UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3382
CAROLINA POWER & LIGHT COMPANY
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(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C> <C>
411 Fayetteville Street
North Carolina 56-0165465 Raleigh, North Carolina 27601
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(State or other jurisdiction of (I.R.S. Employer (Address of principal executive offices) (Zip Code)
incorporation or organization) Identification No.)
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919-546-6111
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
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Title of each class Name of each exchange on which registered
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Common Stock (Without Par Value) New York Stock Exchange
Pacific Stock Exchange
Quarterly Income Capital Securities New York Stock Exchange
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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 Item 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. [X]
The aggregate market value of the voting and non-voting common stock held by
non-affiliates at February 26, 1999, was $6,034,582,932.
Shares of Common Stock (Without Par Value) outstanding at February 26, 1999:
151,337,503.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Company's 1999 definitive proxy statement dated April 1, 1999,
are incorporated into Part III, Items 10, 11, 12 and 13 hereof.
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TABLE OF CONTENTS
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Page
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SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS 5
PART I
ITEM 1. BUSINESS 6
General 6
Generating Capability 7
Interconnections with Other Systems 9
Competition 10
Capital Requirements 14
Financing Requirements 14
Retail Rate Matters 16
Wholesale Rate Matters 18
Environmental Matters 18
Nuclear Matters 19
Fuel 23
NCNG Merger 25
Diversified Businesses 25
Other Matters 26
Operating Statistics 28
ITEM 2. PROPERTIES 29
ITEM 3. LEGAL PROCEEDINGS 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30
EXECUTIVE OFFICERS OF THE REGISTRANT 31
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 33
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 73
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 73
ITEM 11. EXECUTIVE COMPENSATION 73
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 73
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 73
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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, risks 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, PART I, 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 industry restructuring-related bills being introduced
in Congress in 1999; 5) "Capital Requirements" relating to estimated capital
requirements for 1999-2001; 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; 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., 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,
PART II, 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 through the year 2001 and 2) "Other Matters" about the
effects of new environmental regulations, nuclear decommissioning costs, the
effect of electric utility industry restructuring 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;
availability of nuclear waste storage facilities; nuclear decommissioning costs;
changes in the economy of areas served by the Company; legislative and
regulatory initiatives that impact the speed and degree of industry
restructuring; ability to obtain adequate and timely rate recovery of costs,
including potential stranded costs arising from industry restructuring;
competition from other energy suppliers; the success of the Company's
diversified businesses; ability of the Company and its suppliers and customers
to successfully address Year 2000 readiness issues; weather conditions and
catastrophic weather-related damage; 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.
<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 7,200 employees at December 31, 1998. 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. 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 3.9 million.
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 Municipal Power Agency (Power Agency) consisting of 32
members, 3 municipalities, French Broad Electric Membership Corporation
and North Carolina Electric Membership Corporation (NCEMC) consisting of
27 members (17 of which are served by the Company's system). At December
31, 1998, the Company was furnishing electric service to approximately
1,183,000 customers.
4. SALES. During 1998, 33% of operating revenues were derived from
residential sales, 22% from commercial sales, 23% from industrial sales,
13% from wholesale sales and 9% from other sources. Of such operating
revenues, approximately 67% 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 customers.
5. PEAK DEMAND. A 60-minute system peak demand record of 10,529 megawatts
(MW) was reached on July 23, 1998. 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
7.6%.
Total system peak demand decreased for 1996 by 3.4%, for 1997 increased
by 2.2%, and for 1998 increased by 5.0% as compared with the preceding
year. The Company currently projects that system peak demand will
increase at an average annual growth rate of approximately 2.8% 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 factors, expressed
as the ratio of the average load supplied to the peak load demand, were
60.8% for 1996, 60.6% for 1997, and 60.1% for 1998. The Company
forecasts capacity margins of 10.8% over anticipated system peak load
for 1999 and 11% for 2000. 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
<PAGE>
these capacity margins may be unavailable as a result of scheduled and
unplanned outages. See PART I, ITEM 1, "Nuclear Matters". The data
contained in this paragraph includes Power Agency's 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, 1998, the Company had a total system
installed generating capability (including Power Agency's share) of
9,963 MW, with generating capacity provided primarily from the installed
generating facilities listed in the table below. 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 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. Of the total system installed
generating capability of 9,963 MW, 53% is coal, 32% is nuclear, 2% is
hydro and 13% is fired by other fuels including No. 2 oil, natural gas
and propane.
MAJOR INSTALLED GENERATING FACILITIES
AT DECEMBER 31, 1998
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Year Maximum
Commercial Primary Dependable
Plant Location Unit No. Operation Fuel Capacity
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<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
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*
L.V. Sutton 1 1954 Coal 97MW
(Wilmington, N.C.) 2 1955 Coal 106MW
3 1972 Coal 410MW
<PAGE>
Brunswick 1 1977 Nuclear 820MW*
(Southport, N.C.) 2 1975 Nuclear 811MW*
Mayo 1 1983 Coal 745MW*
(Roxboro, N.C.)
Harris 1 1987 Nuclear 860MW*
(New Hill, N.C.)
</TABLE>
* Facilities are jointly owned by the Company and Power Agency, and
the capacity shown includes Power Agency's share.
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 ratemaking 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 1998. Over the next ten years, system internal
sales growth is forecasted to average approximately 2.8% per year and
annual growth in system internal peak demand is projected to average
approximately 2.8%. The Company's generation additions schedule provides
for the addition of approximately 2,800 MW of combustion turbine
capacity and 2,500 MW of combined cycle capacity over the period 1999 to
2008 in order to meet the needs of its growing customer base and
increase its ability to participate in the wholesale power market. The
Company may alter its long-term plans based on changes in load
forecasts, market conditions, and other factors. In addition, see Part
I, Item 1 "Interconnections with Other Systems" for discussion of the
Company's long-term purchase power contracts.
On August 18, 1998 the Company filed with the North Carolina Utility
Commission (NCUC) an Application for a Certificate of Public Convenience
and Necessity to construct an additional 177 MW of combustion turbine
capacity adjacent to the Company's Lee Steam Electric Plant in Wayne
County, North Carolina and a second 160 MW combustion turbine unit at
the Company's Asheville Steam Electric Plant in Buncombe County, North
Carolina. The Wayne County Turbine is in addition to the 500 MW of
combustion turbine capacity for which the Company received a Certificate
of Public Convenience and Necessity on March 21, 1996. These units will
primarily be used during periods of summer and winter peak demands. By
order issued December 17, 1998, the NCUC granted the Company a
Certificate to construct both units. Construction of the combustion
turbines began during the first quarter of 1999. Commercial operation is
anticipated to begin in June 2000.
On November 17, 1998, the Company made a pre-filing with the NCUC of its
plans to construct 1100 MW of combustion turbine generating capacity in
Rowan County, North Carolina. On February 17, 1999, the company filed an
amendment to its November 17, 1998 pre-filing. The amendment changed the
filing in two areas. First, the amount of new combustion turbine
generating capacity to be built was increased to 1,600 MW, and second,
the site location was changed to a new site in Rowan County and a site
in Richmond County. The Company anticipates filing the actual
Application for a Certificate of Public Convenience and Necessity with
the NCUC on or about March 19, 1999.
<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).
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 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 principally 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, 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 $75.5
<PAGE>
million in 1998.
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 transmission interconnections in the Company's
western and eastern service areas and purchase 250 MW of generating
capacity from Indiana Michigan's Rockport Unit No. 2 through 2009.
Upgrades to the transmission interconnections in the Company's
western and eastern service area were completed in 1992 and 1998,
respectively. The estimated minimum annual payment for power
purchases under the agreement is approximately $31 million,
representing capital-related capacity costs. In 1998, purchases
under this agreement, including transmission use charges, totaled
$59.3 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, the Company expects to realize energy cost savings
through the expiration of the agreement in 2002.
d) In December 1998, the Company entered into an agreement to purchase
all of the output of a combustion turbine project to be built,
owned, and operated by Broad River Energy, LLC, in Cherokee County,
South Carolina. The project is scheduled to be in service on or
before June 1, 2001 and is expected to have a net dependable
capacity of approximately 500 MWs. The agreement is for an initial
period of 15 years, with an option for the Company to extend the
agreement for two additional five year terms. During the term of the
agreement, the Company will have full rights to the output of the
project as well as control over the scheduling of the units.
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 Harris Plant through 2007. A similar
buyback arrangement related to the Mayo Plant ended in 1997. The
estimated minimum annual payments for these purchases, which reflect
capital-related capacity costs, total approximately $26 million.
Purchases under the agreement with Power Agency totaled $34.4 million in
1998.
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 restructure aspects of retail electric service. The issue of
retail restructuring and competition is being reviewed by a number of
states and bills have been introduced in Congress that seek to introduce
such restructuring 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. Stranded costs
are those costs and investments made by utilities in order to meet their
statutory obligation to provide electric service, but which could not be
recovered through the market price for electricity following industry
restructuring. The amount of such stranded costs that 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
<PAGE>
possible to recover stranded costs, the financial position and results
of operations of the Company could 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 a 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. Excluding sales under specific long-term
wholesale agreements, the Company makes virtually all of its wholesale
power sales under its market-based rate tariff.
During the last week of June 1998, some wholesale power markets
experienced sharp increases in prices. That upsurge in power costs was
due, in part, to the unavailability of generating capacity and unusually
hot weather in the Midwestern portion of the country. The relatively
sudden movement in wholesale power prices disrupted certain power
transactions, including some to which the Company was a party. The
monetary damages the Company incurred as a result of those disrupted
transactions did not have a material adverse effect on the Company's
financial position and results of operations. The Company has taken
steps to mitigate those monetary damages. The Company anticipates
increased volatility in the wholesale power market during peak demand
periods; however, due to the risk management processes the Company has
in place, the Company does not expect this volatility to have a material
adverse effect on its financial position and results of operations.
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 have changed their laws and
regulations to allow full retail competition. Other states are
considering changes to allow retail competition. 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.
4. NORTH CAROLINA ACTIVITIES. Since 1995, the NCUC has been considering the
impact of increased competition in the electric utility 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)
<PAGE>
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. By order issued June 18, 1998, the Commission held that
this docket would also be held in abeyance pending further order. 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. During 1998, the
study commission met and held public hearings around the state. The
commission also retained consultants to conduct analyses and studies
concerning various restructuring issues, including stranded costs, state
and local tax implications and electric rate comparisons. In June 1998,
the study commission issued an interim report to the 1998 General
Assembly, summarizing the numerous fact-finding and educational
activities and analytical projects the commission had initiated or
completed. That report offered no judgments or recommendations. The
commission is scheduled to make its final report to the 1999 Session of
the General Assembly which will begin in 1999 and continue during 2000.
The Company cannot predict the outcome of this matter.
5. SOUTH CAROLINA ACTIVITIES. The South Carolina General Assembly ended its
1998 session without enacting any legislation regarding electric
restructuring. On October 29, 1998, the South Carolina Senate Judiciary
Committee appointed a 13-member task force to study the restructuring
issue and make a report to the South Carolina General Assembly during
the 1999 legislative session. The task force was subsequently expanded
to 18 members, including the Company. The General Assembly's House
Utility Subcommittee is also expected to continue pursuing the issue
during that session. The Company cannot predict the outcome of these
matters.
6. FEDERAL ACTIVITIES. At the federal level, additional bills regarding
restructuring of the electric utility industry were introduced in 1998,
but Congress adjourned in October without taking any action on the
issue. The debate regarding industry restructuring is expected to
continue in Congress in 1999. The Company cannot predict the outcome of
this matter.
7. COMPANY ACTIVITIES. The developments described above have created
changing markets for energy. As a strategy for competing in these
changing markets, the Company is becoming a total energy provider in the
region by providing a full array of energy-related services to its
current customers and expanding its market reach. As part of this
strategy, the Company plans to position itself as a supplier of natural
gas to its customers. The Company took a major step towards reaching
this goal on November 10, 1998 by entering into the Merger Agreement
with North Carolina Natural Gas Corporation (NCNG).
On March 3, 1999, the Company and Southern Natural Gas Co., a subsidiary
of Sonat Inc., announced plans to form a 50/50 joint venture to
construct, own and operate a 175 mile, 30-inch natural gas pipeline from
Aiken, South Carolina to an interconnect with the NCNG system in Robeson
County, North Carolina. The new Palmetto Interstate Pipeline will have a
capacity of 200 million to 300 million cubic feet per day and will be
expandable to accommodate future growth and demand along its route. Most
of the pipeline's capacity will be used by the Company to fuel new
electric generation it will develop in the Carolinas over the next
several years. The remaining pipeline capacity will be used to increase
the region's natural gas availability. Construction of the new pipeline
will begin after engineering, environmental preparation and federal and
state permitting are completed. The current schedule calls for
construction to begin mid-2001, with the pipeline to be operational in
April 2002. The pipeline's cost is expected to be $200 million to $250
million.
The Company currently plans to construct approximately 2300 MW of new
generating facilities by the year 2002. These facilities, including two
combustion turbine facilities outside of the Company's current service
area, will help the Company continue to meet the needs of its growing
retail customer base and increase its ability to participate in the
wholesale energy supply business.
<PAGE>
The Company's strategy for addressing the planning uncertainty and risks
created by the changing markets for energy includes securing long-term
contracts with its wholesale customers, continuing to work to meet the
energy needs of its industrial customers, 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 1996, Power Agency notified the Company that it would discontinue
certain contractual purchases of power from the Company effective
September 1, 2001; however, the Company won the right to continue
supplying this power by being selected from a number of bidders. On
September 11, 1998, the Company and Power Agency entered into a revised
agreement that extends the period during which Power Agency will
continue to purchase all of its supplemental power from the Company
through at least December 31, 2002. The new agreement also includes
options for Power Agency to purchase supplemental power from the Company
for the year 2003 and beyond. The load served by supplemental power
under that agreement will include all of Power Agency's power needs in
excess of the load served by Power Agency through its ownership interest
in generation units that it jointly owns with the Company and other
smaller resources that are currently in place. The revised agreement was
filed with, and has been accepted by, the FERC.
On October 9, 1998, the Company and its largest customer, NCEMC, entered
into an agreement under which NCEMC will purchase a total of 800 MWs of
peaking capacity and associated energy from the Company during the
period from January 1, 2001 through December 31, 2003. The agreement,
which provides NCEMC with an option to extend all or part of the
purchase through 2005, provides capacity to meet NCEMC's growing peaking
power needs. A portion of this purchase is intended to serve load
located in the Company's service area that is currently served by
purchases from the Company under a contract that will expire on December
31, 2000. During the period 2001 through 2003, this agreement also will
serve up to 450 MWs of NCEMC load that is located in the Duke Power
service area that has not previously been served by the Company. The
agreement will be filed with the FERC for approval or acceptance. The
Company cannot predict the outcome of this matter.
On October 30, 1998, the Company and NCEMC also entered into agreements
that supersede the 1993 Power Coordination Agreement between the Company
and NCEMC, as amended (the PCA). The primary effect of the new
agreements is to unbundle the generation and transmission service for
the load previously served under the PCA. To that end, the parties
executed a Network Integration Transmission Service Agreement and a
Network Operating Agreement under which NCEMC will receive transmission
services from the Company pursuant to the Company's Open Access
Transmission Tariff. The parties also entered into a new Power Supply
Agreement , which provides for the Company to sell capacity and energy
to NCEMC under terms and conditions and in amounts that are
substantially the same as those that were set forth in the PCA. The
parties agreed to a modification of the calculation of certain capacity
charges; however, the net effect of the changes is intended to be
essentially revenue neutral under expected load conditions. The Network
Integration Transmission Service Agreement, the Network Operating
Agreement and the new Power Supply Agreement were filed with FERC on
November 3, 1998 and have been accepted. The new Power Supply Agreement
has also been submitted by NCEMC to the Rural Utilities Service for
approval. The Company cannot predict the outcome of this matter.
On September 28, 1998, the Company and the South Carolina Public Service
Authority (Santee Cooper) entered into an agreement under which the
Company will provide peaking capacity and associated energy to Santee
Cooper for the period January 1, 1999 through December 31, 2003. Under
the terms of the agreement, the Company will provide 100 MW of
generation capacity in 1999, 150 MW in 2000 and 200 MW from 2001 to
2003. The agreement was filed with, and has been accepted by, the FERC.
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 assets and liabilities resulting from the
effects of the ratemaking process, which would not be recorded under
generally accepted accounting principles for unregulated entities. The
<PAGE>
Company's ability to continue to meet the criteria for application of
SFAS-71 may be affected in the future by competitive forces 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 1998 the Company expended approximately
$725 million for capital requirements. Estimated capital requirements
for 1999 through 2001 primarily reflect construction expenditures to add
generation, transmission and distribution facilities, as well as upgrade
existing facilities. Those capital requirements are reflected in the
following table (in millions):
1999 2000 2001
---- ---- ----
Construction Expenditures $649 $860 $1,104
Nuclear Fuel Expenditures 77 93 64
AFUDC (17) (29) (54)
Mandatory Retirements of Long-Term Debt 53 198 -
---- ------ ------
TOTAL $762 $1,122 $1,114
==== ====== ======
This table includes environmental expenditures relating to the Clean Air
Act of approximately $27 million, and the NOx SIP Call of approximately
$195 million. 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 and NOx SIP Call on the Company, and planned
generation additions, respectively.
In addition, the Company has total projected cash requirements of
approximately $356 million for the years 1999 through 2001 relating to
expenditures in other areas such as affordable housing investments and
telecommunications infrastructure development. These projections are
periodically reviewed and may change significantly.
FINANCING REQUIREMENTS
1. FINANCING REQUIREMENTS. The proceeds from the issuance of commercial
paper related to the credit facilities mentioned below (see paragraph 5
below) and/or internally generated funds financed the retirement of
long-term debt totaling $205 million in 1998. External funding
requirements, which do not include early redemptions of long-term debt
or redemptions of preferred stock, are expected to approximate $375
million, $500 million and $460 million in 1999, 2000 and 2001,
respectively. These funds will be required for construction, mandatory
retirements of long-term debt and general corporate purposes. 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. 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.
<PAGE>
2. SEC FILINGS.
i) The Company has on file with the Securities and Exchange Commission
(SEC) a shelf registration statement (File No. 333-69237) under
which $1.5 billion aggregate principal amount of first mortgage
bonds, senior notes and other debt securities are available for
issuance by the Company.
ii) 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 1998 and early 1999 included:
The issuance on March 5, 1999 of $400 million principal amount of Senior
Notes, 5.95% Series due March 1, 2009. The net proceeds of approximately
$390 million were used to reduce the outstanding balance of commercial
paper.
4. REDEMPTIONS/RETIREMENTS OF BONDS, PREFERRED STOCK AND DEBENTURES.
Redemptions and retirements during 1998 included:
i) The redemption on June 1, 1998, of $40 million principal amount of
First Mortgage Bonds, 6-7/8% Series due October 1, 1998.
ii) The retirement on July 1, 1998, of $100 million principal amount
of First Mortgage Bonds, 5-3/8% Series, which matured on that
date.
iii) The retirement on September 13, 1998, of $5 million principal
amount of First Mortgage Bonds, Secured Medium-Term Notes, 5.05%
Series C, which matured on that date.
iv) The retirement on September 13, 1998, of $5 million principal
amount of First Mortgage Bonds, Secured Medium-Term Notes, 5.06%
Series C, which matured on that date.
v) The retirement on September 15, 1998, of $20 million principal
amount of First Mortgage Bonds, Secured Medium-Term Notes, 5.00%
Series C, which matured on that date.
vi) The retirement on September 15, 1998, of $15 million principal
amount of First Mortgage Bonds, Secured Medium-Term Notes, 5.01%
Series C, which matured on that date.
vii) The retirement on October 19, 1998, of $20 million principal
amount of First Mortgage Bonds, Secured Medium-Term Notes, 5.00%
Series C, which matured on that date.
5. CREDIT FACILITIES. As of December 31, 1998, the Company's revolving credit
facilities totaled $750 million, 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
<PAGE>
management's intent to maintain its commercial paper on a long-term basis, and
as supported by its long- term revolving credit facilities, the Company included
in its long-term debt all commercial paper outstanding as of December 31, 1998
which amounted to $488 million. See PART II, ITEM 8, "CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA", Note 4, for a more detailed discussion of
the Company's revolving credit facilities.
RETAIL RATE MATTERS
1. GENERAL. The Company is subject to regulation in North Carolina by the
NCUC and in South Carolina by the South Carolina Public Service
Commission (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>
<CAPTION>
1988 North Carolina Utilities Commission Order
(test year ended March 31, 1987)
----------------------------------------------
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%
=====
1988 South Carolina Public Service Commission Order
(test year ended September 30, 1987)
---------------------------------------------------
Capital Weighted Weighted
Capital Structure Ratio Cost Rate Cost
----------------- ----- --------- ----
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>
3. OTHER 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.
Subsequently, CIGFUR filed a Motion for Reconsideration with the NCUC
and a Notice of Appeal with the North Carolina Court of Appeals, both of
which were denied. On December 4, 1998, a petition for Discretionary
Review filed by CIGFUR was denied by the North Carolina Supreme Court.
Pursuant to authorizations from the NCUC and the SCPSC, the Company
began to accelerate the amortization of certain regulatory assets over a
three-year period beginning January 1997. The accelerated
<PAGE>
amortization of these regulatory assets results in additional
depreciation and amortization expenses of approximately $68 million in
each year of the three-year period.
In 1996, the NCUC also authorized the Company to defer operation and
maintenance expenses of approximately $40 million associated with
Hurricane Fran, with amortization over a 40-month period.
In late 1998 and early 1999, the Company filed, and the respective
commissions subsequently approved, proposals in the North and South
Carolina retail jurisdictions to accelerate cost recovery of its nuclear
generating assets beginning January 1, 2000 and continuing through 2004.
The accelerated cost recovery begins immediately after the 1999
expiration of the accelerated amortization of certain regulatory assets,
which began in January 1997. Pursuant to the orders, the Company's
depreciation expense for nuclear generating assets will increase by $106
million to $150 million per year. Recovering the costs of the nuclear
generating assets on an accelerated basis will better position the
Company for the uncertainties associated with potential restructuring of
the electric utility industry.
4. 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. During 1998, the
NCUC and SCPSC substantially altered their IRP rules. Both the NCUC and
SCPSC reduced the amount of information that must be included in the
Company's IRP. The NCUC also eliminated the triennial IRP and now
requires an annual filing.
5. 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 4, 1998, the Company filed its 1998 fuel
cost recovery application. The NCUC issued a final order approving
the Company's proposed billing fuel factor of 1.079 cents/kWh on
September 9, 1998. This new factor became effective on September
15, 1998.
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 22, 1999, the Company filed a proposal with the SCPSC
to continue the existing fuel factor of 1.122 cents/kWh. The
Company's 1999 fuel hearing was held on March 24, 1999.
6. AVOIDED COST PROCEEDINGS. In 1998, the NCUC opened Docket No. E-100, Sub
81 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 6, 1998. Intervenor comments
on the utilities' filings were filed January 15, 1999, and a hearing for
non-expert public
<PAGE>
witnesses was held on February 2, 1999. The Company cannot predict the
outcome of this matter.
WHOLESALE RATE MATTERS.
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.
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 constantly
evolve and the ultimate costs of compliance cannot always 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 1999 through 2001 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
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 $27 million. Increased operation and maintenance costs,
including emission allowance expenses and increased fuel costs are not
expected to be material to the Company's results of operations.
On October 27, 1998, the Environmental Protection Agency (EPA) published
a final rule addressing the issue of regional transport of ozone. This
rule is commonly known as the NOx SIP call. The EPA's rule requires 22
states, including North and South Carolina, to further reduce nitrogen
oxide emission in order to attain a pre-set state NOx emission level by
May 2003. The EPA's rule also suggests to the states that these
additional nitrogen oxide emission reductions be obtained from the
utility sector. The Company is evaluating necessary measures to comply
with the rule and estimates its related capital expenditures through
2003 could be approximately $327 million. Increased operation and
maintenance costs relating to the NOx SIP call are not expected to be
material to the Company's results of operations. The Company and the
states of North and South Carolina are participating in litigation
challenging the NOx SIP call. The Company cannot predict the outcome of
this matter.
With regard to revisions to existing air quality standards, in July 1997
the EPA issued final regulations establishing a new fine-particulate
standard. 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 effects of these and
other similar regulations and cannot determine the estimated costs that
may be required for compliance. The Company cannot predict the outcome
of this matter.
<PAGE>
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. Some 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.
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), which has established a uniform framework to
address MGP sites. The investigation and remediation of specific MGP
sites will be addressed pursuant to one or more Administrative Orders on
Consent (AOC) between the DWM and the potentially responsible party or
parties. The Company has signed AOCs to investigate certain sites. 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 does not
expect the costs associated with these sites to be material to the
financial position and results of operations of the Company.
The Company has been notified by regulators of its involvement or
potential involvement in several sites, other than MGP sites, that may
require investigation and/or remediation. Although the Company may incur
costs at these sites, the investigation and/or remediation of the sites
has not advanced to a stage where reasonable cost estimates can be made.
The Company cannot predict the outcome of these matters.
4. OTHER ENVIRONMENTAL MATTERS. The Company has filed claims with its
general liability insurance carriers to recover costs arising out of
actual or potential environmental liabilities. Some claims have been
settled, and others are still being pursued. The Company cannot predict
the outcome of these matters.
5. ENVIRONMENTAL ACCRUAL. The Company carries a liability for the estimated
costs associated with certain remedial activities. This liability is not
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 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
<PAGE>
at the Company's nuclear units, excluding Power Agency's ownership
interests, during 1999, 2000 and 2001 are expected to total
approximately $54 million, $35 million, and $73 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. As of December 31, 1998, 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 2000, Robinson Unit No. 2 through 2000 and Harris through
2002 assuming normal operating and refueling schedules. The spent fuel
storage facilities at the Brunswick and Robinson Units along with the
Harris Plant spent fuel storage facilities are sufficient to provide
storage space for spent fuel generated by all of the Company's nuclear
generating units through the expiration of their current operating
licenses, provided that currently idle storage space at the Harris Plant
can be activated. On December 23, 1998, the Company submitted a license
amendment application to the NRC requesting approval to activate and
begin using the additional spent fuel storage at the Harris Plant. 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, during April 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. At the Company's request, the NRC
suspended review of the Company's license application based on the
success of the Company's shipping efforts. The NRC will resume review of
the license upon notification by the Company of its desire to continue
the application process. Subsequent to the expiration of the licenses,
dry storage may be necessary in conjunction with the decommissioning of
the units. 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. The Company cannot predict the outcome of these
matters.
As required under the Nuclear Waste Policy Act of 1982, the Company
entered into a contract with the DOE under which the DOE agreed to begin
taking 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, has undertaken measures to
force the DOE to take spent nuclear fuel. To date, the courts have
rejected these attempts. In addition, several utilities have filed
actions for damages in the United States Court of Claims, and in some of
those cases the Court has agreed that the DOE has breached its contract
for disposal of spent nuclear fuel. The Company is in the process of
evaluating whether it should file a similar action for damages. The
Company will also monitor legislation that has been introduced in
Congress that would provide for interim storage of spent nuclear fuel at
a storage facility operated by the DOE. 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
<PAGE>
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.
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.
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 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 $33.3
million, $33.2 million and $33.1 million in 1998, 1997 and 1996,
respectively. Accumulated decommissioning costs, which are
included in accumulated depreciation, were $496.3 million and
$428.7 million at December 31, 1998 and 1997, respectively. These
costs include amounts retained internally and amounts funded in an
external decommissioning trust. The balance of the nuclear
decommissioning trust was $310.7 million and $245.5 million at
December 31, 1998 and 1997, 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 related to changes in the fair value
of trust assets. Based on the site-specific estimates discussed
below, and using an assumed after-tax earnings rate of 7.75% 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.
<PAGE>
b) The Company's most recent site-specific estimates of decommissioning
costs were developed in 1998, using 1998 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 1998 dollars, are $279.8 million for Robinson Unit No. 2,
$299.3 million for Brunswick Unit No. 1, $298.5 million for Brunswick
Unit No. 2, and $328.1 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. 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 is proceeding with its project
regarding accounting practices related to obligations associated with
the retirement of long-lived assets, and an exposure draft of a proposed
accounting standard is expected to be issued during the first half of
1999. It is uncertain when a final statement will be issued and what
effects it may ultimately have on the Company's accounting for nuclear
decommissioning and other retirement 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.
Facility Operating License
Facility Expiration Date
-------- ---------------
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
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. In March 1998, the Company's
Maintenance Rule Program was found acceptable by the NRC during
baseline inspections.
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
<PAGE>
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 some potential procedural changes
for the Harris and Brunswick Plants. Those results also indicated
that both minor procedural changes and minor plant modifications
would be required for the Robinson Plant. All IPE items and
findings had been addressed and implemented by the end of 1998.
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 degradation and plans to replace the steam generators
in 2001. The steam generators at the Robinson plant were replaced
in 1984 and are expected to perform until the plant's operating
license expires. The Company does not expect the costs associated
with replacing the steam generators at the Harris Plant to be
material to the financial position of the Company.
d) The Company is insured against public liability for a nuclear
incident up to $9.8 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 $83.9 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 12 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 1995 through 1999 is set forth below:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(estimated)
Fossil 44% 45% 46% 47% 49%
Nuclear 42 41 43 42 41
Purchased Power 13 12 10 9 9
Hydro 1 2 1 1 1
Combustion Turbine - - - 1 -
2. COAL. The Company has intermediate and long-term agreements from which
it expects to receive approximately 90% of its coal burn requirements in
1999. These agreements have expiration dates ranging from 1999 to 2006.
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,
<PAGE>
"Environmental Matters", paragraph 2. The average cost (including
transportation costs) to the Company of coal delivered for 1998 was
$41.10 per ton.
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 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 the lack of No. 2
oil availability, fourteen combustion turbine units with a total
generating capacity of 665 MW can also burn natural gas. Over the last
five years, No. 2 oil, natural gas and propane accounted for 2.40% of
the Company's total burned fuel cost. In 1998, No. 2 oil, natural gas
and propane accounted for 4.03% 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 all of the Company's nuclear generating facilities through 2001.
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 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 (D&D)
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 is based on that utility's past purchases of services as a
percentage of all purchases of services by U.S. utilities. Total annual
contributions are capped at $150 million per year with an overall cap of
$2.25 billion over 15 years both indexed to inflation. The Company has
paid approximately $34 million in D&D fees through 1998, 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.
During March 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 a refund of part of
the price paid by the Company for enrichment services purchased from the
DOE. It is the Company's position that the contract price it paid to the
DOE for uranium purchases included the cost of D&D, and that the DOE's
collection of additional D&D fees pursuant to the Energy Act resulted in
an overpayment of fees by the Company. In addition, the claim requested
the elimination of future D&D fund assessments. It was 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
<PAGE>
the United States Constitution. The Company's action was stayed pending
the outcome of a similar case, Yankee Atomic Electric Company (Yankee
Atomic) 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, which was denied. During February 1999, the
Company amended its complaint for various reasons, and the government
subsequently filed a motion to dismiss. The total refund demanded in the
Company's amended complaint through the date of the complaint filing
(including Power Agency's ownership share) is approximately $39 million.
The Company cannot predict the outcome of this matter.
6. PURCHASED POWER. The Company purchased 5,336,867 MWh in 1998, 5,886,722
MWh in 1997 and 6,792,340 MWh in 1996 or approximately 9%, 10% and 12%,
respectively, of its system energy requirements (including Power Agency)
and had available 1,438 MW in 1998, 1,839 MW in 1997 and 1,536 MW in
1996 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.
NCNG MERGER
On November 10, 1998, the Company and North Carolina Natural Gas
Corporation entered into an Agreement and Plan of Merger (Merger
Agreement) providing for the strategic business combination of the
Company and NCNG. Pursuant to the Merger Agreement, NCNG will become a
wholly owned subsidiary of the Company. The Merger is intended to
constitute a tax-free reorganization for federal income tax purposes and
to be accounted for as a pooling-of-interests. The Company will issue
approximately $354 million in stock to NCNG shareholders to complete the
merger.
The Merger Agreement has been approved by the Boards of Directors of the
Company and NCNG. Consummation of the Merger is subject to certain
closing conditions, including approval by the shareholders of NCNG and
certain regulatory approvals or filings. Applications for regulatory
approval were filed with the NCUC on January 11, 1999, and with the
SCPSC on February 9, 1999. NCNG presently intends that the shareholders
meeting to consider such approval will be held as early as practicable.
The requisite notifications were filed with the Federal Trade Commission
and the Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, during March 1999.
Further details concerning the proposed transaction are provided in the
Company's Form 10-Q for the quarter ended September 30, 1998, which was
filed with the SEC on November 13, 1998.
DIVERSIFIED BUSINESSES
1. STRATEGIC RESOURCE SOLUTIONS CORP. Strategic Resource Solutions Corp.
(SRS), a wholly owned subsidiary, specializes in facilities and energy
management software, systems and services for educational, commercial,
industrial and governmental markets nationwide. During 1998, SRS
acquired the following companies: Parke Industries Inc., a lighting
retrofit company located in California; Intelligent Solutions Inc., a
Nevada company that designs and manufactures advanced cogeneration
energy systems for highly efficient on-location power generation; and
two North Carolina companies, Jack Walters Inc. and Jack Walters
Services, Inc. (collectively JWI). JWI designs, engineers, installs and
maintains building automation systems that control heating, ventilation,
air conditioning and lighting.
<PAGE>
2. INTERPATH COMMUNICATIONS, INC. Interpath Communications, Inc.
(Interpath), a majority-owned subsidiary, is a telecommunications
company primarily engaged in providing Internet-based services.
Interpath's services include consulting, design, implementation and
support related to Internet access, Intranet development, electronic
commerce, hosting and videoconferencing. During 1998, Interpath merged
with TriNet Services, a leader in Internet professional services. The
merger of the two companies has facilitated Interpath's ability to
expand its market share of Internet services by combining Interpath's
high-speed fiber optic network and support services with TriNet's
Internet consulting and development capabilities.
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.
OTHER MATTERS
1. SAFETY INSPECTION REPORTS. In April 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 requested the Company to undertake
certain supplemental analyses and investigations regarding the stability
of the dam under extreme and improbable loading conditions. In November
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. In February 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 in April 1997. In its response, the Company
agreed with some of the FERC's comments and took exception to others. In
November 1998, the Company received a letter from the FERC pertaining to
the Company's April 1997 letter. The Company filed a response in
December 1998, which provided information on a plan to further
investigate the dam abutments and which addresses FERC's revised dynamic
evaluation criteria. 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 this matter.
Similar letters were sent by the FERC during May 1990 with respect to
the Company's Blewett and Tillery Hydroelectric Plants. The matters
raised in the May 1990 letters from the FERC are still under
investigation. 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 filed the Seventh (1998) Part 12 Report for the Tillery
Hydroelectric Plant in November 1998 in accordance with a request from
the FERC. The Tillery report does not indicate any deficiencies that
would endanger the integrity of the dam. The consultant's Seventh Part
12 Report regarding the Blewett Hydroelectric Plant has been developed
but, as requested by the FERC, has not been filed. The FERC is
developing comments on earlier filings from the Company and has
indicated that additional investigations and analyses may be required.
The Company has agreed to await the comments from the FERC and
incorporate the consultant's responses into the Seventh Part 12 Report.
A review of the draft of the Seventh Part 12 Report for Blewett reveals
that the consultant did not identify any critical dam safety
deficiencies. The Company cannot predict the outcome of this matter.
2. MARSHALL HYDROELECTRIC PROJECT. In November 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
<PAGE>
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. In April 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 in September 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. TAX REFUND DISPUTE. In April 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. During December 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.
4. YEAR 2000. See Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for discussion of the
Company's Year 2000 readiness issues.
<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Energy supply (millions of kWh)
Generated - coal 27,576 25,545 24,859 23,517 21,001
nuclear 22,014 21,690 20,284 19,949 18,511
hydro 790 799 882 824 884
combustion turbines 386 189 68 56 67
Purchased 5,675 6,318 7,292 7,433 7,039
---------- --------- --------- --------- ---------
Total energy supply (Company share) 56,441 54,541 53,385 51,779 47,502
Power Agency share (a) 4,349 4,101 3,616 3,828 3,236
---------- --------- --------- --------- ---------
Total system energy supply 60,790 58,642 57,001 55,607 50,738
========== ========= ========= ========= =========
Average fuel cost (per million BTU)
Fossil $ 1.71 $ 1.75 $ 1.75 $ 1.83 $ 1.78
Nuclear fuel $ 0.46 $ 0.46 $ 0.45 $ 0.46 $ 0.47
All fuels $ 1.14 $ 1.14 $ 1.14 $ 1.17 $ 1.14
Energy sales (millions of kWh)
Retail
Residential 13,117 12,488 12,611 12,074 11,147
Commercial 10,664 10,010 9,615 9,276 8,690
Industrial 14,911 15,073 14,456 14,312 14,030
Other Retail 1,357 1,294 1,263 1,288 1,263
Wholesale 14,427 13,900 13,383 12,940 10,442
---------- --------- --------- --------- ---------
Total energy sales 54,476 52,765 51,328 49,890 45,572
Company uses and losses 1,964 1,776 2,057 1,889 1,930
---------- --------- --------- --------- ---------
Total energy requirements 56,440 54,541 53,385 51,779 47,502
========== ========= ========= ========= =========
Customers billed
Residential 996,398 972,385 945,703 920,495 894,616
Commercial 178,588 172,821 167,151 159,064 155,349
Industrial 5,056 5,072 5,066 4,863 4,845
Government and municipal 2,757 2,785 2,774 2,328 2,302
Resale 35 43 27 17 12
---------- --------- --------- --------- ---------
Total customers billed 1,182,834 1,153,106 1,120,721 1,086,767 1,057,124
========== ========= ========= ========= ==========
Operating revenues (in thousands)
Retail $ 2,532,234 $ 2,450,509 $ 2,417,011 $ 2,399,354 $2,331,538
Wholesale 539,984 518,438 523,988 560,676 500,559
Miscellaneous revenue 57,827 55,142 54,716 46,523 44,492
---------- --------- --------- --------- ---------
Total operating revenues $ 3,130,045 $ 3,024,089 $ 2,995,715 $ 3,006,553 $2,876,589
========== ========= ========= ========= =========
Peak demand of firm load (thousands of kW)
System 10,529 10,030 9,812 10,156 10,144
Company 9,875 9,344 9,264 9,500 9,642
Total capability at year-end (thousands of kW) (a)
Fossil plants 6,571 6,571 6,331 6,331 6,331
Nuclear plants 3,174 3,064 3,064 3,064 3,064
Hydro plants 218 218 218 218 218
Purchased 1,538 1,588 1,603 1,592 1,596
---------- --------- --------- --------- ---------
Total system capability 11,501 11,441 11,216 11,205 11,209
Less Power Agency-owned portion (b) 593 690 686 682 654
---------- --------- --------- --------- ---------
Total Company capability 10,908 10,751 10,530 10,523 10,555
========== ========= ========= ========= =========
</TABLE>
(a) Represents maximum dependable capacity of installed generating units plus
other resources, including firm purchases. For 1998, total system capability
during the summer was higher by 200 MW for term purchase contracts in place
at time of summer peak.
(b) Net of the Company's purchases from Power Agency.
<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 9,963 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, food, rubber and plastics, wood products, and electronic
machinery and equipment.
At December 31, 1998, the Company had 5,628 pole miles of transmission lines
including 292 miles of 500 kV lines and 2,848 miles of 230 kV lines, and
distribution lines of approximately 44,033 pole miles of overhead lines and
approximately 12,759 miles of underground lines. Distribution and transmission
substations in service had a transformer capacity of approximately 34,545 kVA in
2,035 transformers. Distribution line transformers numbered 420,633 with an
aggregate 17,788,000 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, 1994
through December 31, 1998, there were $2,207,444,392 additions to the Company's
utility plant accounts, $717,984,814 retirements and $(33,837,610) transfers and
adjustments resulting in net additions of $1,455,621,968. These net additions
represent an increase of approximately 15.24%.
<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.
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
1998.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Recent Business Experience
William Cavanaugh III 60 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 48 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 54 EXECUTIVE VICE PRESIDENT, Energy Supply, June
1998 to present; Executive Vice President and
Chief Nuclear Officer, December 1996 to June
1998; Executive Vice President - Nuclear
Generation, April 1993 to December 1996.
Prior to April 1993, Mr. Orser held various
senior management and executive positions
with Detroit Edison Company, and positions
with Portland General Electric Company,
Southern California Edison, and the U. S.
Navy.
Tom D. Kilgore 51 SENIOR VICE PRESIDENT, Power Operations,
August 1998 to present; President and Chief
Executive Officer, Oglethorpe Power
Corporation, Georgia Transmission Corporation
and Georgia Operations Corporation, July 1991
to August 1998. These three companies provide
power generation, transmission and system
operations services, respectively, to 39 of
Georgia's 42 customer-owned Electric
Membership Corporations. From 1984 to July
1991, Mr. Kilgore held numerous management
positions at Oglethorpe.
C.S. Hinnant 54 SENIOR VICE PRESIDENT AND CHIEF NUCLEAR
OFFICER, Nuclear Generation, June 1998 to
present; Vice President, Brunswick Nuclear
Plant, April 1997 to May 1998; Vice Present ,
Robinson Nuclear Plant, March 1994 to March
1997.
Fred N. Day, IV 55 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 55 SENIOR VICE PRESIDENT, Retail Sales and
Services, December 1998 to present; Senior
Vice President and Chief Administrative
Officer,
<PAGE>
Administrative Services, December 1996-
December 1998; Senior Vice President, Human
Resources and Support Services, March 1995 to
December 1996; Vice President, Human
Resources (formerly Employee Relations
Department), May 1983 to March 1995.
Robert B. McGehee 56 SENIOR VICE PRESIDENT AND GENERAL COUNSEL,
Administrative Services and Corporate
Relations, December 1998 to present; Senior
Vice President and General Counsel, Public
and Corporate Relations, May 1997 to December
1998. 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.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
1. 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
declared per share are as follows:
1997 High Low Dividends Declared
- ----- ---- --- ------------------
First Quarter $37 7/8 $36 1/8 $ .470
Second Quarter 36 1/4 33 .470
Third Quarter 36 5/8 33 3/4 .470
Fourth Quarter 42 1/2 34 5/16 .485
1998 High Low Dividends Declared
- ---- ---- --- ------------------
First Quarter $45 3/4 $40 5/8 $ .485
Second Quarter 45 1/2 39 1/2 .485
Third Quarter 46 5/8 39 15/16 .485
Fourth Quarter 49 1/16 45 1/16 .500
The December 31 closing price of the Company's Common Stock was $42 3/8 in 1997
and $47 1/16 in 1998.
As of February 26, 1999, the Company had 67,089 holders of record of Common
Stock.
2. Cancellation of Options to Repurchase Stock of Knowledge Builders. Inc.:
a) Securities Delivered. On November 30, 1998, the Company issued
6,609 shares of its Common Stock (Common Shares) to former holders
of options to purchase shares of Knowledge Builders, Inc. (KBI)
common stock as part of the second installment payment of
consideration for the cancellation of those options under certain
option surrender agreements executed in connection with the 1997
merger of KBI into a wholly-owned subsidiary of the Company
(CaroCapital, Inc., a North Carolina Enterprise Corporation, since
renamed Strategic Resource Solutions (SRS)).
b) Underwriters and Other Purchasers. No underwriters were used in
connection with this issuance of Common Shares. The Common Shares
were issued as consideration for the cancellation of the KBI
options.
c) Consideration. The consideration for the Common Shares issued was
the cancellation of the KBI options, which was a condition
precedent to completion of the merger of KBI into SRS.
d) Exemption from Registration Claimed. The Common Shares described
in this Item were issued on the basis of an exemption from
registration under Section 4(2) of the Securities Act of 1933. The
Common Shares were issued to a limited number of persons and are
subject to restrictions on resale appropriate for private
placements. Appropriate disclosure was made to all recipients of
the Common Shares.
3. INSTALLMENT PAYMENT OF CONSIDERATION FOR ACQUISITION OF PARKE
INDUSTRIES, INCORPORATED
<PAGE>
a) Securities Delivered. On February 5, 1999, 10,418 shares of the
Company's Common Shares were delivered to a former shareholder of
Parke Industries, Incorporated (Parke) pursuant to an asset
purchase agreement, dated January 30, 1998, by and between SRS and
Parke Industries, Incorporated. The asset purchase agreement
provides that on each of the first three anniversaries of the
closing of the above transaction, SRS is obligated to deliver
Parke additional common shares having a market value of $450,000.
The Common Shares delivered by SRS were acquired in market
transactions and do not represent newly issued shares of the
Company.
(b) Underwriters and Other Purchases. No underwriters were used in
connection with this issuance of Common Shares. The Common Shares
were received by one individual.
(c) Consideration. The consideration for the Common Shares was the
delivery of certain assets of Parke.
(d) Exemption from Registration Claimed. The Common Shares described
in this Item were issued on the basis of an exemption from
registration under Section 4(2) of the Securities Act of 1933. The
Common Shares were received by one individual and are subject to
restrictions on resale appropriate for private placements.
Appropriate disclosure was made to the recipient of the Common
Shares.
<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>
<CAPTION>
Years Ended December 31
1998 1997 1996 1995 1994
--------- --------- ----------- --------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Operating results
Operating revenues $ 3,130,045 $ 3,024,089 $ 2,995,715 $ 3,006,553 $ 2,876,589
Net income $ 399,238 $ 388,317 $ 391,277 $ 372,604 $ 313,167
Earnings for common stock $ 396,271 $ 382,265 $ 381,668 $ 362,995 $ 303,558
Ratio of earnings to fixed 4.38 4.17 4.12 3.67 3.31
charges
Ratio of earnings to fixed
charges and preferred 4.28 3.98 3.83 3.43 3.09
stock dividends
Per share data
Basic and diluted earnings
per common share $ 2.75 $ 2.66 $ 2.66 $ 2.48 $ 2.03
Dividends declared per
common share $ 1.955 $ 1.895 $ 1.835 $ 1.775 $ 1.715
Assets $ 8,347,406 $ 8,176,728 $ 8,298,862 $ 8,159,655 $ 8,136,819
Capitalization
Common stock equity $ 2,949,305 $ 2,818,807 $ 2,690,454 $ 2,574,743 $ 2,586,179
Preferred stock -
redemption not required 59,376 59,376 143,801 143,801 143,801
Long-term debt, net 2,614,414 2,415,656 2,525,607 2,610,343 2,530,773
--------- --------- ----------- --------- ---------
Total capitalization $ 5,623,095 $ 5,293,839 $ 5,359,862 $ 5,328,887 $ 5,260,753
========= ========= =========== ========= =========
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR 1998 AS COMPARED TO 1997 AND 1997 AS COMPARED TO 1996
Operating Revenues
Operating revenue fluctuations as compared to the prior year are due to the
following factors (in millions):
1998 1997
----- ----
Customer growth/changes in usage patterns $ 82 $ 124
Price (31) (39)
Weather 27 (55)
Sales to Power Agency 25 (26)
Sales to other utilities - 24
Other 3
----- ----
Total $ 106 $ 28
===== ====
The increase in the customer growth/changes in usage patterns component of
revenue for both comparison periods reflects continued growth in the number of
customers served by the Company. While residential and commercial sales
increased for both periods, industrial sales experienced a slight decrease in
1998. The price-related decrease in both comparison periods is primarily
attributable to changes in the Power Coordination Agreement, that became
effective in January 1997 and 1998, between the Company and North Carolina
Electric Membership Corporation (NCEMC), as well as to decreases in the fuel
cost component of revenue. The increase in the weather component of revenue for
1998 primarily results from a more favorable summer cooling season; the 1997
weather-related decrease reflects overall milder-than-normal weather conditions.
The increase in revenue related to sales to the North Carolina Eastern Municipal
Power Agency (Power Agency) during 1998 is primarily due to more favorable
summer temperatures in 1998, as well as the timing of supplemental capacity
adjustments. The decrease in sales to Power Agency in 1997 reflects the effects
of milder weather during 1997, along with the increased availability of
generating units owned jointly by the Company and Power Agency. Sales to other
utilities increased during 1997 as a result of the Company's active pursuit of
opportunities in the wholesale power market.
Operating Expenses
Fuel expense increased for both comparison periods primarily due to increases in
generation of 5.3% and 4.6% during 1998 and 1997, respectively.
The decrease in purchased power in 1998 is primarily due to a 9.4% decrease in
kilowatt hours (kWh) purchased, which was substantially offset by an increase in
the average cost per kWh. 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. In general, fluctuations
in purchased power are affected by the availability and cost of Company
generation and the cost of power on the wholesale market.
Other operation and maintenance expense has decreased since 1996 primarily due
to reductions in administrative and general expenses. The decrease in 1998 was
partially offset by expenses related to Hurricane Bonnie. Also contributing to
the decrease in 1997 were lower expenses resulting from one less nuclear
refueling outage and fewer fossil outages.
<PAGE>
Pursuant to authorizations from the North Carolina Utilities Commission (NCUC)
and the South Carolina Public Service Commission (SCPSC), the Company began to
accelerate the amortization of certain regulatory assets over a three-year
period beginning January 1997. For both 1998 and 1997, depreciation and
amortization includes an additional $68 million resulting from this accelerated
amortization. Depreciation and amortization expense also includes amortization
of deferred operation and maintenance expenses associated with Hurricane Fran of
approximately $12 million in both 1998 and 1997 and $4 million in 1996.
Harris Plant deferred costs, net, decreased in 1998 due to the completion, in
late 1997, of the amortization of the Harris Plant phase-in costs related to the
North Carolina retail jurisdiction.
Other Income (Expense)
The increase in losses from diversified business operations for both comparison
periods represents the increase in combined pre-tax start-up losses of two of
the Company's subsidiaries, Strategic Resource Solutions Corp. (SRS) and
Interpath Communications, Inc. (Interpath). Management has projected losses for
these subsidiaries as they evolve through start-up phases; however, 1998
operating losses for SRS were higher than management's expectations.
Accordingly, the Company has initiated cost-cutting and revenue enhancing
efforts at SRS to mitigate the effects of these losses and will continue to
monitor its future performance. In 1998, SRS's results also include
non-recurring charges of $7.5 million, primarily consisting of an investment
write-off. Although not significantly affecting period-to-period comparisons,
Interpath's results for all reported periods include losses recorded from its
10% limited partnership interest in BellSouth Carolinas PCS, LP (a wireless
communications technology company).
The interest income fluctuation in both comparison periods is attributable to
interest income of $11 million recorded in 1997, which was related to an income
tax refund.
The $15.5 million change in other, net, for 1998 resulted from various items,
none of which are individually significant. In 1996, other, net, was positively
affected by an adjustment of $22.9 million to the unamortized balance of
abandonment costs related to the Harris Plant.
Interest Charges
Other interest charges decreased in 1998, primarily as a result of a decrease in
commercial paper borrowings classified as short-term debt during 1998.
Income Taxes
In general, income taxes fluctuate with changes in the Company's income before
income taxes. In addition, income tax expense was affected in both comparison
periods by tax provision adjustments recorded in 1997 and 1996 for potential
audit issues in open tax years.
Preferred Stock Dividend Requirements
The decrease in the preferred stock dividend requirements for both comparison
periods is the result of the redemption of two preferred stock series in July
1997.
<PAGE>
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 investments in other business areas.
The Company has on file with the Securities and Exchange Commission (SEC) a
shelf registration statement under which $1.5 billion aggregate principal amount
of first mortgage bonds, senior notes and other debt securities are available
for issuance by the Company. The Company can also issue up to $180 million of
additional preferred stock under a shelf registration statement on file with the
SEC.
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 $4.6 billion in first mortgage bonds and an additional 27 million
shares of preferred stock at an assumed price of $100 per share and a $5.85
annual dividend rate. The Company also has 10 million authorized preference
stock shares available for issuance that are not subject to an earnings test.
As of December 31, 1998, the Company's revolving credit facilities totaled $750
million, 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
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 all
commercial paper outstanding as of December 31, 1998 and 1997, which amounted to
$488.0 million and $245.9 million, respectively.
The proceeds from the issuance of commercial paper related to the credit
facilities mentioned above and/or internally generated funds financed the
retirement of long-term debt totaling $205 million in 1998. External funding
requirements, which do not include early redemptions of long-term debt or
redemptions of preferred stock, are expected to approximate $375 million, $500
million and $460 million in 1999, 2000 and 2001, respectively. These funds will
be required for construction, mandatory retirements of long-term debt and
general corporate purposes.
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 addition to the above, an anticipated issuance of common stock is discussed
in the "NCNG Merger" discussion under OTHER MATTERS.
Capital Requirements
<PAGE>
Estimated capital requirements for 1999 through 2001 primarily reflect
construction expenditures to add generation, transmission and distribution
facilities, as well as upgrade existing facilities. Those capital requirements
are reflected in the following table (in millions):
1999 2000 2001
---- ---- ----
Construction expenditures $ 649 $ 860 $1,104
Nuclear fuel expenditures 77 93 64
AFUDC (17) (29) (54)
Mandatory retirements of long-term debt 53 198 -
----- ------- ------
Total $ 762 $ 1,122 $1,114
===== ======= ======
This table includes environmental expenditures relating to the Clean Air Act of
approximately $27 million, and the NOx SIP Call of approximately $195 million.
In addition, the Company has total projected cash requirements of approximately
$356 million for the years 1999 through 2001 relating to expenditures in other
areas such as affordable housing investments and telecommunications
infrastructure development. 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 1998, total purchases (including
transmission use charges) under the Rockport and Duke agreements amounted to
$59.3 million and $75.5 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 Harris Plant 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 $34.4 million
in 1998.
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. Subsequently, CIGFUR
filed a Motion for Reconsideration with the NCUC and a Notice of Appeal with the
North Carolina Court of Appeals, both of which were denied. On December 4, 1998,
a petition for Discretionary Review filed by CIGFUR was denied by the North
Carolina Supreme Court.
In late 1998 and early 1999, the Company filed, and the respective commissions
subsequently approved, proposals in the North and South Carolina retail
jurisdictions to accelerate cost recovery of its nuclear generating assets
beginning
<PAGE>
January 1, 2000 and continuing through 2004. The accelerated cost recovery
begins immediately after the 1999 expiration of the accelerated amortization of
certain regulatory assets, which began in January 1997. Pursuant to the orders,
the Company's depreciation expense for nuclear generating assets will increase
by $106 million to $150 million per year. Recovering the costs of the nuclear
generating assets on an accelerated basis will better position the Company for
the uncertainties associated with potential restructuring of the electric
utility industry.
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), which has established a
uniform framework to address MGP sites. The investigation and remediation of
specific MGP sites will be addressed pursuant to one or more Administrative
Orders on Consent (AOC) between the DWM and the potentially responsible party or
parties. The Company has signed AOCs to investigate certain sites. 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 does not expect the costs associated with these
sites to be material to the financial position and results of operations of the
Company.
The Company has been notified by regulators of its involvement or potential
involvement in several sites, other than MGP sites, that may require
investigation and/or remediation. Although the Company may incur costs at these
sites, the investigation and/or remediation of the sites has not advanced to a
stage where reasonable cost estimates can be made. The Company cannot predict
the outcome of these matters.
The Company carries a liability for the estimated costs associated with certain
remedial activities. This liability is not 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 $27 million. Increased
operation and maintenance costs, including emission allowance expense, and
increased fuel costs are not expected to be material to the Company's results of
operations.
On October 27, 1998, the Environmental Protection Agency (EPA) published a final
rule addressing the issue of regional transport of ozone. This rule is commonly
known as the NOx SIP call. The EPA's rule requires 22 states, including North
and South Carolina, to further reduce nitrogen oxide emission in order to attain
a pre-set state NOx emission level by May 2003. The EPA's rule also suggests to
the states that these additional nitrogen oxide emission reductions be obtained
from the utility sector. The Company is evaluating necessary measures to comply
with the rule and estimates its related capital expenditures through 2003 could
be approximately $327 million. Increased operation and maintenance costs
relating to the NOx SIP call are not expected to be material to the Company's
results of operations. The Company and the states of North and South Carolina
are participating in litigation challenging the NOx SIP call. The Company cannot
predict the outcome of this matter.
<PAGE>
With regard to revisions to existing air quality standards, in July 1997 the EPA
issued final regulations establishing a new fine-particulate standard. 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 effects of these and other similar regulations and cannot
determine the estimated costs that may be required for compliance. The Company
cannot predict the outcome of this matter.
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 7.75% 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 1998, using 1998 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 1998
dollars, are $279.8 million for Robinson Unit No. 2, $299.3 million for
Brunswick Unit No. 1, $298.5 million for Brunswick Unit No. 2 and $328.1 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 is proceeding with its project
regarding accounting practices related to obligations associated with the
retirement of long-lived assets, and an exposure draft of a proposed accounting
standard is expected to be issued during the first half of 1999. It is uncertain
when a final statement will be issued and what effects it may ultimately have on
the Company's accounting for nuclear decommissioning and other retirement 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 begin taking 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, has undertaken measures to force the DOE to
take spent nuclear fuel. To date, the courts have rejected these attempts. In
addition, several utilities have filed actions for damages in the United States
Court of Claims, and in some of those cases the Court has agreed that the DOE
has breached its contract for disposal of spent nuclear fuel. The Company is in
the process of evaluating whether it should file a similar action for damages.
The Company will also monitor legislation that has been introduced in Congress
that would provide for interim storage of spent nuclear fuel at a storage
facility operated by the DOE. The Company cannot predict the outcome of this
matter.
With certain modifications and additional approval by the Nuclear Regulatory
Commission (NRC), the Company's spent nuclear fuel storage facilities will be
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 these
licenses, dry storage may be necessary. The Company has initiated the process of
obtaining the additional NRC approval.
NCNG Merger
<PAGE>
On November 10, 1998, the Company and North Carolina Natural Gas Corporation
(NCNG) entered into an Agreement and Plan of Merger (Merger Agreement) providing
for the strategic business combination of the Company and NCNG in a
stock-for-stock transaction. Upon consummation of the proposed merger, NCNG will
be a wholly owned subsidiary of the Company. The Company will issue
approximately $354 million in stock to NCNG shareholders to complete the merger.
The merger transaction is intended to constitute a tax-free reorganization for
federal income tax purposes and to be accounted for as a pooling-of-interests.
The Merger Agreement has been approved by the Boards of Directors of the Company
and NCNG, and consummation of the merger is expected in mid-1999. There are
certain closing conditions, including approval by the shareholders of NCNG and
certain regulatory agencies, and the filing of notifications required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Company and NCNG filed
a joint application for approval of the merger with the NCUC on January 11,
1999. The Company filed a similar request with the SCPSC on February 9, 1999.
NCNG, headquartered in Fayetteville, North Carolina, is a natural gas
distribution utility. NCNG sells and transports natural gas to residential,
commercial, industrial and electric power generation customers. NCNG provides
natural gas, propane and related services to more than 173,000 retail customers
in 86 towns and cities and to four municipal gas distribution systems in south
central and eastern North Carolina. Much of that area is also part of the
Company's service territory. The ability to offer natural gas to customers has
been a priority for the Company as part of its strategy to become a total energy
provider while securing fuel supplies for planned gas-fired electric generation.
The Company's merger with NCNG advances that strategy.
Diversified Businesses
Strategic Resource Solutions Corp. (SRS), a wholly owned subsidiary, specializes
in facilities and energy management software, systems and services for
educational, commercial, industrial and governmental markets nationwide. During
1998, SRS acquired the following companies: Parke Industries Inc., a lighting
retrofit company located in California; Intelligent Solutions Inc., a Nevada
company that designs and manufactures advanced cogeneration energy systems for
highly efficient on-location power generation; and two North Carolina companies,
Jack Walters Inc. and Jack Walters Services, Inc. (collectively JWI). JWI
designs, engineers, installs and maintains building automation systems that
control heating, ventilation, air conditioning and lighting.
Interpath Communications, Inc. (Interpath), a majority-owned subsidiary, is a
telecommunications company primarily engaged in providing Internet-based
services. Interpath's services include consulting, design, implementation and
support related to Internet access, Intranet development, electronic commerce,
hosting and videoconferencing. During 1998, Interpath merged with TriNet
Services, a leader in Internet professional services. The merger of the two
companies has facilitated Interpath's ability to expand its market share of
Internet services by combining Interpath's high-speed fiber optic network and
support services with TriNet's Internet consulting and development capabilities.
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.
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 restructure aspects
of retail electric service. The issue of retail restructuring and competition is
being reviewed by a number of states and bills have been introduced in Congress
that seek to introduce such restructuring in all states.
<PAGE>
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. Stranded costs are those costs and
investments made by utilities in order to meet their statutory obligation to
provide electric service, but which could not be recovered through the market
price for electricity following industry restructuring. The amount of stranded
costs that 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 financial
position and results of operations of the Company could 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 a
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, in 1996 the Federal
Energy Regulatory commission (FERC) 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. Excluding sales under specific long-term wholesale agreements, the
Company makes virtually all of its wholesale power sales under its market-based
rate tariff.
During the last week of June 1998, some wholesale power markets experienced
sharp increases in prices. That upsurge in power costs was due, in part, to the
unavailability of generating capacity and unusually hot weather in the
Midwestern portion of the country. The relatively sudden movement in wholesale
power prices disrupted certain power transactions, including some to which the
Company was a party. The monetary damages the Company incurred as a result of
those disrupted transactions did not have a material adverse effect on the
Company's financial position and results of operations. The Company has taken
steps to mitigate those monetary damages. The Company anticipates increased
volatility in the wholesale power market during peak demand periods; however,
due to the risk management processes the Company has in place, the Company does
not expect this volatility to have a material adverse effect on its financial
position and results of operations.
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 have changed their laws and regulations to allow full retail competition.
Other states are considering changes to allow retail competition. 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.
<PAGE>
NORTH CAROLINA ACTIVITIES
Since 1995, the NCUC has been considering the impact of increased competition in
the electric utility 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. By order issued June
18, 1998, the Commission held that this docket would also be held in abeyance
pending further order. 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. During 1998, the study commission met and held
public hearings around the state. The commission also retained consultants to
conduct analyses and studies concerning various restructuring issues, including
stranded costs, state and local tax implications and electric rate comparisons.
In June 1998, the study commission issued an interim report to the 1998 General
Assembly, summarizing the numerous fact-finding and educational activities and
analytical projects the commission had initiated or completed. That report
offered no judgments or recommendations. The commission is scheduled to make its
final report to the 1999 Session of the General Assembly which will begin in
1999 and continue during 2000. The Company cannot predict the outcome of this
matter.
SOUTH CAROLINA ACTIVITIES
The South Carolina General Assembly ended its 1998 session without enacting any
legislation regarding electric restructuring. On October 29, 1998, the South
Carolina Senate Judiciary Committee appointed a 13-member task force to study
the restructuring issue and make a report to the South Carolina General Assembly
during the 1999 legislative session. The task force was subsequently expanded to
18 members, including the Company. The General Assembly's House Utility
Subcommittee is also expected to continue pursuing the issue during that
session. The Company cannot predict the outcome of these matters.
FEDERAL ACTIVITIES
At the federal level, additional bills regarding restructuring of the electric
utility industry were introduced in 1998, but Congress adjourned in October
without taking any action on the issue. The debate regarding industry
restructuring is expected to continue in Congress in 1999. The Company cannot
predict the outcome of this matter.
COMPANY ACTIVITIES
The developments described above have created changing markets for energy. As a
strategy for competing in these changing markets, the Company is becoming a
total energy provider in the region by providing a full array of energy-related
services to its current customers and expanding its market reach. As part of
this strategy, the Company plans to position itself as a supplier of natural gas
to its customers. The Company took a major step towards reaching this goal on
November 10, 1998 by entering into the Merger Agreement with NCNG.
The Company currently plans to construct approximately 2300 MW of new generating
facilities by the year 2002. These facilities, including two combustion turbine
facilities outside of the Company's current service area, will help the Company
continue to meet the needs of its growing retail customer base and increase its
ability to participate in the wholesale energy supply business.
The Company's strategy for addressing the planning uncertainty and risks created
by the changing markets for energy includes securing long-term contracts with
its wholesale customers, continuing to work to meet the energy needs of its
<PAGE>
industrial customers, 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 1996, Power Agency notified the Company that it would discontinue certain
contractual purchases of power from the Company effective September 1, 2001;
however, the Company won the right to continue supplying this power by being
selected from a number of bidders. On September 11, 1998, the Company and Power
Agency entered into a revised agreement that extends the period during which
Power Agency will continue to purchase all of its supplemental power from the
Company through at least December 31, 2002. The new agreement also includes
options for Power Agency to purchase supplemental power from the Company for the
year 2003 and beyond. The load served by supplemental power under that agreement
will include all of Power Agency's power needs in excess of the load served by
Power Agency through its ownership interest in generation units that it jointly
owns with the Company and other smaller resources that are currently in place.
The revised agreement was filed with, and has been accepted by, the FERC.
On October 9, 1998, the Company and its largest customer, NCEMC, entered into an
agreement under which NCEMC will purchase a total of 800 MWs of peaking capacity
and associated energy from the Company during the period from January 1, 2001
through December 31, 2003. The agreement, which provides NCEMC with an option to
extend all or part of the purchase through 2005, provides capacity to meet
NCEMC's growing peaking power needs. A portion of this purchase is intended to
serve load located in the Company's service area that is currently served by
purchases from the Company under a contract that will expire on December 31,
2000. During the period 2001 through 2003, this agreement also will serve up to
450 MWs of NCEMC's load that is located in the Duke Power service area that has
not previously been served by the Company. The agreement will be filed with the
FERC for approval or acceptance. The Company cannot predict the outcome of this
matter.
On October 30, 1998, the Company and NCEMC also entered into agreements that
supersede the 1993 Power Coordination Agreement between the Company and NCEMC,
as amended (the PCA). The primary effect of the new agreements is to unbundle
the generation and transmission service for the load previously served under the
PCA. To that end, the parties executed a Network Integration Transmission
Service Agreement and a Network Operating Agreement under which NCEMC will
receive transmission services from the Company pursuant to the Company's Open
Access Transmission Tariff. The parties also entered into a new Power Supply
Agreement, which provides for the Company to sell capacity and energy to NCEMC
under terms and conditions and in amounts that are substantially the same as
those that were set forth in the PCA. The parties agreed to a modification of
the calculation of certain capacity charges; however, the net effect of the
changes is intended to be essentially revenue neutral under expected load
conditions. The Network Integration Transmission Service Agreement, the Network
Operating Agreement and the new Power Supply Agreement were filed with FERC on
November 3, 1998 and have been accepted. The new Power Supply Agreement has also
been submitted by NCEMC to the Rural Utilities Service for approval. The Company
cannot predict the outcome of this matter.
On September 28, 1998, the Company and the South Carolina Public Service
Authority (Santee Cooper) entered into an agreement under which the Company will
provide peaking capacity and associated energy to Santee Cooper for the period
January 1, 1999 through December 31, 2003. Under the terms of the agreement, the
Company will provide 100 MW of generation capacity in 1999, 150 MW in 2000 and
200 MW from 2001 to 2003. The agreement was filed with, and has been accepted
by, the FERC.
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 assets
and liabilities resulting from the effects of the ratemaking process, which
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 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
<PAGE>
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
BACKGROUND
The Company's overall goal is to be Year 2000 ready, and its efforts to reach
this goal are on target. "Year 2000 ready" means that critical systems, devices,
applications or business relationships have been evaluated and are expected to
be suitable for continued use into and beyond the Year 2000, or contingency
plans are in place.
The Company began addressing the Year 2000 issue in 1994 by beginning to assess
its business computer systems, such as general ledger, payroll, customer billing
and inventory control. The majority of these systems have been corrected and
running in the Company's day-to-day computing environment since 1996. Also, by
the mid-1990s, two major accounting systems were replaced with systems that were
designed to be Year 2000 ready. The Company had substantially addressed the
remaining business systems by the end of 1998 and will conduct supplementary
testing in 1999, as appropriate.
During mid-1997, a Corporate Year 2000 Project was established to provide
leadership and direction to the Year 2000 efforts throughout the Company and its
subsidiaries. Also, the project scope was expanded to include "embedded" systems
(such as process control computers, chart recorders, data loggers, calibration
equipment and chemical analysis equipment), end-user computing hardware and
software (including personal computers, spreadsheets, word processing and other
personal and workgroup applications), plant and corporate facilities (such as
security systems, elevators and heating and cooling systems) and business
relationships with key suppliers and customers.
The Company is using a multi-step approach in conducting its Year 2000 Project
and currently plans to complete the project by August 1999. These steps are:
inventory, assessment, remediation and testing, and contingency planning. The
first step, an inventory of all systems and devices with potential Year 2000
problems, was completed in January 1998. The next step, completed in the first
half of 1998, was to conduct an initial assessment of the inventory to determine
the state of its Year 2000 readiness. As part of the assessment phase,
remediation strategies were identified and remediation cost estimates were
developed. The Company is currently utilizing both internal and external
resources to remediate and test for Year 2000 readiness. The Company's primary
approach has been for the Corporate Year 2000 Program Office to provide overall
leadership and direction and assign responsibility to individual departments and
business units for Year 2000 readiness in their respective areas. Staffing
decisions regarding the labor required to complete the project are made at the
department/business unit level. Several hundred of the Company's employees as
well as contract personnel have been used on this effort. Vendor labor is also
occasionally used.
Several external reviews of the project have been conducted to validate the
reliability of risk and cost estimates as well as work processes and work
products. These have included project reviews by two consulting firms, an
embedded systems audit by an engineering firm and a legal review by an external
law firm. In addition, the Company is actively conducting formal communications
with the suppliers and customers with which it has active contracts to determine
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issues. The Company ranked its vendors and
suppliers to identify those considered to be critical. Those identified as
critical include telecommunications providers, fuel suppliers (nuclear, coal,
natural gas and other), transportation carriers, vendors of certain nuclear
systems and components, vendors of fossil power plant digital control systems
and financial services suppliers. The Company cannot predict the outcome of
other companies' remediation efforts.
COSTS
As of January 31, 1999, the total remaining cost of the Year 2000 Project is
estimated at $12 million. This estimate excludes Year 2000 Project costs
attributable to recent subsidiary acquisitions, which the Company does not
expect to be material to its financial position and results of operations.
Approximately $4 million is for new software and hardware purchases and will be
capitalized. The remaining $8 million will be expensed as incurred. Through
December 1998, the Company had incurred and expensed approximately $8 million
related to the inventory, assessment and remediation of non-compliant systems,
equipment and applications. The costs of the project and the date on which the
Company plans to complete the Year 2000 modifications are based on management's
best estimates, which were derived using assumptions of future events including
the continued availability of certain resources, third parties' Year 2000
readiness and other factors.
RISK ASSESSMENT
At this time, the Company believes its most reasonably likely worst case
scenario is that key customers could experience significant reductions in their
power needs due to their own Year 2000 issues. The Company is conducting
informal meetings with its largest wholesale, industrial and commercial
customers and is holding information sharing forums to gather information on
Year 2000 readiness. Based on the information provided through these contacts,
the Company has not identified any major customer that appears to be at
significant risk of not being Year 2000 ready. For this reason the Company does
not believe that this scenario is likely to occur. Nonetheless, the Company has
assessed the effect of such a scenario by using current financial data. That
data indicates that if the Company's twenty key industrial customers experienced
significant reduced power needs for a period of one month, the Company's
revenues would decrease by approximately 6% for that month.
<PAGE>
An alternative worst-case scenario includes the effect of cascading disruptions
caused by other entities whose electrical systems are connected to the
Company's. The Company has assessed the risk of this scenario, believes that its
contingency plans would mitigate the long-term occurrence of such a scenario,
and does not expect that it would have a material adverse effect on its
financial position and results of operations.
CONTINGENCY PLANS
Contingency plans are being prepared to help ensure that the Company's critical
business processes will continue to function on January 1, 2000 and beyond. The
Company's contingency plans are being structured to address both remediation of
systems and their components and overall business operating risk. These plans
are intended to mitigate internal risks, as well as potential risks in the
supply chain of the Company's suppliers and customers. The Company's contingency
plans will be developed by June 30, 1999 in accordance with the target dates
established by the NRC and the North American Electric Reliability Council
(NERC).
The Company is developing contingency plans to mitigate the risk associated with
the failure of critical vendors or suppliers. Based on the Company's assessment
of the risk of non-compliance, the Company will take action up to and including
entering into a business relationship with an alternate vendor or supplier.
One of the Company's emergency contingency plans specifically addresses
emergency scenarios that may arise due to the fact that electric utility systems
throughout the southeast region of the United States are interconnected. The
Company has been working actively with the NERC and the Southeastern Electric
Reliability Council to address the issue of overall grid reliability and
protection. In order to mitigate the risk of cascading regional electric
failures, the Company can, as a last resort, isolate its transmission system
either automatically or manually. The Company's emergency readiness contingency
plan includes the performance of regular training exercises that include
simulated disaster recovery scenarios. As part of its Year 2000 contingency
planning, the Company will review its disaster recovery scenarios to identify
those that can be used specifically for Year 2000 readiness training.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS-133), effective for fiscal years beginning after
June 15, 1999. SFAS-133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires the recognition of all
derivative instruments as assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The accounting
treatment of changes in fair value is dependent upon whether or not an
instrument qualifies as a hedge and, if so, the type of hedge. The Company has
not completed its analysis of the provisions of SFAS-133 nor its effect on the
Company.
<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 changes in
interest rates with respect to its long-term debt and commercial paper, and
fluctuations in the return on marketable securities with respect to its nuclear
decommissioning trust funds. These financial instruments are held for purposes
other than trading. The risks discussed below do not include the price risks
associated with nonfinancial instrument transactions and positions associated
with the Company's operations, such as sales commitments and inventory.
INTEREST RATE RISK: 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. Interest rate derivative
instruments may be used to adjust interest rate exposures and to protect against
adverse movements in rates. The table below presents principal cash flows and
related weighted-average interest rates, by maturity date, for the Company's
long-term debt and commercial paper at December 31, 1998, including current
portions. In addition, the Company has an interest rate lock to hedge an
anticipated issuance of long-term debt in 1999. The interest rate lock has a
notional amount of $150 million. Settlement of the interest rate lock is based
on the ten-year Treasury rate at the strike date. At December 31, 1998, the
interest rate lock had a fair value asset position of approximately $1 million.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total Fair
---- ---- ---- ---- ---- ---------- ----- Value
-----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in
millions)
- ---------------------
Fixed rate $ 53 $ 198 - $100 $ 5 $1,219 $1,575 $1,686
long-term debt
Average interest 7.10% 5.92% - 6.75% 6.44% 7.41% 7.17%
rate
Variable rate - - - - - $620 $ 620 $ 622
long-term debt
Average interest - - - - - 3.67% 3.67%
rate
Commercial paper $ 488 - - - - - $ 488 $ 488
Average interest 5.22% - - - - - 5.22%
rate
</TABLE>
The fixed and variable rate debt principal cash flows reflected in the table
above are substantially the same as reported at December 31, 1997 for post-1998
debt. Commercial paper outstanding at December 31, 1997 totaled approximately
$246 million.
MARKETABLE SECURITIES RETURN RISK: The Company maintains trust funds, as
required by the Nuclear Regulatory Commission, to fund certain costs of
decommissioning. These funds are primarily invested in stocks, bonds and cash
equivalents, which are exposed to price fluctuations in equity markets and to
changes in interest rates. At December 31, 1998 and 1997, the fair values of
these funds were approximately $311 million and $246 million, respectively. The
Company actively monitors its portfolio by benchmarking the performance of its
investments against certain indices and by maintaining, and periodically
reviewing, target allocation percentages for various asset classes. The
accounting for nuclear decommissioning recognizes that costs are recovered
through the Company's regulated electric rates and, therefore, fluctuations in
trust fund marketable security returns do not affect the earnings of the
Company.
<PAGE>
ITEM 8. 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> <C>
Independent Auditors' Report 50
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997, and 1996 51
Consolidated Balance Sheets as of December 31, 1998 and 1997 52
Consolidated Statements of Cash Flow for the Years Ended December 31, 1998,
1997 and 1996 54
Consolidated Schedules of Capitalization as of December 31, 1998 and 1997 55
Consolidated Statements of Retained Earnings for the Years Ended December 31,
1998, 1997 and 1996 56
Consolidated Quarterly Financial Data (Unaudited) 56
Notes to Consolidated Financial Statements 57
Consolidated Financial Statement Schedules for the Years Ended December 31, 1998,
1997 and 1996:
II-Valuation and Qualifying Accounts 70
</TABLE>
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 the Consolidated Financial
Statements.
<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, 1998 and 1997, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended December
31, 1998. Our audits also included the financial statement schedules listed in
the Index at Item 8. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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, 1996, 1995 and 1994, and the related consolidated statements of
income, retained earnings and cash flows for the years ended December 31, 1995
and 1994 (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, 1998, 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, 1999
<PAGE>
CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $3,130,045 $3,024,089 $2,995,715
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel 571,419 534,268 515,050
Purchased power 382,547 387,296 412,554
Other operation and maintenance 642,478 661,466 730,140
Depreciation and amortization 487,097 481,650 386,927
Taxes other than on income 141,504 139,478 140,479
Harris Plant deferred costs, net 7,489 24,296 26,715
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,232,534 2,228,454 2,211,865
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 897,511 795,635 783,850
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Diversified business operations (70,345) (25,278) (4,729)
Interest income 9,526 18,335 4,063
Harris Plant carrying costs 3,785 4,626 7,299
Other, net (9,509) 6,003 42,080
- ----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (66,543) 3,686 48,713
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES AND INCOME TAXES 830,968 799,321 832,563
- ----------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Long-term debt 169,901 163,468 172,622
Other interest charges 11,156 18,743 19,155
Allowance for borrowed funds used during construction (6,821) (4,923) (6,407)
- ----------------------------------------------------------------------------------------------------------------------
Total interest charges, net 174,236 177,288 185,370
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 656,732 622,033 647,193
INCOME TAXES 257,494 233,716 255,916
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $399,238 $388,317 $391,277
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS (2,967) (6,052) (9,609)
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS FOR COMMON STOCK $396,271 $382,265 $381,668
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 143,941 143,645 143,621
- ----------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $2.75 $2.66 $2.66
- ----------------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $1.955 $1.895 $1.835
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electric utility plant
Electric utility plant in service $10,280,638 $10,113,334
Accumulated depreciation (4,496,632) (4,181,417)
- -------------------------------------------------------------------------------------------------------
Electric utility plant in service, net 5,784,006 5,931,917
Held for future use 11,984 12,255
Construction work in progress 306,866 158,347
Nuclear fuel, net of amortization 196,684 190,991
- -------------------------------------------------------------------------------------------------------
Total electric utility plant, net 6,299,540 6,293,510
- -------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 28,872 14,426
Accounts receivable 406,418 406,872
Fuel 78,086 47,551
Materials and supplies 146,615 136,253
Deferred fuel cost 42,647 20,630
Prepayments 63,809 62,040
Other current assets 34,409 47,034
- -------------------------------------------------------------------------------------------------------
Total current assets 800,856 734,806
- -------------------------------------------------------------------------------------------------------
Deferred debits and other assets
Income taxes recoverable through future rates 277,894 328,818
Abandonment costs 16,083 38,557
Harris Plant deferred costs 60,021 63,727
Unamortized debt expense 27,010 48,407
Nuclear decommissioning trust funds 310,702 245,523
Miscellaneous other property and investments 294,678 212,291
Other assets and deferred debits 260,622 211,089
- -------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 1,247,010 1,148,412
- -------------------------------------------------------------------------------------------------------
Total assets $ 8,347,406 $ 8,176,728
- -------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
- -------------------------------------------------------------------------------------------------------
CAPITALIZATION (SEE CONSOLIDATED SCHEDULES OF
CAPITALIZATION)
Common stock equity $ 2,949,305 $ 2,818,807
Preferred stock - redemption not required 59,376 59,376
Long-term debt, net 2,614,414 2,415,656
- -------------------------------------------------------------------------------------------------------
Total capitalization 5,623,095 5,293,839
- -------------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt 53,172 207,979
Accounts payable 265,163 246,352
Interest accrued 39,941 43,620
Dividends declared 74,400 72,266
Other current liabilities 108,824 116,609
- -------------------------------------------------------------------------------------------------------
Total current liabilities 541,500 686,826
- -------------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
Accumulated deferred income taxes 1,678,924 1,722,908
Accumulated deferred investment tax credits 211,822 222,028
Other liabilities and deferred credits 292,065 251,127
- -------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 2,182,811 2,196,063
- -------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
- -------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 8,347,406 $ 8,176,728
- -------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(IN THOUSANDS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $399,238 $388,317 $391,277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 578,348 565,212 446,508
Harris Plant deferred costs 3,704 19,670 19,416
Deferred income taxes (38,517) (66,546) 130,818
Investment tax credit (10,205) (10,232) (10,445)
Deferred fuel credit (22,017) (24,969) (23,156)
Net increase in receivables, inventories and prepaid expenses (62,351) (111,216) (64,793)
Net increase (decrease) in payables and accrued expenses 15,863 (6,414) 4,671
Miscellaneous 56,329 59,191 17,911
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 920,392 813,013 912,207
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities
Gross property additions (424,263) (322,205) (369,308)
Nuclear fuel additions (102,511) (61,509) (87,265)
Contributions to nuclear decommissioning trust (30,848) (30,726) (30,683)
Contributions to retiree benefit trusts - (21,096) (24,700)
Net cash flow of company-owned life insurance program (1,954) 138,508 46,930
Investments in non-electric activities (103,543) (54,733) (28,035)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (663,119) (351,761) (493,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from issuance of long-term debt 6,255 199,075 -
Net decrease in short-term debt (maturity less than 90 days) - (62,224) (8,858)
Net increase (decrease) in commercial paper classified as long-term debt (Note 4) 242,100 (104,100) 350,000
Retirement of long-term debt (208,050) (103,410) (467,810)
Redemption of preferred stock - (85,850) -
Purchase of Company common stock - (23,418) (25,208)
Dividends paid on common and preferred stock (282,684) (277,840) (270,818)
Miscellaneous (448) - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (242,827) (457,767) (422,694)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 14,446 3,485 (3,548)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 14,426 10,941 14,489
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 28,872 $ 14,426 $ 10,941
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year - interest $179,526 $171,511 $194,391
income taxes $329,739 $289,693 $141,350
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED SCHEDULES OF CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock equity
Common stock without par value, authorized 200,000,000 shares, issued and
outstanding 151,337,503 and 151,340,394 shares, respectively (Note 8) $1,374,773 $1,371,520
Unearned ESOP common stock (152,979) (165,804)
Capital stock issuance expense (790) (790)
Retained earnings (Note 6) 1,728,301 1,613,881
----------------------------------------------------------------------------------------------------------------------------------
Total common stock equity $2,949,305 $2,818,807
----------------------------------------------------------------------------------------------------------------------------------
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, 1998)
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
----------------------------------------------------------------------------------------------------------------------------------
Total preferred stock - redemption not required $59,376 $59,376
----------------------------------------------------------------------------------------------------------------------------------
Long-term debt (interest rates are as of December 31, 1998)
First mortgage bonds:
5.375% and 6.875% due 1998 $ - $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 200,000 200,000
6.875% to 8.625% due 2021-2023 500,000 500,000
First mortgage bonds - secured medium-term notes:
5.00% to 5.06% due 1998 - 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
3.399% and 3.55% due 2024 122,600 122,600
----------------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 1,516,130 1,721,130
----------------------------------------------------------------------------------------------------------------------------------
Other long-term debt:
Pollution control obligations backed by letter of credit, 2.982% to 5.350% due 2014-2017 442,000 442,000
Other pollution control obligations, 4.10% 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 4) 488,000 245,900
Miscellaneous notes 56,691 53,486
----------------------------------------------------------------------------------------------------------------------------------
Total other long-term debt 1,167,331 922,026
----------------------------------------------------------------------------------------------------------------------------------
Unamortized premium and discount, net (15,875) (19,521)
Current portion of long-term debt (53,172) (207,979)
----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt, net $2,614,414 $2,415,656
----------------------------------------------------------------------------------------------------------------------------------
Total capitalization $5,623,095 $5,293,839
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retained earnings at beginning of year $ 1,613,881 $1,503,658 $1,385,378
Net income 399,238 388,317 391,277
Preferred stock dividends at stated rates (2,967) (4,627) (9,609)
Common stock dividends at annual per share rate of
$1.955, $1.895 and $1.835, respectively (281,851) (272,011) (263,388)
Other adjustments - (1,456) -
- ---------------------------------------------------------------------------------------------------------------------------
Retained earnings at end of year $1,728,301 $1,613,881 $1,503,658
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) FIRST QUARTER SECOND THIRD QUARTER FOURTH
QUARTER QUARTER
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Operating revenues $752,296 $736,151 $946,188 $695,410
Operating income 207,688 171,734 363,088 155,001
Net income 86,571 65,469 186,024 61,174
Common stock data:
Basic earnings per common share .60 .45 1.29 .42
Diluted earnings per common share .60 .45 1.28 .42
Dividend paid per common share .485 .485 .485 .485
Price per share - high 45 3/4 45 1/2 46 5/8 49 1/16
low 40 5/8 39 1/2 39 15/16 45 1/16
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
Operating revenues $716,084 $666,023 $906,841 $735,141
Operating income 183,791 108,824 326,494 176,526
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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<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. At December 31, 1998 and 1997, the total assets
of the Company's non-electric segments were $210 million and $97 million,
respectively. Revenues from external customers for the non-electric segments
were $62 million, $19 million and $4 million for 1998, 1997 and 1996,
respectively; those revenues are included in the results reported as diversified
business operations.
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, the North Carolina Utilities Commission
(NCUC) and the South Carolina Public Service Commission (SCPSC). Certain amounts
for 1997 and 1996 have been reclassified to conform to the 1998 presentation,
with no effect on previously reported net income or common stock equity.
2. NCNG Merger
On November 10, 1998, the Company and North Carolina Natural Gas Corporation
(NCNG) entered into an Agreement and Plan of Merger (Merger Agreement),
providing for the strategic business combination of the Company and NCNG in a
stock-for-stock transaction. Upon consummation of the proposed merger, NCNG will
be a wholly owned subsidiary of the Company. The Company will issue
approximately $354 million in stock to NCNG shareholders to complete the merger.
The merger transaction is intended to constitute a tax-free reorganization for
federal income tax purposes and to be accounted for as a pooling-of-interests.
The Merger Agreement has been approved by the Boards of Directors of the Company
and NCNG and consummation of the merger is expected in mid-1999. There are
certain closing conditions, including approval by the shareholders of NCNG and
certain regulatory agencies, and the filing of notifications required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Company and NCNG filed
a joint application for approval of the merger with the NCUC on January 11,
1999. The Company filed a similar request with the SCPSC on February 9, 1999.
3. Summary of Significant Accounting Policies
a. Principles of Consolidation
The consolidated financial statements include the activities of the Company and
its 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.
<PAGE>
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):
1998 1997
------- -------
Production plant $6,295 $6,297
Transmission plant 987 952
Distribution plant 2,470 2,327
General plant and other 529 537
------- -------
Electric utility plant in service $10,281 $10,113
======= =======
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 both 1998 and
1997, and 5.8% in 1996.
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 3e), as a
percent of average depreciable property other than nuclear fuel, were
approximately 3.9% in 1998, 1997 and 1996. Depreciation provisions totaled
$394.4 million, $382.1 million and $363.2 million in 1998, 1997 and 1996,
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
1996, the NCUC authorized the Company to defer these expenses (approximately $40
million) with amortization over a 40-month period.
Pursuant to authorizations from the NCUC and the SCPSC, the Company began to
accelerate the amortization of certain regulatory assets over a three-year
period beginning January 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 7c).
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.
<PAGE>
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 $33.3 million, $33.2 million and
$33.1 million in 1998, 1997 and 1996, respectively.
Accumulated decommissioning costs, which are included in accumulated
depreciation, were $496.3 million and $428.7 million at December 31, 1998 and
1997, respectively. These costs include amounts retained internally and amounts
funded in an external decommissioning trust. The balance of the nuclear
decommissioning trust was $310.7 million and $245.5 million at December 31, 1998
and 1997, 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 related to changes in
the fair value of trust assets. Based on the site-specific estimates discussed
below, and using an assumed after-tax earnings rate of 7.75% 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 1998, using 1998 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 1998
dollars, are $279.8 million for Robinson Unit No. 2, $299.3 million for
Brunswick Unit No. 1, $298.5 million for Brunswick Unit No. 2 and $328.1 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 is proceeding with its project
regarding accounting practices related to obligations associated with the
retirement of long-lived assets, and an exposure draft of a proposed accounting
standard is expected to be issued during the first half of 1999. It is uncertain
when a final statement will be issued and what effects it may ultimately have on
the Company's accounting for nuclear decommissioning and other retirement 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
approximately $13.8 million and $3.4 million at December 31, 1998 and 1997,
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
<PAGE>
with the reacquisition of debt obligations are amortized over the remaining life
of the original debt using the straight-line method, except that the balance
existing at December 31, 1996 is being amortized on a three-year accelerated
basis (see Note 7a). The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
g. New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS-133), effective for fiscal years beginning after
June 15, 1999. SFAS-133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires the recognition of all
derivative instruments as assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The accounting
treatment of changes in fair value is dependent upon whether or not an
instrument qualifies as a hedge and, if so, the type of hedge. The Company has
not completed its analysis of the provisions of SFAS-133 nor its effect on the
Company.
4. Revolving Credit Facilities and Commercial Paper
As of December 31, 1998, the Company's revolving credit facilities totaled $750
million, 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
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 all
commercial paper outstanding as of December 31, 1998 and 1997, which amounted to
$488.0 million and $245.9 million, respectively. The weighted-average interest
rates of these borrowings were 5.22% and 5.85% at December 31, 1998 and 1997,
respectively.
5. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents approximate fair value due to
the short maturities of these instruments. At December 31, 1998 and 1997, there
were miscellaneous investments with carrying amounts of approximately $12
million and $9 million, respectively, included in miscellaneous other property
and investments. The carrying amounts of these investments approximate fair
value due to the short maturities of the related investments. The carrying
amount of the Company's long-term debt was $2.70 billion and $2.66 billion at
December 31, 1998 and 1997, respectively. The estimated fair value of this debt,
as obtained from a quoted market prices for the same or similar issues, was
$2.80 billion and $2.71 billion at December 31, 1998 and 1997, respectively.
External funds have been established, as required by the Nuclear Regulatory
Commission (NRC), as a mechanism to fund certain costs of nuclear
decommissioning (see Note 3e). These nuclear decommissioning trust funds are
invested in stocks, bonds and cash equivalents. Nuclear decommissioning trust
funds are presented at amounts that approximate fair value. Fair value is
obtained from quoted market prices for the same or similar investments.
6. Capitalization
As of December 31, 1998, the Company had 20,656,571 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. In addition, the
Company's Board of Directors has authorized the issuance of shares in
conjunction with the planned merger with NCNG (see Note 2).
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, 1998, there were no significant restrictions
on the use of retained earnings.
<PAGE>
As of December 31, 1998, long-term debt maturities for the years 1999, 2000,
2002 and 2003 amounted to $53 million, $198 million, $100 million and $5
million, respectively, excluding commercial paper reclassified as long-term
debt. There are no long-term debt maturities in 2001.
7. 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 12c 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, 1998,
the balances of the Company's regulatory assets were as follows (in millions):
Income taxes recoverable through future rates* $ 278
Harris Plant deferred costs 60
Abandonment costs* 16
Loss on reacquired debt (included in unamortized debt expense)* 21
Deferred fuel 43
Items included in other assets and deferred debits:
Deferred DOE enrichment facilities-related costs 46
Deferred hurricane-related costs 12
Emission allowance carrying costs* 4
-----
Total $ 480
=====
* ALL OR CERTAIN PORTIONS OF THESE REGULATORY ASSETS ARE SUBJECT TO ACCELERATED
AMORTIZATION (SEE NOTE 3D).
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. Subsequently, CIGFUR
filed a Motion for Reconsideration with the NCUC and a Notice of Appeal with the
North Carolina Court of Appeals, both of which were denied. On December 4, 1998,
a petition for Discretionary Review filed by CIGFUR was denied by the North
Carolina Supreme Court.
In late 1998 and early 1999, the Company filed, and the respective commissions
subsequently approved, proposals in the North and South Carolina retail
jurisdictions to accelerate cost recovery of its nuclear generating assets
beginning January 1, 2000 and continuing through 2004. The accelerated cost
recovery begins immediately after the 1999 expiration of the accelerated
amortization of certain regulatory assets (see Note 3d). Pursuant to the orders,
the Company's depreciation expense for nuclear generating assets will increase
by $106 million to $150 million per year. Recovering the costs of the nuclear
generating assets on an accelerated basis will better position the Company for
the uncertainties associated with potential restructuring of the of the electric
utility industry.
<PAGE>
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. The
cost recovery was substantially completed during 1998.
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 was completed in 1998 for the
wholesale and North Carolina retail jurisdictions and will be completed in 1999
for the South Carolina retail jurisdiction.
Amortization of plant abandonment costs is included in depreciation and
amortization expense and totaled $24.2 million, $30.8 million and $17.6 million
in 1998, 1997 and 1996, 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 $1.7 million,
$3.5 million and $26.4 million in 1998, 1997 and 1996, respectively, and is
reported in other, 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 3d).
8. 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. All or a portion of the
dividends paid on ESOP suspense shares and on ESOP shares allocated to
participants may be used to repay ESOP acquisition loans. To the extent used to
repay such loans, the dividends are deductible for income tax purposes.
There were 6,953,612 ESOP suspense shares at December 31, 1998, with a fair
value of $327.3 million. ESOP shares allocated to plan participants totaled
12,416,040 at December 31, 1998. 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. Interest income on the note receivable and dividends on
unallocated ESOP shares are not recognized for financial statement purposes.
9. Postretirement Benefit Plans
The Company has a noncontributory defined benefit retirement (pension) plan for
substantially all full-time employees.
<PAGE>
The components of net periodic pension cost are (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Actual return on plan assets $ (87,382) $(110,346) $ (76,347)
Variance from expected return,
deferred 17,462 57,368 27,056
--------- -------- --------
Expected return on plan assets (69,920) (52,978) (49,291)
Service cost 18,357 18,643 19,257
Interest cost 45,877 42,468 39,505
Amortization of transition obligation 106 106 106
Amortization of prior service cost (benefit) (158) 967 724
Amortization of actuarial gain (6,440) (36) (364)
--------- -------- --------
Net periodic pension cost (benefit) $ (12,178) $ 9,170 $ 9,937
========= ======== ========
</TABLE>
Prior service costs and benefits are amortized on a straight-line basis over the
average remaining service period of active participants. Actuarial gains and
losses in excess of 10% of the greater of the pension obligation or the
market-related value of assets are amortized over the average remaining service
period of active participants.
Reconciliations of the changes in the plan's benefit obligations and the plan's
funded status are (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Pension obligation
Pension obligation at January 1 $ 598,160 $ 558,688
Interest cost 45,877 42,468
Service cost 18,357 18,643
Benefit payments (25,466) (25,557)
Actuarial loss 77,785 3,918
Plan amendments (36,503) -
--------- ---------
Pension obligation at December 31 678,210 598,160
Fair value of plan assets at December 31 830,213 768,297
--------- ---------
Funded status 152,003 170,137
Unrecognized transition obligation 688 793
Unrecognized prior service cost (benefit) (25,429) 10,916
Unrecognized actuarial gain (145,657) (212,419)
--------- ---------
Accrued pension obligation at December 31 $ (18,395) $ (30,573)
========= =========
</TABLE>
<PAGE>
Reconciliations of the fair value of pension plan assets are (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Fair value of plan assets at January 1 $ 768,297 $ 683,508
Actual return on plan assets 87,382 110,346
Benefit payments (25,466) (25,557)
--------- ---------
Fair value of plan assets at December 31 $ 830,213 $ 768,297
========= =========
</TABLE>
The weighted-average discount rate used to measure the pension obligation was
7.0% in 1998 and 7.75% in 1997. The assumed rate of increase in future
compensation used to measure the pension obligation was 4.20% in both 1998 and
1997. The expected long-term rate of return on pension plan assets used in
determining the net periodic pension cost was 9.25% in 1998, 1997 and 1996.
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):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Actual return on plan assets $ (3,877) $ (4,628) $ (2,656)
Variance from expected return,
deferred 785 2,186 726
-------- -------- --------
Expected return on plan assets (3,092) (2,442) (1,930)
Service cost 7,182 7,988 8,412
Interest cost 13,402 11,065 10,629
Amortization of transition obligation 5,641 5,889 5,889
Amortization of actuarial gain (549) -- --
-------- -------- --------
Net periodic OPEB cost $ 22,584 $ 22,500 $ 23,000
======== ======== ========
</TABLE>
Actuarial gains and losses in excess of 10% of the greater of the OPEB
obligation or the market-related value of assets are amortized over the average
remaining service period of active participants.
Reconciliations of the changes in the plan's benefit obligations and the plan's
funded status are (in thousands):
<PAGE>
1998 1997
--------- ---------
OPEB obligation
OPEB obligation at January 1 $ 181,324 $ 164,487
Interest cost 13,402 11,065
Service cost 7,182 7,988
Benefit payments (4,774) (5,235)
Actuarial loss 3,428 3,019
Plan amendment (3,716) --
--------- ---------
OPEB obligation at December 31 196,846 181,324
Fair value of plan assets at December 31 37,304 33,427
--------- ---------
Funded status (159,542) (147,897)
Unrecognized transition obligation 78,978 88,336
Unrecognized actuarial gain (7,314) (10,506)
--------- ---------
Accrued OPEB obligation at December 31 $ (87,878) $ (70,067)
========= =========
Reconciliations of the fair value of OPEB plan assets are (in thousands):
1998 1997
------- -------
Fair value of plan assets at January 1 $33,427 $28,799
Actual return on plan assets 3,877 4,628
------- -------
Fair value of plan assets at December 31 $37,304 $33,427
======= =======
The assumptions used to measure the OPEB obligation are:
1998 1997
---- ----
Weighted-average discount rate 7.00% 7.75%
Initial medical cost trend rate for
pre-Medicare benefits 6.60% 7.20%
Initial medical cost trend rate for
post-Medicare benefits 6.40% 7.00%
Ultimate medical cost trend rate 4.50% 5.25%
Year ultimate medical cost trend rate is achieved 2006 2005
The expected long-term rate of return on plan assets used in determining the net
periodic OPEB cost was 9.25% in 1998, 1997 and 1996. The medical cost trend
rates were assumed to decrease gradually from the initial rates to the ultimate
rates. Assuming a 1% increase in the medical cost trend rates, the aggregate of
<PAGE>
the service and interest cost components of the net periodic OPEB cost for 1998
would increase by $3.3 million, and the OPEB obligation at December 31, 1998
would increase by $24.8 million. Assuming a 1% decrease in the medical cost
trend rates, the aggregate of the service and interest cost components of the
net periodic OPEB cost for 1998 would decrease by $2.7 million and the OPEB
obligation at December 31, 1998 would decrease by $21.2 million.
10. Income Taxes
Deferred income taxes are provided for temporary differences between book and
tax bases of assets and liabilities. 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):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Accelerated depreciation and property
cost differences $ 1,632,119 $ 1,676,505
Deferred costs, net 66,757 87,829
Miscellaneous other temporary
differences, net 10,885 300
----------- -----------
Net accumulated deferred income tax liability $ 1,709,761 $ 1,764,634
=========== ===========
</TABLE>
Total deferred income tax liabilities were $2.21 billion and $2.24 billion at
December 31, 1998 and 1997, respectively. Total deferred income tax assets were
$501 million and $472 million at December 31, 1998 and 1997, respectively.
Reconciliations of the Company's effective income tax rate to the statutory
federal income tax rate are:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Effective income tax rate 39.2% 37.5% 39.5%
State income taxes, net of federal
income tax benefit (4.7) (4.9) (4.9)
Investment tax credit amortization 1.5 1.7 1.6
Other differences, net (1.0) 0.7 (1.2)
------------- ------------- -------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
============= ============= =============
</TABLE>
The provisions for income tax expense are comprised of (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Income tax expense (credit)
Current - federal $254,400 $ 258,050 $ 110,188
state 51,817 56,747 25,355
Deferred - federal (34,842) (61,384) 107,589
state (3,675) (9,465) 23,229
Investment tax credit (10,206) (10,232) (10,445)
-------- --------- --------
Total income tax expense $257,494 $ 233,716 $255,916
======== ========= ========
</TABLE>
<PAGE>
11. 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 ownership interest in the jointly owned generating facilities is
listed below with related information as of December 31, 1998 (dollars in
millions):
<TABLE>
<CAPTION>
Company
Facility Megawatt Ownership Plant Accumulated Under
Capability Interest Investment Depreciation Construction
---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mayo Plant 745 83.83% $ 450 $ 193 $ 2
Harris Plant 860 83.83% $ 2,997 $ 1,008 $ 48
Brunswick Plant 1631 81.67% $ 1,414 $ 978 $ 3
Roxboro Unit No. 4 700 87.06% $ 231 $ 110 $ 6
</TABLE>
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.
12. 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 Harris
Plant. 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.
These contractual purchases, including purchases from the Mayo Plant that ended
in 1997, totaled $34.4 million, $36.2 million and $36.7 million for 1998, 1997
and 1996, 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, 1998 and 1997, the Company had deferred purchased capacity costs,
including carrying costs accrued on the deferred balances, of $60.0 million and
$63.7 million, respectively. Increased purchases (which are not being deferred
for future recovery) resulting from the 1993 agreement with Power Agency were
approximately $19 million, $17 million and $13 million for 1998, 1997 and 1996,
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
<PAGE>
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 $59.3 million, $61.9 million and $60.9 million
for 1998, 1997 and 1996, respectively. Total purchases (including transmission
use charges) under the agreement with Duke amounted to $75.5 million, $69.5
million and $65.4 million for 1998, 1997 and 1996, 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.
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 $1.85 million at Brunswick Unit No.
1, $1.83 million at Brunswick Unit No. 2, $1.9 million at the Harris Plant and
$1.6 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
$12.1 million with respect to the primary coverage, $17.5 million with respect
to the decontamination, decommissioning and excess property coverage and $6.3
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 approximately $3.9
billion. Pursuant to regulations of the NRC, 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
$9.8 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 $83.9 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 7a) may be affected in the future by competitive forces 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".
<PAGE>
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), which has established
a uniform framework to address MGP sites. The investigation and remediation
of specific MGP sites will be addressed pursuant to one or more
Administrative Orders on Consent (AOC) between the DWM and the potentially
responsible party or parties. The Company has signed AOCs to investigate
certain sites. 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 does not
expect the costs associated with these sites to be material to the financial
position and results of operations of the Company.
The Company has been notified by regulators of its involvement or potential
involvement in several sites, other than MGP sites, that may require
investigation and/or remediation. Although the Company may incur costs at
these sites, the investigation and/or remediation of the sites has not
advanced to a stage where reasonable cost estimates can be made. The Company
cannot predict the outcome of these matters.
The Company carries a liability for the estimated costs associated with
certain remedial activities. This liability is not 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 begin taking 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, has undertaken
measures to force the DOE to take spent nuclear fuel. To date, the courts
have rejected these attempts. In addition, several utilities have filed
actions for damages in the United States Court of Claims, and in some of
those cases the Court has agreed that the DOE has breached its contract for
disposal of spent nuclear fuel. The Company is in the process of evaluating
whether it should file a similar action for damages. The Company will also
monitor legislation that has been introduced in Congress that would provide
for interim storage of spent nuclear fuel at a storage facility operated by
the DOE. The Company cannot predict the outcome of this matter.
With certain modifications and additional approval by the NRC, the Company's
spent nuclear fuel storage facilities will be 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 these licenses, dry storage may be
necessary. The Company has initiated the process of obtaining the additional
NRC approval.
3. In the opinion of management, liabilities, if any, arising under other
pending claims would not have a material effect on the financial position and
results of operations of the Company.
<PAGE>
CAROLINA POWER & LIGHT COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
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 $ 3,366,361 $ 17,993,081 $ -0- $ 7,132,511 $ 14,226,931
============= ============ ============ ============= =============
Reserves deducted from
related assets on the
balance sheet:
Inventory -0- $ 145,051 $ -0- $ -0- $ 145,051
============= ============ ============ ============= =============
Reserves other than those
deducted from assets
on the balance sheet:
Injuries and damages $ 1,319,664 $ 806,828 $ -0- $ 1,115,936 $ 1,010,556
============= ============ ============ ============= =============
Reserve for possible
coal mine investment
losses $ 7,505,994 $ -0- $ -0- $ 177,529 $ 7,328,465
============= ============ ============ ============= =============
Reserve for employee
retirement and
compensation plans $ 142,232,971 $16,569,740 $ -0- $ 7,327,455 $151,475,256
============= ============ ============ ============= =============
Reserve for
environmental
investigation and
remediation costs $ 1,815,909 $ -0- $ -0- $ 1,494,461 $ 321,448
============= ============ ============ ============= =============
Reserve for product
warranty $ -0- $ 465,000 $ -0- $ -0- $ 465,000
============= ============ ============ ============= =============
</TABLE>
<PAGE>
CAROLINA POWER & LIGHT COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
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>
<PAGE>
CAROLINA POWER & LIGHT COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
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>
<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 1999 definitive proxy statement dated April 1, 1999, 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
1999 definitive proxy statement dated April 1, 1999, 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.
b) Information on security ownership of the Company's management is
set forth in the Company's 1999 definitive proxy statement dated
April 1, 1999, 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 1999 definitive proxy statement dated April 1,
1999, and incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, 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
<PAGE>
3. Exhibits Filed:
See EXHIBIT INDEX
b) Reports on Form 8-K filed during or with respect to the last
quarter of 1998 and the portion of the first quarter of 1999 prior
to the filing of this Form 10-K:
1. Current Report on Form 8-K dated February 26, 1999.
2. Current Report on Form 8-K dated March 19, 1999.
<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.
CAROLINA POWER & LIGHT COMPANY
Date: 3/25/99 (Registrant)
-------- By: /s/ Glenn E. Harder
Executive Vice President, Chief
Financial Officer and
Principal Accounting 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 3/17/99
- ----------------------------- Officer and Director
(William Cavanaugh III,
President and Chief Executive
Officer)
/s/ Glenn E. Harder Principal Financial 3/17/99
- ------------------------------ Officer
(Glenn E. Harder
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer)
/s/ Sherwood H. Smith, Jr. Director 3/17/99
- ------------------------------
(Sherwood H. Smith, Jr.,
Chairman)
/s/ Leslie M. Baker, Jr. Director 3/17/99
- ------------------------------
(Leslie M. Baker, Jr.)
/s/ Edwin B. Borden Director 3/17/99
- ------------------------------
(Edwin B. Borden)
<PAGE>
/s/ Charles W. Coker Director 3/17/99
- ------------------------------
(Charles W. Coker)
/s/ Richard L. Daugherty Director 3/17/99
- ------------------------------
(Richard L. Daugherty)
/s/ Robert L. Jones Director 3/17/99
- ------------------------------
(Robert L. Jones)
/s/ Estell C. Lee Director 3/17/99
- ------------------------------
(Estell C. Lee)
/s/ William O. McCoy Director 3/17/99
- ------------------------------
(William O. McCoy)
/s/ J. Tylee Wilson Director 3/17/99
- ------------------------------
(J. Tylee Wilson)
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
*2 Agreement and Plan of Merger By and Among Carolina
Power & Light Company, North Carolina Natural Gas
Corporation and Carolina Acquisition Corporation,
dated as of November 10, 1998 (filed as Exhibit
No. 2(b) to quarterly report on Form 10-Q for the
quarterly period ended September 30, 1998, File
No. 1-3382.)
*3a(1) Restated Charter of Carolina Power & Light
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 Carolina Power & Light 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).
3b(3) By-Laws of Carolina Power & Light Company, as
amended on March 17, 1999.
*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 (Douglas J. MacInnes, Successor), Trustees
and the First through Fifth Supplemental
Indentures thereto (Exhibit 2(b), File No.
2-64189); and the Sixth
<PAGE>
through Sixty-sixth 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; 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) to Post-Effective Amendment
No. 1, File No. 33-38349; Exhibit 4(e), File No.
33-50597; Exhibit 4(e) and 4(f), File No.
33-57835; Exhibit to Current Report on Form 8-K
dated August 28, 1997, File No. 1-3382; Form of
Carolina Power & Light Company First Mortgage
Bond, 6.80% Series Due August 15, 2007 filed as
Exhibit 4 to Form 10-Q for the period ended
September 30, 1998, File No. 1-3382; Exhibit 4(b),
File No. 333-69237; and Exhibit 4(c), File No.
1-03382.)
*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).
*4d Indenture (for Senior Notes), dated as of March 1,
1999 between Carolina Power & Light Company and
The Bank of New York as Trustee, and the First
Supplemental Senior Note Indenture thereto (filed
as Exhibit Nos. 4(a) and 4(b) to Current Report on
Form 8-K dated March 19, 1999, File No. 1-03382).
*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).
<PAGE>
*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).
*10a(5) Agreement Regarding New Resources and Interim
Capacity between Carolina Power & Light Company
and North Carolina Eastern Municipal Power Agency
dated October 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
<PAGE>
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.
+*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) Carolina Power & Light Company Restricted Stock
Agreement, as approved January 7, 1998, pursuant
to the Company's 1997 Equity Incentive Plan (filed
as Exhibit No. 10 to quarterly report on Form 10-Q
for the quarterly period ended March 31, 1998,
File No. 1-3382.)
+*10b(17) Resolutions of Board of Directors dated July 17,
1998, amending the Supplemental Executive
Retirement Plan of Carolina Power & Light Company,
effective January 1, 1999, (filed as Exhibit No.
10(a) to quarterly report on Form 10-Q for the
quarterly period ended June 30, 1998, File No.
1-3382.)
+*10b(18) Amended Management Incentive Compensation Plan of
Carolina Power & Light Company, effective January
1, 1999, as amended by the Organization and
Compensation Committee of the Board of Directors
on July 17, 1998, (filed as Exhibit No. 10(b) to
quarterly report on Form 10-Q for the quarterly
period ended June 30, 1998, File No. 1-3382.)
+10b(19) Supplemental Senior Executive Retirement Plan of
Carolina Power & Light Company, as amended January
1, 1999.
+10b(20) Carolina Power & Light Company Restoration
Retirement Plan, as amended January 1, 1999.
+*10b(21) Employment Agreement dated September 1, 1992, by
and between the Company and William Cavanaugh III
(filed as Exhibit 10b, File No.
1-03382).
+*10b(22) Employment Agreement dated April 1, 1993, by and
between the Company and William S. Orser (filed as
Exhibit 10b, File No. 1-03382).
+*10b(23) Employment Arrangement dated September 27, 1994 by
and between the Company and Glenn E. Harder (filed
as Exhibit 10b, File No. 1-03382).
<PAGE>
+*10b(24) Personal Services Agreement dated September 18,
1996, by and between the Company and Sherwood H.
Smith, Jr. (filed as Exhibit 10b, File
No.1-03382).
+*10b(25) Employment Agreement dated June 2, 1997, by and
between the Company and Robert B. McGehee (filed
as Exhibit 10b, File No.
1-03382).
+*10b(26) Employment Agreement dated September 24, 1997, by
and between the Company and John E. Manczak (filed
as Exhibit 10b, File No. 1-03382).
+10b(27) Employment Agreement dated August 3, 1998, by and
between the Company and Tom D. Kilgore.
12 Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends Combined and Ratio of
Earnings to Fixed Charges.
21 Subsidiaries of Carolina Power & Light Company.
23(a) Consent of Deloitte & Touche LLP.
*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.
EXHIBIT 3b(3)
B Y - L A W S
OF
CAROLINA POWER & LIGHT COMPANY
RALEIGH, NORTH CAROLINA
(AS AMENDED MARCH 17, 1999)
MEETINGS OF STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the Company shall
be held at the principal office of the Company, on the second Wednesday of May
in each year, if not a legal holiday, and if a legal holiday, then on the next
day not a legal holiday, at ten o'clock A.M., or at such other date, or hour, or
at such other place within or without the State of North Carolina as stated in
the notice of the meeting as the Board of Directors may determine.
Section 2. Special meetings of the stockholders of the Company may be
held upon call by a majority of the Board of Directors or of the Executive
Committee, or by the Chairman of the Board, or by the President of the Company,
at the principal office of the Company or at such other place within or without
the State of North Carolina, and at such time, as may be stated in the call and
notice.
Section 3. Written notice of the time and place of every meeting of
stockholders may be given, and shall be deemed to have been duly given, by
mailing the same at least ten, but not more than sixty, days prior to the
meeting, to each stockholder of record, entitled to vote at such meeting, and
addressed to him at his address as it appears on the records of the Company,
with postage thereon prepaid. Notice may also be given by any other lawful
means.
Section 4. In accordance with Section 55-7-20 of the General Statutes of
North Carolina, the Company, or an officer having charge of the record of
stockholders of the Company, shall prepare a list of stockholders which shall be
available for inspection by stockholders, or their agents or attorneys.
Section 5. The holders of a majority of the stock of the Company having
voting powers must be present in person or represented by proxy at each meeting
of the stockholders to constitute a quorum; absent such quorum, the meeting may
be adjourned by a majority of shares voting on a motion to adjourn. If such
adjournment is for less than thirty days, notice other than announcement at the
meeting need not be given. At any adjourned meeting at which a quorum shall be
present or
<PAGE>
represented, any business may be transacted which might have been transacted at
the original meeting.
Section 6. (a) When a quorum is present at any meeting, the vote of the
holders of a majority of the outstanding stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of any
applicable statute or of the Charter a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 6. (b) To be properly brought before a meeting of shareholders,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (iii) otherwise properly brought before an annual meeting by a
shareholder of the Company who was a shareholder of record at the time of the
giving of notice provided for in Section 3 of these By-Laws and who is entitled
to vote at the meeting. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a shareholder, the
shareholder must give timely notice of the proposal in writing to the Secretary
of the Company. To be timely, a shareholder's notice must be received by the
Secretary of the Company at the principal executive offices of the Company not
later than the close of business on the 60th day prior to the first anniversary
of the immediately preceding year's annual meeting. In no event shall the public
announcement of an adjournment or postponement of an annual meeting or the fact
that an annual meeting is held after the anniversary of the preceding annual
meeting commence a new time period for the giving of a shareholder notice as
described above. A shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the annual meeting, including the complete
text of any resolutions to be presented at the annual meeting with respect to
such business, (ii) the reasons for conducting such business at the annual
meeting, (iii) the name and address of record of the shareholder and the
beneficial owner, if any, on whose behalf the proposal is made, (iv) the class
and number of shares of the Company which are owned by the shareholder and such
beneficial owner, (v) a representation that the shareholder is a holder of
record of shares of the Company entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such business, and (vi)
any material interest of the shareholder and such beneficial owner in such
business.
In the event that a shareholder attempts to bring business before a
meeting without complying with the procedures set forth in this Section 6(b),
such business shall not be transacted at such meeting. The Chairman of the Board
of Directors, or any other individual presiding over the meeting pursuant to
Section 8 of these By-Laws, shall have the power and duty to determine whether
any proposal to bring business before the meeting was made in accordance with
the procedures set forth in this Section 6(b), and, if any business is not
proposed in compliance with this Section, to declare that such defective
proposal shall be disregarded and that such proposed business shall not be
transacted at such meeting.
Section 7. The Board of Directors in advance of any meeting of
stockholders may appoint two voting inspectors to act at any such meeting or
adjournment thereof. If they fail to make such
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<PAGE>
appointment, or if their appointees or any of them fail to appear at the meeting
of stockholders, the chairman of the meeting may appoint such inspectors or any
inspector to act at that meeting.
Section 8. Meetings of the stockholders shall be presided over by the
Chairman of the Board of Directors, or, if he is not present, the President, or,
if the President is not present, a Vice President, or if neither of said
officers is present, by a chairman pro tem to be elected at the meeting. The
Secretary of the Company shall act as secretary of such meetings, if present,
but if not present, some person shall be appointed by the presiding officer to
act during the meeting.
Section 9. Each holder of Preferred Stock and/or Common Stock shall at
every meeting of the stockholders be entitled to one vote in person or by proxy
for each share of such stock held by such stockholder. Except where the transfer
books of the Company have been closed or a date has been fixed as a record date
for the determination of its stockholders entitled to vote, no share of stock
shall be voted at any election for directors which has been transferred on the
books of the Company within twenty days next preceding such election of
directors.
DIRECTORS AND MEETINGS OF DIRECTORS
Section 10. (a) The number of directors of the Company shall not be less
than eleven (11) nor more than fifteen (15). The authorized number of directors,
within the limits above specified, shall be determined by the affirmative vote
of a majority of the whole board given at any regular or special meeting of the
Board of Directors, provided that, the number of directors shall not be reduced
to a number less than the number of directors then in office unless such
reduction shall become effective only at and after the next ensuing meeting of
the shareholders for the election of directors. This subsection (a) was adopted
by the stockholders of the Company.
(b) The directors shall appoint from among their number a Chairman, who
shall serve at the pleasure of the Board. Members of the Board of Directors of
the Company who are full-time employees of the Company shall retire from the
Board upon attaining the age of 65 years; provided, however, that the Chairman
of the Board of the Company shall be eligible to continue as a member of the
Board after attaining the age of 65 years and will be considered a Director who
is not employed full-time by the Company. Those persons who are not employed
full-time by the Company shall not be eligible for election as a Director in any
calendar year (or subsequent year) in which he or she has reached or will reach
the age of 71 years. Any Director who reaches the age of 71 during a term of
office shall resign as of the first day of the month so following unless
otherwise determined by the Board.
(c) The election of directors shall be held at the annual meeting of
stockholders. The directors, other than those who may be elected under
circumstances specified in the Company's Restated Charter, as it may be amended,
by the holders of any class of stock having a preference over the Common Stock
as to dividends or in liquidation, shall be classified into three classes, as
nearly equal in number as possible. The initial terms of directors first elected
or re-elected by the stockholders on the date this amendment to the By-Laws is
adopted shall be for the following terms of office:
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<PAGE>
Class I: One year
Class II: Two years
Class III: Three years
and until their successors shall be elected and shall qualify. Upon the
expiration of the initial term specified for each class of directors their
successors shall be elected for three-year terms or until such time as their
successors shall be elected and qualified. In the event of any increase or
decrease in the number of directors, the additional or eliminated directorships,
shall be classified or chosen so that all classes of directors shall remain or
become equal in number, as nearly as possible. This subsection (c) was adopted
by the stockholders of the Company.
(d) Subject to the rights of holders of any securities or obligations of
the Company conferring special rights regarding election of directors,
nominations for the election of directors shall be made by the Board of
Directors or by any shareholder entitled to vote in elections of directors;
provided however, that any shareholder entitled to vote in the election of
directors may nominate one or more persons for election as directors only at an
annual meeting and if written notice of such shareholder's intent to make such
nomination or nominations has been received, either by personal delivery or by
United States registered or certified mail, postage prepaid, by the Secretary of
the Company at the principal executive offices of the Company not later than the
close of business on the 60th day prior to the first anniversary of the
immediately preceding year's annual meeting. In no event shall the public
announcement of an adjournment or postponement of an annual meeting or the fact
that an annual meeting is held after the anniversary of the preceding annual
meeting commence a new time period for the giving of a shareholder's notice as
described above. Each notice shall set forth (i) the name and address of record
of the shareholder who intends to make the nomination, the beneficial owner, if
any, on whose behalf the nomination is made and of the person or persons to be
nominated, (ii) the class and number of shares of the Company that are owned by
the shareholder and such beneficial owner, (iii) a representation that the
shareholder is a holder of record of shares of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (iv) a description of
all arrangements, understandings or relationships between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder, and (v) such other information regarding each nominee proposed by
such shareholder as would be required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required to be disclosed, pursuant to the proxy rules of the Securities and
Exchange Commission, had the nominee been nominated, or intended to be
nominated, by the Board of Directors, and shall include a consent signed by each
such nominee to serve as a director of the Company if so elected. In the event
that a shareholder attempts to nominate any person without complying with the
procedures set forth in this Section 10.(d), such person shall not be nominated
and shall not stand for election at such meeting. The Chairman of the Board of
Directors, or any other individual presiding over the meeting pursuant to
Section 8 of these By-Laws, shall have the power and duty to determine whether a
nomination proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 10.(d) and, if any proposed nomination
is not in compliance with this Section 10.(d), to declare that such defective
proposal shall be disregarded.
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<PAGE>
Section 11. In case of any vacancy in the number of directors through
death, resignation, disqualification, increase in the number of directors or
other cause, the remaining directors present at the meeting, by affirmative vote
of a majority thereof, though less than a quorum, may elect a successor to hold
office until the next shareholders' meeting at which directors are elected and
until the election of his successor.
Section 12. Regular meetings of the Board of Directors shall be held at
times fixed by resolution of the Board, and special meetings may be held upon
the written call of the Executive Committee, or by the Chairman of the Board, or
by the President or by any two directors; and the Secretary or officer
performing his duties shall give reasonable notice of all meetings of directors;
provided, that a meeting may be held without notice immediately after the annual
election, and notice need not be given of regular meetings held at times fixed
by resolution of the Board. Meetings may be held at any time without notice if
all the directors are present, or if those not present waive notice either
before or after the meeting. All regular and special meetings shall be held at
the principal offices of the Company, provided that the Board, from time to
time, may order that any meeting be held elsewhere within or without the State
of North Carolina. A majority of the whole Board of Directors shall constitute a
quorum, and the act of a majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors, unless a greater
proportion is required by the Charter.
Section 13. The business and affairs of the Company shall be managed by
its Board of Directors, which may exercise all such powers of the Company and do
all such lawful acts and things which are not by law or by the Charter directed
or required to be exercised or done by the stockholders; provided, however, that
the officers of the Company shall, without prior action of the Board of
Directors, perform all acts and things incidental to the usual and ordinary
course of the business in which the Company is engaged as hereinafter provided
by the By-Laws or as may hereafter be delegated by the Board of Directors. A
majority of the Board of Directors may create one or more Committees and appoint
other members of the Board of Directors to serve on such Committees. Each such
Committee shall have two or more members, who serve at the pleasure of the Board
of Directors. Any such Committee may exercise authority over any matters except
those matters described in Section 55-8-25(e) of the General Statutes of North
Carolina.
Section 14. A majority of the whole Board of Directors, present at any
meeting held after their election in each year, may appoint an Executive
Committee, to consist of three or more directors, which Committee shall have and
may exercise, during the intervals between meetings of the Board, by a majority
vote of those present at a meeting, all the powers vested in the Board, except
the following matters as more fully described in Section 55-8-25(e) of the
General Statutes of North Carolina:
- Authorize distributions;
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<PAGE>
- Approve or propose to shareholders action that is by law
required to be approved by the shareholders;
- Fill vacancies on the Board of Directors or on any of its
Committees;
- Amend the Company's Articles of Incorporation pursuant to
N.C.G.S. '55-10-102;
- Adopt, amend or repeal the Company's By-Laws;
- Approve a plan of merger not requiring shareholder approval;
- Authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the Board of Directors; or
- Authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares.
A majority of the whole Board of Directors present at any meeting shall have the
power at any time to change the membership of such Committee and to fill
vacancies in it. The Executive Committee may make rules for the conduct of its
business. A majority of the members of said Committee shall constitute a quorum.
The Chairman of the Executive Committee shall be appointed by the Board of
Directors from the membership of the Executive Committee.
NOTICES
Section 15. Notices to directors or stockholders shall be in writing and
given personally or by mail to the directors and by mail to the stockholders at
their addresses appearing on the books of the Company; provided, however, that
no notice need be given any stockholder or director whose address is outside of
the United States. Notice by mail shall be deemed to be given at the time when
the same shall be mailed. Notice to directors may also be given verbally, or by
telegram, or cable, and any such notice shall be deemed to be given when
delivered to and accepted for transmittal by an office of the transmitting
company.
Section 16. Whenever any notice is required to be given under the
provisions of applicable statutes or of the Charter or of these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice in apt time.
OFFICERS, THEIR AUTHORITY, AND THEIR TERMS OF OFFICE
Section 17. The Board of Directors shall annually at its first meeting
held after the Annual Meeting of Stockholders, or as soon thereafter as may be
practical, elect the officers of the Company, who shall consist of a President,
one or more Senior Executive Vice Presidents and Executive Vice Presidents, two
or more Senior Vice Presidents, three or more Vice Presidents, a Secretary, a
Treasurer, a Controller and such other officers or assistant officers and agents
as may be appointed by the Board of Directors. At other times, the Board of
Directors or any Committee to which it delegates the authority to do so may
elect officers to fill any new office or a vacancy in any office occurring by
virtue of the incumbent's death, resignation, removal or otherwise at any duly
convened
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<PAGE>
meeting of the Board or of the Committee. The officer shall serve for the period
specified or until a successor is chosen. From time to time the Board of
Directors may also elect a Vice Chairman who shall have such duties as described
herein and as may from time to time be directed. Any two offices may be held by
the same person, but no officer may act in more than one capacity where action
of two or more officers is required. The Vice Chairman, if any, of the Board of
Directors shall be chosen from among the Directors, but the other officers need
not be Directors of the Company
Section 18. The Board of Directors shall appoint the Chief Executive
Officer who shall be either the Chairman, the Vice Chairman or the President of
the Company. In the event the Chief Executive Officer is unavailable at the time
for needed action, or in other circumstances as directed by the Chief Executive
Officer, then the Chairman, the Vice Chairman, if any, or the President if there
is no Vice Chairman, who is not then serving as Chief Executive Officer, shall
be the next officer in line of authority to perform the duties of Chief
Executive Officer. If the Chairman, the Vice Chairman and the President should
be unavailable at the time for needed action, or in other circumstances as
directed by the Chief Executive Officer, then the next officer in line of
authority to perform the duties of the Chief Executive Officer shall be a Senior
Executive Vice President or Executive Vice President as designated by the Chief
Executive Officer.
Section 19. Any officer may be reassigned duties by appropriate members
of Senior Management at any time. Any officer may be removed from office at any
time by the Board of Directors, or by any Committee to which it delegates the
authority to remove officers from office, without prejudice to the rights of the
officer removed under an employment agreement in writing previously duly
authorized by the Board of Directors or an Executive Committee of the Board of
Directors. Any officer may resign at any time by giving written notice to the
Board of Directors, the President or any other officer of the Company. Such
resignation shall take effect at the time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 20. The Board of Directors or the Chief Executive Officer of the
Company may require the Treasurer and any other officer, employee or agent of
the Company to give bond, in such sum and with such surety or sureties as either
shall determine, for the faithful discharge of their duties.
Section 21. Unless otherwise provided by the Board of Directors, the
Company's Chief Executive Officer is vested with full power, authority, and the
duty, to perform in person, and by delegation of authority to subordinate
officers and employees of the Company, all acts and things deemed by him to be
reasonably necessary or desirable to direct, handle, and manage, and in general
carry on the Company's business transactions authorized by its Charter, in
respect to all matters except those which by law must be performed by the
Directors, including but not limited to the following: (a) constructing and
contracting for the construction of generating plants authorized by the
Directors; (b) operating and maintaining generating plants and appurtenant
works; (c) constructing, maintaining, and operating substations, lines and all
other facilities, appurtenant to the transmission, distribution and delivery of
electricity; (d) acquiring by direct purchase, gift, exchange,
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<PAGE>
or by condemnation, all rights of way, easements, lands, and estates in lands,
flowage and water rights; (e) acquiring, maintaining and disposing of tools,
machinery, appliances, materials, vehicles, and other appurtenant facilities;
(f) employing, and fixing compensation of, Company personnel (except that the
compensation of the Chief Executive Officer and the other Company employees who
are members of the Board shall be fixed by the Board of Directors) in compliance
with any procedures established by the Board; (g) borrowing money from time to
time for terms not exceeding three years, and in connection therewith pledging
the credit of the Company and executing unsecured loan agreements, promissory
notes, and other desirable instruments evidencing obligations to the lender; (h)
fixing the rates and conditions of service and dealing with regulatory bodies in
respect thereto, and promoting the use of electricity by means of sales
representatives, advertising and otherwise; (i) collecting and keeping accounts
of all monies due the Company and making and preserving records of the Company's
properties and accounts and fiscal affairs; and (j) possessing, preserving, and
protecting all property, assets, and interests of the Company and instituting,
prosecuting, intervening in, and defending actions and proceedings in any court
or before any administrative agency or tribunal affecting the Company's
interests and welfare.
CERTIFICATES OF STOCK
Section 22. Every holder of stock in the Company shall be entitled to
have a certificate or certificates certifying the number of fully paid shares
owned by him in the Company which shall be in form consistent with law and with
the Charter of the Company and as shall be approved by the Board of Directors.
The stock certificates shall be signed by: 1) either the Chairman of the Board
of Directors or the President, and 2) either the Secretary or Treasurer. Such
signatures may be facsimile or other similar method.
Section 23. All transfers of stock of the Company shall be made upon its
books by authority of the holder of the shares or of his legal representative,
and before a new certificate is issued the old certificate shall be surrendered
for cancellation, provided that in case any certificate is lost, stolen or
destroyed, a new certificate therefor may be issued pursuant to the provisions
of Section 24 hereof.
Section 24. No certificate of shares of stock of the Company shall be
issued in place of any certificate alleged to have been lost or stolen or
destroyed, except upon the approval of the Board of Directors who may require
delivery to the Company of a bond in such sum as it may direct and subject to
its approval as indemnity against any claim in respect to such lost or stolen or
destroyed certificate; provided that the Board of Directors may delegate to the
Company's Transfer Agent and Registrar authority to issue and register,
respectively, from time to time without further action or approval of the Board
of Directors, new certificates of stock to replace certificates reported lost,
stolen or destroyed upon receipt of an affidavit of loss and bond of indemnity
in form and amount and with corporate surety satisfactory to them in each
instance protecting the Company and them against loss. Such legal evidence of
such loss or theft or destruction shall be furnished to the Board of Directors
as may be required by them.
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<PAGE>
Section 25. The Board of Directors shall have power and authority to
make all such rules and regulations as it may deem expedient concerning the
issue, transfer, conversion and registration of certificates for shares of the
capital stock of the Company, not inconsistent with the laws of North Carolina,
the Charter of the Company and these By-Laws. The Board of Directors is
authorized to appoint one or more transfer agents and registrars for the capital
stock of the Company.
Section 26. The Board of Directors shall have power to close the stock
transfer books or in lieu thereof to fix record dates as authorized by law.
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<PAGE>
GENERAL
Section 27. Subject to the provisions of the applicable statutes and the
Charter of the Company, dividends, either cash or stock, upon the capital stock
of the Company may be declared by the Board of Directors at any meeting thereof.
Section 28. Deeds, bonds, notes, mortgages and contracts of the Company
may be executed on behalf of the Company by the President, or a Vice President,
or any one of such other persons as shall from time to time be authorized by the
Board of Directors, and when necessary or appropriate may be attested or
countersigned by the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer. The corporate seal of the Company may be affixed to deeds,
bonds, notes, mortgages, contracts or stock certificates by an appropriate
officer of the Company by impression thereon, or, by order of an appropriate
officer of the Company, a facsimile of said seal may be affixed thereto by
engraving, printing, lithograph or other method.
Section 29. The monies of the Company shall be deposited in the name of
the Company in such bank or banks or trust company or trust companies as the
Treasurer, with approval of the Chief Executive Officer, shall from time to time
select, and shall be drawn out only by checks or other orders signed by persons
designated by resolution by the Board of Directors.
Section 30. As and when used in any of the foregoing By-Laws the words
"stockholder" and "stockholders" shall be deemed and held to be synonymous with
the words "shareholder" and "shareholders", and the word "stock" shall be deemed
and held to be synonymous with the words "share" or "shares", respectively, as
used in Chapter 55 of the General Statutes of North Carolina.
AMENDMENT OF BY-LAWS
Section 31. The Board of Directors shall have power from time to time to
adopt, amend, alter, add to, and repeal By-Laws for the Company by affirmative
vote of a majority of the directors then holding office, provided, however, that
the By-Laws may not be amended by the Board of Directors to require more than a
majority of the voting shares for a quorum at a stockholder's meeting, or more
than a majority vote at such meeting, except where higher percentages are
required by law. Any By-Laws so made or any provisions thereof may be altered or
repealed by vote of the holders of a majority of the total number of shares of
the Company then issued and outstanding and entitled to vote thereon at any
annual stockholders' meeting. Additionally, any By-Law adopted, amended or
repealed by the stockholders may not be readopted, amended or repealed by the
Board of Directors unless the Charter or a By-Law adopted by the stockholders
authorizes the Board of Directors to adopt, amend or repeal that particular
By-Law or the By-Laws generally.
INDEMNITY OF OFFICERS AND DIRECTORS
Section 32. (a) The Company shall reimburse or indemnify any past,
present or future officer or director of the Company for and against such
liabilities and expenses as are authorized by (1) a
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resolution adopted by the Company's stockholders at a special meeting held on
December 31, 1943, which is made a part hereof as though incorporated herein, or
(2) by Sections 55-8-54, 55-8-55, 55-8-56 and 55-8-57 of the General Statutes of
North Carolina. Persons serving as officers or directors of the Company or
serving in any such capacity at the request of the Company in any other
corporation, partnership, joint venture, trust or other enterprise shall be
provided reimbursement and indemnification by the Company to the maximum extent
allowed hereunder or under applicable law, including without limitation Sections
55-8-54, 55-8-55, 55-8-56 and 55-8-57 of the General Statutes of North Carolina.
(b) In addition to the reimbursement and indemnification provisions set
forth above, any person who at any time serves or has served (1) as an officer
or director of the Company, or (2) at the request of the Company as an officer
or director (or in any position of similar authority, by whatever title known)
of any other corporation, partnership, joint venture, trust or other enterprise,
or (3) as an individual trustee or administrator under any employee benefit
plan, shall have a right to be indemnified by the Company to the fullest extent
permitted by law against (i) all reasonable expenses, including attorney's fees,
actually and necessarily incurred by him in connection with any pending,
threatened or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether or not brought by the Company or on
behalf of the Company in a derivative action, seeking to hold him liable by
reason of or arising out of his status as such or his activities in any of the
foregoing capacities, and (ii) payments made by him in satisfaction of any
judgement, money decree, fine, penalty or settlement for which he may have
become liable in any such action, suit or proceeding; provided, however, that
the Company shall not indemnify any person against liability or litigation
expense he may incur on account of his activities which were at the time taken
known or believed by him to be clearly in conflict with the best interests of
the Company.
(c) The Board of Directors shall take all action as may be necessary or
appropriate to authorize the Company to pay all amounts required under these
Sections 32(a),(b) and (c) of the By-Laws including, without limitation and to
the extent deemed to be appropriate, necessary, or required by law (1) making a
good faith evaluation of the manner in which the claimant for indemnity acted
and of the reasonable amount of indemnity due such individual, or (2) making
advances of costs and expenses, or (3) giving notice to, or obtaining approval
by, the shareholders of the Company.
(d) Any person who serves or has served in any of the aforesaid
capacities for or on behalf of the Company shall be deemed to be doing or to
have done so in reliance upon, and as consideration for, the rights of
reimbursement and indemnification provided for herein. Such rights of
reimbursement and indemnification shall inure to the benefit of the legal
representatives of such individuals, shall include amounts paid in settlement
and shall not be exclusive of any other rights to which such individuals shall
be entitled apart from the provisions of this Section.
(e) The Company may, in its sole discretion, wholly or partially
indemnify and advance expenses to any employee or agent of the Company to the
same extent as provided herein for officers and directors.
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Exhibit 10b(19)
SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN
OF
CAROLINA POWER & LIGHT COMPANY
Effective January 1, 1984
(As last amended January 1, 1999)
<PAGE>
TABLE OF CONTENTS
ARTICLE I - STATEMENT OF PURPOSE
ARTICLE II - DEFINITIONS
Terms 2.01
Assumed Deferred Vested Pension Benefit 2.02
Assumed Early Retirement Pension Benefit 2.03
Assumed Normal Retirement Pension Benefit 2.04
Committee 2.05
Company 2.06
Designated Beneficiary 2.07
Early Retirement Date 2.08
Eligible Spouse 2.09
Final Average Salary 2.10
Normal Retirement Date 2.11
Participant 2.12
Pension 2.13
Plan 2.14
Retirement Date 2.15
Salary 2.16
Service 2.17
Severance Date 2.18
Social Security Benefit 2.19
Spouse's Pension 2.20
Target Early Retirement Benefit 2.21
Target Normal Retirement Benefit 2.22
Target Pre-Retirement Death Benefit 2.23
Target Severance Benefit 2.24
ARTICLE III - ELIGIBILITY AND PARTICIPATION
Eligibility 3.01
Date of Participation 3.02
Duration of Participation 3.03
ARTICLE IV - RETIREMENT BENEFITS
Normal Retirement Benefit 4.01
Early Retirement Benefit 4.02
Surviving Spouse Benefit 4.03
Re-employment of Retired Participant 4.04
<PAGE>
ARTICLE V - PRE-RETIREMENT DEATH BENEFITS
Eligibility 5.01
Amount 5.02
Alternative Benefit 5.03
Commencement and Duration 5.04
ARTICLE VI - SEVERANCE BENEFITS
Eligibility 6.01
Amount 6.02
Commencement and Duration 6.03
Surviving Spouse Benefit 6.04
ARTICLE VII - ADMINISTRATION
Committee 7.01
Voting 7.02
Records 7.03
Liability 7.04
Expenses 7.05
ARTICLE VIII - AMENDMENT AND TERMINATION
ARTICLE IX - MISCELLANEOUS
Non-Alienation of Benefits 9.01
No Trust Created 9.02
No Employment Agreement 9.03
Binding Effect 9.04
Suicide 9.05
Claims for Benefits 9.06
Entire Plan 9.07
ARTICLE X - CONSTRUCTION
Governing Law 10.01
Gender 10.02
Headings, etc. 10.03
Action 10.04
<PAGE>
ARTICLE I
STATEMENT OF PURPOSE
This Plan is designed and implemented for the purpose of enhancing the earnings
and growth of Carolina Power & Light Company by providing to the limited group
of senior management employees largely responsible for such earnings and
long-term growth deferred compensation in the form of supplemental retirement
income benefits, thereby increasing the incentive of such key senior management
employees to make the Company more profitable. The benefits are normally payable
to Participants upon retirement or death. The terms of the benefits operate in
conjunction with the Participant's benefits payable under the Company's
Supplemental Retirement Plan and are designed to supplement such Supplemental
Retirement Plan benefits and provide the Participant with additional financial
security upon retirement or death.
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
2.01 Terms - Unless otherwise clearly required by the context, the terms used
herein shall have the following meaning. Capitalized terms that are not
defined below shall have the meaning ascribed to them in the Retirement
Plan.
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2.02 Assumed Deferred Vested Pension Benefit shall mean the monthly benefit
of the deferred vested Pension to commence on his Normal Retirement Date
payable in the form of an annuity to which a separated Participant would
be entitled under the Retirement Plan, calculated with the following
assumptions based on such Participant's marital status at the time
benefits hereunder commence:
(a) In the case of a Participant with an Eligible Spouse, in the form
of a 50% Qualified Joint and Survivor Annuity as provided in the
Retirement Plan.
(b) In the case of a Participant without an Eligible Spouse, in the
form of a Single Life Annuity as provided in the Retirement Plan.
(c) Without regard to any other benefit payment option under the
Retirement Plan.
2.03 Assumed Early Retirement Pension Benefit shall mean the monthly benefit
of the normal retirement Pension payable in the form of an annuity to
which a Participant would be entitled under the Retirement Plan at his
Normal Retirement Date, based upon his projected years of Service at his
Normal Retirement Date and upon his Final Average Salary as of his Early
Retirement Date, and calculated with the following assumptions based
upon his marital status at the time benefits hereunder commence:
(a) In the case of a Participant with an Eligible Spouse, in the form
of a 50% Qualified Joint and Survivor Annuity as provided in the
Retirement Plan.
(b) In the case of a Participant without an Eligible Spouse, in the
form of a Single Life Annuity as provided in the Retirement Plan.
(c) Without regard to any other benefit payment option under the
Retirement Plan.
2.04 Assumed Normal Retirement Pension Benefit shall mean the monthly benefit
of the normal retirement Pension payable in the form of an annuity to
which a Participant would be entitled under the Retirement Plan if he
retired at his Normal Retirement Date, calculated with the following
assumptions based on his marital status at the time benefits hereunder
commence:
(a) In the case of a Participant with an Eligible Spouse, in the form
of a 50% Qualified Joint and Survivor Annuity as provided in the
Retirement Plan.
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(b) In the case of a Participant without an Eligible Spouse, in the
form of a Single Life Annuity as provided in the Retirement Plan.
(c) Without regard to any other benefit payment option under the
Retirement Plan.
2.05 Committee shall mean the Committee on Organization and Compensation of
the Board of Directors of the Company.
2.06 Company shall mean Carolina Power & Light Company or any successor to it
in the ownership of substantially all of its assets. All subsidiaries of
Carolina Power & Light Company are excluded unless specifically
included.
2.07 Designated Beneficiary shall mean one or more beneficiaries, as
designated by a Participant in writing delivered to the Committee. In
the event no such written designation is made by a Participant or if
such beneficiary shall not be living or in existence at the time for
commencement of payment to any Designated Beneficiary under the Plan,
the Participant shall be deemed to have designated his estate as such
beneficiary.
2.08 Early Retirement Date shall mean the date on which a Participant who
qualifies for the early retirement benefit of Section 4.02 hereof
retires from the employ of the Company and its affiliated entities.
2.09 Eligible Spouse shall mean the spouse of a Participant who, under the
laws of the State where the marriage was contracted, is deemed married
to that Participant on the date on which the payments from this Plan are
to begin to the Participant, except that for purposes of Articles V and
VI hereof, Eligible Spouse shall mean a person who is married to a
Participant for a period of at least one year prior to his death.
2.10 Final Average Salary shall mean a Participant's average monthly Salary
(as defined in Section 2.15 hereof) during the 36 completed calendar
months of highest compensation within the 120-month period immediately
preceding the earliest to occur of the Participant's death, Severance
Date, Early Retirement Date, or Normal Retirement Date, whichever is
applicable. Provided, however, if a Participant becomes entitled to a
benefit hereunder while under a period of long-term disability under the
Company's Group Insurance Plan, Final Average Salary shall be determined
for the 12 calendar months
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immediately preceding the commencement of such period of long-term
disability. Provided, further, in determining average monthly Salary (i)
annual bonuses and other similar payments shall be deemed received in
twelve (12) equal payments beginning with the eleventh preceding month
and ending with the month in which actual payment is made, and (ii)
amounts of compensation deferred under any deferred compensation plan or
arrangement shall be deemed received in the months such payments would
have been received assuming no deferral had occurred. For years of
Service granted under the terms of a written employment agreement as
provided under Section 2.17, Salary during each such month is deemed to
be zero dollars ($0.00) for purposes of calculating Final Average
Salary.
2.11 Normal Retirement Date shall mean the first day of the calendar month
coinciding with or next following the Participant's 65th birthday.
2.12 Participant shall mean an employee of the Company who is eligible and is
participating in this Plan in accordance with Article III hereof.
2.13 Pension shall mean a level monthly annuity which is payable under the
Retirement Plan as of the Benefit Commencement Date if the Participant
elected an annuity form of benefit.
2.14 Plan shall mean the "Supplemental Senior Executive Retirement Plan of
Carolina Power & Light Company" as contained herein and as it may be
amended from time to time hereafter.
2.15 Retirement Plan shall mean the "Supplemental Retirement Plan of Carolina
Power & Light Company" (as amended effective January 1, 1999) as it may
be amended from time to time hereafter.
2.16 Salary shall mean the sum of:
(1) The annual base compensation paid by the Company to a Participant,
and
(2) annual cash awards made under incentive compensation programs
excluding, however, any payment made under the Company's Long-Term
Compensation Program or the Company's 1997 Equity Incentive Plan,
and
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(3) amounts of annual compensation deferred under any deferred
compensation plan or arrangement (including, without limitation,
the "Executive Deferred Compensation Plan," the "Deferred
Compensation Plan for Key Management Employees of Carolina Power &
Light Company," and the "Stock Purchase - Savings Plan of Carolina
Power & Light Company") and which, but for the deferral, would
have been reflected in Internal Revenue Service Form W-2.
2.17 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.
2.18 Severance Date shall mean the earlier of:
(a) The date a Participant leaves the employ of the Company and all
affiliated entities other than on account of his death, a period
of long-term disability under the Company's Group Insurance Plan,
or retirement at either his Early Retirement Date or upon or after
his Normal Retirement Date, or
(b) The first anniversary of the date on which a Participant is first
absent from the service of the Company and all affiliated
entities, with or without pay, other than on account of his death,
a period of long-term disability under the Company's Group
Insurance Plan, or his retirement at either his Early Retirement
Date or upon or after his Normal Retirement Date.
If a Participant shall leave the employ of the Company and all
affiliated entities under circumstances described in (b) and shall
during such absence (and before the first anniversary of commencement of
said absence) quit or be discharged, his Severance Date shall be the
date he quits or is discharged.
2.19 Social Security Benefit means the monthly amount of benefit which a
Participant is or would be entitled to receive at age 65 as a primary
insurance amount under the federal Social Security Act, as amended,
whether or not he applies for such benefit, and even
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though he may lose part or all of such benefit through delay in applying
for it, by making application prior to age 65 for a reduced benefit, by
entering into covered employment, or for any other reason. The amount of
such Social Security Benefit to which the Participant is or would be
entitled shall be estimated by the Committee for the purposes of this
Plan as of the January 1 of the year in which his Severance Date or
retirement occurs on the following basis:
(a) For a Participant entitled to a normal retirement benefit, on the
basis of the federal Social Security Act as in effect on the
January 1 coincident with or next preceding his Normal Retirement
Date (regardless of any retroactive changes made by legislation
enacted after said January 1);
(b) For a Participant entitled to an early retirement benefit, on the
basis of the federal Social Security Act as in effect on the
January 1 coincident with or next preceding his Early Retirement
Date (regardless of any retroactive change made by legislation
enacted after said January 1), assuming that his employment, and
Salary in effect at his Early Retirement Date, continued to age
65; or
(c) For a Participant entitled to a severance benefit, on the basis of
the federal Social Security Act as in effect on the January 1
coincident with or next preceding his Severance Date (regardless
of any retroactive change made by legislation enacted after said
January 1), assuming that his employment, and Salary in effect at
his Severance Date, continued to age 65.
For purposes of the calculations required under paragraphs (a) and (b)
above, if a Participant is disabled under a period of long-term
disability under the Company's Group Insurance Plan, said Social
Security Benefit shall be calculated as if his Salary in effect at the
commencement of such period of long-term disability continued to age 65.
2.20 Spouse's Pension shall mean the actual monthly benefit payable to an
Eligible Spouse under the Retirement Plan, assuming the Eligible Spouse
elected a 50% Joint and Survivor Annuity form of benefit.
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2.21 Target Early Retirement Benefit shall mean an amount equal to a
Participant's Final Average Salary determined at his Early Retirement
Date multiplied by four percent (4%) for each projected year of Service
at his Normal Retirement Date up to a maximum of sixty-two percent
(62%).
2.22 Target Normal Retirement Benefit shall mean an amount equal to a
Participant's Final Average Salary determined at his Normal Retirement
Date multiplied by four percent (4%) for each projected year of Service
at his Normal Retirement Date up to a maximum of sixty-two percent
(62%).
2.23 Target Pre-Retirement Death Benefit shall mean an amount equal to a
deceased Participant's Final Average Salary determined at his death
multiplied by four percent (4%) for each year of Service at his death up
to a maximum of sixty-two percent (62%).
2.24 Target Severance Benefit shall mean an amount equal to a Participant's
Final Average Salary determined at his Severance Date multiplied by four
percent (4%) for each year of Service at his Severance Date up to a
maximum of sixty-two percent (62%).
7
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Eligibility. Any executive employee of the Company who has served on the
Senior Management Committee as a Senior Vice President or above for a
minimum period of three (3) years and who has at least ten (10) years of
Service with the Company shall be eligible to participate in this Plan.
3.02 Date of Participation. Each executive who is eligible to become a
Participant under Section 3.01 shall become a Participant on the first
day of the month following the month in which he is first eligible to
participate.
3.03 Duration of Participation. Each executive who becomes a Participant
shall continue to be a Participant until the termination of his
employment with the Company or, if later, the date he is no longer
entitled to benefits under this Plan.
8
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ARTICLE IV
RETIREMENT BENEFITS
4.01 Normal Retirement Benefit.
(a) Eligibility. A Participant whose employment with the Company
terminates on or after his Normal Retirement Date shall be
eligible for the normal retirement benefit described in this
Section 4.01.
(b) Amount and Form. The monthly payment hereunder shall be in the
form of a Single Life Annuity if the Participant has no Eligible
Spouse and in the form of a 50% Qualified Joint and Survivor
Annuity if the Participant has an Eligible Spouse. The eligible
Participant's normal retirement benefit shall be a monthly amount
equal to his Target Normal Retirement Benefit reduced by the sum
of (1) his Assumed Normal Retirement Pension Benefit and (2) his
Social Security Benefit.
(c) Commencement and Duration. Monthly normal retirement benefit
payments shall commence at the same time as the eligible
Participant's normal retirement Pension payable from the
Retirement Plan and shall continue in monthly installments
thereafter ending with a payment for the month in which such
eligible Participant's death occurs, unless the benefit is being
paid in the form of a Qualified Joint and Survivor Annuity, in
which case the survivor benefit shall be paid to the Eligible
Spouse, if living, for his or her life. If at the time of
commencement of payment such eligible Participant does not have an
Eligible Spouse the monthly benefit payments shall be guaranteed
for one hundred twenty (120) monthly payments with any such
guaranteed payments remaining at such Participant's death payable
to his Designated Beneficiary.
4.02 Early Retirement Benefit.
(a) Eligibility. Upon recommendation of the Chief Executive Officer of
the Company and approval of the Committee, a Participant whose
employment with
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the Company terminates upon or after his attainment of age
fifty-five (55) but prior to his Normal Retirement Date, shall be
eligible for the early retirement benefit described in this
Section 4.02.
(b) Amount and Form. The monthly payment hereunder shall be in the
form of a Single Life Annuity if the Participant has no Eligible
Spouse and in the form of a 50% Qualified Joint and Survivor
Annuity if the Participant has an Eligible Spouse. 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% 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 actual years of Service at his Early Retirement Date
rather than upon his projected years of Service at his
Normal Retirement Date.
(c) Commencement and Duration. Monthly early retirement benefit
payments shall commence on the first day of the month following
the Participant's attainment of age 65, provided, such Participant
may make written application to the Committee to have payments
commence on the first day of any month following his Early
Retirement Date and the decision of the Committee, based upon its
sole and absolute discretion, to allow such early commencement of
payment shall be final.
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After commencement of payment, said early retirement benefit
payments shall continue in monthly installments thereafter ending
with a payment for the month in which such eligible Participant's
death occurs, unless the benefit is being paid in the form of a
Qualified Joint and Survivor Annuity, in which case the survivor
benefit shall be paid to the Eligible Spouse, if living, for his
or her life. If at the time of commencement of payment such
eligible Participant does not have an Eligible Spouse, the monthly
benefit payments shall be guaranteed for one hundred twenty (120)
monthly payments with any such guaranteed payments remaining at
such Participant's death payable to his Designated Beneficiary.
4.03 Surviving Spouse Benefit.
The surviving Eligible Spouse of a Participant who is receiving a
Qualified Joint and Survivor Benefit as a normal retirement benefit or
as an early retirement benefit shall be eligible for the surviving
spouse benefit upon the death of the Participant for the duration of the
Eligible Spouse's life.
4.04 Re-employment of Retired Participant. A retired Participant receiving or
eligible to receive the retirement benefits described in Sections 4.01
and 4.02 hereof who is re-employ by the Company shall be ineligible to
again participate in this Plan.
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ARTICLE V
PRE-RETIREMENT DEATH BENEFITS
5.01 Eligibility. A Participant's surviving Eligible Spouse shall be eligible
for the pre-retirement death benefit as described in this Article V if
such Participant dies while in the employ of the Company with 10 or more
years of Service.
5.02 Amount. Such surviving Eligible Spouse shall be entitled to a monthly
pre-retirement death benefit payable in the form of an annuity in an
amount equal to the difference, if any, between (a) forty percent (40%)
of the Target Pre-Retirement Death Benefit and (b) the Spouse's Pension.
5.03 Alternative Benefit. If greater than the monthly benefit of Section 5.02
hereof, the surviving Eligible Spouse of a Participant who dies while in
the employ of the Company after attaining age fifty-five (55) with ten
(10) years of Service shall be entitled to a monthly pre-retirement
death benefit equal to fifty percent (50%) of the early retirement
benefit the Participant would have been entitled to receive under
Section 4.02 hereof (calculated using both reductions, where applicable,
in subsections 4.02(b)(i) and 4.02(b)(ii)) as if he had retired
immediately prior to his death with the recommendation of the Chief
Executive Officer and approval of the Committee.
5.04 Commencement and Duration. The surviving Eligible Spouse's monthly
pre-retirement death benefit payments shall commence in the month
following the Participant's death and shall be paid in monthly
installments thereafter ending with a payment for the month in which
such surviving Eligible Spouse's death occurs.
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ARTICLE VI
SEVERANCE BENEFITS
6.01 Eligibility. Upon his termination of employment with the Company at his
Severance Date, a Participant who has completed ten (10) or more years
of Service shall be eligible for one of the severance benefits described
in this Article VI.
6.02 Amount.
(a) If at his Severance Date such eligible Participant is not entitled
to a deferred vested Pension pursuant to Section 5.03 of the
Retirement Plan or an early retirement Pension pursuant to Section
5.02 of the Retirement Plan, his severance benefit shall be a
monthly amount equal to his Target Severance Benefit reduced by
his Social Security Benefit.
(b) If at his Severance Date such eligible Participant is entitled to
a deferred vested Pension pursuant to Section 5.03 of the
Retirement Plan, his severance benefit shall be a monthly amount
equal to his Target Severance Benefit reduced by the sum of (1)
his Assumed Deferred Vested Pension Benefit and (2) his Social
Security Benefit.
(c) If at his Severance Date such eligible Participant is entitled to
an early retirement Pension pursuant to Section 5.02 of the
Retirement Plan, his severance benefit shall be a monthly amount
equal to his Target Severance Benefit reduced by the sum of (1)
his Assumed Early Retirement Pension Benefit and (2) his Social
Security Benefit; provided, however, such Assumed Early Retirement
Pension Benefit shall be calculated based upon his actual years of
Service at his Severance Date rather than upon his projected years
of Service at his Normal Retirement Date.
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6.03 Commencement and Duration. Monthly severance benefit payments shall
commence on the eligible Participant's Normal Retirement Date and shall
continue in monthly installments thereafter ending with a payment for
the month in which such eligible Participant's death occurs.
6.04 Surviving Spouse Benefit.
(a) Eligibility. The surviving Eligible Spouse of a Participant who is
receiving or who dies after attaining age fifty-five (55) entitled
to receive a severance benefit hereunder shall be eligible for the
surviving spouse benefit described in this Section 6.04.
(b) Amount. Such surviving Eligible Spouse shall be entitled to a
monthly surviving spouse benefit in an amount equal to fifty
percent (50%) of the severance benefit which the deceased
Participant was receiving or entitled to receive at his Normal
Retirement Date under either Section 6.02(a) or 6.02(b) hereof on
the day before his death.
(c) Commencement and Duration. The monthly surviving spouse benefit
payment shall commence in the month following the Participant's
death and shall be paid in monthly installments thereafter ending
with a payment for the month in which such surviving Eligible
Spouse's death occurs.
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ARTICLE VII
ADMINISTRATION
7.01 Committee. This Plan shall be administered by the Committee. The
Committee shall have all powers necessary to enable it to carry out its
duties in the administration of the Plan. Not in limitation, but in
application of the foregoing, the Committee shall have the duty and
power to determine all questions that may arise hereunder as to the
status and rights of Participants in the Plan.
7.02 Voting. The Committee shall act by a majority of the number then
constituting the Committee, and such action may be taken either by vote
at a meeting or in writing without a meeting.
7.03 Records. The Committee shall keep a complete record of all its
proceedings and all data relating to the administration of the Plan. The
Committee shall select one of its members as a Chairman. The Committee
shall appoint a Secretary to keep minutes of its meetings and the
Secretary may or may not be a member of the Committee. The Committee
shall make such rules and regulations for the conduct of its business as
it shall deem advisable.
7.04 Liability. To the extent permitted by law, no member of the Committee
shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Plan
unless attributable to his own gross negligence or willful misconduct.
The Company shall indemnify the members of the Committee against any and
all claims, losses, damages, expenses, including counsel fees, incurred
by them, and any liability, including any amounts paid in settlement
with their approval, arising from their action or failure to act, except
when the same is judicially determined to be attributable to their gross
negligence or willful misconduct.
7.05 Expenses. The cost of payments from this Plan and the expenses of
administering the Plan shall be borne by the Company.
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ARTICLE VIII
AMENDMENT AND TERMINATION
The Company reserves the right, at any time or from time to time, by action of
its Board of Directors, to modify or amend in whole or in part any or all
provisions of the Plan. In addition, the Company reserves the right by action of
its Board of Directors to terminate the Plan in whole or in part. Provided,
however, any such modification, amendment or termination shall not reduce
benefits accrued at such time nor increase vesting requirements with respect to
such accrued benefits.
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ARTICLE IX
MISCELLANEOUS
9.01 Non-Alienation of Benefits. No right or benefit under the Plan shall be
subject to anticipation, alienation, sale, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge any right or benefit under the Plan
shall be void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities or torts of
the person entitled to such benefits. If the Participant or Eligible
Spouse shall become bankrupt, or attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge any right hereunder, then such right
or benefit shall, in the discretion of the Committee, cease and
terminate, and in such event, the Committee may hold or apply the same
or any part thereof for the benefit of the Participant or his spouse,
children, or other dependents, or any of them, in such manner and in
such amounts and proportions as the Committee may deem proper.
9.02 No Trust Created. The obligations of the Company to make payments
hereunder shall constitute a liability of the Company to a Participant.
Such payments shall be made from the general funds of the Company, and
the Company shall not be required to establish or maintain any special
or separate fund, or purchase or acquire life insurance on a
Participant's life, or otherwise to segregate assets to assure that such
payment shall be made, and neither a Participant nor Eligible Spouse
shall have any interest in any particular asset of the Company by reason
of its obligations hereunder. Nothing contained in the Plan shall create
or be construed as creating a trust of any kind or any other fiduciary
relationship between the Company and a Participant or any other person.
9.03 No Employment Agreement. Neither the execution of this Plan nor any
action taken by the Company pursuant to this Plan shall be held or
construed to confer on a Participant any legal right to be continued as
an employee of the Company in an executive position or in any other
capacity whatsoever. This Plan shall not be deemed to constitute a
contract of employment between the Company and a Participant, nor shall
any provision
17
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herein restrict the right of any Participant to terminate his employment
with the Company.
9.04 Binding Effect. Obligations incurred by the Company pursuant to this
Plan shall be binding upon and inure to the benefit of the Company, its
successors and assigns, and the Participant or his Eligible Spouse.
9.05 Suicide. No benefit shall be payable under the Plan to a Participant or
Eligible Spouse where such Participant dies as a result of suicide
within two (2) years of his commencement of participation herein.
9.06 Claims for Benefits. Each Participant or Eligible Spouse must claim any
benefit to which he is entitled under this Plan by a written
notification to the Committee. If a claim is denied, it must be denied
within a reasonable period of time, and be contained in a written notice
stating the following:
A. The specific reason for the denial.
B. Specific reference to the Plan provision on which the denial is
based.
C. Description of additional information necessary for the claimant
to present his claim, if any, and an explanation of why such
material is necessary.
D. An explanation of the Plan's claims review procedure.
The claimant will have 60 days to request a review of the denial by the
Committee, which will provide a full and fair review. The request for
review must be in writing delivered to the Committee. The claimant may
review pertinent documents, and he may submit issues and comments in
writing.
The decision by the Committee with respect to the review must be given
within 60 days after receipt of the request, unless special
circumstances require an extension (such as for a hearing). In no event
shall the decision be delayed beyond 120 days after receipt of the
request for review. The decision shall be written in a manner calculated
to be understood
18
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by the claimant, and it shall include specific reasons and refer to
specific Plan provisions as to its effect.
9.07 Entire Plan. This document and any amendments contain all the terms and
provisions of the Plan and shall constitute the entire Plan, any other
alleged terms or provisions being of no effect.
19
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ARTICLE X
CONSTRUCTION
10.01 Governing Law. This Plan shall be construed and governed in accordance
with the laws of the State of North Carolina, to the extent not
preempted by Federal Law.
10.02 Gender. The masculine gender, where appearing in the Plan, shall be
deemed to include the feminine gender, and the singular may include the
plural, unless the context clearly indicates to the contrary.
10.03 Headings, etc. The cover page of this Plan, the Table of Contents and
all headings used in this Plan are for convenience of reference only
and are not part of the substance of this Plan.
10.04 Action. Any action under this Plan required or permitted by the Company
shall be by action of its Board of Directors or its duly authorized
designee.
20
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Exhibit 10b(20)
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"), and amended and restated
effective January 1, 1999.
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.
1
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2.4 "Company" shall mean Carolina Power & Light Company and any
successor entity.
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 a Participant in 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 a Participant in 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
2
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without regard to the Compensation and Benefit Limitations, over (b) a
Participant's Accrued Benefit calculated under the Retirement Plan. For purposes
of this Section 2.9, a Participant's Accrued Benefit for purposes of clauses (a)
and (b) above shall be calculated in the form of a Single Life Annuity for a
Participant who does not have a Spouse and in the form of a 50% Qualified Joint
and Survivor Annuity for a Participant who has a Spouse, with such calculation
performed without regard to any other form of benefit elected by a Participant
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 meanthe spouse of a Participant as would be
determined at the applicable time under the definition of Spouse in 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 the Retirement Plan (or any successor provisions) or as provided
in Article VI of the Plan.
3
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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 the Retirement Plan, shall be entitled
monthly benefit payments commencing on his Retirement Date based on the
Participant's Restoration Accrued Benefit calculated immediately prior to the
Benefit Commencement Date (except as otherwise provided in Section 3.4). The
monthly payment shall be in the form of a Single Life Annuity if the Participant
has no Spouse and in the form of a 50% Joint and Survivor Annuity if the
Participant has a Spouse, with the Spouse determined at the Benefit Commencement
Date entitled to any survivor benefit upon the death of the Participant.
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 (i.e., the Spouse being married to the Participant for a
one-year period prior to the date of death), 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 would be entitled to
commence receiving a monthly death 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 death benefit that would be payable in
4
<PAGE>
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 death benefit payable under the Retirement Plan, and assuming for
purposes of clauses (a) and (b) that the Spouse elected a monthly annuity as a
death benefit 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 a Participant in 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.
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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.
9
<PAGE>
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;
10
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(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.
* * *
11
Exhibit 10b(27)
EMPLOYMENT AGREEMENT
BETWEEN
CAROLINA POWER AND LIGHT
AND
TOM D. KILGORE
AUGUST 3, 1998
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 3rd day of August,
1998, between Carolina Power & Light Company ("Company"), and Tom D. Kilgore
("Kilgore").
RECITALS
1. The Company and Kilgore wish to enter into an employment relationship
whereby Kilgore will be employed initially as Senior Vice President Power -
Operations at Carolina Power and Light.
2. Kilgore will be employed as an "at will" employee of CP&L. The
parties wish to enter into this Agreement to set forth certain terms related to
that relationship.
PROVISIONS
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereto
hereby agree as follows:
1. TERM OF EMPLOYMENT.
(a) Employment. The Company hereby agrees to employ Kilgore as an
"at will" employee, and Kilgore hereby accepts employment with CP&L, for the
Employment Term stated herein, subject to the terms and conditions hereof.
(b) Employment Term. Unless sooner terminated in accordance with
the provisions of Section 6, Kilgore's term of employment with CP&L under this
Agreement (the "Employment Term") shall commence as of that date his employment
commenced on August 3, 1998 and shall continue until terminated by CP&L or
Kilgore pursuant to Section 7.
2. RESPONSIBILITIES; OTHER ACTIVITIES.
Kilgore shall initially occupy the position of Senior Vice
President -- Power Operations and shall undertake the general responsibilities
and duties of such position as directed by CP&L. During the Employment Term,
Kilgore shall perform faithfully the duties of Kilgore's position, devote all of
Kilgore's working time and energies to the business and affairs of CP&L and
shall use Kilgore's best efforts, skills and abilities to promote CP&L's. CP&L
reserves the right to reassign Kilgore to other positions.
<PAGE>
3. SALARY.
As compensation for the services to be performed hereunder:
Kilgore will be paid a salary at the annual rate of $250,000 (Two Hundred Fifty
Thousand Dollars)(less applicable withholdings) beginning on August 3, 1998.
Annual salary for each subsequent year of the Employment Term shall be subject
to adjustment by CP&L at its discretion. Annual Salary shall be deemed earned
proportionally as Kilgore performs services over the course of the Salary Year.
Payments of annual Salary shall be made, except as otherwise provided herein, in
accordance with CP&L's standard payroll policies and procedures.
4. TRANSITION COMPENSATION.
Kilgore will receive a cash payment of $100,000 (less
witholdings) within 30 days of hire. An additional $100,000 (less withholdings)
cash payment will be paid within 30 days of the first anniversary date of hire,
assuming continued employment and satisfactory performance.
5. RELOCATION.
(a). Relocation Program. Kilgore will be eligible to participate
in CP&L relocation program in accordance with its terms with any taxable portion
grossed up.
(b). Temporary Living Expenses. Kilgore will be provided
temporary living expense for a period of up to six months.
6. BENEFITS
During the Employment Term, Kilgore shall be entitled to
participate in all-Company sponsored benefits programs as CP&L may have in
effect upon terms and in accordance with policies and procedures substantially
equivalent to those then in effect and applicable generally to employees of
CP&L. Provided, however, that nothing contained in this Agreement shall require
CP&L to continue to offer such benefits or programs or to limit CP&L's absolute
right to modify or eliminate these benefits.
(a). Management Incentive Compensation Program. Kilgore will be
eligible to participate in the Management Incentive Compensation Program
(MICP)beginning in 1998, for which payment will be made on or before March 31,
1999. Pursuant to the terms of MICP, Kilgore's target compensation under such
program will be approximately 35% of base salary earnings; provided, however,
that any compensation payable for 1998 performance will be pro rated based upon
the date on which Kilgore begins his employment with CP&L under this agreement.
(b). Long Term Incentives. Kilgore will be eligible to
participate in the 1998 Performance Share Sub-Plan under the Equity Incentive
Program in accordance with the terms of the plan.
<PAGE>
(c). Restricted Share Grant Plan. Kilgore will be eligible to
participate in the Restricted Share Grant Plan under the Equity Incentive
Program in accordance with the terms of the plan.
(d). Deferred Compensation Plan for Key Management Employees.
Kilgore will be eligible for participation in CP&L's Deferred Compensation Plan
for Key Management Employees, subject to its terms. Additionally, Kilgore and
CP&L agree to execute a separate agreement underwhich CP&L will defer on
Kilgore's behalf, an amount to generate retirement income equal to $500,000. A
term of this agreement will provide: (1) that if Kilgore retires from CP&L after
age 65, this income will be paid over a 15 year period beginning at retirement;
(2) if termination of employment occurs between age 60 and age 65, reduced
benefits will be available; and (3) if termination occurs before age 60, Kilgore
will forfeit this CP&L provided deferral benefit.
(e). Supplemental Retirement Plan. Pursuant to its terms, Kilgore
will be eligible for participation in CP&L Supplemental Retirement Plan (SRP),
subject to its terms.
(f). Supplemental Senior Executive Retirement Plan. Kilgore shall
be eligible for participation in CP&L's Supplemental Senior Executive Retirement
Plan (SERP), subject to its terms. In connection with Kilgore's participation in
SERP, Kilgore, upon hire, will be awarded five (5) years of service toward the
vesting requirements of SERP. This credit will not apply to the vesting
requirements of any other plan or benefit program at CP&L.
(g). Executive Permanent Life Insurance Program. Kilgore shall be
eligible to participate in CP&L's Executive Permanent Life Insurance Program,
subject to its terms.
(h). Executive AD&D Life Insurance. Kilgore shall be eligible to
participate in CP&L's Executive AD&D Life Insurance Program, subject to its
terms.
(i). Stock Purchase Savings Plan. Kilgore shall be eligible to
participate in CP&L's Stock Purchase Savings Plan, subject to its terms.
(j). Financial/ Estate Planning. Consistent with CP&L's practice
with respect to other senior executives, Kilgore will be reimbursed for
financial and estate planning including financial planning and tax preparation.
(k). Vacation. Kilgore shall be entitled to four (4) weeks of
paid vacation days
(l). Holiday. Kilgore will be eligible for ten (10) paid holidays
in each calendar year as provided in the CP&L Handbook.
(m). Automobile Allowance. Kilgore will be eligible to receive an
automobile allowance of $1350 per month (less withholdings) subject to the terms
of CP&L's
<PAGE>
policies. Kilgore will also be eligible for a cellular phone and reserved
parking at CP&L's expense.
(n). Annual Physical. CP&L will pay for an annual physical
examination by a physician of Kilgore's choice.
(o). Capital City Club. CP&L will pay an initiation fee and
monthly dues for a membership at the Capital City Club for Kilgore.
(p). Airline Club Membership. CP&L will provide airline club
membership in accordance with CP&L policy.
(q). Country Club Membership. At Kilgore's option, if joined,
CP&L will pay an initiation fee and monthly dues for a membership for Kilgore at
a country club approved by CP&L. Business related expenses will be reimbursed
consistent with CP&L's expense account guidelines.
(r). Personal Computer. CP&L will provide a personal computer to
Kilgore to be used at his personal residence.
(s). Other Benefits. Kilgore shall be eligible for participation
in other CP&L benefit plans, subject to the terms of the respective plans, as
described in more detail in the Employee Handbook. In addition, upon retirement
from CP&L, Kilgore will be entitled to the same medical and dental coverage
provided to other future retirees, such as the Presidential/Chief Executive
Office; provided that to the extent any such benefit may not be provided to
Kilgore due to statutory or regulatory limitation, CP&L will obtain
substantially equivalent coverage on an insured basis.
7. TERMINATION OF EMPLOYMENT.
(a). The employment relationship between Kilgore and CP&L is "at
will" and may be terminated by either CP&L or Kilgore with or without advance
notice and may be terminated with or without cause as defined below.
(b). Termination Without Cause. Within two years of employment
(on or before August 3, 2000), if Kilgore's employment is terminated without
cause, then Kilgore will be provided with severance benefits equal to two years
of annual base salary, paid on a semi-monthly basis subject to the requirements
of paragraph 7(h). In addition, Kilgore will be eligible to retain all benefits
under existing benefit programs to the extent vested within the terms of those
programs.
(c). Constructive Termination - If on or before August 3, 2000
Kilgore's employment is constructively terminated, then Kilgore will be provided
with severance benefits equal to two years of annual base salary, paid on a
semi-monthly basis subject to the
<PAGE>
requirements of paragraph 7(h). In addition, Kilgore will be eligible to retain
all benefits under existing benefit programs to the extent vested within the
terms of those programs. For the purposes of paragraph 7 of this Agreement, 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) and b)
Kilgore is asked to leave. If Kilgore's employment is constructively terminated
under this paragraph, Kilgore is entitled to the greater of either the benefits
contained in this paragraph or the benefits he is entitled to, if any, under the
CP&L Management Change-in-Control Plan, according to the terms of the Plan.
(d). Voluntary Termination - If Kilgore terminates his employment
voluntarily for any reason at any time, 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.
(e). Termination for Cause - For purposes of this paragraph 7,
cause for the terrmination of employment shall be defined as: (i) any act of
Kilgore's including, but not limited to, misconduct, negligence, unlawfulness,
dishonesty or inattention to the business, which is detrimental to CP&L's
interests; or (ii). Kilgore's unsatisfactory job performance or failure to
comply with CP&L's direction, policies, rules or regulations.
(f). Termination Due to Death. In the event of the death of
Kilgore during the Employment Term, Kilgore's employment hereunder shall
terminate and CP&L shall have no further obligation to Kilgore under this
Agreement except as specifically provided in this Agreement. Kilgore's estate
shall be entitled to receive all earned but unpaid Salary accrued to the date of
termination and any Bonus for a prior fiscal year that has been earned but not
paid. Bonus, if any, for the current fiscal year shall be calculated on a pro
rata basis for the portion of the fiscal year in which death occurred and shall
be paid at the regularly scheduled time for the payment of the Bonus. Any rights
and benefits Kilgore, or Kilgore's estate or other legal representatives, may
have under employee benefit plans and programs of CP&L upon Kilgore's death
during the Employment Term, if any, shall be determined in accordance with the
terms and provisions of such plans and programs.
(g). Termination Due to Medical Condition.
(i). CP&L may terminate Kilgore's employment hereunder,
subject to the Americans With Disabilities Act or other applicable law, due to
medical condition if (i) for a period of 180 consecutive days during the
Employment Term, Kilgore is totally and permanently disabled as determined in
accordance with the Company's long-term disability plan, if any, as in effect
during such time or (ii) at any time during which no such plan is in effect,
Kilgore is substantially unable to perform Kilgore's duties hereunder because of
a medical condition for a period of 180 consecutive days during the Employment
Term.
<PAGE>
(ii). Upon the termination of Kilgore's employment due
to medical condition, CP&L shall have no further obligation to Kilgore under
this Agreement except as specifically provided in this Agreement. Upon such
termination, Kilgore shall be entitled to all earned but unpaid Salary accrued
to the date of termination and any Bonus for a prior fiscal year that has been
earned but not paid. Bonus, if any, for the current fiscal year shall be
calculated on a pro rata basis for the portion of the fiscal year Kilgore was
employed by CP&L and shall be paid at the regularly scheduled time for the
payment of the Bonus. Any continued rights and benefits Kilgore, or Kilgore's
legal representatives, may have under employee benefit plans and programs of
CP&L upon Kilgore's termination due to medical condition, if any, shall be
determined in accordance with the terms and provisions of such plans and
programs.
(h). Release of Claims - In order to receive continuation of
salary under this paragraph 7(b) and 7(c), Kilgore agrees to execute a written
release of all claims against CP&L, and its employees, officers, directors,
subsidiaries and affiliates, on a form acceptable to CP&L.
8. ASSIGNABILITY.
No rights or obligations of Kilgore under this Agreement may be
assigned or transferred by Kilgore, except that (a) Kilgore's rights to
compensation and benefits hereunder may be transferred by will or laws of
intestacy to the extent specified herein and (b) Kilgore's rights under employee
benefit plans or programs described in Section 5(a) may be assigned or
transferred in accordance with the terms of such plans or programs, or regular
practices thereunder. The Company may assign or transfer its rights and
obligations under this Agreement.
9. CONFIDENTIALITY. Kilgore will not disclose the terms of this
Agreement except (i) to financial and legal advisors under an obligation to
maintain confidentiality, or (ii) as required by a valid court order or subpoena
(and in such event will use Kilgore's best efforts to obtain a protective order
requiring that all disclosure be kept under court seal) and will notify CP&L
promptly upon receipt of such order or subpoena.
10. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of North Carolina without
reference to laws governing conflicts of law.
(b) Entire Agreement. This Agreement contains all of the
understandings and representations between the parties hereto pertaining to the
subject matter hereof and supersedes all undertakings and agreements, whether
oral or in writing, if any, previously entered into by them with respect
thereto.
(c) Amendment or Modification; Waiver. No provision in this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing, signed by
<PAGE>
Kilgore and by an officer of CP&L thereunto duly authorized to do so. Except as
otherwise specifically provided in the Agreement, no waiver by a party hereto of
any breach by the other party hereto of any condition or provision of the
Agreement to be performed by such other party shall be deemed a wavier of a
similar or dissimilar provision or condition at the same or any prior or
subsequent time.
(d) Notice. Any notice (with the exception of notice of
termination by CP&L, which may be given by any means and need not be in writing
except that if termination is for Cause, oral notice must be followed by written
notice required under Section 5(c) hereof) or other document or communication
required or permitted to be given or delivered hereunder shall be in writing and
shall be deemed to have been duly given or delivered if (i) mailed by United
States mail, certified, return receipt requested, with proper postage prepaid,
or (ii) otherwise delivered by hand or by overnight delivery, against written
receipt, by a common carrier or commercial courier or delivery service, to the
party to whom it is to be given at the address of such party as set forth below
(or to such other address as a party shall have designated by notice to the
other parties given pursuant hereto):
If to Kilgore:
Tom D. Kilgore
Carolina Power and Light
CPB 1223
Raleigh, North Carolina 27601
If to CP&L:
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, North Carolina 27602
Attention: Vice President-Human Resources
Any such notice, request, demand, advice, schedule, report, certificate,
direction, instruction or other document or communication so mailed or sent
shall be deemed to have been duly given, if sent by mail, on the third business
day following the date on which it was deposited at a United States post office,
and if delivered by hand, at the time of delivery by such commercial courier or
delivery service, and, if delivered by overnight delivery service, on the first
business day following the date on which it was delivered to the custody of such
common carrier or commercial courier or delivery service, as all such dates are
evidenced by the applicable delivery receipt, airbill or other shipping or
mailing document.
(e) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
<PAGE>
(f) References. In the event of Kilgore's death or a judicial
determination of Kilgore's incompetence, reference in this Agreement to Kilgore
shall be deemed, where appropriate, to refer to Kilgore's legal representative,
or, where appropriate, to Kilgore's beneficiary or beneficiaries.
(g) Headings. Headings contained herein are for convenient
reference only and shall not in any way affect the meaning or interpretation of
this Agreement.
(h) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(i) Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(i) Singular words shall connote the plural number as
well as the singular and vice versa, and the masculine shall include the
feminine and the neuter.
(ii) All references herein to particular articles,
paragraphs, sections, subsections, clauses, Schedules or Exhibits are references
to articles, paragraphs, sections, subsections, clauses, Schedules or Exhibits
of this Agreement.
(iii) Each party and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any rule of
construction requiring that ambiguities are to be resolved against a particular
party shall not be applicable in the construction and interpretation of this
Agreement or any exhibits hereto or amendments hereof.
(iv) As used in this Agreement, "including" is
illustrative, and means "including but not limited to."
(j) Remedies. Remedies specified in this Agreement are in
addition to any others available at law or in equity.
(k) Withholding Taxes. All payments under this Agreement shall be
subject to applicable income, excise and employment tax withholding
requirements.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed, or have caused
this Agreement to be executed by their duly authorized officer, as the case may
be, all as of the day and year written below.
By: /s/ Tom D. Kilgore Date:
------------------------------------ ------------------------------
Tom D. Kilgore
By: /s/ Brenda F. Castonguay Date:
------------------------------------ ------------------------------
Carolina Power & Light Company
Title: VP - Human Resources
--------------------------------
EXHIBIT NO. 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS COMBINED AND RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
------------------------------------------------------
Years Ended December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as defined:
Net income $ 399,238 $388,317 $ 391,277 $ 372,604 $ 313,167
Fixed charges, as below 191,832 193,632 204,593 226,833 213,821
Income taxes, as below 249,180 225,340 247,405 232,046 180,518
----------- --------- ---------- ---------- ----------
Total earnings, as defined $ 840,250 $807,289 $ 843,275 $ 831,483 $ 707,506
=========== ========= ========== ========== ==========
Fixed Charges, as defined:
Interest on long-term debt $ 169,901 $163,468 $ 172,622 $ 187,397 $ 183,891
Other interest 11,156 18,743 19,155 25,896 16,119
Imputed interest factor in rentals-charged
principally to operating expenses 10,775 11,421 12,816 13,540 13,811
----------- --------- ---------- ---------- ----------
Total fixed charges, as defined $ 191,832 $ 193,632 $ 204,593 $ 226,833 $ 213,821
=========== ========= ========== ========== ==========
Earnings Before Income Taxes $ 648,418 $613,657 $ 638,682 $ 604,650 $ 493,685
=========== ========= ========== ========== ==========
Ratio of Earnings Before Income Taxes to Net Income 1.62 1.58 1.63 1.62 1.58
Income Taxes:
Income tax expense 257,494 233,565 255,630 240,386 188,813
Included in AFUDC - deferred taxes in nuclear
fuel amortization and book depreciation (8,314) (8,225) (8,225) (8,340) (8,295)
----------- --------- ---------- ---------- ----------
Total income taxes $ 249,180 $ 225,340 $ 247,405 $ 232,046 $ 180,518
=========== ========= ========== ========== ==========
Fixed Charges and Preferred Dividends Combined:
Preferred dividend requirements $ 2,967 $ 6,052 $ 9,609 $ 9,609 $ 9,609
Portion deductible for income tax purposes (312) (312) (312) (312) (312)
----------- --------- ---------- ---------- ----------
Preferred dividend requirements not deductible $ 2,655 $ 5,740 $ 9,297 $ 9,297 $ 9,297
=========== ========= ========== ========== ==========
Preferred dividend factor:
Preferred dividends not deductible times ratio
of earnings before income taxes to net income $ 4,301 $ 9,069 $ 15,154 $ 15,061 $ 14,689
Preferred dividends deductible for income taxes 312 312 312 312 312
Fixed charges, as above 191,832 193,632 204,593 226,833 213,821
----------- --------- ---------- ---------- ----------
Total fixed charges and preferred dividends
combined $ 196,445 $203,013 $ 220,059 $ 242,206 $ 228,822
=========== ========= ========== ========== ==========
Ratio of Earnings to Fixed Charges and Preferred
Dividends Combined 4.28 3.98 3.83 3.43 3.09
Ratio of Earnings to Fixed Charges 4.38 4.17 4.12 3.67 3.31
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF CAROLINA POWER & LIGHT COMPANY
AT DECEMBER 31, 1998
The following is a list of certain subsidiaries of Carolina Power & Light
Company, their respective states of incorporation, and where applicable, the
names under which such subsidiaries do business:
Interpath Communications, Inc. North Carolina
Strategic Resource Solutions Corp. North Carolina
ACT Controls, Inc. (1) North Carolina
Applied Computer Technologies Corp. (1) Delaware
Diversified Control Systems, Inc. (1) North Carolina
Spectrum Controls, Inc. (1) North Carolina
- -----------------
(1) Subsidiary of Strategic Resource Solutions Corp.
EXHIBIT NO. 23(a)
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. 333-69237 on Form S-3, and Registration
Statement No. 333-70679 on Form S-8 of Carolina Power & Light Company, of our
report dated February 9, 1999 appearing in this Annual Report on Form 10-K of
the Company for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
March 19, 1999
