indirectly owns more than 50 percent of the Voting Stock
(meaning the capital stock of any class or classes having general
voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation) or any
other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
4.0 ADMINISTRATION
4.1 Responsibility. The Committee shall have the responsibility, in its
sole discretion, to control, operate, manage and administer the
Plan in accordance with its terms.
4.2 Authority of the Committee. The Committee shall have all the
discretionary authority that may be necessary or helpful to enable
it to discharge its responsibilities with respect to the Plan,
including but not limited to the following:
(a) to determine eligibility for participation in the Plan;
(b) to correct any defect, supply any omission, or
reconcile any inconsistency in the Plan in such manner and
to such extent as it shall deem appropriate in its sole
discretion to carry the same into effect;
(c) to issue administrative guidelines as an aid to
administer the Plan and make changes in such guidelines as
it from time to time deems proper;
(d) to make rules for carrying out and administering the
Plan and make changes in such rules as it from time to
time deems proper;
(e) to the extent permitted under the Plan, grant waivers
of Plan terms, conditions restrictions, and limitations;
(f) to make reasonable determinations as to a
Participant's eligibility for benefits under the Plan,
including determinations as to vesting; and
(g) to take any and all other actions it deems necessary
or advisable for the proper operation or administration of
the Plan.
4.3 Action by the Committee. The Committee may act only by a majority
of its members. Any determination of the Committee may be made,
without a meeting, by a writing or writings signed by all of the
members of the Committee. In addition, the Committee may authorize
any one or more of its members to execute and deliver documents on
behalf of the Committee.
4.4 Delegation of Authority. The Committee may delegate to one or more
of its members, or to one or more agents, such administrative
duties as it may deem advisable; provided, however, that any such
delegation shall be in writing. In addition, the Committee, or any
person to whom it has delegated duties as aforesaid, may employ one
or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee
may employ such legal or other counsel, consultants and agents as
it may deem desirable for the administration of the Plan and may
rely upon any opinion or computation received from any such
counsel, consultant or agent. Expenses incurred by the Committee in
the engagement of such counsel, consultant or agent shall be paid
by the Company, or the Subsidiary whose employees have benefited
from the Plan, as determined by the Committee.
4.5 Determinations and Interpretations by the Committee. All
determinations and interpretations made by the Committee shall be
binding and conclusive on all Participants and their heirs,
successors, and legal representatives.
4.6 Information. The Company shall furnish to the Committee in writing
all information the Committee may deem appropriate for the exercise
of its powers and duties in the administration of the Plan. Such
information may include, but shall not be limited to, the full
names of all Participants, their earnings and their dates of birth,
employment, retirement or death. Such information shall be
conclusive for all purposes of the Plan, and the Committee shall be
entitled to rely thereon without any investigation thereof.
4.7 Self-Interest. No member of the Committee may act, vote or
otherwise influence a decision of the Committee specifically
relating to his or her benefits, if any, under the Plan.
5.0 STOCK UNIT GRANTS
5.1 Rollover. The Company shall grant an Initial Stock Unit Grant to
the Participants listed on Schedule A (who are participants in the
Company's Retirement Plan for Outside Directors) who elect by
December 31, 1997 pursuant to an election made in writing to the
Company's Vice President-Human Resources to rollover their accrued
benefit under such plan (the "Accrued Benefit") into the Plan. The
number of shares underlying each Initial Stock Unit Grant shall be
equal to the present value of the Participant's Accrued Benefit as
of December 31, 1997 divided by the Common Stock Value on the last
trading day of 1997. Any fractional Stock Unit which is greater
than 50 percent shall be rounded up to one Stock Unit, and any
fractional Stock Unit equal to or less than 50 percent shall be
disregarded. The Company shall enter and record (or shall cause to
be entered and recorded) in the Participant's Stock Unit Account
such number of Stock Units underlying the Initial Stock Unit Grant.
5.2 Annual Grant. The Company shall grant to each Participant who has
been a member of the Board for a least 1 year an Annual Stock Unit
Grant equal to 150 Stock Units. The Annual Stock Unit Grant shall
be made on or about the date of the Company's annual meeting of
shareholders. The Company shall enter and record (or shall cause to
be entered and recorded) in the Participant's Stock Unit Account
such number of Stock Units underlying the Annual Stock Unit Grant.
5.3 Matching Grant. With respect to any specific year, if the corporate
incentive goals established by the Board are met for purposes of
determining the Company matching contributions under the Company's
Stock Purchase-Savings Plan, the Company shall grant to each
Participant on or about the date of the Company's annual meeting of
shareholders following such year a Matching Stock Unit Grant equal
to up to 150 Stock Units in accordance with the terms of such
program. The Company shall enter and record (or shall cause to be
entered and recorded) in the Participant's Stock Unit Account such
number of Stock Units underlying the Annual Stock Unit Grant.
5.4 Dividend Stock Units. On the date that any holder of Common Stock
receives a dividend with respect to Common Stock, the Company shall
grant to each Participant, and shall enter and record (or shall
cause to be entered and recorded) in each such Participant's Stock
Unit Account a number of Stock Units equal to the result of (x) the
dollar amount of such dividend paid with respect to one share of
Common Stock multiplied by (y) the number of Stock Units in the
Stock Unit Account as of the date such dividend is paid divided by
(z) the Common Stock Value as of the date such dividend is paid.
Any fractional Stock Unit greater than 50 percent shall be rounded
up to one Stock Unit, and any fractional Stock Unit equal to or
less than 50 percent shall be disregarded.
6.0 BENEFIT
6.1 Vesting. A Participant shall be entitled to a Benefit described in
this Section 6 only after such Participant has been a member of the
Board for 5 years. If there is a Change in Control, the Participant
shall be entitled to a Benefit described in this Section 6 as of
the date of the Change in Control, regardless of the number of
years such Participant has been a member of the Board.
6.2 Timing of Benefit. In accordance with Section 6.4 below, the
Company shall pay or begin paying a Benefit to a vested Participant
during the 60-day period following the Distribution Date. If the
Participant has selected annual payments in accordance with Section
6.4(b) below, all payments other than the first payment shall be
made on the applicable anniversary of the Distribution Date.
6.3 Valuation. The value of a Participant's Stock Unit Account for
purposes of the Benefit shall be equal to the product of (x) the
number of Stock Units in the Participant's Stock Unit Account as of
the Distribution Date or the applicable anniversary of the
Distribution Date multiplied by (y) the Common Stock Value on the
Distribution Date or the applicable anniversary of the Distribution
Date, in accordance with Section 6.4 below.
6.4 Form of Benefit. The Company shall pay a Benefit to a vested
Participant in one of the following four (4) forms, as selected by
the Participant within 60 days after becoming a Participant:
(a) a lump sum payment, with such payment equal to
the value of the Participant's Stock Unit Account as of
the Distribution Date: or
(b) annual payments over 5, 10 or 15 years, with
each annual payment equal to (x) the value of the
Participant's Stock Unit Account as of the Distribution
Date or the applicable anniversary of the Distribution
Date divided by (y) the number of payments yet to be made.
6.5 Change of Form of Benefit. The Participant may change the form of
Benefit, provided, however, that such change is made at least six
(6) months prior to the Distribution Date.
6.6 Death of Participant Prior to the Distribution Date. If the
Participant's death occurs prior to the Distribution Date, the
Company shall pay or begin paying a Benefit to a vested
Participant's beneficiary (as designated by the Participant under
Section 6.8 below) on the first day of the sixth month following
the date of the Participant's death, and if the Participant has
selected a form of Benefit under Section 6.4(b) above, the Company
shall pay the remaining annual payments on the anniversary of the
first payment date as determined under this Section 6.6.
6.7 Death of Participant Following the Distribution Date. If the
Participant's death occurs following the Distribution Date, the
Company shall continue to pay the Benefit to the Participant's
beneficiary (as designated by the Participant under Section 6.8
below) following the date of the Participant's death in the form of
Benefit selected by the Participant in accordance with Section 6.4
above.
6.8 Designation of Beneficiary. Within 60 days after becoming a
Participant, a Participant shall designate a beneficiary to receive
the Benefit in the event of the Participant's death. If the
Participant does not designate a beneficiary, the beneficiary shall
be deemed to be the Participant's spouse on the date of the
Participant's death, and if the Participant does not have a spouse
on the date of his or her death, then the Participant's estate
shall be deemed to be the beneficiary under this Section 6.
7.0 TAXES
7.1 Withholding Taxes. The Company shall be entitled to withhold from
any and all payments made to a Participant under the Plan all
federal, state, local and/or other taxes or imposts which the
Company determines are required to be so withheld from such
payments or by reason of any other payments made to or on behalf of
the Participant or for his or her benefit hereunder.
7.2 No Guarantee of Tax Consequences. No person connected with the Plan
in any capacity, including, but not limited to, the Company and any
Subsidiary and their directors, officers, agents and employees
makes any representation, Commitment, or guarantee that any tax
treatment, including, but not limited to, federal, state and local
income, estate and gift tax treatment, will be applicable with
respect to amounts deferred under the Plan, or paid to or for the
benefit of a Participant under the Plan, or that such tax treatment
will apply to or be available to a Participant on account of
participation in the Plan.
8.0 TERM OF PLAN; AMENDMENT AND TERMINATlON
8.1 Term. The Plan shall be effective as of the Effective Date. The
Plan shall remain in effect until the Board terminates the Plan.
8.2 Termination or Amendment of Plan. The Board may suspend or
terminate the Plan at any time with or without prior notice and the
Board may amend the Plan at any time with or without prior notice;
provided, however, that no action authorized by this Section 8.2
shall reduce the balance of the Stock Unit Account credited to a
Participant or adversely affect the vesting of such account.
9.0 MISCELLANEOUS
9.1 Adjustments. If there shall be any change in Common Stock through
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spin-off,
combination of shares, exchange of shares, dividend in kind or
other like change in capital structure or distribution (other than
normal cash dividends) to holders of Common Stock, the number of
Stock Units and the Participant's Stock Unit Account shall be
adjusted to equitably reflect such change or distribution.
9.2 Governing Law. The Plan and all actions taken in connection
herewith shall be governed by and construed in accordance with the
laws of the State of North Carolina without reference to principles
of conflict of laws, except as superseded by applicable federal
law.
9.3 No Right Title. or Interest in Company Assets. Participants shall
have no right, title, or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its
obligations under the Plan. Nothing contained In the Plan, and no
action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Participant, beneficiary,
legal representative or any other person. To the extent that any
person acquires a right to receive payments from the Company under
the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the Company and
no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as
expressly set forth in the Plan.
9.4 No Right to Continued Service. The Participant's rights, if any, to
continue to serve the Company as a member of the Board shall not be
enlarged or otherwise affected by his or her participation in the
Plan.
9.5 Other Rights. The Plan shall not affect or impair the rights or
obligations of the Company or a Participant under any other written
plan, contract, arrangement, or pension, profit sharing or other
compensation plan.
9.6 Severability. If any term or condition of the Plan shall be invalid
or unenforceable to any extent or in any application, then the
remainder of the Plan, with the exception of such invalid or
unenforceable provision, shall not be affected thereby and shall
continue in effect and application to its fullest extent. If,
however, the Committee determines in its sole discretion that any
term or condition of the Plan which is invalid or unenforceable is
material to the interests of the Company, the Committee may declare
the Plan null and void in its entirety.
9.7 Incapacity. If the Committee determines that a Participant or a
designated beneficiary is unable to care for his or her affairs
because of illness or accident or because he or she is a minor, any
benefit due the Participant or designated beneficiary may be paid
to the Participant's spouse or to any other person deemed by the
Committee to have incurred expense for such Participant (including
a duly appointed guardian, committee or other legal
representative), and any such payment shall be a complete discharge
of the Company's obligation hereunder.
9.8 Transferability of Rights. No Participant or spouse of a
Participant shall have any right to encumber, transfer or otherwise
dispose of or alienate any present or future right or expectancy
which the Participant or such spouse may have at any time to
receive payments of benefits hereunder, which benefits and the
right thereto are expressly declared to be non-assignable and
nontransferable, except to the extent required by law. Any attempt
to transfer or assign a benefit, or any rights granted hereunder,
by a Participant or the spouse of a Participant shall be null and
void and without effect.
9.9 Entire Document. The Plan, as set forth herein, supersedes any and
all prior practices, understandings, agreements, descriptions or
other non-written arrangements respecting severance, and written
employment or severance contracts signed by the Company.
SCHEDULE A
Participants who Are Eligible To Receive Initial Stock Unit Grants
1. Edwin B. Borden
2. Richard L. Daugherty
3. Robert L. Jones
4. Felton J. Capel
5. Charles W. Coker
6. Estell C. Lee
7. Leslie M. Baker, Jr.
8. William O. McCoy
9. J. Tylee Wilson
EXHIBIT NO. 10b(16)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
September 1, 1992, by and between Carolina Power & Light Company ("Employer")
and William Cavanaugh, III ("Employee").
WHEREAS, Employer desires to retain Employee and Employee desires to be
retained by Employer as President and Chief Operating Officer of Employer, on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties agree as follows:
SECTION 1 - EMPLOYMENT
Employee shall be employed as President and Chief Operating Officer by
Employer, shall devote his full business time and best efforts to the
performance of the duties that are necessary and appropriate as such. Employee
will also perform all duties and obligations as the Chief Executive Officer of
the Company and the Board of Directors may from time to time specifically
require, including without limitation, those duties and obligations in this
Agreement. Employee shall be responsible and report directly to the Chief
Executive Officer of the Company. Employee agrees to such employment upon the
terms and conditions in this Agreement.
SECTION 2 - TERM OF EMPLOYMENT
This employment is similar to the employment of other senior executives
of Employer and is at the continued will of both parties. If it should be
terminated by either party, then the provisions of Section 7 herein shall apply.
SECTION 3 - COMPENSATION
In consideration of all the services to be rendered by Employee to
Employer under this Agreement, Employer shall compensate Employee as follows:
(a) Employee shall be paid an aggregate annual salary, exclusive of
fringe benefits and benefits provided under employee benefit plans, of $400,000,
payable at such intervals, but not less frequently than monthly, as Employer may
determine. Such salary shall be subject to periodic review and adjustment by
Employer commencing in calendar year 1993 and thereafter, at the same time and
in the same manner as other executive officer salaries are reviewed and adjusted
by Employer;
(b) Employee shall receive 2,000 shares of Employer common stock, plus
such additional amounts as are necessary to pay the amount of federal, state and
local taxes due on the value of such stock;
(c) Employee shall receive short-term incentive compensation payments
of: (i) $150,000, to be paid on or before March 15, 1993 with respect to
Employee's services in calendar year 1992; and (ii) $150,000, to be paid on or
before March 15, 1994 with respect to Employee's services in calendar year 1993.
Such cash payments shall be in lieu of amounts that might otherwise be payable
to Employee with respect to calendar years 1992 and 1993 under Employer's
Management Incentive Compensation Program or any similar program adopted in lieu
thereof. With respect to calendar years after 1993, Employee shall be eligible
to participate in Employer's Management Incentive Compensation Program or any
similar program adopted in lieu thereof and Employee's entitlement to any such
short-term incentive compensation shall be determined under such program;
(d) Employee shall be entitled to such long-term incentive compensation
payments or awards under plans or programs adopted from time to time by the
Board of Directors of the Employer which covers eligible executive officers,
including Employee;
(e) Employee shall be eligible to participate in certain employee
pension benefit programs (including certain deferred compensation plans or
agreements) as described in Section 4 of this Agreement;
(f) Employee shall be eligible to participate in certain employee
welfare benefit plans or programs and shall be entitled to certain fringe
benefits as described in Section 5 of this Agreement. Such fringe benefits shall
be taxable to the extent required by law, and Employee shall not receive any
additional amounts to pay the taxes due on any taxable fringe benefits except as
otherwise provided in Section 5.
SECTION 4 - PENSION AND DEFERRED COMPENSATION BENEFITS
(a) Employee shall be entitled to participate in and be eligible for
such pension and deferred compensation benefit plans or programs available
generally to senior executives of Employer, including by way of illustration,
but not by way of limitation, the Stock Purchase-Savings Plan, the Supplemental
Retirement Plan for Employees, the Supplemental Executive Retirement Plan
("SERP"), the Executive Deferred Compensation Plan, and the Deferred
Compensation Plan for Key Management Employees. Employee shall be entitled to
participate in such plans and programs on the same terms and conditions as other
executive employees, except as follows:
(i) Employee shall be entitled to a payment of $150,000 which
shall be deferred and paid to Employee as if it were deferred under the Deferred
Compensation Plan for Key Management Employees as a one-year deferral for
calendar year 1992. This amount shall be utilized to provide retirement income
to Employee of $121,368 per year for 15 years, payable monthly, commencing upon
Employee's attainment of age 65. In addition, reduced payments shall be made
pursuant to an agreed-upon schedule if Employee dies before reaching age 65.
(ii) With respect to the SERP, Employee shall become
immediately eligible to participate and shall be fully vested in benefits
thereunder as of his date of employment. As of his date of employment, Employee
shall also be credited with 14 years of service and an average annual
compensation for the three (3) years ending September 1, 1992 of $400,000 for
purposes of determining his benefits thereunder.
SECTION 5 - WELFARE AND FRINGE BENEFITS
(a) Employee shall be entitled to participate in all such welfare
benefit programs and plans that exist or may hereafter be instituted by
Employer, and shall receive all other fringe benefits available generally to
senior executives of Employer. These welfare benefit plans and programs and
other fringe benefits include, by way of illustration, but not by way of
limitation, group health insurance benefits, life insurance benefits, long-term
and short-term disability benefits, vacation days, and annual Employer holidays.
(b) Employee shall be entitled to receive the following additional
welfare benefits and fringe benefits on the same terms and conditions as other
executive employees, except as follows:
(i) Employee shall be provided with split-dollar life
insurance coverage in an amount equal to $1,200,000. The cost of such coverage
shall be included in Employee's taxable income in accordance with applicable
regulations. This split-dollar life insurance coverage shall be in addition to
$50,000 in group-term life insurance provided to all senior executives with
split-dollar life insurance coverage and shall be in lieu of any other insurance
coverage available to Company employees under the Company's group-term life
insurance program.
(ii) Employee shall be provided with split-dollar life
insurance coverage in the amount of $3,000,000, insuring the joint lives of
Employee and his spouse, with the Employee's portion of such premium to be paid
by Employee or the trustee of an irrevocable life insurance trust established by
the Employee if the trust is the owner of the policy;
(iii) Employee shall have the opportunity to obtain estate
planning counseling provided through the trust department of Wachovia Bank of
North Carolina, N.A.;
(iv) Employee shall be entitled to four (4) weeks of annual
vacation and additional vacation days as approved on a discretionary basis by
the Chief Executive Officer of the Company;
(v) Employer shall pay initiation fees and dues for the
Employee at the Capital City Club. At the option of Employee, Employer also will
pay the initiation fee to the country club of Employee's choosing. All monthly
country club dues will be paid by Employee;
(vi) Employee shall be entitled to membership in the Rex
Hospital Wellness Center, with the initiation fee and monthly dues to be paid by
Employer;
(vii) Employer shall pay for one annual physical, to be
provided by a physician of Employee's choice;
(viii) Employer will provide Employee with a home security
system which shall include a central burglar alarm system;
(ix) Employee shall be provided an automobile of the class
available to senior executives of Employer, with a cellular telephone. Insurance
and maintenance for the vehicle will be provided by Employer, and all base
monthly telephone charges and the incremental charges for all business calls on
the cellular telephone will be paid by Employer;
(x) Employee shall be entitled to utilize chartered aircraft
service pursuant to the Employer's policies as needed, and, pursuant to
Employee's discretion, first class commercial air travel;
(xi) Employee shall be provided with a personal computer at
his home for business use;
(xii) Employee shall be reimbursed for relocation expenses as
described in Attachment A hereto; and
(xiii) Upon retirement from employment with the Employer,
Employee shall be entitled to the same medical and dental coverage provided
other future retirees of the Employer, such as the Chairman/Chief Executive
Officer; provided, however, that to the extent that any such benefits may not be
provided to Employee due to statutory or regulatory limitations, Employer shall
obtain substantially equivalent coverage on an insured basis.
SECTION 6 - REIMBURSEMENT OF BUSINESS EXPENSES
Employer shall reimburse Employee for all reasonable business
expenditures incurred by Employee in the ordinary and necessary performance of
his duties hereunder in accordance with reasonable practices established from
time to time by Employer, upon timely presentation by Employee of an itemized
account of such expenditures. In addition, Employee shall be entitled to
reimbursement for travel expenses of Employee's spouse when she accompanies him
to business meetings when spousal attendance is customary.
SECTION 7 - TERMINATION
(a) Employee's employment may be terminated at any time by either
Employee for Employer and for any reason. No advance notice of such termination
shall be required to be provided by either party. Upon termination of Employee's
employment, Employee shall be entitled to such benefits under Employer's
established benefit programs as determined under such programs and this Section
7 of this Agreement.
(b) If Employee's employment is terminated, or constructively
terminated, by the Employer for any reason other than good cause, then to the
extent vested, Employee will retain all benefit rights under all established
benefit programs as well as all benefits described herein. Employee shall also
be entitled to salary continuation of his full base monthly salary for 24 months
following such termination. During such 24-month period, Employee shall be
entitled to continued coverage under the medical, dental, life insurance, and
disability programs, provided, however, that to the extent any such employee
benefits may not be provided to Employee due to statutory or regulatory
nondiscrimination rules, Employer shall obtain for Employee substantially
equivalent coverage on an insured basis. The cost of any such medical, dental,
life insurance, or disability coverage shall be included in Employee's taxable
income, if required by and in accordance with applicable regulations.
(c) At the option of the Employee, to be exercised within one year of
the occurrence of the event, Employee may deem any of the following events to be
a constructive termination of Employee's employment by Employer:
(i) Change in form of ownership of Employer (e.g., Employer is
acquired, enters into a business combination with another company or otherwise
changes form of ownership).
(ii) Change in the present Chairman of the Board/Chief
Executive Officer of the Employer or a material change in his responsibilities.
(d) If Employee's employment is terminated by Employee for any reason
other than death or disability, Employee shall retain all vested benefits,
calculated as of the date of termination, but shall not be entitled to any form
of salary or benefit continuance.
SECTION 8 - COOPERATION AFTER TERMINATION
Following any termination of employment by Employee, Employee shall
fully cooperate with Employer in all matters relating to the completion of
Employee's pending work on behalf of Employer and the orderly transfer of any
such pending work to other employees of Employer as may be designated by
Employer. Employer shall be entitled to such full-time or part-time services of
Employee as Employer may reasonably require during all or any part of the 90-day
period following any notice of termination by the Employee. In such event,
Employee shall be compensated at a per diem rate equivalent to his previous base
salary with Employer.
SECTION 9 - CONFIDENTIALITY
All confidential information acquired by Employee during his employment
with Employer shall be regarded as confidential and solely for the benefit of
Employer.
SECTION 10 - ARBITRATION
In case of any dispute or disagreement arising out of or connected with this
Agreement, the parties hereto hereby agree to submit said dispute or
disagreement to the American Arbitration Association in Raleigh, North Carolina
for a resolution within 120 days after submission thereof by three arbitrators
to be designated by said American Arbitration Association. Any decision or award
by said arbitrators shall be binding, and except in cases of gross fraud or
misconduct by one or more of the arbitrators, the decision or award rendered
with respect to such dispute or disagreement shall not be appealable. In
addition, the prevailing party in such an arbitration proceeding shall be
entitled to recover his attorney's fees, all reasonable out-of-pocket costs and
disbursements, as well as any and all charges which may be made for the cost of
the arbitration and fees of the arbitrators.
SECTION 11 - SEVERABILITY
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provisions of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with law, continue in full force and effect.
SECTION 12 - ASSIGNMENT
Rights and duties of the parties hereunder shall not be assignable by
either party except that this Agreement and all the rights hereunder may be
assigned by Employer to any corporation or other business entity which succeeds
to all or substantially all of the business of Employer through merger,
consolidation, corporate reorganization or by acquisition of all or
substantially all of the assets of Employer and which assumes Employer's
obligations under this Agreement.
SECTION 13 - ENTIRE AGREEMENT
This Agreement supersedes all prior agreements between the parties
concerning the subject matter hereof and this Agreement constitutes the entire
agreement between the parties with respect thereto. This Agreement may be
modified only with a written instrument duly executed by each of the parties. No
person has any authority to make any representation or promise on behalf of any
of the parties not set forth herein and this Agreement has not been executed in
reliance upon any representation or promise except those contained herein. No
waiver by any party of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach.
SECTION 14 - GOVERNING LAW
This Agreement is made and entered into in the State of North Carolina,
and the laws of North Carolina shall govern its validity and interpretation and
the performance by the parties hereto of their respective duties and obligations
hereunder. This Agreement shall be binding upon the Employer and the Employee as
approved by the Board of Directors of the Employer at its regular meeting on
September 16, 1992.
SECTION 15 - HEADINGS
Section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
WITNESS: EMPLOYER:
/S/ Charles D. Barham, Jr.
- ----------------------------- By: /S/ Sherwood H. Smith, Jr.
Charles D. Barham, Jr. ---------------------------------
Sherwood H. Smith, Jr.
Title: /S/
----------------------------
Chairman
EMPLOYEE: /S/ William Cavanaugh
---------------------------------
William Cavanaugh
EXHIBIT NO.10b(17)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
April 1, 1993, by and between Carolina Power & Light Company ("Employer") and
William S. Orser ("Employee").
WHEREAS, Employer desires to retain Employee and Employee desires to be
retained by Employer as Executive Vice President - Nuclear of Employer, on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties agree as follows:
SECTION 1 - EMPLOYMENT
Employee shall be employed as Executive Vice President Nuclear by
Employer, and shall devote his full business time and best efforts to the
performance of the duties that are necessary and appropriate as such. Employee
will also perform all duties and obligations as President/Chief Operating
Officer of the Company and the Board of Directors may from time to time
specifically require, including without limitation, those duties and obligations
in this Agreement. Employee shall be responsible and report directly to the
President/Chief Operating Officer of the Company. Employee agrees to such
employment upon the terms and conditions in this Agreement.
SECTION 2 - TERM OF EMPLOYMENT
This employment is similar to the employment of other senior executives
of Employer and is at the continued will of both parties. If it should be
terminated by either party, then the provisions of Section 7 herein shall apply.
SECTION 3 - COMPENSATION
In consideration of all the services to be rendered by Employee to
Employer under this Agreement, Employer shall compensate Employee as follows:
(a) Employee shall be paid an aggregate annual salary, exclusive of
fringe benefits and benefits provided under employee benefit plans, of $280,000,
payable at such intervals, but not less frequently than monthly, as Employer may
determine. Such salary shall be subject to periodic review and adjustment by
Employer commencing in calendar year 1993 and thereafter, at the same time and
in the same manner as other executive officer salaries are reviewed and adjusted
by Employer;
(b) Employee shall receive 2,000 shares of Employer common stock, plus
such additional amounts as are necessary to pay the amount of federal, state and
local taxes due on the value of such stock;
(c) Employee shall receive short-term incentive compensation payments
of: (i) $50,000, to be paid on or before August 31, 1993, with respect to
Employee's services in 1993; and (ii) $50,000, to be paid on or before March 15,
1994, with respect to Employee's services in calendar year 1993. Such cash
payments shall be in lieu of amounts that might otherwise be payable to Employee
with respect to calendar year 1993 under Employer's Management Incentive
Compensation Program or any similar program adopted in lieu thereof. With
respect to calendar years after 1993, Employee shall be eligible to participate
in Employer's Management Incentive Compensation Program with a present maximum
payout of 30 percent of base salary or any similar program adopted in lieu
thereof and Employee's entitlement to any such short-term incentive compensation
shall be determined under such program;
(d) Employee shall be entitled to such long-term incentive compensation
payments or awards under plans or programs adopted from time to time by the
Board of Directors of the Employer which covers eligible executive officers,
including Employee;
(e) Employee shall be eligible to participate in certain employee
pension benefit programs (including certain deferred compensation plans or
agreements) as described in Section 4 of this agreement;
(f) Employee shall be eligible to participate in certain employee
welfare benefit plans or programs and shall be entitled to certain fringe
benefits as described in Section 5 of this Agreement. Such fringe benefits shall
be taxable to the extent required by law, and Employee shall not receive any
additional amounts to pay the taxes due on any taxable fringe benefits except as
otherwise provided in Section 5.
SECTION 4 - PENSION AND DEFERRED COMPENSATION BENEFITS
(a) Employee shall be entitled to participate in and be eligible for
such pension and deferred compensation benefit plans or programs available
generally to senior executives of Employer, including by way of illustration,
but not by way of limitation, the Stock Purchase-Savings Plan, the Supplemental
Retirement Plan for Employees, the Supplemental Executive Retirement Plan
("SERP"), the Executive Deferred Compensation Plan, and the Deferred
Compensation Plan for Key Management Employees. Employee shall be entitled to
participate in such plans and programs on the same terms and conditions as other
executive employees, except as follows:
(i) Employee shall be entitled to three annual payments of
$50,000 each for calendar years 1993, 1994, and 1995, which shall be deferred
and paid to Employee as if they were deferred under the Deferred Compensation
Plan for Key Management Employees as a one-year deferral for calendar year 1993.
This amount shall be utilized to provide retirement income to Employee of
$151,100 per year for 15 years payable monthly, commencing upon Employee's
attainment of age 65 (or $112,911 per year for 15 years at age 60). As of his
date of employment, Employee shall also be credited with 9 years of service for
purposes of determining his benefits thereunder. In addition, reduced payments
shall be made pursuant to an agreed-upon schedule if Employee dies before
reaching age 65.
(ii) If Employee's employment is terminated at age 55,
employee shall be entitled, under the severance provisions of the Deferred
Compensation Plan for Key Management Employees, to a one-time option of a
lump-sum payment of $225,000. If Employee elects this option, payment of said
lump sum shall terminate Employee's participation and any future benefits
thereunder.
(iii) With respect to the SERP, Employee shall become
immediately eligible to participate and shall be fully vested in benefits
thereunder as of his date of employment.
SECTION 5 - WELFARE AND FRINGE BENEFITS
(a) Employee shall be entitled to participate in all such welfare
benefit programs and plans that exist or may hereafter be instituted by
Employer, and shall receive all other fringe benefits available generally to
senior executives of Employer. These welfare benefit plans and programs and
other fringe benefits include, by way of illustration, but not by way of
limitation, group health insurance benefits, life insurance benefits, long-term
and short-term disability benefits, vacation days, and annual Employer holidays.
(b) Employee shall be entitled to receive the following additional
welfare benefits and fringe benefits on the same terms and conditions as other
executive employees, except as follows:
(i) Employee shall be provided with split-dollar life
insurance coverage in an amount equal to $790,000, plus such additional amounts
as necessary to pay the amount of federal, state and local taxes due on the
value of such life insurance. The cost of such coverage shall be included in
Employee's taxable income in accordance with applicable regulations. This
split-dollar insurance coverage shall be in addition to $50,000 in group-term
life insurance provided to all senior executives with split-dollar life
insurance coverage and shall be in lieu of any other insurance coverage
available to Company employees under the Company's group-term life insurance
program.
(ii) Employee shall have the opportunity to obtain estate
planning counseling provided through the trust department of Wachovia Bank of
North Carolina, N.A.;
(iii) Employee shall be entitled to four (4) weeks of annual
vacation and additional vacation days as approved on a discretionary basis by
the President/Chief Operating Officer of the Company;
(iv) Employer shall pay initiation fees and dues for the
Employee at the Capital City Club;
(v) Employee shall be entitled to membership in the Rex
Hospital Wellness Center, with the initiation fee and monthly dues to be paid by
Employer;
(vi) Employer shall pay for one annual physical, to be
provided by a physician of Employee's choice;
(vii) Employee shall be provided an automobile of the class
available to senior executives of Employer, with a cellular telephone. Insurance
and maintenance for the vehicle will be provided by Employer, and all base
monthly telephone charges and the incremental charges for all business calls on
the cellular telephone will be paid by Employer.
(viii) Employee shall be entitled to utilize chartered
aircraft service pursuant to the Employer's policies as needed, and, pursuant to
Employee's discretion, first class commercial air travel;
(ix) Employee shall be provided with a personal computer at
his home for business use;
(x) Employee shall be reimbursed for relocation expenses as
described in Attachment A hereto;
(xi) Employee shall be reimbursed for temporary living
expenses, in addition to the 30 days provided by the Relocation Program, and for
travel expenses to and from Detroit, Michigan through September 9, 1993, or
until family relocation, whichever occurs first; and
(xii) Upon retirement from employment anytime after age 55
with the Employer, Employee shall be entitled to the same medical and dental
coverage provided other future retirees of the Employer, such as the
Chairman/Chief Executive Officer; provided, however, that to the extent that any
such benefits may not be provided to Employee due to statutory or regulatory
limitations, Employer shall obtain substantially equivalent coverage on an
insured basis.
SECTION 6 - REIMBURSEMENT OF BUSINESS EXPENSES
Employer shall reimburse Employee for all reasonable business
expenditures incurred by Employee in the ordinary and necessary performance of
his duties hereunder in accordance with reasonable practices established from
time to time by Employer, upon timely presentation by Employee of an itemized
account of such expenditures. In addition, Employee shall be entitled to
reimbursement for travel expenses of Employee's spouse when she accompanies him
to business meetings when spousal attendance is customary.
SECTION 7 - TERMINATION
(a) Employee's employment may be terminated at any time by either
Employee or Employer and for any reason. No advance notice of such termination
shall be required to be provided by either party. Upon termination of Employee's
employment, Employee shall be entitled to such benefits under Employer's
established benefit programs as determined under such programs and this Section
7 of this Agreement.
(b) If Employee's employment is terminated, or constructively
terminated, by the Employer for any reason other than good cause, then to the
extent vested, Employee will retain all benefit rights under all established
benefit programs as well as all benefits described herein. Employee shall also
be entitled to receive the following benefits: (i) if there is termination of
employment by the Company for any reason other than good cause within the first
two years of employment, the Employee shall be entitled to salary continuation
of 50 percent of his full base monthly salary for 24 months following such
termination. During such 24-month period, Employee shall be entitled to
continued coverage under the medical, dental, life insurance, and disability
programs provided, however, that to the extent any such employee benefits may
not be provided to Employee due to statutory or regulatory nondiscrimination
rules, Employer shall obtain for Employee substantially equivalent coverage on
an insured basis. The cost of any such medical, dental, life insurance, or
disability coverage shall be included in Employee's taxable income, if required
by and in accordance with applicable regulations: (ii) if termination occurs
after the employee has attained age 55 but before attaining age 60, Employer
agrees to pay the employee a severance benefit of $153,912 per year (less any
benefits payable under the SERP), for the remainder of the Employee's life. Such
severance benefit shall terminate at the employee's death.
(c) At the option of the Employee, to be exercised within one year of
the occurrence of the event, Employee may deem any of the following events to be
a constructive termination of Employee's employment by Employer:
(i) Change in form of ownership of Employer (e.g., Employer is
acquired, enters into a business combination with another company or otherwise
changes form of ownership).
(ii) Change in the present Chairman of the Board/Chief
Executive Officer of the Employer or a material change in his responsibilities.
(d) If Employee's employment is terminated by Employee for any reason
other than death or disability, Employee shall retain all vested benefits,
calculated as of the date of termination, but shall not be entitled to any form
of salary or benefit continuance.
SECTION 8 - COOPERATION AFTER TERMINATION
Following any termination of employment by Employee, Employee shall
fully cooperate with Employer in all matters relating to the completion of
Employee's pending work on behalf of Employer and the orderly transfer of any
such pending work to other employees of Employer as may be designated by
Employer. Employer shall be entitled to such full-time or part-time services of
Employee as Employer may reasonably require during all or any part of the 90-day
period following any notice of termination by the Employee. In such event,
Employee shall be compensated at a per diem rate equivalent to his previous base
salary with Employer.
SECTION 9 - CONFIDENTIALITY
All confidential information acquired by Employee during his employment
with Employer shall be regarded as confidential and solely for the benefit of
Employer.
SECTION 10 - ARBITRATION
In case of any dispute or disagreement arising out of or connected with
this Agreement, the parties hereto hereby agree to submit said dispute or
disagreement to the American Arbitration Association in Raleigh, North Carolina,
for a resolution within 120 days after submission thereof by three arbitrators
to be designated by said American Arbitration Association. Any decision or award
by said arbitrators shall be binding, and except in cases of gross fraud or
misconduct by one or more of the arbitrators, the decision or award rendered
with respect to such dispute or disagreement shall not be appealable. In
addition, the prevailing party in such an arbitration proceeding shall be
entitled to recover his attorney's fees, all reasonable out-of-pocket costs and
disbursements, as well as any and all charges which may be made for the cost of
the arbitration and fees of the arbitrators.
SECTION 11 - SEVERABILITY
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provisions of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with law, continue in full force and effect.
SECTION 12 - ASSIGNMENT
Rights and duties of the parties hereunder shall not be assignable by
either party except that this Agreement and all the rights hereunder may be
assigned by Employer to any corporation or other business entity which succeeds
to all or substantially all of the business of Employer through merger,
consolidation, corporate reorganization or by acquisition of all or
substantially all of the assets of Employer and which assumes Employer's
obligations under this Agreement.
SECTION 13 - ENTIRE AGREEMENT
This Agreement supersedes all prior agreements between the parties
concerning the subject matter hereof and this Agreement constitutes the entire
agreement between the parties with respect thereto. This Agreement may be
modified only with a written instrument duly executed by each of the parties. No
person has any authority to make any representation or promise on behalf of any
of the parties not set forth herein and this Agreement has not been executed in
reliance upon any representation or promise except those contained herein. No
waiver by any party of any breach of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach.
SECTION 14 - GOVERNING LAW
This Agreement is made and entered into in the State of North Carolina,
and the laws of North Carolina shall govern its validity and interpretation and
the performance by the parties hereto of their respective duties and obligations
hereunder. This Agreement shall be binding upon the Employer and the Employee as
approved by the Board of Directors of the Employer.
SECTION 15 - HEADINGS
Section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
WITNESS: EMPLOYER:
/S/Fred N. Day
- -------------------- By: /S/ Charles D. Barham
Fred N. Day -----------------------
Charles D. Barham
Title: Executive Vice President
EMPLOYEE:
/S/ William S. Orser
-----------------------
William S. Orser
EXHIBIT NO.10b(18)
September 27, 1994
Mr. Glenn E. Harder
106 West Ruelle
Mandeville, Louisiana 70448
Dear Glenn:
It is a pleasure to offer you employment as Senior Vice President,
Financial Services, effective October 17, 1994 (or as soon thereafter as you may
arrange), upon the terms and conditions set forth in the attachments to this
letter.
As discussed, it is expected that you will be promoted to Executive
Vice President and assume full duties of the Chief Financial Officer no later
than August 1, 1995. Of course this promotion will be subject to approval by the
Board of Directors as are the elections of all corporate officers. It is my hope
that you will accept, and I look forward with anticipation and pleasure to
working closely with you in the leadership of Carolina Power & Light Company.
Sincerely,
/S/ Charles D. Barham, Jr.
---------------------------
Charles D. Barham, Jr.
CDBjr:kd
Attachments
ACCEPTED:
/S/ 9-27-94
- --------------------
EMPLOYMENT OFFER Attachment 1
GLENN E. HARDER
POSITION: Senior Vice President, Financial Services
SALARY: $200,000 annually - subject to review and
adjustment on an annual basis.
MANAGEMENT INCENTIVE Annual target award of 30% of annual base salary.
COMPENSATION The award for plan year 1995 will be paid on or
PROGRAM: before March 15, 1996.
CASH PAYMENT $60,000 out of base payment (less taxes) in
WITH DEFERRAL October 1994 with the option to defer $20,000 of
OPTION: the $60,000 under the Key Management Deferred
Compensation Plan. This plan will provide
retirement income of $47,800 per year for 15
years, age 65-80, with reduced guaranteed payments
pursuant to schedule if death occurs before age
65. If certain age and length of service
provisions are not met, the plan contribution will
be paid out over a 60 month period following
termination at a reduced interest rate.
LONG-TERM INCENTIVE PLAN: Performance award, as determined by the Board of
Directors, up to a maximum of 40% of base salary,
as described on attached summary. Your award under
this plan for the year 1994 will be prorated based
on employment date.
SUPPLEMENTAL EXECUTIVE An accrued retirement benefit program designed to
RETIREMENT PLAN: yield 62% of a participant's highest three years
annual salary at age 65, as described on attached
summary. Upon employment, you shall be credited
with 3 years service so that you will become fully
vested in the plan after two years.
EXECUTIVE PERMANENT LIFE A permanent life insurance plan with a target
INSURANCE PROGRAM: benefit of three (3) times projected salary as
described on attached summary.
RELOCATION: To be provided as described on the attached
Relocation Program Summary which includes 1 1/2
months salary for miscellaneous expenses.
TEMPORARY LIVING EXPENSES: In addition to the 30 days provided by the
Relocation Program, you will be reimbursed through
01/31/95, or until family relocation, whichever
occurs first.
STOCK PURCHASE SAVINGS PLAN: Provides for $0.50 match per dollar up to six
percent (6%) of base salary. Additional
contributions are possible of another $0.50 based
upon meeting company performance goals.
DISABILITY INCOME: Coverage under plan provides for 60% of salary,
(or 70% of base salary including Family Social
Security benefits).
AUTOMOBILE: Full-size company car with cellular phone.
HOLIDAYS: Current company policy is 10 days.
BENEFITS: Coverage under the company's existing benefits
programs through December 1994. Choice Benefits
program to be implemented in January 1995
including increased options for medical, dental,
dependent life, and disability insurance.
VACATION: Four weeks per year.
LUNCHEON AND Capital City Club initiation fee and dues paid by
SUPPER CLUB: Company.
ANNUAL PHYSICAL: Provided by physician of employee's choice.
FINANCIAL PLANNING: Provides financial planning and tax preparation.
These services are provided by Deloitte & Touche,
however, you may select other approved providers
for all or part of these services.
CAROLINA POWER & LIGHT COMPANY
SUMMARY
Executive Benefit Programs
LONG-TERM COMPENSATION PLAN: This plan provides for the annual award of
performance shares equal in value to the market price of the Company's common
stock at the time f the granting of the award, earned over a three-year period.
It has two possible types of awards: (1) a discretionary award for a pool based
upon a fraction of Company net earnings-which can recognize individual
contributions and need not be dependent on overall corporate performance; and,
(2) an annual award opportunity (maximum 40% of base salary) which may consider
both individual achievement and overall corporate performance. Both of these
awards are determined by the Board Committee on Personnel, Executive Development
and Compensation.
EXECUTIVE PERMANENT LIFE INSURANCE PROGRAM: This program allows the eligible
executive to participate in a split-dollar arrangement designed to replace the
Company's current group term life insurance coverage in excess of $50,000 with
permanent life insurance. The target benefit under this program is based on
three (3) times projected salary assuming a salary growth of 6% (not to exceed
$1,200,000).
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP): Executives eligible to
participate in the SERP accrue retirement benefits, when taken in conjunction
with benefits payable under the Company's Supplemental Retirement Plan and
Social Security entitlement, designed to provided income at age 65 equal to 4% a
year subject to a maximum of 62% of the three (3) highest years of annual
salary. Salary includes cash awards made under the annual Management Incentive
Compensation Program and amounts of compensation deferred under any deferred
compensation plan, but excludes any non-cash items required to be included in
IRS Form W-2.
<TABLE>
====================================================================================================================================
RELOCATION PROGRAM SUMMARY EFFECTIVE OCTOBER 1, 1992
<CAPTION>
DESCRIPTION PAYMENT HOMEOWNERS NON-HOMEOWNERS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lump sum for unreimbursed miscellaneous 1 1/2 months salary X X
expenses such as duplicate housing, ($3,000 minimum)
lease-breaking penalties, utility connections,
licensing fees, drapes, child care, etc.
- ------------------------------------------------------------------------------------------------------------------------------------
2 advance visits (total 4 nights); Reimbursed on expense account X X
transportation, lodging and meals for family
move to new location.
- ------------------------------------------------------------------------------------------------------------------------------------
Temporary living expenses for employee at new Reimbursed on expense account X X
location before family move for up to 30
consecutive calendar days
- ------------------------------------------------------------------------------------------------------------------------------------
Living expenses for family for up to 5 days Reimbursed on expense account X X
while goods are in transit
- ------------------------------------------------------------------------------------------------------------------------------------
Marketing assistance in selling old home Billed to CP&L by Contractor X
- ------------------------------------------------------------------------------------------------------------------------------------
SELLING OLD HOME
Relocation service to purchase old X
home at appraised value (Certain
properties are not eligible for this Billed to CP&L by contractor OR
service.)
OR OR X
Sale of home by employee, independent
of the relocation service. Reimbursed to 10% of sales price
- ------------------------------------------------------------------------------------------------------------------------------------
Bonus for selling old home including assigned 2% of sales price X
sales to relocation service that are within 98%
of appraised value
- ------------------------------------------------------------------------------------------------------------------------------------
Loss on Sale Protection 90% of loss to $20,000 X
- ------------------------------------------------------------------------------------------------------------------------------------
Closing costs on new home Reimbursed to 4% of purchase price X
- ------------------------------------------------------------------------------------------------------------------------------------
Loan for purchase of a new home for employees up to 90% of equity in old home X
who have initiated relocation service
homebuying. (Relocation service funded)
- ------------------------------------------------------------------------------------------------------------------------------------
Loan for purchase of a new home for new up to 50% of annual salary X
employees who are not eligible or have not
initiated relocation service homebuying (CP&L
funded)
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage rate differential Based on old & new mtg. rates X
- ------------------------------------------------------------------------------------------------------------------------------------
Moving mobile home including reimbursement for Reimbursed on expense account X
towing, unblocking and reblocking, permits and
escorts, etc.
- ------------------------------------------------------------------------------------------------------------------------------------
Help in finding home in new location Homefinding service from contractor X X
- ------------------------------------------------------------------------------------------------------------------------------------
MOVING HOUSEHOLD GOODS
Professional packing, transportation and
delivery of household goods Billed to CP&L by contractor X X
OR OR OR OR
Self-move of household goods including Reimbursed on expense account X X
trailer or truck rental, boxes, packing
material, etc.
- ------------------------------------------------------------------------------------------------------------------------------------
Spouse job-hunting assistance Up to $300 in expenses reimbursed X X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Attachment 2
EXHIBIT NO. 10b(19)
AGREEMENT
confidential
THIS AGREEMENT, is made and entered into this the 18th day of September, 1996,
by and between Carolina Power & Light Company ["CP&L"] and Sherwood H. Smith,
Jr. ["Smith"].
RECITALS
Sherwood H. Smith, Jr., presently serves as the Chief Executive Officer of
Carolina Power & Light Company, a position he has held since September, 1979. He
also has served as Chairman of the Board and Chairman of the Executive Committee
since May of 1980. Smith will cease serving as Chief Executive Officer effective
October 1, 1996, but will remain active as Chairman of the Board of Directors
and Chairman of the Executive Committee. As of December 31, 1996, Smith plans to
retire from CP&L, and he will then no longer be an employee of CP&L or any of
its subsidiary companies, but he will then render various services to the
Company pursuant to this Agreement.
Smith has been an active employee of CP&L since 1965, during which time he has
acquired special competence in, and intimate knowledge of, the business of CP&L
and of the electric utility industry and related businesses, as well as
government bodies and their impact upon CP&L. He has held many executive
positions within the CP&L organization, including 17 years' service as Chief
Executive Officer. He is one of the most experienced and respected Chief
Executive Officers in the utility industry, and has received national
recognition on many occasions for his management and professional skills.
Because of his knowledge of the CP&L organization, his skills in business, his
record of leadership and knowledge of the industry, and the significant
contributions which he has made and can continue to make to CP&L and to its
Board of Directors, the Board has requested that he continue to serve as
Chairman of the Board of Directors of CP&L and as Chairman of the Executive
Committee, in addition to providing certain services pursuant to this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein set
forth, CP&L, through the action of its Board of Directors, and Smith mutually
agree as follows:
1. TERM OF AGREEMENT. Subject to the provisions for termination as herein set
forth, the term of this Agreement shall be for a period beginning October 1,
1996, and ending September 30, 1999, when Smith will reach the age of 65. It is
anticipated that Smith will not serve as Chairman after the May, 1999, meeting
but will continue to provide other services through September 30, 1999, as set
out in this Agreement.
2. DUTIES AND RESPONSIBILITIES. Smith shall perform the duties of the Chairman
of the Board of Directors and Chairman of the Executive Committee, as set forth
in the CP&L By-Laws and as directed by the Board. In addition to such service
for the Board of Directors, it is acknowledged that Smith has unique skills,
knowledge, and contacts in areas and activities in which CP&L and its
subsidiaries operate, which qualify him to represent CP&L and its subsidiaries
in industry, governmental, public relations and civic matters and to assist CP&L
and its subsidiaries in furthering CP&L's business purposes. To that end, Smith
as Chairman will also be available to perform the following services, as
requested, subject to the request and general direction of CP&L's Chief
Executive Officer: [1] he will assist management in maintaining relations and
communications with the investing public, shareholders, and financial analysts;
[2] he will assist in representing CP&L in general industry, trade association,
charitable, educational, and public interest organizations and projects; [3] he
will assist in studying, evaluating, and advising management and the Board on
general economic and regulatory conditions and the implications of such as a
basis for determining the strategic, operational and financial plans and
policies of CP&L; [4] he will assist management in establishing and maintaining
favorable relationships and communications with federal, state and local
agencies involved in the regulation of CP&L and its subsidiary companies; [5] he
will keep abreast of legislative matters which affect the Company's operations,
and represent CP&L if called upon to present CP&L's views on legislative issues
to federal, state, and local governments; [6] he will assist management in
representing CP&L's views and interests to trade associations and other
industry-related organizations; [7] he will be available to participate and
assist in the contact, maintenance, and development of existing and prospective
customer relationships for CP&L and its subsidiary companies; [8] he will be
available for speaking engagements and other presentations; [9] he will advise
with respect to contributions, investments, and pension plan matters; and [10]
any other reasonable specific service as may be requested by the Chief Executive
Officer and/or the Board of Directors of CP&L.
3. INDEPENDENT CONTRACTOR. Smith shall not be involved in the day-to-day
management or operations of CP&L, and his services shall be as directed by the
Chief Executive Officer. Smith shall carry out his duties and responsibilities
as an independent contractor, and not as an employee of CP&L. Smith shall
endeavor to make himself available at such times as CP&L shall reasonably
request for meetings, public appearances, governmental hearings, and similar
events. Consistent with the foregoing, Smith shall devote such time to carrying
out his duties and responsibilities herein as he and the Chief Executive Officer
shall deem necessary, and he shall render the services herein at such time or
times as he and the Chief Executive Officer shall determine. Smith shall not be
required to work full time or to work any set schedule or number of hours during
any specific period, nor shall he be required to submit time reports or
schedules to CP&L, except as otherwise provided for reimbursement of expenses.
4. COMPENSATION. Smith's compensation for the year 1996 shall be as set by the
Board to include approved base salary and incentive plan payments to be made in
1997. For the services rendered by Smith as Chairman of the Board of Directors
and Chairman of the Executive Committee and for other services, pursuant to this
Agreement, CP&L shall pay to Smith the sum of $33,100 per month, beginning
January 1, 1997, through December 31, 1997, and $27,583 per month beginning
January 1, 1998, through December 31, 1998; and $16,550 per month beginning
January 1, 1999, through September 30, 1999. Such payments are to be made at the
end of each calendar month.
5. OFFICE AND EXPENSES. CP&L will make available for Smith office space,
secretarial and other support services appropriate to the performance of these
duties and responsibilities. These shall be as approved by the Chief Executive
Officer. CP&L shall pay the bills of or reimburse Smith in accordance with CP&L
policies for all reasonable travel and other expenses incurred by Smith
[including, when appropriate, travel expenses for his wife] in performing
services under this Agreement upon presentation by him of the required
accounting and documentation in such form as is satisfactory to the Chief
Financial Officer of CP&L. Smith may use corporate air travel in the performance
of these duties, with approval of the Chief Executive Officer, and he will be
provided a company automobile allowance in accordance with CP&L policy. The
company will continue to maintain for him a home alarm and security service, a
company network telephone and facsimile equipment at his residence, and a car
telephone. [It is anticipated that a reduced level of office and secretarial
support will also be supplied to Smith after September 30, 1999, in his capacity
as retired Chairman and Chief Executive Officer. Such arrangements will be by
mutual agreement as approved by the Chief Executive Officer.]
6. BENEFITS. After January 1, 1997, Smith shall not be entitled to participate
in any retirement plans or other benefit plans provided by CP&L for its
employees as a consequence of his service as Chairman of the Board of Directors,
except to the extent that such participation results from Smith's prior services
as an employee or officer of the Company.
7. INCOME TAX WITHHOLDING. CP&L shall not withhold federal or state income taxes
or employment taxes from payments made to Smith hereunder, unless otherwise
required so to do by law.
8. FINANCIAL PLANNING SERVICES. CP&L shall provide Smith with financial planning
services, and shall reimburse Smith for the costs of financial and legal
advisors, to the same extent as if Smith were a senior executive entitled to
participate in CP&L's executive financial planning program. Such services and
reimbursement shall be available to Smith for one year following the end of the
term of the Agreement and to his spouse for one year following his death.
9. NON-COMPETITION. During the term of this Agreement and for three years
thereafter, Smith shall not engage in any business in competition with, or in
anyway in conflict with, the business of CP&L as an officer, employee, advisor,
consultant, partner, principal shareholder, or otherwise in which he shall have
an active role in consulting or advising with respect to such other business or
activity. Smith shall be deemed to be a principal shareholder of any corporation
if he owns or controls, directly or indirectly, twenty-five percent [25%] or
more of the voting stock of the corporation. Further, Smith shall not engage in
any activity involving any other electric utility without the advance written
approval of the CP&L Chief Executive Officer.
10. TERMINATION. This Agreement shall terminate at the close of business on
September 30, 1999. Additionally, this Agreement shall terminate upon the
occurrence of the following events:
[a] Death or Incapacity. This Agreement shall terminate upon the death
of Smith. In the event of Smith's incapacity for a period in excess of
three months, the Board of Directors of CP&L may terminate this
Agreement. In the event of the death of Smith, CP&L shall pay to any
party that has been designated by Smith in writing to CP&L, or if no
such party has been designated, to his executor(s) or administrator(s),
or in the event of such incapacity, to Smith or his designee, guardian,
or representative, an amount equal to his unpaid compensation hereunder
as of the end of the month in which he dies or has been incapacitated
for the previous consecutive three months, and thereafter CP&L shall
have no further liability to Smith or his executors or administrators
for compensation for additional services arising pursuant to this
Agreement.
[b] Failure to Perform. In the event of Smith's failure to observe or
perform the provisions of this Agreement required to be observed or
performed by him following written notice of such nonperformance, or if
Smith shall accept full-time employment with any other organization,
then in either event, CP&L may terminate this Agreement, such
termination to be effective thirty [30] days after CP&L gives written
notice of such termination to Smith.
It is understood and agreed by Smith and CP&L that nothing contained in this
Agreement shall obligate the Board, any member of the Board, or CP&L in any way
to vote for, elect, or continue Smith in office as Chairman of the Board of
Directors or Chairman of the Executive Committee if at any time a majority of
the Board determines that it is in CP&L's best interests not to so do.
11. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered mail to Smith at 408
Drummond Drive, Raleigh, North Carolina, 27609, or to such other address as
either party shall designate by written notice to the other.
12. ASSIGNMENT. The rights and obligations of CP&L under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
CP&L. The rights and obligations of Smith hereunder are personal, and may not be
assigned or delegated by Smith.
13. MODIFICATION, WAIVER AND ATTACHMENT.
[a] Amendment of Agreement. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties
hereto. This Agreement may be modified, amended, or extended by an
instrument in writing signed by the parties hereto.
[b] Waiver. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver, and each such waiver
shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
[c] No Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to
execution, attachment, levy or similar process or assignment by
operation of law, and any attempt, voluntary or involuntary, to effect
any such action shall be null, void, and of no effect.
14. SEVERABILITY. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of this Agreement
not held so invalid, and each such other provision shall to the full extent
consistent with law continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
15. EFFECT ON OTHER AGREEMENTS. Nothing contained in this Agreement is intended
to alter in any way or to affect the provisions of any other agreement or
contract which previously may have been entered into by and between Smith and
CP&L.
16. GOVERNING LAW. This Agreement has been executed and delivered in North
Carolina, and its interpretation, performance and enforcement shall be governed
by such laws.
IN WITNESS WHEREOF, CP&L, through its Board of Directors, has caused this
Agreement to be executed and its seal to be affixed hereunto by its officers
duly authorized, and Smith has signed and sealed this Agreement, all on the day
and year first above written.
By: /S/ Charles W. Coker
------------------------
Charles W. Coker
/S/ William Cavanaugh
------------------------
William Cavanaugh
CAROLINA POWER & LIGHT COMPANY
/S/ Sherwood H. Smith, Jr.
- ---------------------------
Sherwood H. Smith, Jr.
EXHIBIT NO. 10b(20)
Employment Agreement Between
Robert B. McGehee and Carolina Power & Light Company
This Employment Agreement ("Agreement") is made and entered into by
Robert B. McGehee ("McGehee") and Carolina Power & Light Company ("CP&L").
Throughout the remainder of the Agreement, McGehee and CP&L may be collectively
referred to as "the parties."
CP&L and McGehee wish to enter into an employment relationship whereby
McGehee will be employed as Senior Vice President - General Counsel beginning on
May 20, 1997. The parties desire to enter into this Agreement in connection with
that employment relationship.
In consideration of the above and the mutual promises set forth below,
McGehee and CP&L agree as follows:
1. POSITION. McGehee will be employed as Senior Vice President - General
Counsel beginning on May 20, 1997.
2. SALARY. CP&L will pay McGehee an annual salary at the rate of $245,000
(Two Hundred Forty-Five Thousand Dollars) (less applicable
withholdings) per year, subject to periodic review on or around January
1 of each year or at the time other executive officers' salaries are
reviewed.
3. RELOCATION EXPENSES. In order to assist McGehee in his relocation to
Raleigh, North Carolina, CP&L will provide the following benefits:
a) Cash Payment. CP&L will pay McGehee $100,000 (One Hundred Thousand
Dollars) (less applicable withholdings) to compensate McGehee for
relocation expenses and to assist in the purchase of housing in
Raleigh, North Carolina. Such payment shall be made by CP&L by
July 1, 1997.
b) Relocation Program. McGehee will be eligible to participate in
CP&L's relocation program in accordance with its terms. However,
CP&L will pay to McGehee an additional amount to compensate him
for the income taxes McGehee will incur on these benefits.
c) Temporary Living Expenses. In addition to the 30 days provided by
the CP&L Relocation Program, McGehee will be reimbursed for any
reasonable temporary living expenses until his family relocates to
Raleigh. McGehee acknowledges that these reimbursements will be
subject to taxation to him; however, CP&L will pay to McGehee an
additional amount to compensate him for the income taxes McGehee
will incur on these benefits.
4. PURCHASE OF CP&L STOCK. CP&L will purchase in McGehee's name, 1000
shares of CP&L common stock. Such purchase shall be made by July 1,
1997. CP&L will pay to McGehee an additional amount to compensate him
for the income taxes McGehee will incur as a result of this purchase.
5. MANAGEMENT INCENTIVE COMPENSATION PROGRAM. McGehee will be eligible to
participate in the Management Incentive Compensation Program (MICP)
beginning in 1997, for which a payment will be made on or before March
31, 1998. Pursuant to the terms of the MICP, McGehee's target payout
will be 25 percent of annual base earnings. McGehee will be paid a
minimum of $61,250 (Sixty-One Thousand Two Hundred Fifty Dollars) in
March of 1998 for the 1997 performance year.
6. LONG-TERM INCENTIVES. McGehee will be eligible to participate in the
1997 Performance Share Sub-Plan under the Equity Incentive Plan, as a
group executive in accordance with its terms.
7. SUPPLEMENTAL RETIREMENT PLAN. McGehee will be eligible to participate
in CP&L's Supplemental Retirement Plan subject to the terms of the
plan.
8. SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN. McGehee will be eligible
to participate in CP&L's Supplemental Senior Executive Retirement Plan
("SERP"). In connection with McGehee's participation in SERP, McGehee
will be awarded ten (10) years of additional service credit, three (3)
years of which will be deemed to have been in service on the Senior
Executive Committee; such credit will allow McGehee to be eligible to
immediately participate in the SERP and to receive full benefits no
later than at age 61.
9. DEFERRED COMPENSATION PLAN FOR KEY MANAGEMENT EMPLOYEES. McGehee will
be eligible to participate in the Deferred Compensation Plan for Key
Management Employees (the "Deferred Compensation Plan"), subject to its
terms. During 1997, CP&L will contribute $40,500 (Forty-Thousand
Five-Hundred Dollars) on McGehee's behalf into the Deferred
Compensation Plan with the understanding that the Deferred Compensation
Plan will be amended to allow for such contributions.
10. EXECUTIVE PERMANENT LIFE INSURANCE PLAN. Pursuant to its terms, McGehee
will be eligible to participate in the Executive Permanent Life
Insurance program with a target benefit of three times projected salary
assuming a salary growth of six percent, but not to exceed $1,200,000
(One Million Two Hundred Thousand Dollars).
11. EXECUTIVE AD&D LIFE INSURANCE. McGehee will be eligible to participate
in CP&L's AD&D insurance program, subject to the terms of the program,
up to a maximum amount of $500,000 (Five Hundred Thousand Dollars).
12. STOCK PURCHASE SAVINGS PLAN. McGehee will be eligible to participate in
CP&L's Stock Purchase Savings Plan, pursuant to its terms.
13. FINANCIAL AND ESTATE PLANNING. Consistent with CP&L's practice with
respect to other senior executives, McGehee will be allowed to obtain
Company reimbursed financial planning and tax preparation services.
14. DISABILITY INCOME. McGehee will be eligible to participate in CP&L's
Long-Term Disability Program subject to the terms of the plan.
15. VACATION. McGehee will be eligible for up to four weeks' paid vacation
per year.
16. HOLIDAYS. McGehee will be eligible for ten (10) CP&L paid holidays, as
provided in the CP&L Handbook.
17. AUTOMOBILE. McGehee will be paid a car allowance of $1,350 (One
Thousand Three Hundred Fifty Dollars) (less applicable withholdings)
per month. He will also be provided a cellular telephone for his
automobile and provided reserved parking at CP&L's expense.
18. ANNUAL PHYSICAL. CP&L will pay for an annual physical examination by a
physician of McGehee's choice.
19. OTHER BENEFITS. McGehee will be eligible to participate in other CP&L
benefits, subject to the terms of the respective plans, as described in
more detail in the Employee Handbook. Additionally, upon retirement
from CP&L, McGehee will be eligible to participate in the medical and
dental insurance programs provided other retirees at retiree rates,
subject to the terms of those plans; provided, however, that to the
extent any such benefits may not be provided to McGehee because of
statutory or regulatory limitations, CP&L will use its best efforts to
obtain substantially equivalent coverage on an insured basis.
20. CAPITAL CITY CLUB. CP&L will pay an initiation fee and monthly dues for
a membership in the Capital City Club for McGehee.
21. AIRLINE CLUB MEMBERSHIP. CP&L will pay the fee for airline club
membership for McGehee.
22. COUNTRY CLUB MEMBERSHIP. At McGehee's option, if joined, CP&L will pay
the initiation fees for country club membership for McGehee. McGehee
will be responsible for all monthly dues.
23. HEALTH CLUB. CP&L will pay initiation and dues for a family membership
in the Rex Hospital Wellness Center.
24. PERSONAL COMPUTER. CP&L will provide a personal computer to McGehee to
be used at his personal residence.
25. TERMINATION OF EMPLOYMENT. The employment relationship between McGehee
and CP&L is "at will" and may be terminated by either CP&L or McGehee
with or without advance notice and may be terminated with or without
cause as defined below.
a) Termination Without Cause. Within two (2) years of the date of
this Agreement, if McGehee's employment is terminated without
cause or if McGehee's employment is constructively terminated,
then McGehee will be provided with severance benefits of two (2)
years of annual base salary. In addition, McGehee will be eligible
to retain all benefits under existing benefit programs to the
extent vested within the terms of those programs.
1) Termination for Cause - For purposes of this paragraph 25,
cause for the termination of employment shall be defined
as: (a) any act of McGehee's including, but not limited
to, misconduct, negligence, unlawfulness, dishonesty or
inattention to the business, which is detrimental to
CP&L's interests or (b) McGehee's unsatisfactory job
performance or failure to comply with CP&L's directions,
policies, rules or regulations.
2) Constructive Termination - For purposes of this paragraph
25, a constructive termination will be deemed to occur if:
(a) there is a change in the form of ownership of CP&L
(e.g., CP&L is acquired, enters into a business
combination with another company or otherwise changes form
of ownership) or (b) there is a change in the present CEO
of the Company or a material change in his or McGehee's
responsibilities.
b) Voluntary Termination - If McGehee terminates his employment
voluntarily for any reason other than a constructive termination,
then he shall be eligible to retain all benefits under existing
benefit programs which have vested pursuant to the terms of those
programs, but he shall not be entitled to any form of salary
continuance or any form of severance benefit.
c) Termination for Cause - If McGehee's employment is terminated for
cause, then he shall be eligible to retain all benefits under
existing benefit programs which have vested pursuant to the terms
of those programs, but he shall not be entitled to any form of
salary continuance or any form of severance benefit.
29. WAIVER OF BREACH. McGehee's or CP&L's waiver of any breach of any
provision of this agreement shall not waive any subsequent breach by
the other party.
30. ENTIRE AGREEMENT. The Agreement: (i) supersedes all other
understandings and agreements, oral or written, between the parties
with respect to its subject matter; (ii) constitutes the sole agreement
between the parties with respect to its subject matter. Each party
acknowledges that: (i) no representations, inducements, promises, oral
or written, made by any party or anyone acting on behalf of the party,
which are not embodied in the Agreement; and (ii) no agreement,
statement, or promise not contained in the Agreement shall be valid or
binding on the parties unless such change or modification is in writing
and is signed by the parties.
31. SEVERABILITY. If a court of competent jurisdiction holds that any
provision or subpart thereof contained in the Agreement is invalid,
illegal, or unenforceable, that invalidity, illegality, or
unenforceability shall not affect any of the other provisions in the
Agreement.
32. PARTIES BOUND. The Agreement shall apply to, be binding upon an inure
to the benefit of the parties' successors, assigns, heirs, and other
representatives.
33. GOVERNING LAW. The Agreement will be governed by North Carolina law.
In witness whereof, the parties have entered into the Agreement on the day and
year written below.
By: /S/ Robert B. McGehee Date: June 2, 1997
-------------------------------------- --------------
Robert B. McGehee
By: /S/ Date: June 2, 1997
--------------------------------------- --------------
Carolina Power & Light Company
Title: /S/
----------------------------------
EXHIBIT NO. 10b(21)
Employment Agreement Between
John E. Manczak and Carolina Power & Light Company
This Employment Agreement ("Agreement") is made and entered into by
John E. Manczak ("Manczak") and Carolina Power & Light Company ("CP&L").
Throughout the remainder of the Agreement, Manczak and CP&L may be collectively
referred to as "the parties."
CP&L and Manczak wish to enter into an employment relationship whereby
Manczak will be employed as Senior Vice President - Retail Sales & Service
beginning on June 16, 1997. The parties desire to enter into this Agreement in
connection with that employment relationship.
In consideration of the above and the mutual promises set forth below,
Manczak and CP&L agree as follows:
1. POSITION. Manczak will be employed as Senior Vice President - Retail
Sales & Service beginning on June 16, 1997.
2. SALARY. CP&L will pay Manczak an annual salary at the rate of $220,000
(Two Hundred Twenty Thousand Dollars) (less applicable withholdings)
per year, subject to periodic review on or around January 1 of each
year or at the time other executive officers' salaries are reviewed.
3. RELOCATION EXPENSES. In order to assist Manczak in his relocation to
Raleigh, North Carolina, CP&L will provide the following benefits:
a) Cash Payment. CP&L will pay Manczak $100,000 (One Hundred Thousand
Dollars) (less applicable withholdings) to compensate Manczak for
relocation expenses and to assist in the purchase of housing in
Raleigh, North Carolina. Such payment shall be made by CP&L by
August 1, 1997.
b) Relocation Program. Manczak will be eligible to participate in
CP&L's relocation program in accordance with its terms. However,
CP&L will pay to Manczak an additional amount to compensate him
for the income taxes Manczak will incur on these benefits.
c) Temporary Living Expenses. In addition to the 30 days provided by
the CP&L Relocation Program, Manczak will be reimbursed for any
reasonable temporary living expenses associated with the rental of
a two-bedroom furnished apartment, including furniture storage as
appropriate, through September 1, 1997, or until family
relocation, whichever comes first. CP&L will also reimburse
Manczak for the reasonable expenses associated with up to six (6)
trips for his return to Michigan, or his immediate family's
(including Manczak's father's) trips to North Carolina, during the
period of temporary living prior to September 1, 1997. Manczak
acknowledges that these reimbursements will be subject to taxation
to him; however, CP&L will pay to Manczak an additional amount to
compensate him for the income taxes Manczak will incur on these
benefits. Following September 1, 1997, CP&L will also reimburse
Manczak for additional temporary living expenses until April 30,
1998, or until he closes on his personal residence located at 431
Marlowe Road, Raleigh, North Carolina, whichever occurs first.
Manczak acknowledges that these additional reimbursements will be
subject to taxation to him; however, CP&L will pay Manczak an
additional amount to compensate him for the income taxes Manczak
will incur on those additional reimbursements made by CP&L for
living expenses through December 31, 1997.
4. PURCHASE OF CP&L STOCK. CP&L will purchase in Manczak's name, 1000
shares of CP&L common stock. Such purchase shall be made by August 1,
1997. CP&L will pay to Manczak an additional amount to compensate him
for the income taxes Manczak will incur as a result of this purchase.
5. MANAGEMENT INCENTIVE COMPENSATION PROGRAM. Manczak will be eligible to
participate in the Management Incentive Compensation Program ("MICP")
beginning in 1997, for which a payment will be made on or before March
31, 1998. Pursuant to the terms of the MICP, Manczak's target payout
will be 25 percent of annual base earnings. Manczak will be paid a
minimum of $55,000 (Fifty Five Thousand Dollars) in March of 1998 for
the 1997 performance year.
6. LONG-TERM INCENTIVES. Manczak will be eligible to participate in the
1997 Performance Share Sub-Plan under the Equity Incentive Plan, as a
group executive in accordance with its terms.
7. SUPPLEMENTAL RETIREMENT PLAN. Manczak will be eligible to participate
in CP&L's Supplemental Retirement Plan subject to the terms of the
plan.
8. SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN. Manczak will be eligible
to participate in CP&L's Supplemental Senior Executive Retirement Plan
("SERP"). In connection with Manczak's participation in SERP, Manczak
will be awarded ten (10) years of additional service credit for
purposes of participation, vesting and benefit calculations. Three (3)
years of such service credit will be deemed to have been in service on
the Senior Management Committee.
9. DEFERRED COMPENSATION PLAN FOR KEY MANAGEMENT EMPLOYEES. Manczak will
be eligible to participate in the Deferred Compensation Plan for Key
Management Employees (the "Deferred Compensation Plan"), subject to its
terms.
10. EXECUTIVE PERMANENT LIFE INSURANCE PLAN. Pursuant to its terms, Manczak
will be eligible to participate in the Executive Permanent Life
Insurance program with a target benefit of three times projected salary
assuming a salary growth of six percent, but not to exceed $1,200,000
(One Million Two Hundred Thousand Dollars).
11. EXECUTIVE AD&D LIFE INSURANCE. Manczak will be eligible to participate
in CP&L's AD&D insurance program, subject to the terms of the program,
up to a maximum amount of $500,000 (Five Hundred Thousand Dollars).
12. STOCK PURCHASE SAVINGS PLAN. Manczak will be eligible to participate in
CP&L's Stock Purchase Savings Plan, pursuant to its terms.
13. FINANCIAL AND ESTATE PLANNING. Consistent with CP&L's practice with
respect to other senior executives, Manczak will be allowed to obtain
Company reimbursed financial planning and tax preparation services.
14. DISABILITY INCOME. Manczak will be eligible to participate in CP&L's
Long-Term Disability Program subject to the terms of the plan.
15. VACATION. Manczak will be eligible for up to four weeks' paid vacation
per year.
16. HOLIDAYS. Manczak will be eligible for ten (10) CP&L paid holidays, as
provided in the CP&L Handbook.
17. AUTOMOBILE. Manczak will be paid a car allowance of $1,350 (One
Thousand Three Hundred Fifty Dollars) (less applicable withholdings)
per month. He will also be provided a cellular telephone for his
automobile and provided reserved parking at CP&L's expense.
18. ANNUAL PHYSICAL. CP&L will pay for an annual physical examination by a
physician of Manczak's choice.
19. OTHER BENEFITS. Manczak will be eligible to participate in other CP&L
benefits, subject to the terms of the respective plans, as described in
more detail in the Employee Handbook. Additionally, upon retirement
from CP&L, Manczak will be eligible to participate in the medical and
dental insurance programs provided other retirees, such as the
President/CEO, at retiree rates subject to the terms of those plans;
provided, however, that to the extent any such benefits may not be
provided to Manczak because of statutory or regulatory limitations,
CP&L will use its best efforts to obtain substantially equivalent
coverage on an insured basis.
20. CAPITAL CITY CLUB. CP&L will pay an initiation fee and monthly dues for
a membership in the Capital City Club for Manczak.
21. AIRLINE CLUB MEMBERSHIP. CP&L will pay the fee for airline club
membership for Manczak.
22. COUNTRY CLUB MEMBERSHIP. At Manczak's option, if joined, CP&L will pay
the initiation fees and monthly dues for country club membership for
Manczak at a club approved by CP&L. Business-related expenses will be
reimbursed consistent with CP&L's expense account guidelines.
23. HEALTH CLUB. CP&L will pay initiation and dues for a family membership
in the Rex Hospital Wellness Center or equivalent facility, with
equivalent rates, of Manczak's choice.
24. PERSONAL COMPUTER. CP&L will provide a personal computer to Manczak to
be used at his personal residence.
25. TERMINATION OF EMPLOYMENT. The employment relationship between Manczak
and CP&L is "at will" and may be terminated by either CP&L or Manczak
with or without advance notice and may be terminated with or without
cause as defined below.
a) Termination Without Cause. Within two (2) years of the date
Manczak began employment with CP&L, if Manczak's employment is
terminated without cause then Manczak will be provided with
severance benefits of two (2) years of annual base salary. In
addition, Manczak will be eligible to retain all benefits under
existing benefit programs to the extent vested within the terms of
those programs. If Manczak's employment is terminated without
cause after the expiration of a two (2) year period following the
date on which Manczak began his employment with CP&L, then Manczak
shall be entitled to those severance benefits, if any, that are
customary for group executives at CP&L.
b) Constructive Termination - Within two (2) years of the date of
this Agreement, if Manczak's employment is Constructively
Terminated, then Manczak will be entitled to the greater of either
two (2) years salary or those benefits provided for in a plan or
program adopted by CP&L for such Constructive Terminations. For
purposes of this paragraph 25, a Constructive Termination will be
deemed to occur if there is a change in the form of ownership of
CP&L (e.g., CP&L is acquired, enters into a business combination
with another company or otherwise changes form of ownership).
c) Voluntary Termination - If Manczak terminates his employment
voluntarily for any reason other than a Constructive Termination,
then he shall be eligible to retain all benefits under existing
benefit programs which have vested pursuant to the terms of those
programs, but he shall not be entitled to any form of salary
continuance or any form of severance benefit.
d) Termination for Cause - If Manczak's employment is Terminated for
Cause, then he shall be eligible to retain all benefits under
existing benefit programs which have vested pursuant to the terms
of those programs, but he shall not be entitled to any form of
salary continuance or any form of severance benefit. For purposes
of this paragraph 25, Termination for Cause shall be defined as
the termination of employment for: (a) dishonest statements or
acts of Manczak; (b) the commission by or indictment of Manczak
for (i) a felony; or (ii) any misdemeanor involving moral
turpitude, deceit, dishonesty, or fraud ("indictment" for these
purposes means an indictment, probable cause proceeding or any
other procedure pursuant to which an initial determination of
probable or reasonable cause with respect to such offense is
made); and (c) gross negligence, willful misconduct or
insubordination by Manczak with respect to CP&L or any other
affiliate of CP&L.
26. WAIVER OF BREACH. Manczak's or CP&L's waiver of any breach of any
provision of this agreement shall not waive any subsequent breach by
the other party.
27. ENTIRE AGREEMENT. The Agreement: (i) supersedes all other
understandings and agreements, oral or written, between the parties
with respect to its subject matter; (ii) constitutes the sole agreement
between the parties with respect to its subject matter. Each party
acknowledges that: (i) no representations, inducements, promises, oral
or written, made by any party or anyone acting on behalf of the party,
which are not embodied in the Agreement; and (ii) no agreement,
statement, or promise not contained in the Agreement shall be valid or
binding on the parties unless such change or modification is in writing
and is signed by the parties.
28. SEVERABILITY. If a court of competent jurisdiction holds that any
provision or subpart thereof contained in the Agreement is invalid,
illegal, or unenforceable, that invalidity, illegality, or
unenforceability shall not affect any of the other provisions in the
Agreement.
29. PARTIES BOUND. The Agreement shall apply to, be binding upon an inure
to the benefit of the parties' successors, assigns, heirs, and other
representatives.
30. GOVERNING LAW. The Agreement will be governed by North Carolina law.
In witness whereof, the parties have entered into the Agreement on the
day and year written below.
By: /S/ John E. Manczak Date: September 24, 1997
------------------------
John E. Manczak
By: /S/ Date: September 24, 1997
----------------------------------
Carolina Power & Light Company
Title: /S/
---------------------------------
<TABLE>
EXHIBIT NO. 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS COMBINED AND RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as defined:
Net income $ 388,317 $ 391,277 $ 372,604 $ 313,167 $ 346,496
Fixed charges, as below 193,632 204,593 226,833 213,821 237,098
Income taxes, as below 225,340 247,405 232,046 180,518 181,653
============= ============ ============ ============ =============
Total earnings, as defined $ 807,289 $ 843,275 $ 831,483 $ 707,506 $ 765,247
============= ============ ============ ============ =============
============= ============ ============ ============ =============
Fixed Charges, as defined:
Interest on long-term debt $ 163,468 $ 172,622 $ 187,397 $ 183,891 $ 205,182
Other interest 18,743 19,155 25,896 16,119 16,419
Imputed interest factor in rentals-charged
principally to operating expenses 11,421 12,816 13,540 13,811 15,497
============= ============ ============ ============ =============
Total fixed charges, as defined $ 193,632 $ 204,593 $ 226,833 $ 213,821 $ 237,098
============= ============ ============ ============ =============
============= ============ ============ ============ =============
Earnings Before Income Taxes $ 613,657 $ 638,682 $ 604,650 $ 493,685 $ 528,149
============= ============ ============ ============ =============
Ratio of Earnings Before Income Taxes to Net Income 1.58 1.63 1.62 1.58 1.52
Income Taxes:
Included in operating expenses $ 252,897 $ 269,477 $ 258,927 $ 198,238 $ 189,535
Included in other income:
Income tax expense (credit) (19,332) (13,847) (18,541) (9,425) 392
Included in AFUDC - deferred taxes in nuclear
fuel amortization and book depreciation (8,225) (8,225) (8,340) (8,295) (8,274)
============= ============ ============ ============ =============
Total income taxes $ 225,340 $ 247,405 $ 232,046 $ 180,518 $ 181,653
============= ============ ============ ============ =============
Fixed Charges and Preferred Dividends Combined:
Preferred dividend requirements $ 6,052 $ 9,609 $ 9,609 $ 9,609 $ 9,609
Portion deductible for income tax purposes (312) (312) (312) (312) (312)
------------- ------------ ------------ ------------ -------------
Preferred dividend requirements not deductible $ 5,740 $ 9,297 $ 9,297 $ 9,297 $ 9,297
============= ============ ============ ============ =============
Preferred dividend factor:
Preferred dividends not deductible times ratio of
earnings before income taxes to net income $ 9,069 $ 15,154 $ 15,061 $ 14,689 $ 14,131
Preferred dividends deductible for income taxes 312 312 312 312 312
Fixed charges, as above 193,632 204,593 226,833 213,821 237,098
------------- ------------ ------------ ------------ -------------
Total fixed charges and preferred dividends combined $ 203,013 $ 220,059 $ 242,206 $ 228,822 $ 251,541
============= ============ ============ ============ =============
Ratio of Earnings to Fixed Charges and Preferred
Dividends Combined 3.98 3.83 3.43 3.09 3.04
Ratio of Earnings to Fixed Charges 4.17 4.12 3.67 3.31 3.23
</TABLE>
EXHIBIT NO. 23(a)
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-33520 on Form S-8, Registration Statement No. 33-5134 on Form S-3,
Post-Effective Amendment No. 1 to Registration Statement No. 33-38349 on Form
S-3, Registration Statement No. 33-50597 on Form S-3 and Registration Statement
No. 33-57835 on Form S-3 of Carolina Power & Light Company, of our report dated
February 9, 1998, appearing in this Annual Report on Form 10-K of Carolina Power
& Light Company for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Raleigh, North Carolina
March 26, 1998
EXHIBIT NO. 23(b)
CONSENT OF EXPERT AND COUNSEL
Carolina Power & Light Company:
The statements of law and legal conclusions under Item 1. Business and Item 3.
Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 have been reviewed by me and are set forth therein in reliance
upon my opinion as an expert.
I hereby consent to the incorporation by reference of such statements of law and
legal conclusions in Registration Statement No. 33-33520 on Form S-8,
Registration Statement No. 33-5134 on Form S-3, Post-Effective Amendment No. 1
to Registration Statement No. 33-38349 on Form S-3, Registration Statement No.
33-50597 on Form S-3 and Registration Statement No. 33-57835 on Form S-3 and the
related Prospectuses, which are a part of such Registration Statements.
/s/ William D. Johnson,
- ---------------------------------
Vice President - Legal Department
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF DECEMBER 31,
1997) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000017797
<NAME> CAROLINA POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $6,293,510
<OTHER-PROPERTY-AND-INVEST> $256,291
<TOTAL-CURRENT-ASSETS> $734,806
<TOTAL-DEFERRED-CHARGES> $479,509
<OTHER-ASSETS> $211,089
<TOTAL-ASSETS> $8,220,728
<COMMON> $1,205,716
<CAPITAL-SURPLUS-PAID-IN> ($790)
<RETAINED-EARNINGS> $1,613,881
<TOTAL-COMMON-STOCKHOLDERS-EQ> $2,818,807
$0
$59,376
<LONG-TERM-DEBT-NET> $2,415,656
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $207,979
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $2,718,910
<TOT-CAPITALIZATION-AND-LIAB> $8,220,728
<GROSS-OPERATING-REVENUE> $3,024,089
<INCOME-TAX-EXPENSE> $253,048
<OTHER-OPERATING-EXPENSES> $2,228,454
<TOTAL-OPERATING-EXPENSES> $2,481,502
<OPERATING-INCOME-LOSS> $542,587
<OTHER-INCOME-NET> $23,018
<INCOME-BEFORE-INTEREST-EXPEN> $565,605
<TOTAL-INTEREST-EXPENSE> $177,288
<NET-INCOME> $388,317
$6,052
<EARNINGS-AVAILABLE-FOR-COMM> $382,265
<COMMON-STOCK-DIVIDENDS> $272,011
<TOTAL-INTEREST-ON-BONDS> $163,468
<CASH-FLOW-OPERATIONS> $818,045
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 2.66
</TABLE>
