<PAGE>
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
[Fee Required]
For the fiscal year ended December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from to
COMMISSION FILE NUMBER 1-4928
DUKE POWER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
North Carolina 56-0205520
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
422 South Church Street, Charlotte, North Carolina 28242-0001
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
704-594-0887
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
Common Stock, without par value New York Stock Exchange, Inc.
Preferred Stock A, par value $25
7.72%, 1992 Series New York Stock Exchange, Inc.
6.375%, 1993 Series New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 3/8% Due 1997 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8% Due 2001 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8% Series C Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 1/4% Series B Due 2004 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/8% Due 2008 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 5/8% Series B Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/4% Due 2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 7/8% Series B Due 2023 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Series B Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2005 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2033 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 3/8% Due 2023 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 7/8% Due 2024 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 8% Series B Due 1999 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 8% Due 2004 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 8 3/8% Series B Due 2021 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 8 5/8% Due 2022 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 8 3/4% Due 2021 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 1/2% Series B Due 2025 New York Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
Preferred Stock, par value $100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months 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]
<TABLE>
<S> <C>
Estimated aggregate market value of the voting stock held by nonaffiliates of the registrant at
February 28, 1997................................................................................... $8,436,965,632
Number of shares of Common Stock, without par value, outstanding at February 28, 1997................. 201,589,596
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant is incorporating herein by reference certain sections of the
Joint Proxy Statement-Prospectus relating to the 1997 annual meeting of
shareholders to provide information required by the following parts of this
annual report:
<TABLE>
<S> <C> <C>
Part III -- Item 10, Directors and Executive Officers of the Registrant
-- Item 11, Executive Compensation
-- Item 12, Security Ownership of Certain Beneficial Owners and Management
-- Item 13, Certain Relationships and Related Transactions
</TABLE>
<PAGE>
DUKE POWER COMPANY
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<C> <S> <C>
PART I.
1. Business.......................................................................................................... 1
Executive Officers of the Company................................................................................. 14
2. Properties........................................................................................................ 15
3. Legal Proceedings................................................................................................. 15
4. Submission of Matters to a Vote of Security Holders............................................................... 15
<CAPTION>
PART II.
<C> <S> <C>
5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 16
6. Selected Financial Data........................................................................................... 17
7. Management's Discussion and Analysis of Results of Operations and Financial Condition............................. 18
8. Financial Statements and Supplementary Data....................................................................... 27
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 55
<CAPTION>
PART III.
<C> <S> <C>
10. Directors and Executive Officers of the Registrant................................................................ 55
11. Executive Compensation............................................................................................ 55
12. Security Ownership of Certain Beneficial Owners and Management.................................................... 55
13. Certain Relationships and Related Transactions.................................................................... 55
<CAPTION>
PART IV.
<C> <S> <C>
14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K..................................... 56
Signatures........................................................................................................ 57
Exhibit Index..................................................................................................... 58
</TABLE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
its expectations are based on reasonable assumptions, no assurance can be given
that actual results may not differ materially from those in the forward-looking
statements herein for reasons that include: state and federal legislative and
regulatory initiatives that increase competition, affect cost and investment
recovery and have an impact on rate structures; the impact of competition from
other energy suppliers; industrial, commercial and residential growth in the
Company's service territory; the results of financing efforts; the effect of the
Company's accounting policies; and growth in opportunities for the Company's
subsidiaries and diversified operations, in each case during the periods covered
by the foward-looking statements.
<PAGE>
DUKE POWER COMPANY
PART I.
ITEM 1. BUSINESS.
Duke Power Company (the Company) is primarily engaged in the generation,
transmission, distribution and sale of electric energy in the central portion of
North Carolina and the western portion of South Carolina, comprising the area in
both states known as the Piedmont Carolinas. It is one of the nation's largest
investor-owned electric utilities.
The Company is also engaged in a variety of diversified operations, most of
which are organized in separate subsidiaries. The Company's subsidiaries and
diversified activities are in the Associated Enterprises Group (AEG). AEG
includes Church Street Capital Corp.; Crescent Resources, Inc.; Duke Energy
Group, Inc.; Duke Engineering & Services, Inc.; Duke/Fluor Daniel; Duke/Louis
Dreyfus, LLC; Duke Merchandising; DukeNet Communications, Inc.; Duke Water
Operations; and Nantahala Power and Light Company (NP&L). For additional
information on subsidiaries and diversified activities, see "Subsidiaries and
Diversified Activities," "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues -- Subsidiaries and
Diversified Operations" and "Subsidiaries and Diversified Activities
Highlights."
On November 25, 1996, the Company and PanEnergy Corp announced a proposed
stock-for-stock transaction creating an integrated energy company. Upon
consummation of the merger, PanEnergy will be a wholly owned subsidiary of the
Company, and the Company's name will be changed to Duke Energy Corporation. The
transaction is expected to close by December 31, 1997, subject to approval of
the shareholders of both companies and all applicable regulatory approvals. The
shareholders of each company will vote on the proposed merger at their annual
meetings, which are scheduled for April 24, 1997 for both companies.
Applications for regulatory approval were filed with the North Carolina
Utilities Commission (NCUC) and The Public Service Commission of South Carolina
(PSCSC) on December 19, 1996, and with the Federal Energy Regulatory Commission
(FERC) on February 3, 1997. Regulatory proceedings are expected to be
successfully completed by year-end 1997. In connection with the transaction,
each share of PanEnergy common stock will be converted into 1.0444 shares of
common stock of the Company. The transaction will be accounted for as a pooling
of interests. Further details about the proposed acquisition are provided in the
Company's reports on Form 8-K, filed with the Securities and Exchange Commission
on December 9, 1996 and March 20, 1997, and in the Joint Proxy Statement-
Prospectus provided to shareholders in connection with the Company's annual
meeting. Unless otherwise indicated, all information presented in this Form
10-K relates to the Company only and does not take into account the proposed
merger with PanEnergy.
During 1996, the Company's operating revenues, including AEG, were $4.8
billion. The Company's executive offices are located in the Power Building, 422
South Church Street, Charlotte, North Carolina 28242-0001 (Telephone No.
704-594-0887).
SERVICE AREA
The Company's service area (excluding NP&L), approximately two-thirds of
which lies in North Carolina, covers about 20,000 square miles with an estimated
population of 5.1 million and includes a number of cities, of which the largest
are Charlotte, Greensboro, Winston-Salem and Durham in North Carolina and
Greenville and Spartanburg in South Carolina. The Company supplies electric
service directly to approximately 1.8 million residential, commercial and
industrial customers in more than 200 cities, towns and unincorporated
communities. Electricity is sold at wholesale to incorporated municipalities and
to several public and private utilities. In addition, sales are made through
contractual agreements to former wholesale municipal or cooperative customers of
the Company who had purchased portions of the Catawba Nuclear Station
(collectively, the "other Catawba joint owners") (See "Joint Ownership of
Generating Facilities"). NP&L services an additional 55,000 mostly residential
customers in five counties in western North Carolina.
The Company's service area is undergoing increasingly diversified
industrial development. The textile industry, machinery and equipment
manufacturing, and chemical and chemical-related industries are of major
significance to the economy of the area. Other industrial activities include
rubber and plastic products, paper and allied products, and various other light
and heavy manufacturing and service businesses. The largest industry served is
the textile industry, which accounted for approximately $459 million of the
Company's revenues for 1996, representing 10 percent of electric revenues and 37
percent of industrial revenues.
1
<PAGE>
ENERGY REQUIREMENTS AND CAPABILITY
The following table sets forth the Company's generating capability as of
December 31, 1996, its sources of electric energy for 1996 and certain
information presently projected for 1997:
<TABLE>
<CAPTION>
GENERATING CAPABILITY -- GENERATION -- MWH
MW(A)(B)(C) (THOUSANDS)(C)
ACTUAL PROJECTED ACTUAL
SOURCE DECEMBER 31, 1996 DECEMBER 31, 1997 1996
<S> <C> <C> <C>
Coal........................................................... 7,699 7,699 40,649
Nuclear (d).................................................... 5,078 5,078 33,177
Hydro and other................................................ 4,469 4,469 1,518
Total..................................................... 17,246 17,246 75,344
Plus: Purchases from other Catawba joint owners................ 2,662
Purchased power and net interchange............................ 3,587
Total..................................................... 81,593
</TABLE>
(a) The data relating to capability does not reflect the possible unavailability
or reduction of capability of facilities at any given time because of
scheduled maintenance, repair requirements or regulatory restrictions.
(b) Excludes firm purchases and sales. (See "Energy Management and Future Power
Needs.")
(c) Excludes NP&L.
(d) Nuclear capability and related generation for 1996 and related projections
for 1997 reflect the Company's 12.5% ownership share of the Catawba Nuclear
Station. (See "Joint Ownership of Generating Facilities.")
NP&L operates 11 hydroelectric stations with a total capacity of 100
megawatts and also purchases supplemental power. The Company supplies
supplemental power to NP&L under the terms of an interconnection agreement
approved by FERC.
The Company has a bulk power sales agreement with Carolina Power & Light
Company (CP&L) to provide CP&L 400 megawatts of capacity as well as associated
energy when needed for a six-year period which began July 1, 1993. Electric
rates in all regulatory jurisdictions were reduced by adjustment riders to
reflect capacity revenues received from this CP&L bulk power agreement.
The Company's steam-fossil generating system continued its tradition of
operating efficiently and achieved a combined availability of 86 percent for
1996. The Company's nuclear system operated at 74 percent of capacity for 1996,
which reflects the impact of the steam generator replacement outage at the
Catawba Nuclear Station (See "Regulation -- Nuclear Facilities") and the removal
from service of the Oconee Nuclear Station in October 1996 for inspection and
modification of the piping system after a steam line on the non-nuclear side of
the plant ruptured. Oconee Units 1, 2, and 3 returned to service in 1997 on
February 12, February 3, and March 14, respectively. The Company's system
nuclear capacity factor reflects the Company's 12.5% ownership share of the
Catawba Nuclear Station.
The Company normally experiences seasonal peak loads in summer and winter
which are relatively in balance. The Company currently forecasts a 1.8 percent
compound annual growth in peak load through 2011. The Company experienced an
all-time peak load of 15,542 MW on August 14, 1995 during exceptionally warm
summer weather. This peak load excludes the portion of the demand of the other
Catawba joint owners met by their retained ownership.
RATE MATTERS
The NCUC and the PSCSC must approve the Company's rates for retail sales
within their respective states. The FERC must approve the Company's rates for
sales to wholesale customers, including the contractual arrangements between the
Company and the other Catawba joint owners.
The most recent general rate increase requests in the Company's retail
jurisdictions were filed and approved in 1991. The Company also filed its most
recent general rate increase request within the FERC wholesale jurisdiction in
1991. A negotiated settlement between the Company and the wholesale customers
was approved by the FERC in 1992.
In its most recent general rate case, the NCUC authorized a jurisdictional
rate of return on common equity of 12.50 percent, and the PSCSC authorized a
jurisdictional rate of return on common equity of 12.25 percent.
2
<PAGE>
The PSCSC, on May 7, 1996, ordered a rate reduction in the form of a
decrement rider of 0.432 cents per kilowatt-hour, or an average of approximately
8 percent, affecting South Carolina retail customers. South Carolina retail
sales represent approximately 30 percent of the Company's total retail sales.
The rate reduction was reflected on bills rendered on or after June 1, 1996.
This net decrement rider reflects an interim true-up decrement adjustment
associated with the levelization of Catawba Nuclear Station purchased capacity
costs and an interim true-up increment associated with amortization of the
demand-side management deferral account. The rate adjustment was made because,
in the South Carolina retail jurisdiction, cumulative levelized revenues
associated with the recovery of Catawba purchased capacity costs had exceeded
purchased capacity payments and accrual of deferred returns, and certain
demand-side costs had exceeded the level reflected in rates.
Certain of the Company's wholesale customers, excluding the other Catawba
joint owners, initiated proceedings in 1995 before the FERC concerning rate
matters. The Company and nine of its eleven wholesale customers entered into a
settlement in July 1996 which reduced the customers' rates by approximately 9
percent and renewed their contracts with the Company through the year 2000. Both
of the customers that did not enter into the settlement have signed agreements
to purchase energy from other suppliers beginning in 1997. The eleven wholesale
customers involved in this matter accounted for less than 2 percent of the
Company's overall electric revenues during 1996. The two customers that have
signed agreements with other suppliers accounted for less than 0.5 percent of
the Company's 1996 overall electric revenues.
During 1996, NP&L filed an application with and received approval from the
NCUC to increase its annual retail service revenues by $4.6 million.
FUEL AND PURCHASED POWER COST ADJUSTMENT PROCEDURES. Duke Power has
procedures in all three of its regulatory jurisdictions to adjust rates for
fluctuations in fuel expense. In the North Carolina retail jurisdiction, a
review of fuel costs in rates is required annually and during general rate case
proceedings. In 1996, the South Carolina General Assembly amended the Code of
Laws of South Carolina to provide for annual reviews of fuel costs. In the
wholesale jurisdiction, fuel costs are reviewed semiannually. All jurisdictions
allow Duke Power to adjust rates for past over- or under-recovery of fuel costs.
Therefore, Duke Power reflects in revenues the difference between actual fuel
costs incurred and fuel costs recovered through rates.
NP&L's wholesale rates are adjusted annually to reflect current costs.
Purchased power costs of NP&L are reviewed annually and during general rate case
proceedings by the NCUC. NP&L is allowed to adjust rates for past over- or
under-recovery of purchased power costs. Therefore, NP&L defers the difference
between actual purchased power costs incurred and those recovered through rates.
ENERGY MANAGEMENT AND FUTURE POWER NEEDS
The Company's strategy for meeting customers' present and future energy
needs consists of three components: supply-side resources, demand-side
resources, and purchased power resources. The Company uses a 20 percent planning
reserve margin as a baseline to meet contingencies such as forecast
uncertainties, unit outages, weather extremes, and historically long lead times
for new generation resources. With the increased flexibility from the purchased
power market offering short lead time resources and shortened lead times for new
generation construction, the Company expects to maintain an operating reserve
margin of approximately 17 percent of its anticipated peak load requirements
through 2001. The Company continues to engage in a comprehensive energy
management program as part of its Integrated Resource Plan (IRP). Integrated
resource planning is the process used by utilities to evaluate a variety of
resources. The goal is to provide adequate and reliable electricity in an
environmentally responsible manner through cost-effective power management. As
customers elect to procure generation from other suppliers, as two of the
Company's wholesale customers have indicated they will do beginning in 1997, the
Company will no longer be obligated to plan for the future generation needs of
those customers. The Company files an IRP with the NCUC and the PSCSC once every
three years. During each of the intervening years, the Company files a Short
Term Action Plan which updates the IRP for any changes in projections for the
next three years. The PSCSC issued an order on December 14, 1995 approving the
Company's 1995 IRP. On February 20, 1996, the NCUC issued a similar order.
Short-term action plans were filed with both the NCUC and the PSCSC in April
1996.
The Company has completed the construction of a combustion turbine facility
in Lincoln County, North Carolina, to provide capacity at periods of peak
demand. The station consists of sixteen combustion turbines with a total
generating capacity of 1,200 megawatts. During 1995, twelve units of the Lincoln
Combustion Turbine Station began commercial operation. The last four units began
commercial operation in the first quarter of 1996.
Demand-side management (DSM) programs benefit the Company and its customers
by providing cost-effective energy efficiency, providing for load control
through interruptible control features, shifting usage to off-peak periods and
increasing
3
<PAGE>
strategic sales of electricity. The November 1991 rate orders of the NCUC and
the PSCSC provided for recovery in rates of a designated level of costs for DSM
programs and allowed the deferral for later recovery of certain DSM costs that
exceed the level reflected in rates, including a return on the deferred costs.
In 1993, the NCUC and the PSCSC issued orders approving "shared savings"
mechanisms for accomplishments achieved in the Company's DSM programs, and
deferral of such shared savings. The May 1996 rate rider in South Carolina
included an increment for DSM cost recovery. (See "Rate Matters.") The Company
ultimately expects recovery through rates of associated deferred costs, not to
exceed $75 million including deferred returns in the North Carolina retail
jurisdiction. The annual costs deferred, including the return, were
approximately $11 million in 1996 and $27 million in 1995. The total costs
deferred, including the return, are $67 million and $40 million in North
Carolina and South Carolina, respectively.
The purchase of capacity and energy is an integral part of meeting future
power needs. As of December 31, 1996, the Company had under contract 329 MW of
capacity from other generators of electricity, including 91 MW from qualifying
facilities. In 1995, the Company issued two requests for proposals (RFP) to
solicit both short-term and long-term competitive bids to provide future
electric generating capacity resources. After review of all bids, the Company
selected a short-term bid from PECO Energy Co. of Philadelphia. The agreement
gives the Company the option to purchase up to 250 megawatts of capacity during
the summer months of 1998 through 2001. Contract arrangements between the
parties were finalized on August 1, 1996. The long-term RFP was closed and no
bids were accepted.
CAPITAL REQUIREMENTS
Projected capital expenditures, excluding costs related to portions of the
Catawba Nuclear Station owned by the other Catawba joint owners, for the years
set forth below, as now scheduled, are as follows (in millions):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 TOTAL
<S> <C> <C> <C> <C> <C> <C>
Duke Power -- Electric
Generation............................................................. $223 $ 177 $185 $137 $ 142 $ 864
Transmission........................................................... 38 38 38 38 38 190
Distribution........................................................... 246 248 251 255 258 1,258
Other.................................................................. 66 59 67 66 58 316
Nuclear Fuel........................................................... 134 160 130 140 152 716
Total Duke Power -- Electric................................... 707 682 671 636 648 3,344
Associated Enterprises Group............................................. 218 318 290 306 382 1,514
Total Company............................................................ $925 $1,000 $961 $942 $1,030 $4,858
</TABLE>
The Company's procedures for estimating capital expenditures for Duke
Power -- Electric (which include allowance for funds used during construction)
utilize, among other things, past construction experience, current construction
costs, allowances for inflation and the Company's business plan. These
projections are subject to periodic review and revisions. Actual construction
and nuclear fuel costs and capital expenditures incurred may vary from such
estimates. Cost variances for Duke Power -- Electric are due to various factors,
including revised load estimates, environmental matters and cost and
availability of capital. Projections of the AEG capital expenditures are subject
to periodic review and revision and may vary significantly as the business plans
of the AEG evolve to meet the opportunities presented by their markets.
JOINT OWNERSHIP OF GENERATING FACILITIES
The Company, through several transactions beginning in 1978, sold an 87.5%
undivided interest in the Catawba Nuclear Station to the other Catawba joint
owners.
These transactions contemplate that the Company will operate the facility,
interconnect its transmission system, wheel a certain portion of the capacity
and energy of such facility to the respective participants, provide back-up
services for such capacity, buy for its own use (whether or not the facility is
generating electricity) that portion of the capacity not then contractually
required by the respective participants, and provide supplemental power as
required by the purchasers to enable them to provide service on a firm basis.
The transactions also include a reliability exchange between the Catawba Nuclear
Station and the McGuire Nuclear Station of the Company, which provides for an
exchange of 50 percent of each other Catawba joint owner's retained capacity
from its ownership interest in the Catawba units for like amounts of capability
and output from units of the McGuire Nuclear Station. The implementation of the
reliability exchange has not had, nor does the Company anticipate that such
implementation will have, a material effect on earnings. (See Note 3, "Notes to
Consolidated Financial Statements.")
4
<PAGE>
The Company and North Carolina Municipal Power Agency Number 1 (NCMPA) and
Piedmont Municipal Power Agency (PMPA), two of the four other joint owners of
the Catawba Nuclear Station, entered into a settlement in 1995 which resolved
outstanding issues related to how certain calculations affecting bills under the
Catawba joint ownership contractual agreements should be performed. The
settlement was approved by the NCUC on January 16, 1996, and the PSCSC on
January 23, 1996. As part of the settlement, the Company agreed to purchase
additional megawatts (MW) of Catawba capacity during the period 1996 through
1999 and remove certain restrictions related to sales of surplus energy by these
two joint owners. The additional capacity purchases are 215 MW in 1996, 165 MW
in 1997, 120 MW in 1998 and 100 MW in 1999. The Company expects to recover the
costs associated with this settlement as part of the purchased capacity
levelization, consistent with prior orders of the retail regulatory commissions.
Therefore, the Company believes these matters should not have a material adverse
effect on its results of operations or its financial position.
The Company and all four of the other joint owners of the Catawba Nuclear
Station entered into settlement agreements in 1994 which resolved all issues in
contention in arbitration proceedings related to the Catawba joint ownership
contractual agreements. The basic contention in each proceeding was that certain
calculations affecting bills under these agreements should be performed
differently. These items are covered by the agreements between the Company and
the other Catawba joint owners, which previously have been approved by the
Company's retail regulatory commissions. (For additional information on Catawba
joint ownership, see Note 3, "Notes to the Consolidated Financial Statements.")
In 1994, the Company settled its cumulative net obligation through 1993 of
approximately $205 million related to these settlement agreements. Billings for
1994 and later years conform to the settlement agreements, which were approved
by the Company's retail regulatory commissions. Because the Company expects the
costs associated with these settlements to be recovered as part of the purchased
capacity levelization, which has been approved by the Company's retail
regulatory commissions, the Company included approximately $205 million as an
increase to "Purchased capacity costs" on its Consolidated Balance Sheet in
1994. Therefore, the Company believes these matters should not have a material
adverse effect on its results of operations or its financial position.
FUEL SUPPLY
The Company presently relies principally on nuclear fuel and coal for the
generation of electric energy. The Company's reliance on oil and gas is minimal
even with the addition of the Lincoln Combustion Turbine Station, which is
designed to operate on either natural gas or oil.
Information regarding the utilization of sources of power and cost of fuels
is set forth in the following table:
<TABLE>
<CAPTION>
COST OF FUEL PER NET
GENERATION BY SOURCE KWH GENERATED (CENTS)
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Coal....................................................................... 54.0% 43.7% 46.9% 1.40 1.56 1.53
Nuclear (1)................................................................ 44.0 53.7 51.0 0.53 0.57 0.56
Oil and gas (2) (3)........................................................ .3 .3 -- 6.74 5.06 16.90
All fuels (cost based on weighted average) (1) (2)......................... 98.3 97.7 97.9 1.02 1.03 1.03
Hydroelectric (4).......................................................... 1.7 2.3 2.1
100.0% 100.0% 100.0%
</TABLE>
(1) Statistics related to nuclear generation and all fuels reflect the Company's
12.5% ownership in the Catawba Nuclear Station.
(2) Statistics related to oil and gas generation and all fuels reflect
precommercial generation at the Lincoln Combustion Turbine Station in 1995
and 1996.
(3) Oil and gas cost statistics include amounts for light-off fuel at the
Company's coal-fired stations.
(4) Generating figures are net of that output required to replenish pumped
storage units during off-peak periods and do not include NP&L.
COAL. The Company obtains a large amount of its coal under long-term
supply contracts with mining operators utilizing both underground and surface
mining. The Company has on hand an adequate supply of coal. The Company's
long-term supply contracts, all of which have price adjustment provisions, have
expiration dates ranging from 1997 to 2003. The Company believes that it will be
able to renew such contracts as they expire or to enter into similar contractual
arrangements with
5
<PAGE>
other coal suppliers for quantities and qualities of coal required. The coal
covered by the Company's long-term supply contracts is produced from mines
located in eastern Kentucky, southern West Virginia and southwestern Virginia.
The Company's requirements not met by long-term supply contracts have been and
will be fulfilled with spot market purchases. The average sulfur content of coal
being purchased by the Company is approximately 1 percent. Such coal satisfies
the current emission limitation for sulfur dioxide for existing facilities. (See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues -- The Clean Air Act Amendments of 1990.")
NUCLEAR. Generally, the supply of fuel for nuclear generating units
involves the mining and milling of uranium ore to produce uranium concentrates,
the conversion of uranium concentrates to uranium hexafluoride, enrichment of
that gas and fabrication of the enriched uranium hexafluoride into usable fuel
assemblies. After a region (approximately one-third of the nuclear fuel
assemblies in the reactor at any time) of spent fuel is removed from a nuclear
reactor, it is placed in temporary storage for cooling in a spent fuel pool at
the nuclear station site. The Company has contracted for uranium materials and
services required to fuel the Oconee, McGuire and Catawba Nuclear Stations.
Based upon current projections, these contracts will meet the Company's
requirements through the following years:
<TABLE>
<CAPTION>
URANIUM CONVERSION ENRICHMENT FABRICATION
NUCLEAR STATION MATERIAL SERVICE SERVICE SERVICE
<S> <C> <C> <C> <C>
Oconee............................................ 1997 1998 2000 2006
McGuire........................................... 1997 1998 2000 2009
Catawba........................................... 1997 1998 2000 2009
</TABLE>
Uranium material requirements will be met through various supplier
contracts, with uranium material produced primarily in the U.S. and Canada. The
Company believes that it will be able to renew contracts as they expire or to
enter into similar contractual arrangements with other nuclear fuel materials
and services suppliers. Requirements not met by long-term supply contracts have
been and will be fulfilled with uranium spot market purchases.
The Department of Energy (DOE) requested Expressions of Interest (EOI) to
facilitate in the disposal of plutonium. The Company and Commonwealth Edison,
along with the other joint owners of the Catawba Nuclear Station, responded to
the EOI in early 1996. As this project is in its early developmental stage,
management cannot predict the outcome of this process. However, the Company
believes these matters should not have a material effect on the results of
operations or financial position of the Company.
The Nuclear Waste Policy Act of 1982 requires that the DOE begin disposing
of spent fuel no later than January 31, 1998. The Company has entered into the
required contracts with the DOE for the disposal of nuclear fuel and began
making payments in July 1983 for disposal costs of fuel currently being
utilized. These payments, combined with a one-time payment for disposal costs of
fuel consumed prior to April 7, 1983, have totaled about $540 million through
1996 related to the Company's ownership interest in nuclear plants. The DOE has
announced that the department anticipates a delay in accepting the waste
materials on the contract date of January 31, 1998. The Company has joined with
35 other utilities in a lawsuit attempting to force the DOE to meet its
obligations as called for in the contract. While it is uncertain what interim
storage will be provided by the DOE due to its inability to meet the contract
date, the Company has satisfactory plans in place to provide storage of spent
nuclear fuel if the DOE cannot accept it.
REGULATION
The Company is subject to the jurisdiction of the NCUC and the PSCSC which,
among other things, must approve the issuance of securities. The Company also is
subject, as to some phases of its business, to the jurisdiction of the FERC, the
Environmental Protection Agency (EPA) and state environmental agencies and to
the jurisdiction of the Nuclear Regulatory Commission (NRC) as to design,
construction and operation of its nuclear power facilities. The Company is
exempt from regulation as a holding company under the Public Utility Holding
Company Act of 1935 (PUHCA), except with respect to the acquisition of the
securities of other public utilities.
ENVIRONMENTAL MATTERS. The Company is subject to federal, state, and local
regulations with regard to air and water quality, hazardous and solid waste
disposal, and other environmental matters. North Carolina has enacted a
declaration of environmental policy requiring all state agencies to administer
their responsibilities in accordance with such policy. The NCUC has adopted
rules requiring consideration of environmental effects in determining whether
certificates of public convenience and necessity will be granted for proposed
generation facilities. South Carolina law also requires consideration by the
PSCSC of environmental effects in determining whether certificates of public
convenience and necessity will be granted
6
<PAGE>
for proposed major utility facilities, which include certain generation and
transmission facilities. All of the Company's facilities which are currently
under construction have been designed to comply with presently applicable
environmental regulations. Such compliance has, however, increased the cost of
electric service by requiring changes in the design and operation of existing
facilities. In 1996, the Company's construction costs for environmental
protection totaled approximately $9 million, while the on-going environmental
operation costs were approximately $24 million. The Company's 1997-2001
construction program includes costs for environmental protection which are
estimated to be approximately $152 million, including $4.2 million in 1997,
$44.5 million in 1998, $55.5 million in 1999, $25.6 million in 2000 and $22.5
million in 2001. These costs include expenditures associated with the Clean Air
Act Amendments of 1990. However, governmental regulations establishing
environmental protection standards are continually evolving and have not, in
some cases, been fully established. These projections are subject to periodic
review and revisions. Actual construction costs and capital expenditures
incurred may vary from such estimates. Cost variances are due to various
factors, including cost and availability of capital.
AIR QUALITY. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues -- The Clean Air Act
Amendments of 1990" for a discussion of the Company's plans for compliance with
federal clean air standards. The EPA has recently proposed revisions to two of
its air quality standards, one for ozone and the other for particulate matter.
These two proposals will not be final until the summer of 1997, and will likely
take years to implement fully. The rules as proposed would likely require
significant capital expenditures by electric utilities, particularly with
respect to coal-fired generation facilities, as well as by businesses in many
other industries. If promulgated without revision, it is expected that the rules
will be challenged in court, which could delay the effective implementation date
or could result in the rules being overturned altogether. Thus, it is too early
to estimate with accuracy the impact these rules could have on the Company.
Nevertheless, if implemented as proposed, the cost of compliance for the Company
could range from approximately $30 million to approximately $600 million over a
period currently estimated to be from 2002 through 2005.
WATER QUALITY. The Federal Water Pollution Control Act Amendments of 1987
(referred to herein as the "Clean Water Act") require permits for facilities
that discharge treated wastewater to the environment. The Company holds numerous
such permits, which are issued periodically. The issuance of such permits is
delegated by the EPA to state agencies in North and South Carolina. The Clean
Water Act has been scheduled for review and reauthorization by Congress since
1994, but no legislation has been enacted. Until Congress acts upon the
reauthorization, management will be unable to assess what effect, if any, such
reauthorization will have on the Company's operations.
OTHER ENVIRONMENTAL REGULATIONS. Contingencies associated with
environmental matters are principally related to possible obligations to remove
or mitigate the effects of contaminants resulting from the disposal of certain
substances.
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), commonly known as "Superfund," can require any individual or entity
which may have owned or operated a disposal site, as well as transporters or
generators of hazardous wastes which were sent to such site, to share in
remediation costs for the site. Such parties are known as "potentially
responsible parties" (PRPs). Some sites are remediated pursuant to state acts
which are similar to CERCLA. The Company is currently participating in PRP
groups with regard to Superfund sites near Concord, North Carolina and Lenoir,
North Carolina. While the total cost of remediation at these federal and state
contamination sites may be substantial, the Company shares probable liability
with other PRPs, many of which have substantial assets. Management is of the
opinion that resolution of these matters will not have a material adverse effect
on the results of operations or financial position of the Company.
Other clean-up sites in which the Company is involved arise from the former
operation of manufactured gas plants (MGP), which were commonplace in the
Carolinas until the 1950s. Some such sites are still owned by the Company, and
others are now owned by third parties. In North Carolina, the Company is
participating in a state-sponsored program to investigate and, where
appropriate, remediate MGP sites. In South Carolina, the Company is in the
process of remediating an MGP site in Greenville. Management is of the opinion
that resolution of these matters will not have a material adverse effect on the
results of operations or financial position of the Company.
CERCLA has been scheduled for review and reauthorization by Congress since
1994, but no legislation has been enacted. Until CERCLA reform occurs,
management will be unable to assess what effect, if any, such reauthorization
will have on the Company's operations.
GENERAL. Over the past few decades, the issue of the possible health
effects of electric and magnetic fields has generated a number of generally
inconclusive studies, some public concern and litigation as well as legislative
action in some states regarding high voltage transmission lines. The impact of
this issue on the Company cannot presently be determined.
NUCLEAR FACILITIES. The Company's nuclear facilities are subject to
continuing regulation by the NRC.
7
<PAGE>
Stress corrosion cracking (SCC) has occurred in the steam generators of
Units 1 and 2 at the McGuire Nuclear Station and Unit 1 at the Catawba Nuclear
Station. Catawba Unit 2, which has certain design differences and came into
service at a later date, has not yet shown the degree of SCC which has occurred
in McGuire Units 1 and 2 and Catawba Unit 1. It is, however, too early in the
life of Catawba Unit 2 to determine the extent to which SCC may be a problem.
Although the Company has taken steps to mitigate the effects of SCC, the
inherent potential for future SCC in the McGuire and Catawba steam generators
still exists. The Company planned for the replacement of steam generators at
three units that have experienced SCC and purchased the replacement steam
generators from Babcock & Wilcox International. Replacement of the steam
generators at Catawba Unit 1 was successfully completed at a lower cost than
projected on October 4, 1996, after a 115-day outage that included replacement
work and other maintenance. Steam generator replacement in both McGuire units is
scheduled for completion during 1997. The Catawba Unit 2 steam generators have
not been scheduled for replacement. Steam generator replacement at each McGuire
unit is expected to take approximately four months and cost approximately $170
million, excluding the cost of replacement power. Stress corrosion problems are
excluded under the Company's nuclear insurance policies.
The Company, in connection with its McGuire and Catawba stations and on
behalf of the other joint owners of the Catawba Station, began a legal action in
1990, alleging that Westinghouse Electric Corporation knowingly supplied to the
McGuire and Catawba stations steam generators that were defective in design,
workmanship and materials, requiring replacement well short of their stated
design life. The lawsuit was settled in 1994. While the court order does not
allow disclosure of the terms of the settlement, the Company believes the
litigation was settled on terms that provided satisfactory consideration to the
Company and will not have a material effect on the Company's results of
operations or financial position.
NUCLEAR DECOMMISSIONING COSTS. Estimated site-specific nuclear
decommissioning costs, including the cost of decommissioning plant components
not subject to radioactive contamination, total approximately $1.3 billion
stated in 1994 dollars based on decommissioning studies completed in 1994. This
amount includes the Company's 12.5% ownership in the Catawba Nuclear Station.
The other Catawba joint owners are responsible for decommissioning costs related
to their ownership interests in the station. Such estimates presume each unit
will be decommissioned as soon as possible following the end of its license
life. Although subject to extension, the current operating licenses for the
Company's nuclear units expire as follows: Oconee 1 and 2 -- 2013, Oconee
3 -- 2014; McGuire 1 -- 2021, McGuire 2 -- 2023; and Catawba 1 -- 2024, Catawba
2 -- 2026.
The NRC issued a rulemaking in 1988 which requires an external mechanism to
fund the estimated cost to decommission certain components of a nuclear unit
subject to radioactive contamination. In addition to the required external
funding, the Company maintains an internal reserve to provide for
decommissioning costs of plant components not subject to radioactive
contamination. During 1996, the Company expensed approximately $56 million,
which was contributed to the external funds and accrued an additional $2 million
to the internal reserve. The balance of the external funds as of December 31,
1996, was $363 million. The balance of the internal reserve as of December 31,
1996, was $208 million and is reflected in accumulated depreciation and
amortization on the Consolidated Balance Sheets. Management's opinion is that
the decommissioning costs being recovered through rates, invested at assumed
after-tax earnings rates of 5.5 percent to 5.9 percent, are sufficient to
provide for the estimated cost of decommissioning.
A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the DOE's uranium enrichment plants.
Licensees are subject to an annual assessment for 15 years based on their pro
rata share of past enrichment services. The annual assessment is recorded as
fuel expense. The Company paid $9.5 million during 1996 and has paid $45.0
million cumulatively related to its ownership interest in nuclear plants. The
Company has reflected the remaining liability and regulatory asset of $94.7
million in the Consolidated Balance Sheet at December 31, 1996.
NUCLEAR INSURANCE. For a discussion of the Company's nuclear insurance
coverage, see "Note 13, Notes to Consolidated Financial Statements, Commitments
and Contingencies -- Nuclear Insurance."
HYDROELECTRIC LICENSES. The principal hydroelectric projects of the
Company are licensed by FERC under Part I of the Federal Power Act. Eleven
developments on the Catawba-Wateree River in North Carolina and South Carolina,
with a nameplate rating of approximately 805 MW, are licensed for a term
expiring in 2008. The Company also holds a license for the Keowee-Toxaway
Project for a term expiring in 2016, covering the Keowee Hydro Station and the
Jocassee Pumped Storage Station for a combined total of approximately 770 MW, on
the upper tributaries of the Savannah River in northwestern South Carolina.
Additionally, the Company is the licensee through 2027 for the Bad Creek
Hydroelectric Station which uses Lake Jocassee as its lower reservoir and has a
nameplate rating of 1,065 MW. The Company received new 40-year licenses in 1996
for two existing projects on the Broad River. The Company sold seven small
hydroelectric projects in 1996. NP&L holds licenses for 11 hydroelectric
projects with a nameplate rating of 100 MW with license terms expiring
2001-2006. The Federal
8
<PAGE>
Power Act provides, among other things, that, upon the expiration of any license
issued thereunder, the United States may (a) grant a new license to the licensee
for the project, (b) take over the project upon payment to the licensee of its
"net investment" in the project (but not in excess of the fair value thereof)
plus severance damages, or (c) grant a license for the project to a new licensee
subject to payment to the former licensee of the amount specified in (b) above.
INTERCONNECTIONS
The Company has major interconnections and arrangements with its
neighboring utilities which it currently considers adequate for coordinated
planning, emergency assistance, exchange of capacity and energy, and reliability
of power supply.
COMPETITION
The Company currently is subject to competition in some areas from
government-owned power systems, municipally-owned electric systems, rural
electric cooperatives and, in certain instances, from other private utilities.
Statutes in North Carolina and South Carolina provide for the assignment by the
NCUC and the PSCSC, respectively, of all areas outside municipalities in such
states to power companies and rural electric cooperatives. Substantially all of
the territory comprising the Company's service area has been so assigned. The
remaining areas have been designated as unassigned and in such areas the Company
remains subject to competition. A decision of the North Carolina Supreme Court
limits, in some instances, the right of North Carolina municipalities to serve
customers outside their corporate limits. In South Carolina there continues to
be competition between municipalities and other electric suppliers outside the
corporate limits of the municipalities, subject, however, to the regulation of
the PSCSC. In addition, the Company is engaged in continuing competition with
various natural gas providers.
The Energy Policy Act of 1992 (EPACT) and the FERC's subsequent rulemaking
activities are major drivers toward a more competitive market for electric
generation. EPACT reformed provisions of PUHCA and Part II of the Federal Power
Act to remove certain barriers to competition for the supply of electricity. For
example, EPACT allows utilities to participate in the development of independent
electric generating plants in the United States for sales to wholesale
customers, as well as to contract for utility projects internationally, without
becoming subject to regulation under PUHCA as an electric utility holding
company. In addition, EPACT permits the FERC to order transmission access for
third parties to transmission facilities owned by another entity so that energy
suppliers can sell to wholesale customers wherever they are located. It does
not, however, permit the FERC to issue an order requiring transmission access to
retail customers.
The FERC, responsible in large measure for implementation of the EPACT, has
moved vigorously to implement its mandate, interpreting the statute broadly in
issuing orders for third-party transmission service and issuing a number of
rules of general applicability. On April 24, 1996, the FERC issued its Order
Numbers 888 and 889, which established the final form of transmission tariff to
provide comparable service to all users of a utility's transmission system.
Open-access transmission for wholesale customers as defined by the FERC's
final rules provides energy suppliers, including the Company, with opportunities
to sell and deliver capacity and energy at market-based prices. Engaging in such
transactions may result in improved utilization of the Company's existing
assets. In addition, such access provides another supply option through which
the Company can buy capacity and energy at attractive rates, influencing its
competitive price position. However, sales to existing wholesale customers of
the Company may continue to be impacted by open access either due to competitive
pressure on the wholesale price of electricity, or the potential loss of sales
as wholesale customers seek other options to meet their capacity and energy
requirements at market-based prices. (For additional information about sales to
wholesale customers, see "Liquidity and Resources -- Duke Power Company Rate
Matters," and Note 3, "Notes to Consolidated Financial Statements.") Wholesale
sales represented approximately 8.8 percent of the Company's total kilowatt-hour
sales in 1996. Supplemental sales to the other joint owners of the Catawba
Nuclear Station comprised the majority of such sales. Such supplemental sales
will continue to decline in 1997 as a result of the retention of larger portions
of ownership entitlement by the other joint owners. (For additional information
on Catawba joint ownership, see Note 3, "Notes to Consolidated Financial
Statements.")
In early 1995, prior to issuance of the FERC's Notice of Proposed
Rulemaking, the Company and certain of its affiliates filed three applications
with the FERC, all of which were designed to enable effective participation in
the competitive environment of the changing electric utility industry. Duke
Power filed an application for permission to sell at market-based rates up to
2,500 megawatts of capacity and energy from its own assets. Two of the Company's
affiliates, Duke Energy Marketing Corp. (DEMC) and Duke/Louis Dreyfus LLC
(D/LD), filed applications with the FERC to become power marketers. All of the
applications were supported by transmission tariffs which complied with then
applicable FERC standards and established the rates, terms and conditions for
transmission service to third parties on the Company's transmission system. Late
in 1995,
9
<PAGE>
the FERC granted the applications of Duke, DEMC, and D/LD; accepted Duke's
transmission tariffs; and ordered a hearing on the rates to be charged for
service under those tariffs. On July 9, 1996, in compliance with the standards
and schedules set forth in Order Number 888, the Company filed a pro forma open
access transmission tariff complying with the requirements of the FERC's final
rules. Such a filing was required of all transmission-owning utilities subject
to the FERC's jurisdiction. The Company also filed on that date a proposed
settlement in the proceeding earlier ordered by the FERC. The proposed
settlement resolves all rate issues related to transmission services under
Duke's tariff and contains the rates agreed upon under the settlement. The
settlement and the July 9, 1996 tariff filing remain subject to final FERC
approval.
Competition for retail customers is not generally allowed in the Company's
service territory. However, there are discussions and events at the national
level and within certain states regarding retail competition which could result
in changes in the industry. Such changes, should they occur, could impact all
entities owning generation, including the other joint owners of the Catawba
Nuclear Station. The process of assessing changes to the regulatory structure is
just beginning in the Company's retail jurisdictions and has not progressed as
rapidly as in some other states. A bill was passed in the North
Carolina General Assembly to establish a group to study the issues
surrounding retail competition. The study group is to report the
results of its study to the 1999 General Assembly. While a bill has
been introduced to provide for retail competition in South
Carolina, the bill does not have the support of all interested
parties and in effect just begins the process of addressing the
relevant issues in that state. In addition, a bill has been recently
introduced in the South Carolina legislature to create an electric deregulation
study committee on retail competition. In addition, at the federal level,
several bills have been introduced in Congress, and it is likely that other
bills will be introduced in the future, that may cover many different issues,
including the following: repeal of PUHCA and certain provisions of the Public
Utility Regulatory Policies Act of 1978, retail competition, disaggregation
of electric utilities and the restructuring of the electric utility industry.
This activity is at an early stage, and no assessment of its impact, if any,
upon the Company can be made at this time. (See "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current
Issues -- Competition.")
Currently, the electric utility industry is predominantly regulated on a
basis designed to recover the cost of providing electric power to its retail and
wholesale customers. If cost-based regulation were to be discontinued in the
industry, for any reason, including competitive pressure on the cost-based
prices of electricity, profits could be reduced and utilities might be required
to reduce their asset balances to reflect a market basis less than cost.
Discontinuance of cost-based regulation would also require affected utilities to
write off their associated regulatory assets. The regulatory assets of the
Company are classified as "Deferred debits" on the Consolidated Balance Sheets.
Substantially all of the "Deferred debits" are regulatory assets. Management
cannot predict the potential impact, if any, of these competitive forces on the
Company's future financial position and results of operations. However, the
Company continues to position itself to effectively meet these challenges by
maintaining prices that are locally, regionally and nationally competitive.
In addition to the changing regulatory environment, another trend toward
increasing competition in the electric utility industry is the convergence of
markets for electricity and natural gas. The Company's management has noted the
emergence of a national market for energy products and services in which demands
for energy in the forms of electricity and gas are increasingly being met by
vendors who have the ability to supply both. The Company's proposed merger with
PanEnergy Corp is its primary strategic response to this trend. (See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues -- Proposed Merger with PanEnergy Corp.")
SUBSIDIARIES AND DIVERSIFIED ACTIVITIES
The Company continues to aggressively pursue both domestic and
international diversified business opportunities that are synergistic with the
Company's core business to provide additional value to the Company's
shareholders. Among the Company's current industry pursuits are ownership of
electric power facilities, energy marketing, real estate, communications,
engineering consulting and various energy services. Although these opportunities
are primarily concentrated in areas that utilize the Company's expertise, they
present different and potentially greater risks than does the Company's core
business. The Company only pursues opportunities in which the expected returns
are commensurate with the risks and makes efforts to mitigate such risks. The
Company undertakes a continuous evaluation of the various lines of business it
may enter or exit, with the objective of enhancing shareholder value and
managing any associated risk. (See "Subsidiaries and Diversified Activities
Highlights.")
Major subsidiaries and diversified activities include the following:
CRESCENT RESOURCES, INC. (Crescent) provides high-quality residential and
commercial real estate development services in the Southeast in addition to
providing forest management activities focused on growing trees suitable for use
in the construction, furniture and paper industries. During 1996, Crescent sold
869 residential developed lots compared to 600 lots in 1995. At December 31,
1996, Crescent owned approximately 2.5 million square feet of office, retail and
warehouse space and had approximately 900,000 square feet of commercial
properties under construction. Additionally, Crescent had approximately 249,000
acres of land under its management at year end.
10
<PAGE>
DUKE ENERGY GROUP, INC. (Duke Energy Group) develops, owns, manages and
operates energy facilities worldwide. Domestically, Duke Energy Group
concentrates on advanced fossil-fueled generation including pulverized coal,
circulating fluidized bed, coal gasification and natural gas technologies.
Internationally, Duke Energy Group pursues advanced coal-fueled, hydroelectric
and gas-fueled generation as well as transmission projects. Duke Energy Group
has equity interests in two U.S. electric generation facilities and six
international projects.
DUKE ENGINEERING & SERVICES, INC. (DE&S) provides engineering, project
management, quality assurance, construction management, operating and
maintenance and environmental services for utilities, industry and government
worldwide. During 1996, DE&S continued to expand primarily due to the
acquisition of the nuclear engineering, government services and power services
businesses of VECTRA Technologies, Inc. DE&S was awarded 984 contracts in 1996,
including a contract to manage and integrate spent nuclear fuel activities at
the Department of Energy's Hanford facility in Washington state. DE&S's domestic
and global presence is evident by its 23 U.S. business offices, 13 international
offices and projects underway in more than 50 countries.
NANTAHALA POWER AND LIGHT COMPANY (NP&L) is a franchised electric utility
which operates 11 hydroelectric plants with a total capacity of 100 megawatts.
NP&L has approximately 55,000 customers in western North Carolina. NP&L sold
1,085,000 MWH in 1996 compared with 949,000 MWH in 1995, excluding firm sales
and sales to Duke Power.
OTHER BUSINESS UNITS include Church Street Capital Corp., which provides
equity funding and credit enhancement services for its subsidiaries and manages
investment funds; Duke/Fluor Daniel, a joint venture with Fluor Daniel, Inc.,
which provides engineering, procurement, construction and operating and
maintenance services for fossil-fueled electric generating stations worldwide;
Duke/Louis Dreyfus, LLC, which markets electric power, natural gas and
energy-related services to utilities, municipalities and other large energy
users in North America; Duke Merchandising, which sells and services home
appliances, electronics and wireless communications devices; DukeNet
Communications, Inc., which develops and manages communications systems,
including fiber optic and wireless digital network services; and Duke Water
Operations, which provides franchised water service to customers in parts of
North and South Carolina.
EMPLOYEES
At December 31, 1996, the Company had 17,726 full-time employees, which
included 2,724 full-time employees of subsidiaries and diversified activities.
About 1,850 electrical operating employees are represented by the International
Brotherhood of Electrical Workers (IBEW). During the last quarter of 1996, the
Company and the IBEW were unable to reach a new labor agreement and, in December
1996, the Company unilaterally implemented its final offer for settlement.
The number of full-time employees has decreased to the 1996 year-end level
from 18,551 at year-end 1991. (See "Management's Discussion and Analysis of
Results of Operations and Financial Condition, Current Issues -- Resource
Optimization.")
SUBSEQUENT EVENTS
On March 18, 1997, the PSCSC unanimously voted in favor of the merger of
the Company and PanEnergy Corp and approved the issuance of securities for the
merger. Hearings were held in the PSCSC proceeding on March 6, 1997 and in the
NCUC proceeding on March 18, 1997. In connection with the hearings, the Company
entered into stipulations with the South Carolina Consumer Advocate and the
Public Staff of the NCUC. The stipulations contain certain conditions that,
among other things, are generally designed to ensure (i) that the rates of the
Company's retail electric and water customers will not be affected by any costs
of, or increased costs attributable to, the merger or by any commitments made by
the Company in other jurisdictions relating to the merger, (ii) that the
Company's future conduct of business with its subsidiaries and affiliates, and
its allocation of costs among the Company and its subsidiaries and affiliates,
do not lessen competition or adversely impact rates, (iii) that the Company will
not seek to increase its retail rates through the year 2000, except to reflect
substantial financial impacts of governmental action affecting the industry
generally, or a segment thereof, including the Company, or major expenditures
attributable to FORCE MAJEURE events, and (iv) that North Carolina's regulatory
jurisdiction will not be diminished by preemption, to the detriment of retail
customers, should the Company in the future engage in an action that causes it
to cease to be exempt from registration under PUHCA. Orders to be issued in both
the PSCSC and NCUC proceedings may contain some or all of the conditions set
forth in the stipulations.
11
<PAGE>
(Picture Graphic of a Map of North and South Carolina
appears here)
12
<PAGE>
DUKE POWER COMPANY
OPERATING STATISTICS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Sources of Electric Energy (a)
Millions of kilowatt-hours:
Generated -- net output:
Coal.............................................. 40,649 32,389 32,714 34,097 28,999
Nuclear (b)....................................... 33,177 39,836 35,587 34,390 33,925
Hydro............................................. 1,319 1,685 1,460 1,582 1,834
Oil and gas (c)................................... 199 255 35 43 5
Total generation............................. 75,344 74,165 69,796 70,112 64,763
Purchased power and net interchange............... 3,587 1,175 1,276 1,750 1,403
Total output................................. 78,931 75,340 71,072 71,862 66,166
Plus: Purchases from other Catawba joint owners... 2,662 6,070 9,046 8,810 9,466
Total sources of energy...................... 81,593 81,410 80,118 80,672 75,632
Line loss and company usage....................... 4,741 4,673 4,555 4,614 4,590
Total kilowatt-hour sales.................... 76,852 76,737 75,563 76,058 71,042
Average Cost Per Ton of Coal Burned.................... $ 36.89 $ 41.72 $ 40.68 $ 42.21 $ 43.47
Electric Energy Sales (a)
Millions of kilowatt-hours:
Residential....................................... 20,992 19,669 18,870 19,465 17,789
General service................................... 19,269 18,160 17,289 16,904 15,818
Industrial
Textile......................................... 11,599 12,151 12,285 11,954 11,685
Other........................................... 18,021 17,631 17,005 16,244 15,356
Other energy and wholesale (d).................... 7,028 8,330 10,274 11,337 10,360
Total kilowatt-hour sales billed............. 76,909 75,941 75,723 75,904 71,008
Unbilled kilowatt-hour sales............... (57) 796 (160) 154 34
Total kilowatt-hour sales.................. 76,852 76,737 75,563 76,058 71,042
Electric Revenue (a)
Thousands of dollars:
Residential....................................... $1,519,902 $1,441,362 $1,379,740 $1,424,173 $1,312,227
General service................................... 1,123,804 1,076,791 1,031,061 1,014,124 964,853
Industrial
Textile......................................... 458,844 494,066 498,190 487,576 482,172
Other........................................... 765,387 766,750 745,154 726,399 696,413
Other energy and wholesale (d).................... 379,755 461,367 540,256 476,862 460,849
Other electric revenue............................ 149,181 182,102 84,928 152,742 44,970
Total electric revenues...................... $4,396,873 $4,422,438 $4,279,329 $4,281,876 $3,961,484
Number of Customers -- end of year (a)
Residential....................................... 1,563,940 1,526,323 1,493,166 1,460,876 1,439,845
General service................................... 253,849 246,276 239,355 232,272 227,675
Industrial
Textile......................................... 1,327 1,390 1,422 1,396 1,390
Other........................................... 7,304 7,320 7,320 7,338 7,314
Other energy and wholesale........................ 8,660 8,470 8,187 7,957 7,773
Total customers.............................. 1,835,080 1,789,779 1,749,450 1,709,839 1,683,997
Residential Customer Statistics (a)
Average number for the year....................... 1,549,346 1,514,434 1,483,497 1,455,609 1,431,403
Average annual use -- KWH......................... 13,549 12,988 12,720 13,372 12,427
Average annual billing............................ $ 981.00 $ 951.75 $ 930.06 $ 978.40 $ 916.74
Average annual billed revenue per KWH (a)
Cents:
Residential....................................... 7.24 7.33 7.31 7.32 7.38
General service................................... 5.83 5.93 5.96 6.00 6.10
Industrial........................................ 4.13 4.23 4.24 4.31 4.36
Other energy and wholesale (d).................... 5.40 5.54 5.26 4.21 4.45
</TABLE>
13
<PAGE>
(a) Does not include operating statistics of NP&L.
(b) Includes 12.5% of Catawba generation.
(c) 1996 and 1995 include KWH of the Lincoln Combustion Turbine Station prior to
commercial operation.
(d) Includes sales to NP&L.
EXECUTIVE OFFICERS OF THE COMPANY
WILLIAM H. GRIGG, 64, Chairman of the Board and Chief Executive Officer.
Mr. Grigg served as Chairman of the Board, President and Chief Executive
Officer, effective April 28, 1994, until July 27, 1994 when he assumed his
present position. He served as Vice Chairman of the Board beginning in 1991, and
Executive Vice President, Customer Group, beginning in 1988.
STEVE C. GRIFFITH, JR., 63, Vice Chairman of the Board and General Counsel.
Mr. Griffith served as Executive Vice President and General Counsel from 1991
until he assumed his present position in July 1994. He served as Senior Vice
President and General Counsel from 1982 until 1991.
RICHARD B. PRIORY, 50, President and Chief Operating Officer. Mr. Priory
served as Executive Vice President, Power Generation Group, from 1991 until he
assumed his present position in July 1994. He was Senior Vice President,
Generation and Information Services, from 1988 to 1991.
WILLIAM A. COLEY, 53, President, Associated Enterprises Group. Mr. Coley
was named Senior Vice President, Power Delivery, in 1988; Senior Vice President,
Customer Group, in 1990; and Executive Vice President, Customer Group, in 1991.
He was named to his present position in July 1994.
RICHARD J. OSBORNE, 45, Senior Vice President and Chief Financial Officer.
Prior to assuming his current position in July 1994, Mr. Osborne served as Vice
President and Chief Financial Officer beginning in 1991 and Vice President,
Finance, from 1988 to 1991.
JEFFREY L. BOYER, 40, Controller. Mr. Boyer served as Director of Corporate
Accounting for more than five years prior to assuming his present position in
July 1994.
Executive officers are elected annually by the Board of Directors and serve
until the first meeting of the Board of Directors following the next annual
meeting of shareholders and until their successors are duly elected.
There are no family relationships between any of the executive officers nor
any arrangement or understanding between any executive officer and any other
person pursuant to which the officer was selected.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
14
<PAGE>
ITEM 2. PROPERTIES.
At December 31, 1996, the Company, excluding its subsidiary NP&L, operated
three nuclear generating stations, eight coal-fired stations and twenty
hydroelectric stations, all of which are located in North Carolina or South
Carolina.
The following is a list of the major generating stations owned by the
Company at December 31, 1996:
<TABLE>
<CAPTION>
FACILITY ENERGY SOURCE NET MW
<S> <C> <C>
Oconee Nuclear 2,538
McGuire Nuclear 2,258
Catawba (a) Nuclear 282
Belews Creek Coal 2,240
Marshall Coal 2,090
Allen Coal 1,140
Cliffside Coal 760
Others Coal 1,469
Bad Creek Hydroelectric 1,065
Jocassee Hydroelectric 610
Others Hydroelectric 1,010
Lincoln Oil and gas 1,200
Others Oil and gas 584
</TABLE>
(a) Represents Duke's 12.5% ownership share in Catawba Nuclear Station.
In addition to the electric generating plants described above, the Company
owned, as of December 31, 1996, approximately 8,300 conductor miles of
transmission lines, including 600 conductor miles of 500 kilovolts, 1,400
conductor miles of 220 kilovolts, 3,400 conductor miles of 100 kilovolts, and
2,900 conductor miles of 13 to 66 kilovolts. The Company also owned
approximately 74,200 conductor miles of distribution lines, including 47,200
conductor miles of rural overhead lines, 14,700 conductor miles of urban
overhead lines, 6,900 conductor miles of rural underground lines and 5,400
conductor miles of urban underground lines. As of such date, the Company's
transmission and distribution systems comprised approximately 1,600 substations
with an installed transformer capacity of approximately 85,200,000 kVA.
NP&L's generation facilities consist of 11 hydroelectric plants with an
aggregate nameplate capacity of approximately 100 MW. Duke Power supplies all of
NP&L's supplemental power needs from Duke Power's Tuckaseegee Substation near
NP&L's Thorpe Plant. NP&L also has an interconnection of 161 kV with the
Tennessee Valley Authority (TVA) at Santeetlah, North Carolina. The transmission
backbone of the NP&L system is a 161 kV line from Duke's Tuckaseegee Substation
to the interconnection with TVA at Santeetlah, with NP&L substations at
Robbinsville, Nantahala Plant, Oak Grove, Webster and Thorpe Plant.
The map found at the end of Item 1 shows the locations of the Company's and
NP&L's service areas and generating stations.
Substantially all electric plant is mortgaged under the Indenture relating
to the First and Refunding Mortgage Bonds of the Company.
For additional information concerning the properties of the Company, see
"Business -- Energy Requirements and Capability."
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to "Business -- Regulation," "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current
Issues -- Commitments and Contingencies" and "Note 13, Notes to Consolidated
Financial Statements, Commitments and Contingencies -- Other."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the last quarter of 1996.
15
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company is traded on the New York Stock Exchange.
At December 31, 1996, there were approximately 130,683 holders of shares of such
Common Stock. During 1996, the Company repurchased 3,269,743 shares of its
Common Stock, at a total cost of $159 million, through a stock repurchase
program. On January 28, 1997, the Board of Directors amended the program to
expressly limit the number of shares authorized for repurchase under the
program, from the initiation of the program through a date two years after the
consummation of the proposed merger with PanEnergy Corp, to an amount not to
exceed 15 million shares. (For additional information on the stock repurchase
program, see Note 6, "Notes to the Consolidated Financial Statements.")
The following table sets forth for the periods indicated the dividends paid
per share of Common Stock and the high and low sales prices of such shares
reported by the New York Stock Exchange Composite Transactions:
<TABLE>
<CAPTION>
STOCK PRICE
DIVIDENDS RANGE
COMMON STOCK PER SHARE HIGH
<S> <C> <C>
1996 By Quarter
Fourth......................................................................................... $0.53 $ 49 1/8
Third.......................................................................................... 0.53 51 3/8
Second......................................................................................... 0.51 51 1/2
First.......................................................................................... 0.51 53
1995 By Quarter
Fourth......................................................................................... $0.51 $ 47 7/8
Third.......................................................................................... 0.51 43 3/4
Second......................................................................................... 0.49 42 3/4
First.......................................................................................... 0.49 40 3/4
<CAPTION>
STOCK PRICE
RANGE
COMMON STOCK LOW
<S> <C>
1996 By Quarter
Fourth......................................................................................... $ 43 3/8
Third.......................................................................................... 45 3/4
Second......................................................................................... 45 3/4
First.......................................................................................... 46 7/8
1995 By Quarter
Fourth......................................................................................... $ 43 1/8
Third.......................................................................................... 40
Second......................................................................................... 38 1/4
First.......................................................................................... 37 3/8
</TABLE>
16
<PAGE>
ITEM 6.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Condensed consolidated statements of income
(thousands)
Operating revenues............................. $ 4,757,974 $ 4,676,684 $ 4,488,913 $ 4,466,233 $ 4,122,503
Operating expenses............................. 3,395,771 3,327,633 3,309,087 3,258,422 3,087,422
Operating income............................... 1,362,203 1,349,051 1,179,826 1,207,811 1,035,081
Interest expense and other income.............. (156,546) (168,072) (143,931) (171,419) (223,028)
Income before income taxes..................... 1,205,657 1,180,979 1,035,895 1,036,392 812,053
Income taxes................................... 475,691 466,441 397,019 409,977 303,970
Net income..................................... 729,966 714,538 638,876 626,415 508,083
Dividends on preferred and preference stock.... 44,245 48,903 49,724 52,429 56,407
Earnings for common stock...................... $ 685,721 $ 665,635 $ 589,152 $ 573,986 $ 451,676
Common stock data
Shares of common stock
year-end (thousands)........................ 201,590 204,859 204,859 204,859 204,859
average (thousands)......................... 203,553 204,859 204,859 204,859 204,819
Per share of common stock
Earnings.................................... $ 3.37 $ 3.25 $ 2.88 $ 2.80 $ 2.21
Dividends................................... $ 2.08 $ 2.00 $ 1.92 $ 1.84 $ 1.76
Book value -- year-end...................... $ 24.25 $ 23.36 $ 22.13 $ 21.17 $ 20.26
Market price -- high-low.................... $ 53-43 3/8 $47 7/8-37 3/8 $ 43-32 7/8 $44 7/8-35 3/8 $37 1/2-31 3/8
-- year-end................... $ 46 1/4 $ 47 3/8 $ 38 1/8 $ 42 3/8 $ 36 1/8
Balance sheet data
(thousands)
Total assets................................... $13,469,690 $13,358,484 $12,862,228 $12,293,605 $11,012,795
Long-term debt................................. $ 3,538,114 $ 3,711,405 $ 3,567,122 $ 3,285,397 $ 3,288,111
Preferred stock with sinking fund
requirements................................ $ 234,000 $ 234,000 $ 279,500 $ 281,000 $ 279,519
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
This Management's Discussion and Analysis presents the financial condition,
results of operations and certain forward-looking information about Duke Power
Company and its subsidiaries. On November 25, 1996, the Company and PanEnergy
Corp announced a proposed stock-for-stock merger. Unless otherwise indicated,
all information presented herein relates to Duke Power Company only and does not
take into account the proposed merger with PanEnergy. (For additional
information on the proposed merger, see "Current Issues -- Proposed Merger with
PanEnergy Corp.")
RESULTS OF OPERATIONS
EARNINGS AND DIVIDENDS. Earnings per share increased 4 percent from $3.25
in 1995 to $3.37 in 1996. The increase was primarily due to electric customer
growth.
Earnings per share increased from $2.88 in 1994 to $3.37 in 1996,
indicating an average annual growth rate of 8 percent. Total Company earned
return on average common equity was 14.2 percent in 1996 compared to 14.3
percent in 1995 and 13.3 percent in 1994.
The Company continued its practice of annually increasing the common stock
dividend. Common dividends per share increased at an average annual rate of 4
percent from $1.92 in 1994 to $2.08 in 1996. Indicated annual dividends per
share increased to $2.12.
REVENUES AND SALES. Operating revenues increased at an average annual rate
of 3 percent from 1994 to 1996, primarily because of growth in the residential
and general service customer classes and increased retail kilowatt-hour sales to
weather-sensitive customer classes. As discussed below, increased retail sales
were partially offset by decreased sales to wholesale customers. A South
Carolina retail rate reduction also decreased revenues in 1996. (For additional
information on the South Carolina rate reduction, see "Liquidity and
Resources -- Duke Power Company Rate Matters.") Revenues from subsidiaries and
diversified operations contributed $162 million to the increase in revenues over
the three-year period, primarily from increased engineering service fees and
developed lot and land sales.
Wholesale revenues declined in 1996 as a result of the retention of
significantly larger portions of ownership entitlement by the other joint owners
of the Catawba Nuclear Station. This increased retention reduces the joint
owners' supplemental requirements supplied by the Company. The effect on
earnings of such wholesale revenue declines is partially offset by declines in
purchased power costs from the other joint owners which are not subject to
levelization. (For additional information on Catawba joint ownership, see Note
3, "Notes to the Consolidated Financial Statements.")
Kilowatt-hour sales from Duke Power electric operations were flat from 1995
to 1996. Sales to residential, general service, and other industrial customers
increased by 7 percent, 6 percent and 2 percent, respectively, as a result of
colder winter weather and continued economic growth in Duke Power's service
area. However, sales to textile customers decreased 5 percent, due to a weaker
demand for textile goods. Wholesale sales decreased 16 percent primarily due to
a decrease of 24 percent in supplemental sales requirements to the other joint
owners of the Catawba Nuclear Station.
OPERATING EXPENSES. From 1995 to 1996, other operation and maintenance
expenses increased 7 percent. Increased activities of subsidiaries and
diversified operations contributed to this increase. Distribution maintenance
expenses also increased, primarily because of restoration costs associated with
a February ice storm and Hurricane Fran.
Other operation and maintenance expenses increased at an average annual
rate of 6 percent from 1994 to 1996. Increased activities of the subsidiaries
and diversified operations associated with engineering services contributed to
this increase.
Fuel expense increased at an average annual rate of 4 percent from 1994 to
1996. The increase was due primarily to higher system production requirements
and higher levels of fossil generation as a percentage of total generation.
These increases were partially offset by lower fossil fuel costs.
Net interchange and purchased power expenses decreased from $553 million in
1994 to $379 million in 1996, an average annual decrease of 17 percent. This
decrease was primarily the result of lower purchased power costs from the other
joint owners not subject to levelization as the other joint owners retained
significantly larger portions of their ownership entitlement, and lower
levelized costs as a result of the substantial completion of the recovery of
such costs from South Carolina customers.
18
<PAGE>
From 1994 to 1996, depreciation and amortization expense increased at an
average annual rate of 3 percent, primarily due to increased depreciation
associated with additional investments. These investments were primarily
associated with distribution plant, including investment to support customer
growth, and the completion of the Lincoln Combustion Turbine Station. (For
additional information on the Lincoln Combustion Turbine Station, see "Capital
Needs -- Meeting Future Power Needs.")
INTEREST EXPENSE AND OTHER INCOME. Interest expense increased at an average
annual rate of 2 percent from 1994 to 1996, primarily due to long-term debt
financing activities in 1994.
Allowance for funds used during construction (AFUDC) and other deferred
returns, net of associated taxes, represented 11 percent of earnings for common
stock in 1996 compared to 13 percent in 1994. AFUDC and other deferred returns
are expected to be less than 11 percent of total earnings during the next three
years.
The deferred return, net of associated taxes, on the purchased capacity
levelization deferral related to the joint ownership of the Catawba Nuclear
Station represented 7 percent of earnings for common stock in 1996, 1995 and
1994. The cumulative deferred purchased capacity balance began to decline in
1996 and will continue to decline in 1997. (For additional information on
purchased capacity levelization, see "Capital Needs -- Purchased Capacity
Levelization.")
AFUDC, net of associated taxes, represented 3 percent of earnings for
common stock in 1996 compared to 5 percent in 1995 and 6 percent in 1994. The
changes were primarily the result of the construction and subsequent commercial
operation of the Lincoln Combustion Turbine Station as 12 units were brought
on-line in 1995 and the remaining 4 units were brought on-line during the first
quarter of 1996. (For additional information on the Lincoln Combustion Turbine
Station, see "Capital Needs -- Meeting Future Power Needs.")
LIQUIDITY AND RESOURCES
DUKE POWER COMPANY RATE MATTERS. Duke Power Company's most recent general
rate increase requests in the North Carolina and South Carolina retail
jurisdictions were filed and approved in 1991. Additionally, Duke Power has a
bulk power sales agreement with Carolina Power & Light Company (CP&L) to provide
CP&L 400 megawatts of capacity as well as associated energy when needed for a
six-year period which began July 1, 1993. Electric rates in all of Duke Power's
regulatory jurisdictions were reduced by adjustment riders to reflect capacity
revenues received from this CP&L bulk power sales agreement.
The Public Service Commission of South Carolina (PSCSC), on May 7, 1996,
ordered a rate reduction in the form of a decrement rider of 0.432 cents per
kilowatt-hour, or an average of approximately 8 percent, affecting South
Carolina retail customers. South Carolina retail sales represent approximately
30 percent of the Company's total retail sales. The rate reduction was reflected
on bills rendered on or after June 1, 1996. This net decrement rider reflects an
interim true-up decrement adjustment associated with the levelization of Catawba
Nuclear Station purchased capacity costs and an interim true-up increment
associated with amortization of the demand-side management deferral account. The
rate adjustment was made because, in the South Carolina retail jurisdiction,
cumulative levelized revenues associated with the recovery of Catawba purchased
capacity costs had exceeded purchased capacity payments and accrual of deferred
returns, and certain demand-side costs had exceeded the level reflected in
rates.
Certain of the Company's wholesale customers, excluding the other Catawba
joint owners, initiated proceedings in 1995 before the Federal Energy Regulatory
Commission (FERC) concerning rate matters. The Company and nine of its eleven
wholesale customers entered into a settlement in July 1996 which reduced the
customers' rates by approximately 9 percent and renewed their contracts with the
Company through the year 2000. Both of the customers that did not enter into the
settlement have signed agreements to purchase energy from other suppliers
beginning in 1997. The eleven wholesale customers involved in this matter
accounted for less than 2 percent of the Company's overall electric revenues
during 1996. The two customers that have signed agreements with other suppliers
accounted for less than 0.5 percent of the Company's 1996 overall electric
revenues. (For additional information about sales to wholesale customers, see
"Current Issues -- Competition.")
CATAWBA SETTLEMENTS. The Company and North Carolina Municipal Power Agency
Number 1 (NCMPA) and Piedmont Municipal Power Agency (PMPA), two of the four
other joint owners of the Catawba Nuclear Station, entered into a settlement in
1995 which resolved outstanding issues related to how certain calculations
affecting bills under the Catawba joint ownership contractual agreements should
be performed. The settlement was approved by the North Carolina Utilities
Commission (NCUC) on January 16, 1996, and the PSCSC on January 23, 1996. As
part of the settlement, the Company agreed to
19
<PAGE>
purchase additional megawatts (MW) of Catawba capacity during the period 1996
through 1999 and remove certain restrictions related to sales of surplus energy
by these two joint owners. The additional capacity purchases are 215 MW in 1996,
165 MW in 1997, 120 MW in 1998 and 100 MW in 1999. The Company expects to
recover the costs associated with this settlement as part of the purchased
capacity levelization, consistent with prior orders of the retail regulatory
commissions. Therefore, the Company believes these matters should not have a
material adverse effect on its results of operations or its financial position.
The Company and all four of the other joint owners of the Catawba Nuclear
Station entered into settlement agreements in 1994 which resolved all issues in
contention in arbitration proceedings related to the Catawba joint ownership
contractual agreements. The basic contention in each proceeding was that certain
calculations affecting bills under these agreements should be performed
differently. These items are covered by the agreements between the Company and
the other Catawba joint owners, which previously have been approved by the
Company's retail regulatory commissions. (For additional information on Catawba
joint ownership, see Note 3, "Notes to the Consolidated Financial Statements.")
In 1994, the Company settled its cumulative net obligation through 1993 of
approximately $205 million related to these settlement agreements. Billings for
1994 and later years conform to the settlement agreements, which were approved
by the Company's retail regulatory commissions.
Because the Company expects the costs associated with these settlements to
be recovered as part of the purchased capacity levelization, which has been
approved by the Company's retail regulatory commissions, the Company included
approximately $205 million as an increase to "Purchased capacity costs" on its
Consolidated Balance Sheets in 1994. Therefore, the Company believes these
matters should not have a material adverse effect on its results of operations
or its financial position.
CASH FROM OPERATIONS. Consolidated net cash provided by operating
activities in 1996 accounted for 97 percent of total cash from operating,
financing and investing activities compared with 81 percent in 1995 and 67
percent in 1994. When 1996 stock repurchase activities are excluded, cash
generated from operating activities exceeded the Company's capital needs. (For
additional information on the stock repurchase program, see Note 6, "Notes to
the Consolidated Financial Statements.")
FINANCING AND INVESTING ACTIVITIES. The Company's consolidated capital
structure at year-end 1996, including subsidiary long-term debt, was 54 percent
common equity, 39 percent long-term debt and 7 percent preferred stock. This
structure is consistent with the Company's target to maintain a double-A credit
rating. As of December 31, 1996, Duke Power's bonds were rated "AA" by Fitch
Investors Service and Duff & Phelps, "Aa2" by Moody's Investors Service and
"AA-" by Standard & Poor's Group. As a result of the announcement of the
proposed merger with PanEnergy Corp, the Company has been placed on credit
review by the rating agencies. (For additional information on the proposed
merger, see "Current Issues -- Proposed Merger with PanEnergy Corp.")
The Company had total credit facilities of $694.9 million and $669.9
million as of December 31, 1996 and 1995, respectively. The Company had unused
credit facilities of $474.4 million and $440.6 million as of December 31, 1996
and 1995, respectively.
During July 1996, the Company began purchasing shares of its common stock.
The Company has repurchased approximately 3.3 million shares of common stock for
$159 million as of December 31, 1996. (For additional information on the stock
repurchase program, see Note 6, "Notes to the Consolidated Financial
Statements.") In 1995, the Company issued $178 million of long-term debt, of
which $72 million was used to retire higher cost long-term debt. The Company
also retired $96 million of preferred stock and $80 million of long-term debt in
1995. In 1994, the Company issued $407 million in debt, primarily First and
Refunding Mortgage Bonds.
The Company has authority to issue up to $1 billion aggregate principal
amount of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission (SEC). Such debt securities may be issued as
First and Refunding Mortgage Bonds, Senior Notes, or Subordinated Debentures.
In order to obtain variable rate financing at an attractive cost, the
Company entered into interest rate swap agreements associated with the November
1994 issuance of $200 million aggregate principal amount of its First and
Refunding Mortgage Bonds 8% Series B due 1999 and the August 1995 issuance of
$100 million aggregate principal amount of its First and Refunding Mortgage
Bonds 7 1/2% Series B due 2025. The interest rate swaps are reset quarterly
based upon the three-month London Interbank Offered Rate (LIBOR). As a result of
the interest rate swap contracts, interest expense is recognized at the weighted
average rate for the year tied to the LIBOR rate. The weighted average rates at
December 31, 1996, 1995 and 1994 were 5.64%, 6.14% and 5.95%, respectively, for
the 8% Series B due 1999. The weighted average rates at December 31, 1996 and
1995 were 6.69% and 7.06%, respectively, for the 7 1/2% Series B due 2025.
20
<PAGE>
Duke Energy Group, Inc. entered into a hedge transaction in 1995 to offset
currency fluctuations between the U.S. dollar and the Chilean peso associated
with expected equity contributions to an affiliate in 1995, 1996 and 1997. The
hedge transaction has a notional amount of approximately $4.4 million at
December 31, 1996. Duke Energy Group, Inc. records any realized gains or losses
associated with the hedge as an adjustment to investments in affiliates.
Duke/Louis Dreyfus (D/LD) enters into various derivative financial
instruments involving future settlement. These transactions include
exchange-traded futures and options and over-the-counter swaps and options for
commodities, primarily natural gas and electricity. D/LD's derivative financial
instruments are used for trading and marketing activities. These instruments are
accounted for at market value and the related unrealized gains and losses are
recognized in income. D/LD utilizes various risk management procedures to
monitor its exposure and minimize counterparty risk.
Duke Power's embedded cost of long-term debt, excluding debt of
subsidiaries, was 7.95 percent for 1996 compared to 7.94 percent in 1995 and
7.98 percent in 1994. The embedded cost of preferred stock was 6.99 percent in
1996 compared to 7.06 percent in 1995 and 6.99 percent in 1994. The increase in
the embedded cost of long-term debt from 1995 to 1996 is primarily the result of
maturing lower cost debt. The decrease in the embedded cost of preferred stock
from 1995 to 1996 reflects the impact of decreased adjustable dividend rates on
a certain series of preferred stock.
FIXED CHARGES COVERAGE. Consolidated fixed charges coverage using the SEC
method was 5.07 times for 1996 compared to 4.94 and 4.72 times for 1995 and
1994, respectively. The increase is primarily a result of higher earnings.
Consolidated fixed charges coverage, excluding AFUDC and other deferred returns,
was 4.69 times for 1996 compared with 4.52 for 1995 and 4.32 for 1994 and the
Company goal of 3.5 times. The increase in coverage is primarily the result of
higher earnings, excluding AFUDC and other deferred returns.
CAPITAL NEEDS
PROPERTY ADDITIONS AND RETIREMENTS. Additions to property and nuclear fuel
of $720 million and retirements of $396 million resulted in an increase in gross
plant of $324 million in 1996.
Since January 1, 1994, additions to property and nuclear fuel of $4 billion
and retirements of $2.5 billion have resulted in an increase in gross plant of
$1.5 billion.
CONSTRUCTION EXPENDITURES. Plant construction costs for generating
facilities supporting Duke Power electric operations, including AFUDC, decreased
from $309 million in 1994 to $164 million in 1996, primarily because of the
completion of the Lincoln Combustion Turbine Station. (For more information, see
"Capital Needs -- Meeting Future Power Needs.") Construction costs for
distribution plant, including AFUDC, increased from $203 million in 1994 to $227
million in 1996.
Projected construction and nuclear fuel costs for Duke Power's electric
operations, both including AFUDC, are $2.6 billion and $716 million,
respectively, for 1997 through 2001. These construction expenditures are
primarily for distribution and production-related activities representing $1.3
billion and $864 million, respectively. These projections are subject to
periodic reviews and revisions. Actual construction and nuclear fuel costs and
capital expenditures incurred may vary from such estimates. Cost variances are
due to various factors, including revised load estimates, environmental matters
and cost and availability of capital.
Projected capital expenditures of subsidiaries and diversified activities
are $1.5 billion for 1997 through 2001, of which a significant portion is real
estate and power project development. These projections are subject to periodic
reviews and revisions and may vary significantly as business plans evolve to
meet the opportunities presented by their markets.
For 1997 through 2001, the Company anticipates substantially funding its
projected construction and capital expenditures through the internal generation
of funds.
PURCHASED CAPACITY LEVELIZATION. The rates established in Duke Power's
electric retail jurisdictions permit recovery of its investment in both units of
the Catawba Nuclear Station and the costs associated with contractual purchases
of capacity from the other joint owners of the Catawba Nuclear Station. The
contracts relating to the sales of portions of the station obligate the Company
to purchase a declining amount of capacity from the other joint owners. In the
North Carolina retail jurisdiction, regulatory treatment of these contracts
provides revenue for recovery of the capital costs and the fixed operating and
maintenance costs of purchased capacity on a levelized basis. In the South
Carolina retail jurisdiction, revenues have been provided for the recovery of
the capital costs of purchased capacity on a levelized basis, while current
rates include recovery of fixed operating and maintenance expenses.
21
<PAGE>
Such rate treatments require the Company to fund portions of the purchased
capacity payments until these costs, including returns, are recovered at a later
date. The Company recovers the accumulated costs and returns when the sum of the
declining purchased capacity payments and accrual of returns for the current
period drop below the levelized revenues. During 1996, in the North Carolina
retail jurisdiction and the wholesale jurisdiction regulated by the Federal
Energy Regulatory Commission (FERC), annual levelized revenues exceeded
purchased capacity payments and the accrual of deferred returns for the first
time. In the South Carolina retail jurisdiction, cumulative levelized revenues
have exceeded purchased capacity payments and accrual of deferred returns. The
PSCSC, on May 7, 1996, ordered a rate reduction in the form of a decrement rider
for an interim true-up adjustment. (For additional information on the South
Carolina rate reduction, see "Liquidity and Resources -- Duke Power Company Rate
Matters.") Jurisdictional levelizations are intended to recover total costs,
including returns, and are subject to adjustments, including final true-ups.
MEETING FUTURE POWER NEEDS. The Company's strategy for meeting customers'
present and future energy needs consists of three components: supply-side
resources, demand-side resources and purchased power resources. To assist in
determining the optimal combination of these three resources, the Company uses
an integrated resource planning process. The goal is to provide adequate and
reliable electricity in an environmentally responsible, cost-effective manner.
As customers elect to procure generation from other suppliers, as two of the
Company's wholesale customers have indicated they will do beginning in 1997, the
Company will no longer be obligated to plan for the future generation needs of
those customers.
The Company has completed the construction of a combustion turbine facility
in Lincoln County, North Carolina, to provide capacity at periods of peak
demand. The station consists of 16 combustion turbines with a total generating
capacity of 1,200 megawatts. During 1995, twelve units of the Lincoln Combustion
Turbine Station began commercial operation. The last four units began commercial
operation in the first quarter of 1996.
The purchase of capacity and energy is also an integral part of meeting
future power needs. As of January 1, 1997, the Company has 329 megawatts of firm
purchased capacity from other generators of electricity under contract,
including 91 megawatts from qualifying facilities.
In 1995, the Company issued two requests for proposals (RFP) to solicit
both short-term and long-term competitive bids to provide future electric
generating capacity resources. After review of all the bids, the Company
selected a short-term bid from PECO Energy Co. of Philadelphia. The agreement
gives the Company the option to purchase up to 250 megawatts of capacity during
the summer months of 1998 through 2001. Contract arrangements between the
parties were finalized on August 1, 1996. The long-term RFP was closed and no
bids were accepted.
Demand-side management programs benefit the Company and its customers by
providing cost-effective energy efficiency, providing for load control through
interruptible control features, shifting usage to off-peak periods and
increasing strategic sales of electricity. The November 1991 rate orders of the
NCUC and the PSCSC provided for recovery in rates of a designated level of costs
for demand-side management programs and allowed the deferral for later recovery
of certain demand-side management costs that exceed the level reflected in
rates, including a return on the deferred costs. The May 1996 rate rider in
South Carolina included an increment for demand-side management cost recovery.
(For additional information on the South Carolina rate rider, see "Liquidity and
Resources -- Duke Power Company Rate Matters.") The Company ultimately expects
recovery through rates of associated deferred costs, not to exceed $75 million
including deferred returns in the North Carolina retail jurisdiction. The annual
costs deferred, including the return, were approximately $9 million and $2
million in North Carolina and South Carolina, respectively, in 1996 and $16
million and $11 million in North Carolina and South Carolina, respectively, in
1995. As of December 31, 1996, the balance of deferred demand-side management
costs as presented on the Consolidated Balance Sheets in "Other deferred debits"
is $67 million and $40 million in North Carolina and South Carolina,
respectively.
CURRENT ISSUES
While the Company improved its financial performance in 1996 compared to
1995, its ability to maintain and improve its current level of earnings will
depend on several factors. As the electric industry becomes increasingly
competitive, the Company's ability to control costs will be an important factor
in maintaining a pricing structure that is both attractive to customers and
profitable to the Company. Wheeling of third-party energy to a retail customer
is not generally allowed in the Company's service territory. However, there are
discussions and events at the national level and within certain states regarding
retail competition which could result in changes in the industry. On April 24,
1996, the FERC issued its final rules on open-access transmission, providing
energy suppliers with opportunities to sell and deliver capacity and energy at
market-based prices. (For additional information on competition, see "Current
Issues -- Competition.") Management cannot predict the outcome of these matters
and their impact, if any, on the Company's financial position and results of
operation. The
22
<PAGE>
Company is focusing on providing competitive prices to its industrial customers,
as well as to wholesale customers who have access to alternative sources of
energy. Other significant factors impacting the Company's future earnings levels
include continued economic growth in the Piedmont Carolinas, the success of the
Company's subsidiaries and diversified activities, and the outcome of various
legislative and regulatory actions.
PROPOSED MERGER WITH PANENERGY CORP. On November 25, 1996, the Company and
PanEnergy Corp announced a proposed stock-for-stock transaction creating an
integrated energy company. Upon consummation of the merger, PanEnergy will be a
wholly owned subsidiary of the Company, and the Company's name will be changed
to Duke Energy Corporation. The transaction is expected to close by December 31,
1997, subject to approval of the shareholders of both companies and all
applicable regulatory approvals. The shareholders of each company will vote on
the proposed merger at their annual meetings, which are scheduled for April 24,
1997 for both companies. Applications for regulatory approval were filed with
the NCUC and the PSCSC on December 19, 1996, and with the FERC on February 3,
1997. Regulatory proceedings are expected to be successfully completed by
year-end 1997. In connection with the transaction, each share of PanEnergy
common stock will be converted into 1.0444 shares of common stock of the
Company. The transaction will be accounted for as a pooling of interests.
Further details about the proposed acquisition are provided in the Company's
report on Form 8-K, filed with the Securities and Exchange Commission on
December 9, 1996, and in the Joint Proxy Statement-Prospectus provided to
shareholders in connection with the Company's annual meeting. Unless otherwise
indicated, all information presented herein relates to the Company only and does
not take into account the proposed merger with PanEnergy.
RESOURCE OPTIMIZATION. The Company has been engaged in a concentrated
effort to more efficiently and effectively use its resources through better work
practices. In 1995, the Company offered to certain employees an Enhanced Vested
Benefits program (EVB) which gave targeted employees, who left the Company, an
enhanced vested retirement package and the Company's standard severance pay
based on years of service. This program resulted in the elimination of
approximately 900 positions during 1996. During 1994, the Company offered an
Enhanced Voluntary Separation program (EVS) which gave most employees the option
of leaving the Company for a lump-sum payment and the Company's standard
severance pay based on years of service. This program resulted in the departure
of approximately 1,300 employees in 1994. Implementing various efficiency
practices has resulted in streamlined work flows and provided the opportunity
for work force reduction programs such as EVB and EVS.
FULL-TIME EMPLOYEES
<TABLE>
<CAPTION>
1996 1991
<S> <C> <C>
Duke Power electric operations..................................................... 15,002 18,187
Subsidiaries and diversified businesses............................................ 2,724 364
Total............................................................................ 17,726 18,551
</TABLE>
The increase in workforce of subsidiaries and diversified businesses is
commensurate with the growth in their business opportunities.
NUCLEAR DECOMMISSIONING COSTS. Estimated site-specific nuclear
decommissioning costs, including the cost of decommissioning plant components
not subject to radioactive contamination, total approximately $1.3 billion
stated in 1994 dollars based on decommissioning studies completed in 1994. This
amount includes the Company's 12.5 percent ownership in the Catawba Nuclear
Station. The other joint owners of the Catawba Nuclear Station are responsible
for decommissioning costs related to their ownership interests in the station.
Such estimates presume each unit will be decommissioned as soon as possible
following the end of its license life. Although subject to extension, the
current operating licenses for the Company's nuclear units expire as follows:
Oconee 1 and 2 -- 2013, Oconee 3 -- 2014; McGuire 1 -- 2021, McGuire 2 -- 2023;
and Catawba 1 -- 2024, Catawba 2 -- 2026.
In accordance with a 1988 Nuclear Regulatory Commission order, during 1996,
the Company expensed approximately $56 million which was contributed to the
external funds and accrued an additional $2 million to the internal reserve. The
balance of the external funds as of December 31, 1996, was $363 million. The
balance of the internal reserve as of December 31, 1996, was $208 million and is
reflected in accumulated depreciation and amortization on the Consolidated
Balance Sheets.
Both the NCUC and the PSCSC have granted the Company recovery of estimated
decommissioning costs through retail rates over the expected remaining service
periods of the Company's nuclear plants. Decommissioning costs being recovered
23
<PAGE>
through rates, invested at assumed after-tax earnings rate of 5.5 percent to 5.9
percent, are sufficient to provide for the estimated cost of decommissioning.
As required under the Nuclear Waste Policy Act of 1982, the Company entered
into a contract with the U.S. Department of Energy (DOE) under which the DOE
agreed to dispose of the Company's spent nuclear fuel. The DOE has announced
that the department anticipates a delay in accepting the waste materials on the
contract date of January 31, 1998. The Company has joined with 35 other
utilities in a lawsuit attempting to force the DOE to meet its obligations as
called for in the contract. While it is uncertain what interim storage will be
provided by the DOE due to its inability to meet the contract date, the Company
has satisfactory plans in place to provide storage of spent nuclear fuel if the
DOE cannot accept it.
ENVIRONMENTAL ISSUES. The Company is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal,
and other environmental matters. The Company was an operator of manufactured gas
plants until the early 1950s. The Company has entered into a cooperative effort
with the State of North Carolina and other owners of certain former manufactured
gas plant sites to investigate and, where necessary, remediate these
contaminated sites. The State of South Carolina has expressed interest in
entering into a similar arrangement. The Company is considered by regulators to
be a potentially responsible party and may be subject to liability at four
federal Superfund sites. While the cost of remediation of these sites may be
substantial, the Company will share in any liability associated with remediation
of contamination at such sites with other potentially responsible parties.
Management is of the opinion that resolution of these matters will not have a
material adverse effect on the results of operations or financial position of
the Company.
THE CLEAN AIR ACT AMENDMENTS OF 1990. The Clean Air Act Amendments of 1990
require a two-phase reduction by electric utilities in the aggregate annual
emissions of sulfur dioxide and nitrogen oxide by the year 2000. The Company
currently meets all requirements of Phase I. The Company supports the national
objective of clean air in the most cost-effective manner and has already reduced
emissions through the use of low-sulfur coal in its fossil plants, efficient
plant operations and by using nuclear generation. The sulfur dioxide provisions
of the Act allow utilities to choose among various alternatives for compliance.
To meet the Phase II requirements by 2000, the Company's current strategy
includes the use of lower sulfur coal, emission allowance purchases, low
nitrogen oxide burners and emission monitoring equipment. A one-time cost
associated with bringing the Company into compliance with the Act could range
from $94 million to $260 million. Additional operating expenses of approximately
$25 million will be incurred for fuel premiums and emission allowance purchases
each year after 2000. This strategy is contingent upon developments in the
emissions allowance market, lower sulfur coal premiums, future regulatory and
legislative actions, and advances in clean air technology.
STRESS CORROSION CRACKING. Stress corrosion cracking (SCC) has occurred in
the steam generators of Units 1 and 2 at the McGuire Nuclear Station and Unit 1
at the Catawba Nuclear Station. Catawba Unit 2, which has certain design
differences and came into service at a later date, has not yet shown the degree
of SCC which has occurred in McGuire Units 1 and 2 and Catawba Unit 1. It is,
however, too early in the life of Catawba Unit 2 to determine the extent to
which SCC may be a problem. Although the Company has taken steps to mitigate the
effects of SCC, the inherent potential for future SCC in the McGuire and Catawba
steam generators still exists. The Company planned for the replacement of steam
generators at three units that have experienced SCC and purchased the
replacement steam generators from Babcock & Wilcox International. Replacement of
the steam generators at Catawba Unit 1 was successfully completed at a lower
cost than projected on October 4, 1996, after a 115-day outage that included
replacement work and other maintenance. Steam generator replacement in both
McGuire units is scheduled for completion during 1997. The Catawba Unit 2 steam
generators have not been scheduled for replacement. Steam generator replacement
at each McGuire unit is expected to take approximately four months and cost
approximately $170 million, excluding the cost of replacement power. Stress
corrosion problems are excluded under the Company's nuclear insurance policies.
The Company, in connection with its McGuire and Catawba stations and on
behalf of the other joint owners of the Catawba Station, began a legal action in
1990, alleging that Westinghouse Electric Corporation knowingly supplied to the
McGuire and Catawba stations steam generators that were defective in design,
workmanship and materials, requiring replacement well short of their stated
design life. The lawsuit was settled in 1994. While the court order does not
allow disclosure of the terms of the settlement, the Company believes the
litigation was settled on terms that provided satisfactory consideration to the
Company and will not have a material effect on the Company's results of
operations or financial position.
COMPETITION. The Energy Policy Act of 1992 (EPACT) and the FERC's
subsequent rulemaking activities are major drivers towards a more competitive
market for electric generation. EPACT reformed provisions of the Public Utility
Holding Company Act of 1935 (PUHCA) and Part II of the Federal Power Act to
remove certain barriers to competition for the supply of electricity. For
example, EPACT allows utilities to participate in the development of independent
electric generating plants in the United States for sales to wholesale
customers, as well as to contract for utility projects internationally,
24
<PAGE>
without becoming subject to regulation under PUHCA as an electric utility
holding company. In addition, EPACT permits the FERC to order transmission
access for third parties to transmission facilities owned by another entity so
that energy suppliers can sell to wholesale customers wherever they are located.
It does not, however, permit the FERC to issue an order requiring transmission
access to retail customers.
The FERC, responsible in large measure for implementation of the EPACT, has
moved vigorously to implement its mandate, interpreting the statute broadly in
issuing orders for third-party transmission service and issuing a number of
rules of general applicability. On April 24, 1996, the FERC issued its Order
Numbers 888 and 889, which established the final form of transmission tariff to
provide comparable service to all users of a utility's transmission system.
Open-access transmission for wholesale customers as defined by the FERC's
final rules provides energy suppliers, including the Company, with opportunities
to sell and deliver capacity and energy at market-based prices. Engaging in such
transactions may result in improved utilization of the Company's existing
assets. In addition, such access provides another supply option through which
the Company can buy capacity and energy at attractive rates, influencing its
competitive price position. However, sales to existing wholesale customers of
the Company may continue to be impacted by open access either due to competitive
pressure on the wholesale price of electricity, or the potential loss of sales
as wholesale customers seek other options to meet their capacity and energy
requirements at market-based prices. (For additional information about sales to
wholesale customers, see "Liquidity and Resources -- Duke Power Company Rate
Matters," and Note 3, "Notes to Consolidated Financial Statements.") Wholesale
sales represented approximately 8.8 percent of the Company's total kilowatt-hour
sales in 1996. Supplemental sales to the other joint owners of the Catawba
Nuclear Station comprised the majority of such sales. Such supplemental sales
will continue to decline in 1997 as a result of the retention of larger portions
of ownership entitlement by the other joint owners. (For additional information
on Catawba joint ownership, see Note 3, "Notes to the Consolidated Financial
Statements.")
In early 1995, prior to issuance of the FERC's Notice of Proposed
Rulemaking, the Company and certain of its affiliates filed three applications
with the FERC, all of which were designed to enable effective participation in
the competitive environment of the changing electric utility industry. Duke
Power filed an application for permission to sell at market-based rates up to
2,500 megawatts of capacity and energy from its own assets. Two of the Company's
affiliates, Duke Energy Marketing Corp. (DEMC) and Duke/Louis Dreyfus L.L.C.
(D/LD), filed applications with the FERC to become power marketers. All of the
applications were supported by transmission tariffs which complied with
then-applicable FERC standards and established the rates, terms and conditions
for transmission service to third parties on the Company's transmission system.
Late in 1995, the FERC granted the applications of Duke, DEMC, and D/LD;
accepted Duke's transmission tariffs; and ordered a hearing on the rates to be
charged for service under those tariffs. On July 9, 1996, in compliance with the
standards and schedules set forth in Order Number 888, the Company filed a pro
forma open access transmission tariff complying with the requirements of the
FERC's final rules. Such a filing was required of all transmission-owning
utilities subject to the FERC's jurisdiction. The Company also filed on that
date a proposed settlement in the proceeding earlier ordered by the FERC. The
proposed settlement resolves all rate issues related to transmission services
under Duke's tariff and contains the rates agreed upon under the settlement. The
settlement and the July 9, 1996 tariff filing remain subject to final FERC
approval.
Competition for retail customers is not generally allowed in the Company's
service territory. However, there are discussions and events at the national
level and within certain states, including North and South Carolina, regarding
retail competition which could result in changes in the industry. Such changes,
should they occur, could impact all entities owning generation, including the
other joint owners of the Catawba Nuclear Station.
Currently, the electric utility industry is predominantly regulated on a
basis designed to recover the cost of providing electric power to its retail and
wholesale customers. If cost-based regulation were to be discontinued in the
industry, for any reason, including competitive pressure on the cost-based
prices of electricity, profits could be reduced and utilities might be required
to reduce their asset balances to reflect a market basis less than cost.
Discontinuance of cost-based regulation would also require affected utilities to
write off their associated regulatory assets. The regulatory assets of the
Company are classified as "Deferred debits" on the Consolidated Balance Sheets.
Substantially all of the "Deferred debits" are regulatory assets. Management
cannot predict the potential impact, if any, of these competitive forces on the
Company's future financial position and results of operations. However, the
Company continues to position itself to effectively meet these challenges by
maintaining prices that are locally, regionally and nationally competitive.
COMMITMENTS AND CONTINGENCIES. The Company is involved in legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course of
business, some of which may involve substantial amounts. Where appropriate, the
Company has made accruals in accordance with Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies," in order to provide for such
matters. Management
25
<PAGE>
is of the opinion that the final disposition of these proceedings will not have
a material adverse effect on the results of operations or the financial position
of the Company.
SUBSIDIARIES AND DIVERSIFIED OPERATIONS. The Company continues to
aggressively pursue both domestic and international diversified business
opportunities that are synergistic with the Company's core business to provide
additional value to the Company's shareholders. Among the Company's current
industry pursuits are ownership of electric power facilities, energy marketing,
real estate, communications, engineering consulting and various energy services.
Although these opportunities are primarily concentrated in areas that utilize
the Company's expertise, they present different and potentially greater risks
than does the Company's core business. The Company only pursues opportunities in
which the expected returns are commensurate with the risks and makes efforts to
mitigate such risks. The Company undertakes a continuous evaluation of the
various lines of business it may enter or exit, with the objective of enhancing
shareholder value and managing any associated risk.
Domestically, non-electric property of the Company's subsidiaries and
diversified activities was $404 million and $335 million at December 31, 1996
and 1995, respectively. The Company had equity investments in affiliates, which
own assets within the United States, of $82 million and $58 million at December
31, 1996 and 1995, respectively.
Internationally, the Company had equity investments in affiliates, which
own generation and transmission facilities, of $107 million and $105 million at
December 31, 1996 and 1995, respectively. Additionally, the Company, through its
non-regulated subsidiaries, had loaned $3 million and $23 million to certain of
these affiliates at December 31, 1996 and 1995, respectively.
The Company's subsidiaries and diversified activities contributed $51
million to net income in 1996 compared with $54 million in 1995 and $52 million
in 1994. From 1994 to 1996, increased developed lot and land sales, and
engineering services and construction fees generated additional income. These
increases were offset by personal communications services joint venture start-up
losses and a provision for an investment in a plant in Argentina.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
DUKE POWER COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Financial Statements:
Consolidated Statements of Income for the Three Years Ended December 31, 1996..................................... 28
Consolidated Statements of Retained Earnings for the Three Years Ended December 31, 1996.......................... 29
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996................................. 30
Consolidated Balance Sheets -- December 31, 1996 and 1995......................................................... 31
Notes to Consolidated Financial Statements............................................................................. 32
Independent Auditors' Report........................................................................................... 48
Responsibility for Financial Statements................................................................................ 48
Selected Quarterly Financial Data (Unaudited).......................................................................... 49
Subsidiaries and Diversified Activities Highlights..................................................................... 50
Consolidated Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts and Reserves for the Three Years Ended
December 31, 1996............................................................................................... 54
</TABLE>
27
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
Operating Revenues (Notes 1, 2 and 11).............................................. $4,757,974 $4,676,684 $4,488,913
Operating Expenses
Fuel used in electric generation (Note 1)......................................... 758,498 744,226 705,019
Net interchange and purchased power (Notes 2 and 3)............................... 378,724 468,293 553,355
Other operation and maintenance................................................... 1,505,028 1,403,547 1,341,659
Depreciation and amortization (Note 1)............................................ 492,185 458,131 459,781
General taxes..................................................................... 261,336 253,436 249,273
Total operating expenses....................................................... 3,395,771 3,327,633 3,309,087
Operating Income.................................................................... 1,362,203 1,349,051 1,179,826
Interest Expense and Other Income (Note 1)
Interest expense.................................................................. (283,075) (289,318) (270,217)
Allowance for funds used during construction and other deferred returns........... 111,891 125,040 111,872
Other, net........................................................................ 14,638 (3,794) 14,414
Total interest expense and other income........................................ (156,546) (168,072) (143,931)
Income Before Income Taxes.......................................................... 1,205,657 1,180,979 1,035,895
Income Taxes (Notes 1 and 4)........................................................ 475,691 466,441 397,019
Net Income.......................................................................... 729,966 714,538 638,876
Dividends on preferred and preference stock....................................... 44,245 48,903 49,724
Earnings for Common Stock........................................................... $ 685,721 $ 665,635 $ 589,152
Common Stock Data (Note 6)
Average shares outstanding (thousands)............................................ 203,553 204,859 204,859
Earnings per share................................................................ $ 3.37 $ 3.25 $ 2.88
Dividends per share............................................................... $ 2.08 $ 2.00 $ 1.92
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
Balance -- Beginning of year........................................................ $2,858,275 $2,605,920 $2,410,825
Add -- Net income................................................................... 729,966 714,538 638,876
Total........................................................................ 3,588,241 3,320,458 3,049,701
Deduct
Dividends
Common stock................................................................... 423,064 409,716 393,370
Preferred and preference stock................................................. 44,245 48,903 49,724
Capital stock transactions, net................................................... 128,358 3,564 687
Total deductions............................................................. 595,667 462,183 443,781
Balance -- End of year.............................................................. $2,992,574 $2,858,275 $2,605,920
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
Cash Flows from Operating Activities
Net Income........................................................................ $ 729,966 $ 714,538 $ 638,876
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items
Depreciation and amortization.................................................. 667,713 674,816 647,515
Deferred income taxes and investment tax credit amortization................... (27,641) 5,989 94,261
Allowance for equity funds used during construction............................ (15,824) (23,082) (27,411)
Purchased capacity levelization................................................ 73,473 (33,149) (268,925)
Other, net..................................................................... 47,384 76,029 22,460
(Increase) Decrease in
Accounts receivable.......................................................... (20,289) (136,838) 47,586
Inventory.................................................................... 40,476 (14,549) (28,568)
Prepayments.................................................................. (1,031) (7,178) (435)
Increase (Decrease) in
Accounts payable............................................................. 15,153 11,694 (52,506)
Taxes accrued................................................................ (19,750) 14,454 (51,641)
Interest accrued and other liabilities....................................... (6,966) 28,934 14,523
Total adjustments.............................................................. 752,698 597,120 396,859
Net cash provided by operating activities................................. 1,482,664 1,311,658 1,035,735
Cash Flows from Investing Activities
Construction expenditures and other property additions............................ (646,465) (713,299) (772,452)
Investment in nuclear fuel........................................................ (84,206) (76,603) (108,711)
External funding for decommissioning.............................................. (56,470) (56,470) (52,524)
Pre-funded pension cost........................................................... -- -- (30,000)
Investment in affiliates.......................................................... (25,708) (54,945) (6,718)
Net change in investment securities............................................... (25,887) 54,425 17,922
Net cash used in investing activities..................................... (838,736) (846,892) (952,483)
Cash Flows from Financing Activities
Proceeds from the issuance of
First and refunding mortgage bonds............................................. -- 173,839 343,824
Short-term notes payable, net.................................................. (49,750) 48,200 86,300
Construction loans and other................................................... 113,997 47,643 57,032
Payments for the redemption of
First and refunding mortgage bonds............................................. (3,097) (157,365) (81,781)
Common stock................................................................... (159,000) -- --
Construction loans and other................................................... (91,548) (9,416) (18,885)
Preferred stock................................................................ -- (100,516) (1,500)
Dividends paid.................................................................... (466,751) (458,018) (443,633)
Other............................................................................. 2,917 (1,153) (20,991)
Net cash used in financing activities..................................... (653,232) (456,786) (79,634)
Net increase (decrease) in cash..................................................... (9,304) 7,980 3,618
Cash at beginning of year........................................................... 45,410 37,430 33,812
Cash at End of Year................................................................. $ 36,106 $ 45,410 $ 37,430
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
<S> <C> <C>
Dollars in Thousands
ASSETS
Current Assets
Cash (Notes 5 and 10)............................................................................. $ 36,106 $ 45,410
Short-term investments (Notes 1 and 10)........................................................... 72,712 76,300
Receivables (less allowance for losses: 1996 -- $7,134; 1995 -- $6,352) (Note 1).................. 709,992 689,703
Inventory -- at average cost...................................................................... 301,365 341,841
Prepayments and other............................................................................. 23,931 22,900
Total current assets.......................................................................... 1,144,106 1,176,154
Investments and Other Assets
Investments in affiliates (Note 11)............................................................... 188,982 163,274
Other investments, at cost or less (Note 10)...................................................... 114,669 85,194
Nuclear decommissioning trust funds (Notes 10 and 14)............................................. 362,627 273,466
Pre-funded pension cost (Note 12)................................................................. 80,000 80,000
Total investments and other assets............................................................ 746,278 601,934
Property, Plant and Equipment (Notes 1, 3, 9, 13 and 14)
Electric plant in service (at original cost)
Production...................................................................................... 7,278,439 7,154,332
Transmission.................................................................................... 1,543,688 1,532,302
Distribution.................................................................................... 4,303,885 4,105,513
Other........................................................................................... 1,068,342 1,030,226
Electric plant in service..................................................................... 14,194,354 13,822,373
Less accumulated depreciation and amortization.................................................. 5,438,498 5,122,192
Electric plant in service, net................................................................ 8,755,856 8,700,181
Nuclear fuel.................................................................................... 604,813 731,691
Less accumulated amortization................................................................... 363,290 453,921
Nuclear fuel, net............................................................................. 241,523 277,770
Construction work in progress (including nuclear fuel in process: 1996 -- $27,546;
1995 -- $25,500)................................................................................ 388,999 382,582
Total electric plant, net..................................................................... 9,386,378 9,360,533
Other property -- at cost (less accumulated depreciation: 1996 -- $31,544; 1995 -- $29,956)....... 426,039 354,713
Total property, plant and equipment, net...................................................... 9,812,417 9,715,246
Deferred Debits (Notes 1, 3, 4 and 13)
Purchased capacity costs.......................................................................... 892,000 965,473
Debt expense...................................................................................... 169,842 180,930
Regulatory asset related to income taxes.......................................................... 488,936 490,676
Regulatory asset related to DOE assessment fee.................................................... 94,717 101,274
Other............................................................................................. 121,394 126,797
Total deferred debits......................................................................... 1,766,889 1,865,150
Total Assets........................................................................................ $13,469,690 $13,358,484
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................................................................. $ 327,315 $ 343,692
Notes payable (Notes 5 and 10).................................................................... 105,550 155,300
Taxes accrued (Note 1)............................................................................ 973 34,884
Interest accrued.................................................................................. 64,589 73,675
Current maturities of long-term debt (Note 9)..................................................... 212,309 12,071
Other (Note 13)................................................................................... 152,233 149,555
Total current liabilities..................................................................... 862,969 769,177
Long-Term Debt (Notes 5, 9 and 10).................................................................. 3,538,114 3,711,405
Accumulated Deferred Income Taxes (Notes 1 and 4)................................................... 2,376,012 2,382,204
Deferred Credits and Other Liabilities
Investment tax credit (Notes 1 and 4)............................................................. 250,117 261,347
DOE assessment fee (Note 1)....................................................................... 94,717 101,274
Nuclear decommissioning costs externally funded (Note 14)......................................... 362,627 273,466
Other............................................................................................. 412,419 390,427
Total deferred credits and other liabilities.................................................. 1,119,880 1,026,514
Preferred and Preference Stock with Sinking Fund Requirements (Notes 8 and 10)...................... 234,000 234,000
Preferred and Preference Stock without Sinking Fund Requirements (Notes 7 and 10)................... 450,000 450,000
Commitments and Contingencies (Notes 11 and 13).....................................................
Common Stockholders' Equity (Note 6)
Common stock, no par, 300,000,000 shares authorized;
201,589,596 shares outstanding for 1996 and
204,859,339 shares outstanding for 1995....................................................... 1,896,141 1,926,909
Retained earnings................................................................................. 2,992,574 2,858,275
Total common stockholders' equity............................................................. 4,888,715 4,785,184
Total Liabilities and Stockholders' Equity.......................................................... $13,469,690 $13,358,484
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF OPERATIONS
The Company is primarily engaged in the generation, transmission,
distribution and sale of electric energy in the central portion of North
Carolina and the western portion of South Carolina, comprising the area in both
states known as the Piedmont Carolinas. The Company is one of the nation's
largest investor-owned electric utilities.
The Company is also engaged in a variety of diversified operations, most of
which are organized in separate subsidiaries. The Company's subsidiaries and
diversified activities are in the Associated Enterprises Group (AEG). AEG
includes Church Street Capital Corp.; Crescent Resources, Inc.; Duke Energy
Group, Inc.; Duke Engineering & Services, Inc.; Duke/Fluor Daniel; Duke/Louis
Dreyfus, LLC; Duke Merchandising; DukeNet Communications, Inc.; Duke Water
Operations; and Nantahala Power and Light Company. Certain subsidiaries have
invested in both domestic and international affiliates. (See Note 11.)
The financial statements are prepared in conformity with generally accepted
accounting principles appropriate in the circumstances to reflect in all
material respects the substance of events and transactions which should be
included. In preparing these statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being reported. However, actual results could differ from these estimates.
B. REVENUES
Electric revenues are recorded as service is rendered to customers.
"Receivables" on the Consolidated Balance Sheets include $205,656,000 and
$206,792,000 as of December 31, 1996 and 1995, respectively, for electric
service that has been rendered but not yet billed to customers by Duke Power,
and $4,294,000 as of December 31, 1996 for electric service that has been
rendered but not yet billed to customers by Nantahala Power and Light Company.
C. ADDITIONS TO ELECTRIC PLANT
The Company capitalizes all construction-related direct labor and materials
as well as indirect construction costs. Indirect costs include general
engineering, taxes and the cost of money (allowance for funds used during
construction). The cost of renewals and betterments of units of property is
capitalized.
The cost of repairs and replacements representing less than a unit of
property is charged to electric expenses. The original cost of property retired,
together with removal costs less salvage value, is charged to accumulated
depreciation.
D. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the estimated debt and equity costs of capital funds
necessary to finance the construction of new regulated facilities. AFUDC, a
non-cash item, is recognized as a cost of "Construction work in progress," with
an offsetting credit to "Interest expense and other income." After construction
is completed, the Company is permitted to recover these construction costs,
including a fair return, through their inclusion in rate base and in the
provision for depreciation.
The AFUDC rates of 9.7, 9.3 and 9.6 percent for Duke Power for 1996, 1995
and 1994, respectively, include a component for debt cost on a pre-tax basis.
Rates for all periods are compounded semiannually.
E. OTHER DEFERRED RETURNS
Other deferred returns represent the estimated financing costs associated
with funding certain regulatory assets. These regulatory assets primarily arise
from the Company's funding of purchased capacity costs above levels collected in
rates. Other deferred returns are non-cash items. They are primarily recognized
as an addition to "Purchased capacity costs" and as an offsetting credit to
"Interest expense and other income."
F. DEPRECIATION AND AMORTIZATION OF ELECTRIC PLANT
Provisions for electric plant depreciation are recorded using the
straight-line method. The year-end composite weighted-average depreciation rates
were 3.44, 3.48 and 3.46 percent for 1996, 1995 and 1994, respectively.
32
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Amortization of nuclear fuel is included in "Fuel used in electric
generation" in the Consolidated Statements of Income. The amortization is
recorded using the units-of-production method.
Under provisions of the Nuclear Waste Policy Act of 1982, the Company has
entered into contracts with the Department of Energy (DOE) for the disposal of
spent nuclear fuel. Payments made to the DOE for disposal costs are based on
nuclear output and are included in "Fuel used in electric generation" in the
Consolidated Statements of Income.
A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the DOE's uranium enrichment plants.
Licensees are subject to an annual assessment for 15 years based on their pro
rata share of past enrichment services. The annual assessment is recorded as
fuel expense. The Company paid $9,472,000 during 1996 and has paid $45,022,000
cumulatively related to its ownership interest in nuclear plants. The Company
has reflected the remaining liability and regulatory asset of $94,717,000 in the
Consolidated Balance Sheet at December 31, 1996.
G. SUBSIDIARIES
The Company's consolidated financial statements reflect consolidation of
all of its majority-owned subsidiaries. Intercompany transactions have been
eliminated in consolidation.
H. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return.
Deferred income taxes have been provided for temporary differences.
Temporary differences occur when events and transactions recognized for
financial reporting result in taxable or tax-deductible amounts in different
periods. Investment tax credits have been deferred and are being amortized over
the estimated useful lives of the related properties.
I. UNAMORTIZED DEBT PREMIUM, DISCOUNT AND EXPENSE
Expenses incurred in connection with the issuance of presently outstanding
long-term debt issued for regulated operations, and premiums and discounts
relating to such debt, are being amortized over the terms of the respective
issues. Also, any call premiums or unamortized expenses associated with
refinancing higher-cost debt obligations used to finance regulated assets and
operations are being amortized over the lives of the new issues of long-term
debt.
J. CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company's
short-term investments in highly liquid debt instruments, with an original
maturity of three months or less, are included in cash flows from investing
activities and thus are not considered cash equivalents.
Total income taxes paid were $491,340,000, $441,440,000 and $372,416,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
Interest paid, net of amounts capitalized, was $269,219,000, $258,698,000
and $236,696,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
K. COST-BASED REGULATION
As a regulated entity, the Company is subject to the provisions of SFAS No.
71, "Accounting for the Effects of Certain Types of Regulation." Accordingly,
the Company records certain assets and liabilities that result from the effects
of the ratemaking process that would not be recorded under generally accepted
accounting principles for non-regulated entities. Currently, the electric
utility industry is predominantly regulated on a basis designed to recover the
cost of providing electric power to its retail and wholesale customers. If
cost-based regulation were to be discontinued in the industry for any reason,
including competitive pressure on the cost-based prices of electricity, profits
could be reduced, and utilities might be required to reduce their asset balances
to reflect a market basis less than cost. Discontinuance of cost-based
regulation would also require affected utilities to write off their associated
regulatory assets. The regulatory assets of the Company are classified as
33
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
"Deferred debits" on the Consolidated Balance Sheets. Substantially all of the
"Deferred debits" are regulatory assets. Management cannot predict the potential
impact, if any, of these competitive forces on the Company's future financial
position and results of operations. However, the Company continues to position
itself to effectively meet these challenges by maintaining prices that are
locally, regionally and nationally competitive.
NOTE 2. RATE MATTERS
DUKE POWER COMPANY
The North Carolina Utilities Commission (NCUC) and The Public Service
Commission of South Carolina (PSCSC) must approve rates for retail sales within
their respective states. The Federal Energy Regulatory Commission (FERC) must
approve Duke Power's rates for sales to wholesale customers. Sales to the other
joint owners of the Catawba Nuclear Station, which represent a substantial
majority of Duke Power's wholesale revenues, are set through contractual
agreements. (See Note 3.)
The most recent general rate increase requests in Duke Power's retail
jurisdictions were filed and approved in 1991. Duke Power also filed its most
recent general rate increase request within the FERC wholesale jurisdiction in
1991. A negotiated settlement between Duke Power and the wholesale customers was
approved by the FERC in 1992.
Fuel costs are reviewed semiannually in the wholesale jurisdiction and
annually in the South Carolina retail jurisdiction, with provisions for changing
such costs in base rates. In the North Carolina retail jurisdiction, a review of
fuel costs in rates is required annually and during general rate case
proceedings.
All jurisdictions allow Duke Power to adjust rates for past over- or
under-recovery of fuel costs. Therefore, Duke Power reflects in revenues the
difference between actual fuel costs incurred and fuel costs recovered through
rates.
The PSCSC, on May 7, 1996, ordered a rate reduction in the form of a
decrement rider of 0.432 cents per kilowatt-hour, or an average of approximately
8 percent, affecting South Carolina retail customers. South Carolina retail
sales represent approximately 30 percent of the Company's total retail sales.
The rate reduction was reflected on bills rendered on or after June 1, 1996.
This net decrement rider reflects an interim true-up decrement adjustment
associated with the levelization of Catawba Nuclear Station purchased capacity
costs and an interim true-up increment associated with amortization of the
demand-side management deferral account. The rate adjustment was made because,
in the South Carolina retail jurisdiction, cumulative levelized revenues
associated with the recovery of Catawba purchased capacity costs had exceeded
purchased capacity payments and accrual of deferred returns, and certain
demand-side costs had exceeded the level reflected in rates.
Certain of the Company's wholesale customers, excluding the other Catawba
joint owners, initiated proceedings in 1995 before the FERC concerning rate
matters. The Company and nine of its eleven wholesale customers entered into a
settlement in July 1996 which reduced the customers' rates by approximately 9
percent and renewed their contracts with the Company through the year 2000. Both
of the customers that did not enter into the settlement have signed agreements
to purchase energy from other suppliers beginning in 1997. The eleven wholesale
customers involved in this matter accounted for less than 2 percent of the
Company's overall electric revenues during 1996. The two customers that have
signed agreements with other suppliers accounted for less than 0.5 percent of
the Company's 1996 overall electric revenues.
NANTAHALA POWER AND LIGHT COMPANY
During 1996, Nantahala Power and Light Company (NP&L) filed an application
with and received approval from the NCUC to increase its annual retail service
revenues by $4.6 million. NP&L's wholesale rates are adjusted annually to
reflect current costs. Purchased power costs of NP&L are reviewed annually and
during general rate case proceedings by the NCUC. NP&L is allowed to adjust
rates for past over- or under-recovery of purchased power costs. Therefore, NP&L
defers the difference between actual purchased power costs incurred and those
recovered through rates.
34
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. JOINT OWNERSHIP OF GENERATING FACILITIES
The Company previously sold interests in both units of the Catawba Nuclear
Station. The other owners of portions of the Catawba Nuclear Station and
supplemental information regarding their ownership are as follows:
<TABLE>
<CAPTION>
OWNERSHIP INTEREST
OWNER IN THE STATION
<S> <C>
North Carolina Municipal Power Agency Number 1 (NCMPA)........................ 37.5%
North Carolina Electric Membership Corporation (NCEMC)........................ 28.125%
Piedmont Municipal Power Agency (PMPA)........................................ 12.5%
Saluda River Electric Cooperative, Inc. (Saluda River)........................ 9.375%
</TABLE>
Each owner has provided its own financing for its ownership interest in the
station.
The Company retains a 12.5 percent ownership interest in the Catawba
Nuclear Station. As of December 31, 1996, $497,304,000 of "Electric plant in
service" and "Nuclear fuel" represents the Company's investment in Units 1 and
2. Accumulated depreciation and amortization of $192,057,000 associated with
Catawba has been recorded as of year-end. The Company's share of operating costs
of Catawba is included in the Consolidated Statements of Income.
In connection with the joint ownership, the Company has entered into
contractual agreements with the other joint owners to purchase declining
percentages of the generating capacity and energy from the plant. These
purchased power agreements were effective beginning with the commercial
operation of each unit. Unit 1 and Unit 2 began commercial operation in June
1985 and August 1986, respectively. The purchased power agreements were
established for 15 years for NCMPA and PMPA and 10 years for NCEMC and Saluda
River. While the purchased power agreements with NCMPA and PMPA extend for 15
years, a significant decrease in the percentage of capacity and energy the
Company is obligated to purchase occurs in the 11th calendar year of operation
for each unit. This significant decrease occurred in 1995 for Unit 1 and 1996
for Unit 2.
The agreements also provide for supplemental power sales by the Company to
the other joint owners. Such power sales are to satisfy capacity and energy
needs of the other joint owners beyond the capacity and energy which they retain
from Catawba or potentially acquire in the form of other resources. The
agreements further provide the other joint owners the ability to secure such
supplemental requirements outside of these contractual agreements following an
appropriate notice period. NCEMC and Saluda River have given appropriate notice
that they intend to acquire their supplemental capacity requirements outside of
these agreements effective January 1, 2001 and January 1, 2002, respectively,
thus relieving the Company of the obligation to serve this portion of load. As
the joint owners retain more capacity and energy from Catawba, or a third party,
supplemental power sales are expected to decline.
The agreements with each of the other joint owners include provisions that
the Company will provide generating reserves to backstand the other joint
owners' retained capacity in the Catawba plant at the system average cost of
installed capacity. Additionally, the agreements include certain reliability
exchanges designed to manage outage-related risks by exchanging energy
entitlements between the Catawba Nuclear Station and the McGuire Nuclear
Station, impacting the Company as well as all the other joint owners.
35
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. JOINT OWNERSHIP OF GENERATING FACILITIES -- Continued
Purchased energy cost payments are based on variable operating costs and
are a function of the generation output of Catawba. Purchased capacity payments
are based on the fixed costs of the plant and include the capital costs and
fixed operating and maintenance costs. Actual purchased capacity costs for 1996
and projected obligations for 1997 through 2001, including the impact of the
1995 settlement agreement with NCMPA and PMPA (See Note 13), are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
PURCHASED PURCHASED TOTAL
CAPACITY CAPACITY PURCHASED
YEAR CAPITAL COST FIXED O&M CAPACITY
<S> <C> <C> <C>
1996 Actual........................................ $ 84,303 $40,499 $ 124,802
1997 Projected..................................... $ 67,030 $34,858 $ 101,888
1998 Projected..................................... $ 48,423 $26,388 $ 74,811
1999 Projected..................................... $ 35,337 $19,122 $ 54,459
2000 Projected..................................... $ 4,286 $ 2,470 $ 6,756
2001 Projected..................................... -- -- --
</TABLE>
Effective in its November 1991 rate order, the North Carolina Utilities
Commission reaffirmed the Company's recovery, on a levelized basis, of the
capital costs and fixed operating and maintenance costs of capacity purchased
from the other joint owners. The Public Service Commission of South Carolina in
its November 1991 rate order reaffirmed the Company's recovery on a levelized
basis of the capital costs of capacity purchased from the other joint owners.
Levelization was reaffirmed through inclusion in rates approved in March 1992 by
the Federal Energy Regulatory Commission (FERC). The portion of purchased
capacity subject to levelization not currently recovered in rates is being
deferred, and the Company is recording a deferred return on the accumulated
balance. The Company recovers the accumulated balance, including the deferred
return, when the sum of the declining purchased capacity payments and accrual of
deferred returns for the current period drops below the levelized revenues.
Jurisdictional levelizations are intended to recover total costs, including
deferred returns, and are subject to adjustments, including final true-ups. The
Company recovers the costs of purchased energy and the non-levelized portion of
purchased capacity on a current basis.
The current levelized revenues approved in the Company's last general rate
proceedings are $211,423,000, $94,137,000 and $6,815,000 for North Carolina
retail, South Carolina retail and Other Wholesale (FERC), respectively.
Purchased power costs, subject to levelization, are deferred based on allocation
factors of approximately 62 percent, 26 percent and 2 percent for North Carolina
retail, South Carolina retail and Other Wholesale (FERC), respectively. The
PSCSC, on May 7, 1996, ordered a rate reduction in the form of a decrement rider
for an interim true-up adjustment. (See Note 2.) The Company also recovers an
allocated amount of purchased power costs in the pricing of supplemental sales
made to the other joint owners on a current basis.
During 1996, in the North Carolina retail and FERC wholesale jurisdictions,
annual levelized revenues exceeded purchased capacity payments and the accrual
of deferred returns for the first time. In the South Carolina retail
jurisdiction, cumulative levelized revenues have exceeded purchased capacity
payments and accrual of deferred returns.
For the years ended December 31, 1996, 1995 and 1994, the Company recorded
purchased capacity and energy costs from the other joint owners of $151,174,000,
$388,246,000 and $604,505,000, respectively. These amounts, after adjustments
for the costs of capacity purchased not reflected in current rates, are included
in "Net interchange and purchased power" in the Consolidated Statements of
Income. As of December 31, 1996 and 1995, $892,000,000 and $965,473,000,
respectively, associated with the cost of capacity purchased but not reflected
in current rates have been accumulated in the Consolidated Balance Sheets as
"Purchased capacity costs."
36
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4. INCOME TAX EXPENSE
Accumulated deferred income taxes consist primarily of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Excess tax over book depreciation at historical tax rates............ $1,424,709 $1,387,925
Regulatory liability related to adjusting deferred taxes to the
current statutory tax rate......................................... (108,462)* (114,538)*
Net excess tax over book depreciation........................... $1,316,247 $1,273,387
Regulatory asset related to restating to a pre-tax basis............. 597,398* 605,214*
Deferred purchased capacity costs.................................... 345,089 374,112
Book versus tax basis differences.................................... 42,963 60,443
Loss on bond redemptions............................................. 63,962 68,135
Other................................................................ 10,353 913
Total deferred income taxes..................................... $2,376,012 $2,382,204
</TABLE>
* The net regulatory asset related to income taxes is $488,936,000 for 1996 and
$490,676,000 for 1995.
Total deferred income tax liability was $2,932,260,000 as of December 31, 1996,
and $2,946,711,000 as of December 31, 1995. Total deferred income tax asset was
$556,248,000 as of December 31, 1996, and $564,507,000 as of December 31, 1995.
Income tax expense for the years ended December 31, 1996, 1995 and 1994
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes
Federal........................................................ $413,429 $377,237 $249,968
State.......................................................... 89,903 83,215 52,790
Total current income taxes................................ 503,332 460,452 302,758
Deferred taxes, net
Federal........................................................ (16,706) 13,466 83,359
State.......................................................... 295 3,770 22,153
Total deferred taxes, net................................. (16,411) 17,236 105,512
Investment tax credit amortization............................... (11,230) (11,247) (11,251)
Total income tax expense.................................. $475,691 $466,441 $397,019
</TABLE>
Income taxes differ from amounts computed by applying the statutory tax rate to
pre-tax income for the years ended December 31, 1996, 1995 and 1994 as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income taxes on pre-tax income at the statutory federal rate of 35%.......... $421,980 $413,343 $362,563
Increase (reduction) in tax resulting from:
Allowance for funds used during construction (AFUDC)....................... (5,538) (8,079) (9,594)
Amortization of investment tax credit deferrals............................ (11,230) (11,247) (11,251)
AFUDC in book depreciation/amortization.................................... 19,990 21,057 19,027
Deferred income tax flowback at rates higher than statutory................ (6,389) (5,675) (5,530)
State income taxes, net of federal income tax benefits..................... 58,242 56,210 47,872
Other items, net........................................................... (1,364) 832 (6,068)
Total income tax expense................................................ $475,691 $466,441 $397,019
</TABLE>
37
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
The following credit facilities were available to the Company at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
LINE OF CREDIT AT OUTSTANDING AT LINE OF CREDIT AT OUTSTANDING AT
TYPE OF FACILITY DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Annually renewable lines of credit.............. $ 64,900,000 $ 8,550,000 $ 64,900,000 $29,300,000
Two-year revolving facilities (a)............... 40,000,000 -- 40,000,000 --
Four-year revolving facilities (b).............. 235,000,000 42,000,000 210,000,000 30,043,000
Five-year revolving facilities (c).............. 355,000,000 -- 355,000,000 --
$ 694,900,000 $50,550,000 $ 669,900,000 $59,343,000
</TABLE>
(a) The Company had $40,000,000 in pollution control bonds, included in
long-term debt, outstanding throughout 1996 and 1995 backed by these
facilities.
(b) The outstanding balances of $42,000,000 in 1996 and $30,043,000 in 1995 are
included in long-term debt.
(c) The Company had $130,000,000 in commercial paper, included in long-term
debt, outstanding throughout 1996 and 1995 backed by these facilities.
Cash balances maintained at the banks on deposit were $11,336,000 as of
December 31, 1996, and $17,120,000 as of December 31, 1995. Cash balances and
fees compensate banks for their services, even though the Company has no formal
compensating-balance arrangements. To compensate certain banks for credit
facilities, the Company maintained balances of $45,000 as of December 31, 1996
and 1995. The Company retains the right of withdrawal with respect to the funds
used for compensating-balance arrangements.
A summary of short-term borrowings is as follows (dollars in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Amount outstanding at end of period -- average rate of 6.05% as of December 31,
1996, 5.91% as of December 31, 1995, and 6.02% as of December 31, 1994.......... $105,550 $155,300 $107,100
Maximum amount outstanding during the period...................................... $176,450 $264,300 $143,400
Average amount outstanding during the period...................................... $ 56,343 $ 88,470 $ 24,161
Weighted-average interest rate for the period -- computed on a daily basis........ 5.33% 6.05% 4.58%
</TABLE>
NOTE 6. COMMON STOCK AND RETAINED EARNINGS
COMMON STOCK
As of December 31, 1996, a total of 9,004,659 shares was reserved for issuance
for stock plans.
On February 27, 1996, the Board of Directors authorized the Company to
repurchase up to $1 billion of its common stock over the next five years. As of
December 31, 1996, approximately 3.3 million shares had been repurchased for
$159 million. On January 28, 1997, the Board of Directors amended the program to
expressly limit the number of shares authorized for repurchase under the
program, from the initiation of the program through a date two years after the
consummation of the proposed merger with PanEnergy Corp, to an amount not to
exceed 15 million shares. (See Note 13.)
RETAINED EARNINGS
As of December 31, 1996, substantially all of the Company's retained earnings
were unrestricted as to the declaration or payment of dividends.
38
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 7. PREFERRED AND PREFERENCE STOCK WITHOUT SINKING FUND REQUIREMENTS
The following shares of stock were authorized with or without sinking fund
requirements as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
PAR VALUE SHARES
<S> <C> <C>
Preferred Stock.................................................. $ 100 12,500,000
Preferred Stock A................................................ $ 25 10,000,000
Preference Stock................................................. $ 100 1,500,000
</TABLE>
As of December 31, 1996 and 1995, there were no shares of preference stock
outstanding. Preferred stock without sinking fund requirements as of December
31, 1996 and 1995, was as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR SHARES
RATE/SERIES ISSUED OUTSTANDING 1996 1995
<S> <C> <C> <C> <C>
4.50% C............................................................. 1964 350,000 $ 35,000 $ 35,000
5.72% D............................................................. 1966 350,000 35,000 35,000
6.72% E............................................................. 1968 350,000 35,000 35,000
7.85% S............................................................. 1992 600,000 60,000 60,000
7.00% W............................................................. 1993 500,000 50,000 50,000
7.04% Y............................................................. 1993 600,000 60,000 60,000
7.72% (Preferred Stock A)........................................... 1992 1,600,000 40,000 40,000
6.375% (Preferred Stock A).......................................... 1993 2,400,000 60,000 60,000
Auction Series A.................................................... 1990 750,000 75,000 75,000
Total.......................................................... $450,000 $450,000
</TABLE>
NOTE 8. PREFERRED AND PREFERENCE STOCK WITH SINKING FUND REQUIREMENTS
The following shares of stock were authorized with or without sinking fund
requirements as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
PAR VALUE SHARES
<S> <C> <C>
Preferred Stock.............................................................. $ 100 12,500,000
Preferred Stock A............................................................ $ 25 10,000,000
Preference Stock............................................................. $ 100 1,500,000
</TABLE>
As of December 31, 1996 and 1995, there were no shares of preference stock
outstanding. Preferred stock with sinking fund requirements as of December 31,
1996 and 1995, was as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR SHARES
RATE/SERIES ISSUED OUTSTANDING 1996 1995
<S> <C> <C> <C> <C>
5.95% B (Preferred Stock A)......................................... 1992 800,000 $ 20,000 $ 20,000
6.10% C (Preferred Stock A)......................................... 1992 800,000 20,000 20,000
6.20% D (Preferred Stock A)......................................... 1992 800,000 20,000 20,000
7.50% R............................................................. 1992 850,000 85,000 85,000
6.20% T............................................................. 1992 130,000 13,000 13,000
6.30% U............................................................. 1992 130,000 13,000 13,000
6.40% V............................................................. 1992 130,000 13,000 13,000
6.75% X............................................................. 1993 500,000 50,000 50,000
Total.......................................................... $234,000 $234,000
</TABLE>
The annual sinking fund requirements through 2001 are $0 in 1997, $4,250,000 in
1998, $24,250,000 in 1999, $37,250,000 in 2000 and $37,250,000 in 2001. Some
additional redemptions are permitted at the Company's option.
The call provisions for the outstanding preferred stock specify various
redemption prices not exceeding 108 percent of par value, plus accumulated
dividends to the redemption date.
39
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1996 and 1995, was as follows
(dollars in thousands):
<TABLE>
<CAPTION>
SERIES YEAR DUE 1996 1995
<S> <C> <C> <C>
FIRST AND REFUNDING MORTGAGE BONDS:
6.59% 1996 $ -- $ 3,000
5 3/8% 1997 72,600 72,600
5 5/8% 1997 100,000 100,000
5.17% 1998 50,000 50,000
7.5% 1999 100,000 100,000
6 1/4% 1999 65,000 65,000
5.76% 1999 5,000 5,000
5.78% 1999 25,000 25,000
5.79% 1999 30,000 30,000
8% B 1999 200,000 200,000
7% 2000 100,000 100,000
7% B 2000 100,000 100,000
5 7/8% 2001 150,000 150,000
6 5/8% B 2003 100,000 100,000
5 7/8% C 2003 75,000 75,000
6.125% 2003 75,000 75,000
8% 2004 75,000 75,000
6 1/4% B 2004 100,000 100,000
7.37%-7.41% 2004 100,000 100,000
7% 2005 200,000 200,000
6 3/8% 2008 125,000 125,000
8 3/4% 2021 150,000 150,000
8 3/8% B 2021 150,000 150,000
8 5/8% 2022 100,000 100,000
7 3/8% 2023 200,000 200,000
6 7/8% B 2023 200,000 200,000
7 7/8% 2024 150,000 150,000
6 3/4% 2025 150,000 150,000
7 1/2% B 2025 100,000 100,000
8.27% 2025 21,000 21,000
8.27% 2025 50,000 50,000
8.28% 2025 2,000 2,000
8.30% 2025 5,000 5,000
8.95% 2027 15,584 15,681
7% 2033 150,000 150,000
<CAPTION>
SERIES YEAR DUE 1996 1995
<S> <C> <C> <C>
POLLUTION CONTROL BONDS:
7.70% 2012 $ 20,000 $ 20,000
7.75% B 2017 10,000 10,000
7.50% 2017 25,000 25,000
3.58% 2014 40,000 40,000
5.80% 2014 77,000 77,000
Subtotal 3,463,184 3,466,281
OTHER LONG-TERM DEBT:
Capitalized leases 11,265 7,477
Other long-term debt 146,539 147,410
Unamortized debt
discount and premium,
net (56,995) (61,674)
Current maturities of
long-term debt (174,726) (4,295)
Subtotal (a) 3,389,267 3,555,199
SUBSIDIARY LONG-TERM DEBT:
Crescent Resources, Inc.
(b) 118,058 130,694
Nantahala Power and
Light 68,372 33,288
Current maturities of
long-term debt (37,583) (7,776)
Subtotal 148,847 156,206
Total long-term debt $3,538,114 $3,711,405
</TABLE>
(a) Substantially all of Duke Power's electric plant was mortgaged as of
December 31, 1996.
(b) Substantial amounts of Crescent Resources, Inc.'s real estate development
projects, land and buildings are pledged as collateral.
40
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9. LONG-TERM DEBT -- Continued
As of December 31, 1996 and 1995, the Company had $40,000,000 in pollution
control revenue bonds backed by an unused, two-year revolving credit facility of
$40,000,000. In addition, the Company had $130,000,000 in commercial paper
outstanding throughout 1996 and 1995 backed by unused five-year revolving credit
facilities. These facilities are on a fee basis. Both the $40,000,000 in
pollution control bonds and the $130,000,000 in commercial paper are included in
long-term debt.
As of December 31, 1996, Crescent Resources, Inc. had $45,428,000 in
mortgage loans which mature through 1999 and $30,630,000 in mortgage loans
maturing in 2000 or thereafter. Additionally, Crescent Resources, Inc. had
$42,000,000 outstanding at December 31, 1996, included in long-term debt on a
$75,000,000 four-year revolving credit facility. Interest rates are variable and
at December 31, 1996, ranged from 5.95 percent to 7.10 percent. As of December
31, 1996, Nantahala Power and Light Company had $68,000,000 in senior notes
maturing in 2011, 2012 and 2016. The notes carry fixed interest rates of 9.21
percent, 7.45 percent and 6.90 percent and require monthly payments of principal
beginning in 1997, 1998 and 2002, respectively.
The annual maturities of consolidated long-term debt, including capitalized
lease principal payments through 2001, are $212,309,000 in 1997; $62,759,000 in
1998; $444,840,000 in 1999; $248,271,000 in 2000; and $154,541,000 in 2001.
NOTE 10. FINANCIAL INSTRUMENTS
The carrying amounts of "Cash," "Short-term investments," and "Notes
payable" on the Consolidated Balance Sheets approximate fair value primarily
because of the short maturities of these instruments. "Other investments"
includes notes receivable issued at fixed rates with maturities up to 30 years
for which there are no quoted market prices. The majority of estimated fair
value amounts of long-term debt and preferred stock as disclosed below were
obtained from independent parties. Judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
determined as of December 31, 1996 and 1995, are not necessarily indicative of
the amounts the Company could have realized in current market exchanges.
External funds have been established, as required by the Nuclear Regulatory
Commission, as a mechanism to fund certain costs of nuclear decommissioning.
(See Note 14.) Currently, these nuclear decommissioning trust funds are invested
in U.S. stocks, bonds and cash equivalents. "Nuclear decommissioning trust
funds" are presented on the Consolidated Balance Sheets at amounts that
approximate fair value.
The carrying amounts and estimated fair values of long-term debt and
preferred stock are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Long-term debt............................................... $ 3,796,153 $3,773,000 $ 3,777,672 $3,879,000
Preferred stock.............................................. $ 684,000 $ 699,000 $ 684,000 $ 689,000
</TABLE>
The Company has authority to issue up to $1 billion aggregate principal
amount of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission (SEC). Such debt securities may be issued as
First and Refunding Mortgage Bonds, Senior Notes or Subordinated Debentures.
In order to obtain variable rate financing at an attractive cost, the
Company entered into interest rate swap agreements associated with the November
1994, issuance of $200 million aggregate principal amount of its First and
Refunding Mortgage Bonds, 8% Series B due 1999 and the August 1995, issuance of
$100 million aggregate principal amount of its First and Refunding Mortgage
Bonds, 7 1/2% Series B due 2025. The interest rate swaps are reset quarterly
based upon the three-month London Interbank Offered Rate (LIBOR). As a result of
the interest rate swap contracts, interest expense on the Consolidated
41
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10. FINANCIAL INSTRUMENTS -- Continued
Statements of Income is recognized at the weighted average rate for the year
tied to the LIBOR rate. The weighted average rates are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE RATE
SERIES YEAR DUE FACE VALUE 1996 1995 1994
<S> <C> <C> <C> <C> <C>
8% Series B............................... 1999 $200,000 5.64% 6.14% 5.95%
7 1/2% Series B........................... 2025 $100,000 6.69% 7.06% --
</TABLE>
Duke Energy Group, Inc. entered into a hedge transaction in 1995 to offset
currency fluctuations between the U.S. dollar and the Chilean peso associated
with expected equity contributions to an affiliate in 1995, 1996 and 1997. The
hedge transaction has a notional amount of approximately $4.4 million at
December 31, 1996. Duke Energy Group, Inc. records any realized gains or losses
associated with the hedge as an adjustment to investments in affiliates.
NOTE 11. INVESTMENTS IN AFFILIATES
Certain investments, where the Company's ownership in domestic and
international affiliates is 50 percent or less, are accounted for by the equity
method. These investments include ownership interests in various power
development projects; start-up personal communications services; marketing of
natural gas, electric power, and development of other energy services;
participation in various construction and support activities for fossil-fueled
generating plants; and real-estate development projects. The Company's
proportionate share of net income (loss) from these affiliates for the years
ended December 31, 1996, 1995 and 1994 was $(6,133,000), $9,237,000 and
$7,049,000, respectively. These amounts are reflected in "Operating revenues" on
the Consolidated Statements of Income.
A summary of assets and liabilities of these affiliates follows (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
COMPANY'S COMPANY'S
PROPORTIONATE PROPORTIONATE
TOTAL SHARE TOTAL SHARE
<S> <C> <C> <C> <C>
Assets of affiliates................................................ $1,979,418 $ 549,442 $1,445,600 $ 351,376
Liabilities of affiliates........................................... $1,041,207* $ 360,460 $ 615,452* $ 188,102
</TABLE>
* The Company's exposure to these liabilities is mitigated through the use of
project or limited recourse financing by the affiliates and capitalization of
its subsidiaries investing in the affiliates.
In addition, the Company had outstanding loans to certain affiliates of
$2,900,000 and $23,170,000 at December 31, 1996 and 1995, respectively.
In the normal course of business, some of these affiliates enter into
contractual agreements to exchange natural gas, electric power, futures, swaps
and options; and construction contracts which contain certain schedule and
performance requirements. The affiliates use risk management procedures to
control their exposure associated with the contracts. Certain subsidiaries of
the Company have guaranteed performance of the affiliates under some of these
contracts. Management is of the opinion that these guarantees will not have any
material adverse effect on the results of operations or the financial position
of the Company.
NOTE 12. RETIREMENT BENEFITS
A. RETIREMENT PLAN
The Company and its operating subsidiaries, with the exception of Nantahala
Power and Light Company, which maintains its own retirement plans, have a
non-contributory, defined benefit retirement plan covering substantially all
their employees. Through December 31, 1996, the benefit was based upon an
age-related formula which took into account years of creditable service and the
employee's average compensation based upon the highest compensation during a
consecutive sixty-month period. The benefit was reduced by an adjustment which
is based upon the employee's social security wages. Normal retirement age under
the Plan was age 65; however, early retirement benefits were payable as early as
age 55 with 10
42
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12. RETIREMENT BENEFITS -- Continued
years of creditable service or age 51 if the employee had at least 30 years of
creditable service. The Company's policy is to fund pension costs as accrued.
Effective January 1, 1997, the Plan was amended to be a Cash Balance Plan.
Under the Cash Balance Plan, records are maintained on an individual participant
basis with monthly credits based upon the participant's creditable compensation
multiplied times a percentage that ranges from 3 percent to 7 percent depending
upon the sum of the participant's age and years of service. An additional credit
of 4 percent applies to creditable compensation in excess of the social security
wage base. Additionally, monthly interest credits will be allocated based upon
the yield of 30-year U.S. Treasury Bonds, subject to a 4 percent minimum and a 9
percent maximum yield. Normal retirement age will remain age 65. Employees who
were participants in the Plan before January 1, 1997, remain eligible to receive
certain transitional benefits under the provisions of the previous plan. After
January 1, 1997, employees can receive early retirement benefits as early as age
55 with at least 5 years of vesting service.
Net periodic pension cost for the years ended December 31, 1996, 1995 and
1994, include the following components (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Service cost benefit earned during the year.......... $ 49,636 $ 46,402 $ 43,098
Interest cost on projected benefit obligation........ 116,088 111,110 96,521
Actual return on plan assets......................... (180,463) (253,314) (6,138)
Amount deferred for recognition...................... 58,705 144,022 (86,995)
Expected return on plan assets....................... (121,758) (109,292) (93,133)
Net amortization..................................... 9,070 6,161 7,657
Net periodic pension cost....................... $ 53,036 $ 54,381 $ 54,143
</TABLE>
A reconciliation of the funded status of the plan to the amounts recognized
in the Consolidated Balance Sheets as of December 31, 1996 and 1995, is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits............................................................................ $(1,453,115) $(1,289,459)
Nonvested benefits......................................................................... (4,083) (6,216)
Accumulated benefit obligation........................................................ $(1,457,198) $(1,295,675)
Fair market value of plan assets, consisting primarily of short-term investments and
cash equivalents, common stocks, real estate investments and government and
industrial bonds.............................................................................. $ 1,587,812 $ 1,424,148
Projected benefit obligation.................................................................... (1,663,375) (1,596,747)
Unrecognized net experience loss................................................................ 220,355 286,837
Unrecognized prior service cost reduction....................................................... (65,460) (35,039)
Remaining unrecognized transitional obligation.................................................. 668 801
Pre-funded pension cost.................................................................... $ 80,000 $ 80,000
</TABLE>
Assumptions used in the Company's pension accounting include:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted-average discount rate............................................... 7.50% 7.50% 8.25%
Weighted-average salary increase............................................. 4.75% 4.75% 5.40%
Expected long-term rate of return on plan assets............................. 9.00% 9.00% 9.00%
</TABLE>
During 1995, the Company offered to certain employees an Enhanced Vested
Benefits program (EVB). The Company recorded an additional one-time expense for
special termination benefits associated with EVB of approximately $42,196,000,
including $21,600,000 of additional retirement plan costs.
43
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12. RETIREMENT BENEFITS -- Continued
B. POSTRETIREMENT BENEFITS
The Company and its operating subsidiaries, with the exception of Nantahala
Power and Light Company (NP&L), which maintained its own postretirement benefit
plans through December 1995, currently provide certain health care and life
insurance benefits for retired employees. NP&L employees who retired after
January 1, 1996, are covered by Duke Power Company's postretirement benefit
plan. Through December 31, 1996, employees became eligible for these benefits if
they retired at age 55 or greater with 10 years of service or if they retired as
early as age 51 with 30 years or more of service. Effective January 1, 1997,
employees who were participants in the Retirement Plan before January 1, 1997,
become eligible for certain transitional postretirement benefits under the
provisions of the previous plan. Employees who were not participants in the plan
before January 1, 1997, become eligible as early as age 55 with at least 10
years of vesting service. All employees retiring after January 1, 1992, receive
a fixed Company allowance, based on years of service, to be used to pay medical
insurance premiums. The Company reserves the right to terminate, suspend,
withdraw, amend or modify the plans in whole or in part at any time.
In 1992, the Company commenced funding the maximum amount allowable under
section 401(h) of the Internal Revenue Code, which provides for tax deductions
for contributions and tax-free accumulation of investment income. Such amounts
partially fund the Company's medical and dental postretirement benefits. The
Company has also established a Retired Lives Reserve, which has tax attributes
similar to 401(h) funding, to partially fund its postretirement life insurance
obligation. The Company contributed $15,200,000 into these funding mechanisms in
1996 and $23,000,000 in 1995.
Net periodic postretirement benefit cost for the years ended December 31,
1996, 1995 and 1994, include the following components (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Service cost benefit earned during the year................... $ 6,388 $ 5,874 $ 5,415
Interest cost on accumulated postretirement benefit
obligation.................................................. 27,276 27,201 25,321
Actual return on plan assets.................................. (12,383) (14,726) (1,451)
Amount deferred for recognition............................... 2,988 7,260 (3,469)
Expected return on plan assets................................ (9,395) (7,466) (4,920)
Straight-line -- 20 year amortization of transitional
obligation.................................................. 13,515 13,293 13,293
Other amortization............................................ 1,566 555 366
Net periodic postretirement benefit cost.................... $39,350 $39,457 $39,475
</TABLE>
A reconciliation of the funded status of the plan to the amounts recognized
in the Consolidated Balance Sheets as of December 31, 1996 and 1995, is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C> <C> <C>
Fair market value of plan assets, consisting primarily of short-term
investments and cash equivalents, common stocks, real estate investments
and government and industrial bonds....................................... $ 127,594 $ 105,506
Actives eligible to retire.................................................. (39,567) (25,780)
Actives not eligible to retire.............................................. (118,103) (97,389)
Retirees and surviving spouses.............................................. (251,325) (253,688)
Accumulated postretirement benefit obligation (APBO)........................ (408,995) (376,857)
Unrecognized prior service cost............................................. 66,692 712
Unrecognized net experience (gain)/loss..................................... (3,772) 25,955
Unrecognized transitional obligation........................................ 177,338 212,695
(Accrued) postretirement benefit cost................................ $ (41,143) $ (31,989)
</TABLE>
44
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12. RETIREMENT BENEFITS -- Continued
Assumptions used in the Company's postretirement benefits accounting
include:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted-average discount rate....................................................................... 7.50% 7.50% 8.25%
Weighted-average salary increase..................................................................... 4.75% 4.75% 5.40%
Expected long-term rate of return on 401(h) assets................................................... 9.00% 9.00% 9.00%
Expected long-term rate of return on RLR assets...................................................... 6.50% 8.00% 6.50%
</TABLE>
The assumed medical inflation rate was approximately 9.5 percent in 1996.
This rate decreases by 0.5 percent to 1.0 percent per year until a rate of 5.5
percent is achieved in the year 2001, which remains fixed thereafter.
A 1.0 percent increase in the medical and dental trend rates produces a 7.0
percent ($2,940,971) increase in the aggregate service and interest cost. The
increase in the APBO attributable to a 1.0 percent increase in the medical and
dental trend rates is 7.8 percent ($31,462,000) as of December 31, 1996.
NOTE 13. COMMITMENTS AND CONTINGENCIES
A. CONSTRUCTION PROGRAM
Projected construction and nuclear fuel costs for Duke Power's electric
operations, both including allowance for funds used during construction, are
$2.6 billion and $716 million, respectively, for 1997 through 2001. These
projections are subject to periodic review and revisions. Actual construction
and nuclear fuel costs and capital expenditures incurred may vary from such
estimates. Cost variances are due to various factors, including revised load
estimates, environmental matters and cost and availability of capital.
Projected capital expenditures of subsidiaries and diversified activities
are $1.5 billion for 1997 through 2001. These projections are subject to
periodic review and revisions and may vary significantly as business plans
evolve to meet the opportunities presented by their markets.
B. NUCLEAR INSURANCE
The Company maintains nuclear insurance coverage in three areas: liability
coverage, property, decontamination and decommissioning coverage, and extended
accidental outage coverage to cover increased generating costs and/or
replacement power purchases. The Company is being reimbursed by the other joint
owners of the Catawba Nuclear Station for certain expenses associated with
nuclear insurance premiums paid by the Company.
Pursuant to the Price-Anderson Act, the Company is required to insure
against public liability claims resulting from nuclear incidents to the full
limit of liability of approximately $8.9 billion. The maximum required private
primary insurance of $200 million has been purchased along with a like amount to
cover certain worker tort claims. The remaining amount, currently $8.7 billion,
which will be increased by $79.3 million as each additional commercial nuclear
reactor is licensed, has been provided through a mandatory industry-wide excess
secondary insurance program of risk pooling. The $8.7 billion could also be
reduced by $79.3 million for certain nuclear reactors that are no longer
operational and may be exempted from the risk pooling insurance program. Under
this program, licensees could be assessed retrospective premiums to compensate
for damages in the event of a nuclear incident at any licensed facility in the
nation. If such an incident occurs and public liability damages exceed primary
insurances, licensees may be assessed up to $79.3 million for each of their
licensed reactors, payable at a rate not to exceed $10 million a year per
licensed reactor for each incident. The $79.3 million amount is subject to
indexing for inflation and may be subject to state premium taxes. The $79.3
million includes a surcharge of 5 percent (which is also included in the above
$8.7 billion figure) if funds are insufficient to pay claims and associated
costs. If retrospective premiums were to be assessed, the other joint owners of
the Catawba Nuclear Station are obligated to assume their pro rata share of such
assessment.
The Company is a member of Nuclear Mutual Limited (NML), which provides
$500 million in primary property damage coverage for each of the Company's
nuclear facilities. If NML's losses ever exceed its reserves, the Company will
be liable, on a pro rata basis, for additional assessments of up to $34 million.
This amount represents 5 times the Company's
45
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13. COMMITMENTS AND CONTINGENCIES -- Continued
annual premium to NML. The other joint owners of Catawba are obligated to assume
their pro rata share of any liability for retrospective premiums and other
premium assessments resulting from the NML policies applicable to Catawba.
The Company is also a member of Nuclear Electric Insurance Limited (NEIL)
and purchases insurance through NEIL's excess property, decontamination and
decommissioning liability insurance program. NEIL provides excess insurance
coverage of $2.25 billion for the Catawba Nuclear Station and $1.5 billion for
each of the Oconee and McGuire Nuclear Stations. If losses ever exceed the
accumulated funds available to NEIL for the excess property, decontamination and
decommissioning liability program, the Company will be liable, on a pro rata
basis, for additional assessments of up to $40 million. This amount is limited
to 5 times the Company's annual premium to NEIL for excess property,
decontamination and decommissioning liability insurance. The other joint owners
of Catawba are obligated to assume their pro rata share of any liability for
retrospective premiums and other premium assessments resulting from the NEIL
policies applicable to Catawba.
The Company participates in a NEIL program that provides insurance for the
increased cost of generation and/or purchased power resulting from an accidental
outage of a nuclear unit. Each unit of the McGuire and Catawba Nuclear Stations
is insured for up to approximately $3.5 million per week, after a 21-week
deductible period, with declining amounts per unit where more than one unit is
involved in an accidental outage. The Oconee Nuclear Station units are insured
for up to approximately $2.7 million, under like terms. Coverages continue at
100 percent for 52 weeks and 80 percent for the next 104 weeks. If NEIL's losses
for this program ever exceed its reserves, the Company will be liable, on a pro
rata basis, for additional assessments of up to $27 million. This amount
represents 5 times the Company's annual premium to NEIL for insurance for the
increased cost of generation and/or purchased power resulting from an accidental
outage of a nuclear unit. The other joint owners of Catawba are obligated to
assume their pro rata share of any liability for retrospective premiums and
other premium assessments resulting from the NEIL policies applicable to the
joint ownership agreements.
C. PROPOSED MERGER WITH PANENERGY CORP
On November 25, 1996, the Company and PanEnergy Corp announced a proposed
stock-for-stock transaction creating an integrated energy company. Upon
consummation of the merger, PanEnergy will be a wholly owned subsidiary of the
Company, and the Company's name will be changed to Duke Energy Corporation. The
transaction is expected to close by December 31, 1997, subject to approval of
the shareholders of both companies and all applicable regulatory approvals. The
shareholders of each company will vote on the proposed merger at their annual
meetings, which are scheduled for April 24, 1997 for both companies.
Applications for regulatory approval were filed with the NCUC and the PSCSC on
December 19, 1996 and the FERC on February 3, 1997. Regulatory proceedings are
expected to be successfully completed by year-end 1997. In connection with the
transaction, each share of PanEnergy common stock will be converted into 1.0444
shares of common stock of the Company. The transaction will be accounted for as
a pooling of interests. Further details about the proposed acquisition are
provided in the Company's report on Form 8-K, filed with the Securities and
Exchange Commission on December 9, 1996, and in the Joint Proxy
Statement-Prospectus provided to shareholders in connection with the Company's
annual meeting. Unless otherwise indicated, all information presented herein
relates to the Company only and does not take into account the proposed merger
with PanEnergy.
D. OTHER
The Company and North Carolina Municipal Power Agency Number 1 and Piedmont
Municipal Power Agency, two of the four other joint owners of the Catawba
Nuclear Station, entered into a settlement in September 1995 which resolved
outstanding issues related to how certain calculations affecting bills under the
Catawba joint ownership contractual agreements should be performed. The
settlement was approved by the North Carolina Utilities Commission on January
16, 1996 and The Public Service Commission of South Carolina on January 23,
1996. As part of the settlement, the Company agreed to purchase additional
megawatts (MW) of Catawba capacity during the period 1996 through 1999 and
remove certain restrictions related to sales of surplus energy by these two
joint owners. The additional capacity purchases are 215 MW in 1996, 165 MW in
1997, 120 MW in 1998 and 100 MW in 1999. The Company expects to recover the
costs associated with this settlement as part of the purchased capacity
levelization, consistent with prior orders of the retail regulatory commissions.
Therefore, the Company believes these matters should not have a material adverse
effect on the results of operations or the financial position of the Company.
46
<PAGE>
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13. COMMITMENTS AND CONTINGENCIES -- Continued
The Company and all four of the other joint owners of the Catawba Nuclear
Station entered into settlement agreements in 1994 which resolved all issues in
contention in arbitration proceedings related to the Catawba joint ownership
contractual agreements. The basic contention in each proceeding was that certain
calculations affecting bills under these agreements should be performed
differently. These items are covered by the agreements between the Company and
the other Catawba joint owners which have been previously approved by the
Company's retail regulatory commissions. (See Note 3.) In 1994, the Company
settled its cumulative net obligation through 1993 of approximately $205 million
related to these settlement agreements. Billings for 1994 and later years will
conform to the settlement agreements, which have been approved by the Company's
retail regulatory commissions. Because the Company expects the costs associated
with these settlements to be recovered as part of the purchased capacity
levelization, which has been approved by the Company's retail regulatory
commissions, the Company included approximately $205 million as an increase to
"Purchased capacity costs" on its Consolidated Balance Sheets in 1994.
Therefore, the Company believes these matters should not have a material adverse
effect on the results of operations or financial position of the Company.
The Company is also involved in legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding matters arising in the ordinary course of business, some of which
involve substantial amounts. Where appropriate, the Company has made accruals in
accordance with Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies," in order to provide for such matters. Management is of the
opinion that the final disposition of these proceedings will not have a material
adverse effect on the results of operations or financial position of the
Company.
NOTE 14. NUCLEAR DECOMMISSIONING COSTS
Estimated site-specific nuclear decommissioning costs, including the cost
of decommissioning plant components not subject to radioactive contamination,
total approximately $1.3 billion stated in 1994 dollars based on decommissioning
studies completed in 1994. This amount includes the Company's 12.5 percent
ownership in the Catawba Nuclear Station. The other joint owners of the Catawba
Nuclear Station are responsible for decommissioning costs related to their
ownership interests in the station. Both the North Carolina Utilities Commission
and the Public Service Commission of South Carolina have granted the Company
recovery of estimated decommissioning costs through retail rates over the
expected remaining service periods of the Company's nuclear plants. Such
estimates presume each unit will be decommissioned as soon as possible following
the end of their license life. Although subject to extension, the current
operating licenses for the Company's nuclear units expire as follows: Oconee 1
and 2 -- 2013, Oconee 3 -- 2014; McGuire 1 -- 2021, McGuire 2 -- 2023; and
Catawba 1 -- 2024, Catawba 2 -- 2026.
In accordance with a 1988 Nuclear Regulatory Commission order, during 1996,
the Company expensed approximately $56,470,000 which was contributed to the
external funds for decommissioning costs and accrued an additional $1,618,000 to
the internal reserve. Nuclear units are depreciated at a rate of 4.70 percent,
of which 1.61 percent is for decommissioning. The balance of the external funds
as of December 31, 1996, was $362,627,000. The balance of the internal reserve
as of December 31, 1996, was $207,774,000 and is reflected in accumulated
depreciation and amortization on the Consolidated Balance Sheets. Management's
opinion is that the decommissioning costs being recovered through rates, when
coupled with assumed after-tax fund earnings of 5.5 percent to 5.9 percent, are
currently sufficient to provide for the cost of decommissioning.
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
DUKE POWER COMPANY:
We have audited the consolidated financial statements of Duke Power
Company and subsidiaries (the Company) listed in the accompanying index for
Item 8. Our audits also included the consolidated financial statement schedule
listed in the accompanying index. These financial statements and consolidated
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and consolidated financial statement schedule 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 the Company at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 7, 1997
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of Duke Power Company are prepared by management,
which is responsible for their integrity and objectivity. The statements are
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances to reflect in all material respects the substance of events
and transactions which should be included. The other information in the annual
report is consistent with the financial statements. In preparing these
statements, management makes informed judgments and estimates of the expected
effects of events and transactions that are currently being reported.
The Company's system of internal accounting control is designed to provide
reasonable assurance that assets are safeguarded and transactions are executed
according to management's authorization. Internal accounting controls also
provide reasonable assurance that transactions are recorded properly, so that
financial statements can be prepared according to generally accepted accounting
principles. In addition, the Company's accounting controls provide reasonable
assurance that errors or irregularities which could be material to the financial
statements are prevented or are detected by employees within a timely period as
they perform their assigned functions. The Company's accounting controls are
continually reviewed for effectiveness. In addition, written policies, standards
and procedures, and a strong internal audit program augment the Company's
accounting controls.
The Board of Directors pursues its oversight role for the financial
statements through the audit committee, which is composed entirely of directors
who are not employees of the Company. The audit committee meets with management
and internal auditors periodically to review the work of each group and to
monitor each group's discharge of its responsibilities. The audit committee also
meets periodically with the Company's independent auditors, Deloitte & Touche
LLP. The independent auditors have free access to the audit committee and the
Board of Directors to discuss internal accounting control, auditing and
financial reporting matters without the presence of management.
JEFFREY L. BOYER
CONTROLLER
48
<PAGE>
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS (EXCEPT PER-SHARE DATA)
1996 BY QUARTER
Operating revenues................................... $1,162,077 $1,119,731 $1,292,426 $1,183,740 $4,757,974
Operating income..................................... $ 357,412 $ 301,231 $ 470,706 $ 232,854 $1,362,203
Net income........................................... $ 191,304 $ 157,382 $ 264,987 $ 116,293 $ 729,966
Earnings per share................................... $ 0.88 $ 0.71 $ 1.25 $ 0.53 $ 3.37
1995 BY QUARTER
Operating revenues................................... $1,111,065 $1,052,403 $1,379,978 $1,133,238 $4,676,684
Operating income..................................... $ 369,414 $ 263,876 $ 504,507 $ 211,254 $1,349,051
Net income........................................... $ 201,276 $ 137,523 $ 285,200 $ 90,539 $ 714,538
Earnings per share................................... $ 0.92 $ 0.61 $ 1.33 $ 0.39 $ 3.25
</TABLE>
Generally, quarterly earnings fluctuate with seasonal weather conditions
and maintenance of electric generating units, especially nuclear units.
49
<PAGE>
SUBSIDIARIES AND DIVERSIFIED ACTIVITIES HIGHLIGHTS
The Company has organized all its subsidiaries and diversified activities
into the Associated Enterprises Group (AEG). AEG includes the following:
(Bullet) CHURCH STREET CAPITAL CORP. (CSCC) serves as the parent
company and provides equity funding and credit enhancement
services for the Company's non-electric operating
subsidiaries. CSCC and one of its wholly-owned subsidiaries
manage investment funds, highlights of which are as follows
(dollars in thousands):
SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
$72,712 $76,300 $170,642
</TABLE>
INVESTMENT INCOME (AFTER TAX)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
$772 $4,783 $7,562
</TABLE>
(Bullet) CRESCENT RESOURCES, INC. provides real estate management,
forestry operation and high-quality commercial and
residential real estate development services in the
Southeast.
(Bullet) DUKE ENERGY GROUP, INC. develops, owns, manages and operates
energy facilities worldwide.
(Bullet) DUKE ENGINEERING & SERVICES, INC. provides engineering,
project management, quality assurances, construction
management, operating and maintenance and environmental
services for utilities, industry and government worldwide.
(Bullet) DUKE/FLUOR DANIEL provides engineering, procurement,
construction and operating and maintenance services for
fossil-fueled electric generating stations worldwide.
(Bullet) DUKE/LOUIS DREYFUS, LLC markets electric power, natural gas
and energy-related services to utilities, municipalities and
other large energy users in North America.
(Bullet) DUKE MERCHANDISING sells and services home appliances,
electronics and wireless communications devices.
(Bullet) DUKENET COMMUNICATIONS, INC. develops and manages
communications systems, including fiber optic and wireless
digital network services.
(Bullet) DUKE WATER OPERATIONS provides franchised water service to
customers in parts of North and South Carolina.
(Bullet) NANTAHALA POWER AND LIGHT COMPANY is a franchised electricity
provider serving a five-county area in western North
Carolina.
50
<PAGE>
The following tables set forth operating results, financial position, cash
flows and other information with respect to the Company's subsidiaries and
diversified activities for the periods and as of the dates specified:
OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
OPERATING REVENUES
Crescent Resources, Inc................................................................ $113,759 $ 85,361 $ 64,724
Duke Energy Group, Inc................................................................. 13,095 10,017 9,478
Duke Engineering & Services, Inc. (a).................................................. 157,209 64,880 41,670
Nantahala Power and Light Company...................................................... 67,668 62,510 68,595
All Other Business Units (b)........................................................... 63,463 76,457 68,262
Total Associated Enterprises Group................................................ $415,194 $299,225 $252,729
OPERATING INCOME
Crescent Resources, Inc................................................................ $ 87,708 $ 63,973 $ 46,236
Duke Energy Group, Inc. (c)............................................................ (11,795) (1,422) (1,035)
Duke Engineering & Services, Inc. (a).................................................. 12,924 5,941 2,681
Nantahala Power and Light Company...................................................... 14,677 9,262 12,224
All Other Business Units (b)........................................................... (5,204) 14,466 12,825
Total Associated Enterprises Group................................................ $ 98,310 $ 92,220 $ 72,931
NET INCOME
Crescent Resources, Inc................................................................ $ 49,600 $ 35,500 $ 26,525
Duke Energy Group, Inc. (c)(d)......................................................... (7,377) 170 5,749
Duke Engineering & Services, Inc. (a).................................................. 7,896 3,701 1,675
Nantahala Power and Light Company...................................................... 6,265 4,037 6,169
All Other Business Units (b)........................................................... (5,106) 10,849 11,918
Total Associated Enterprises Group................................................ $ 51,278 $ 54,257 $ 52,036
</TABLE>
FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
TOTAL ASSETS
Crescent Resources, Inc.............................................................. $ 446,307 $381,073 $294,175
Duke Energy Group, Inc............................................................... 131,210 149,391 110,656
Duke Engineering & Services, Inc. (a)................................................ 115,457 44,090 18,412
Nantahala Power and Light Company.................................................... 167,008 144,069 125,883
All Other Business Units (b)......................................................... 312,007 239,684 261,018
Total Associated Enterprises Group.............................................. $1,171,989 $958,307 $810,144
TOTAL LIABILITIES
Crescent Resources, Inc.............................................................. $ 201,809 $185,996 $134,574
Duke Energy Group, Inc............................................................... 6,204 9,783 4,672
Duke Engineering & Services, Inc. (a)................................................ 36,540 10,969 5,992
Nantahala Power and Light Company.................................................... 105,787 86,691 72,542
All Other Business Units (b)......................................................... 37,994 32,529 16,320
Total Associated Enterprises Group.............................................. $ 388,334 $325,968 $234,100
</TABLE>
51
<PAGE>
CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
DOLLARS IN THOUSANDS
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Crescent Resources, Inc................................................................ $ 90,154 $ 40,144 $ 37,691
Duke Energy Group, Inc................................................................. (8,763) (3,521) (6,614)
Duke Engineering & Services, Inc. (a).................................................. 297 4,921 2,252
Nantahala Power and Light Company...................................................... 9,448 8,419 12,817
All Other Business Units (b)........................................................... 5,026 (3,152) 8,337
Total Associated Enterprises Group................................................ $ 96,162 $ 46,811 $ 54,483
CASH PROVIDED BY INVESTING ACTIVITIES
Crescent Resources, Inc. (e)........................................................... $ 37,786 $ 5,910 $ 2,524
Duke Energy Group, Inc. (f)............................................................ 27,046 14,253 40,740
Duke Engineering & Services, Inc. (a).................................................. -- -- --
Nantahala Power and Light Company...................................................... -- -- --
All Other Business Units (g)........................................................... 4,951 97,793 5,100
Total Associated Enterprises Group................................................ $ 69,783 $117,956 $ 48,364
CASH USED IN INVESTING ACTIVITIES
Crescent Resources, Inc................................................................ $115,371 $ 84,603 $ 78,689
Duke Energy Group, Inc................................................................. 14,029 44,776 19,575
Duke Engineering & Services, Inc. (a)(h)............................................... 40,890 996 1,090
Nantahala Power and Light Company...................................................... 21,166 23,944 23,989
All Other Business Units (i)........................................................... 46,161 65,772 17,410
Total Associated Enterprises Group................................................ $237,617 $220,091 $140,753
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (J)
Crescent Resources, Inc................................................................ $(12,497) $ 38,521 $ 37,589
Duke Energy Group, Inc. (k)............................................................ -- -- --
Duke Engineering & Services, Inc. (a)(l)............................................... 375 997 --
Nantahala Power and Light Company...................................................... 11,659 15,536 10,896
All Other Business Units (m)........................................................... 69,463 4,305 (6,993)
Total Associated Enterprises Group................................................ $ 69,000 $ 59,359 $ 41,492
</TABLE>
OTHER INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
FULL-TIME EMPLOYEES AT YEAR-END
Crescent Resources, Inc............................................................................ 118 94 89
Duke Energy Group, Inc............................................................................. 52 43 35
Duke Engineering & Services, Inc. (a).............................................................. 1,834 551 275
Nantahala Power and Light Company.................................................................. 193 182 184
All Other Business Units........................................................................... 527 485 428
Total Associated Enterprises Group............................................................ 2,724 1,355 1,011
</TABLE>
(a) Excludes operations and financial position of an affiliate, Duke/Fluor
Daniel, which is included in All Other Business Units amounts.
(b) All Other Business Units amounts include Associated Enterprises Group
intercompany eliminations.
(c) 1996 includes a provision for an investment in a power plant in Argentina.
(d) 1994 includes a gain from the sale of preferred stock.
(e) 1996 includes proceeds from sale of office building.
52
<PAGE>
(f) 1996 includes proceeds from repayment of a loan by an affiliate. (See Note
11.) 1994 includes proceeds from the sale of preferred stock and debt
securities.
(g) 1996 and 1995 include the net change in short-term investments for the
period of $3,588,000 and $56,392,000, respectively. Also, 1995 includes
proceeds from the sale of a dividend capture program.
(h) 1996 includes amounts paid relating to acquisition activities.
(i) 1994 includes the net change in short-term investments for the period of
$12,060,000.
(j) Excludes capital infusion and return of capital transactions between
parent, Church Street Capital Corp., and its subsidiaries.
(k) 1996 and 1994 exclude net return of capital to parent, Church Street
Capital Corp., of $4,724,000 and $12,100,000, respectively. 1995 excludes
net capital infusions from Church Street Capital Corp. of $33,455,000.
(l) 1996 excludes net capital infusions from parent, Church Street Capital
Corp., of $35,900,000.
(m) 1996 includes capital infusion from Duke Power to Church Street Capital
Corp. of $65,000,000.
53
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE BALANCE
BEGINNING END OF
DESCRIPTION OF YEAR YEAR
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1996
Reserves Related to Assets on Balance Sheet........................................................... $ 7,774 $ 8,562
Other Reserves
Operating Reserves (1).............................................................................. 176,098 178,583
FOR THE YEAR ENDED DECEMBER 31, 1995
Reserves Related to Assets on Balance Sheet........................................................... 8,059 7,774
Other Reserves
Operating Reserves (1).............................................................................. 154,722 176,098
FOR THE YEAR ENDED DECEMBER 31, 1994
Reserves Related to Assets on Balance Sheet........................................................... 10,353 8,059
Other Reserves
Operating Reserves (1).............................................................................. 107,477 154,722
</TABLE>
(1) Principally consists of Injuries and Damages reserves and Property Insurance
reserve which are included in "Deferred Credits and Other Liabilities" in
the Consolidated Balance Sheets.
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No events necessary to be disclosed by the Company under this item have
occurred.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information for this item concerning directors of the Company is set forth
in the sections entitled "Election of Directors," "Information Regarding the
Board of Directors" and "Common Stock Ownership of Certain Beneficial Owners and
Management" under "The Duke Meeting -- Additional Matters" in the Joint Proxy
Statement-Prospectus relating to the Company's 1997 annual meeting of
shareholders, which are being incorporated herein by reference.
Information concerning the executive officers of the Company is set forth
in the section entitled "Executive Officers of the Company" in this annual
report.
ITEM 11. EXECUTIVE COMPENSATION.
Information for this item is set forth in the sections entitled "Executive
Compensation" and "Directors' Fees" under "The Duke Meeting -- Additional
Matters", and "Interests of Certain Persons in the Merger -- Duke Employment
Agreements" under "The Merger" in the Joint Proxy Statement-Prospectus relating
to the Company's 1997 annual meeting of shareholders, which are being
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information for this item is set forth in the section entitled "Common
Stock Ownership of Certain Beneficial Owners and Management" under "The Duke
Meeting -- Additional Matters" in the Joint Proxy Statement-Prospectus relating
to the Company's 1997 annual meeting of shareholders, which is being
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information for this item is set forth in the sections entitled
"Information Regarding the Board of Directors" and "Common Stock Ownership of
Certain Beneficial Owners and Management" under "The Duke Meeting -- Additional
Matters" in the Joint Proxy Statement-Prospectus relating to the Company's 1997
annual meeting of shareholders, which are being incorporated herein by
reference.
55
<PAGE>
PART IV.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Consolidated Financial Statements, Supplemental Financial Data and
Supplemental Schedules included in Part II of this annual report are as follows:
Consolidated Financial Statements
Consolidated Statements of Income for the Three Years Ended December 31,
1996
Consolidated Statements of Retained Earnings for the Three Years Ended
December 31, 1996
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1996
Consolidated Balance Sheets -- December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (unaudited)
Consolidated Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts and Reserves for the
Three Years Ended December 31, 1996
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included in the financial statements or notes thereto.
(b) Reports on Form 8-K
A Report on Form 8-K was filed by the Company on December 9, 1996,
in which it reported in Item 5 thereof the execution of an Agreement and
Plan of Merger dated as of November 24, 1996, by and between the
Company, Duke Transaction Corporation and PanEnergy Corp.
(c) Exhibits -- See Exhibit Index immediately following signature page.
56
<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, in the City of
Charlotte and State of North Carolina on the 24th day of March, 1997.
DUKE POWER COMPANY
(Registrant)
By: W. H. GRIGG
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
W. H. GRIGG Chairman of the Board and Chief Executive March 24, 1997
Officer (Principal Executive Officer)
RICHARD J. OSBORNE Senior Vice President and Chief Financial March 24, 1997
Officer (Principal Financial Officer)
JEFFREY L. BOYER Controller (Principal Accounting Officer) March 24, 1997
G. ALEX BERNHARDT
ROBERT J. BROWN
W. A. COLEY
STEVE C. GRIFFITH, JR. (Buzzard wing appears here)
W. H. GRIGG
GEORGE DEAN JOHNSON, JR. A majority of the Directors March 24, 1997
W. W. JOHNSON
MAX LENNON
JAMES G. MARTIN
BUCK MICKEL
R. B. PRIORY
RUSSELL M. ROBINSON, II
</TABLE>
ELLEN T. RUFF, by signing her name hereto, does hereby sign this document
on behalf of the registrant and on behalf of each of the above-named persons
pursuant to a power of attorney duly executed by the registrant and such
persons, filed with the Securities and Exchange Commission as an exhibit hereto.
/s/ ELLEN T. RUFF
ELLEN T. RUFF, ATTORNEY-IN-FACT
57
<PAGE>
EXHIBIT INDEX
The following exhibits indicated by an asterisk preceding the exhibit
number are filed herewith. The balance of the exhibits have heretofore been
filed with the Securities and Exchange Commission and pursuant to Rule 12b- 32
are incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C> <C> <C>
2 --Agreement and Plan of Merger, dated as of November 24, 1996, as amended and restated as of March 10, 1997,
among registrant, Duke Transaction Corporation and PanEnergy Corp (filed with Form 8-K dated March 20, 1997,
File No. 1-4928, as Exhibit 2(a)).
3-A --Restated Articles of Incorporation of registrant, dated as of October 6, 1993 (filed with Form S-3, File No.
33-50617, effective October 20, 1993, as Exhibit 4(A)).
3-B --Articles of Amendment of registrant dated November 1, 1993, relating to the 6.375% Cumulative Preferred
Stock A, 1993 Series (filed with Form S-3, No. 33-52479, effective March 29, 1994, as Exhibit 4(B)).
3-C --By-Laws of registrant, as amended (filed with Form 10-K for the year ended December 31, 1995, File No.
1-4928, as Exhibit 3-C).
4-B-1 --First and Refunding Mortgage from registrant to Guaranty Trust Company of New York, Trustee, dated as of
December 1, 1927 (filed with Form S-1, File No. 2-7224, effective October 15, 1947, as Exhibit 7(a)).
4-B-2 --Supplemental Indenture, dated as of March 12, 1930, supplementing said Mortgage (filed with Form S-1, File
No. 2-7224, effective October 15, 1947, as Exhibit 7(b)).
4-B-5 --Supplemental Indenture, dated as of September 1, 1936, supplementing said Mortgage (filed with
Form S-1, File No. 2-7224, effective October 15, 1947, as Exhibit 7(e)).
4-B-6 --Supplemental Indenture, dated as of January 1, 1941, supplementing said Mortgage (filed with Form S-1, File
No. 2-7224, effective October 15, 1947, as Exhibit 7(f)).
4-B-7 --Supplemental Indenture, dated as of April 1, 1944, supplementing said Mortgage (filed with Form S-1, File
No. 2-7224, effective October 15, 1947, as Exhibit 7(g)).
4-B-8 --Supplemental Indenture, dated as of September 1, 1947, supplementing said Mortgage (filed with
Form S-1, File No. 2-7224, effective October 15, 1947, as Exhibit 7(h)).
4-B-9 --Supplemental Indenture, dated as of September 8, 1947, supplementing said Mortgage (filed with
Form S-1, File No. 2-10401, effective August 21, 1953, as Exhibit 4-B-9).
4-B-10 --Supplemental Indenture, dated as of February 1, 1949, supplementing said Mortgage (filed with Form S-1, File
No. 2-7808, effective February 3, 1949, as Exhibit 7(j)).
4-B-11 --Supplemental Indenture, dated as of March 1, 1949, supplementing said Mortgage (filed with Form S-1, File
No. 2-8877, effective April 6, 1951, as Exhibit 7(k)).
4-B-14 --Supplemental Indenture, dated as of October 1, 1954, supplementing said Mortgage (filed with Form S-9, File
No. 2-11297, effective December 30, 1954, as Exhibit 2-B-14).
4-B-17 --Supplemental Indenture, dated as of January 1, 1960, supplementing said Mortgage (filed with Form 10,
effective June 29, 1961, as Exhibit 3-B-18).
4-B-18 --Supplemental Indenture, dated as of February 1, 1960, supplementing said Mortgage (filed with Form 10,
effective June 29, 1961, as Exhibit 3-B-19).
4-B-21 --Supplemental Indenture, dated as of June 15, 1964, supplementing said Mortgage (filed with Form S-1, File
No. 2-25367, effective August 3, 1966, as Exhibit 4-B-20).
4-B-23 --Supplemental Indenture, dated as of April 1, 1967, supplementing said Mortgage (filed with Form S-9, File
No. 2-28023, effective February 15, 1968, as Exhibit 2-B-25).
4-B-24 --Supplemental Indenture, dated as of February 1, 1968, supplementing said Mortgage (filed with Form S-9, File
No. 2-31304, effective January 21, 1969, as Exhibit 2-B-26).
4-B-48 --Supplemental Indenture, dated as of September 1, 1983, supplementing said Mortgage (filed with Form
S-3, File No. 2-95931, effective April 1, 1985, as Exhibit 4-B-48).
4-B-49 --Supplemental Indenture, dated as of September 1, 1984, supplementing said Mortgage (filed with Form
S-3, File No. 2-95931, effective April 1, 1985, as Exhibit 4-B-49).
4-B-56 --Supplemental Indenture, dated as of February 15, 1987, supplementing said Mortgage (filed with Form
10-K for the year ended December 31, 1986, File No. 1-4928, as Exhibit 4-B-56).
4-B-58 --Supplemental Indenture, dated as of October 1, 1987, supplementing said Mortgage (filed with Form 10-K for
the year ended December 31, 1987, File No. 1-4928, as Exhibit 4-B-58).
4-B-60 --Supplemental Indenture, dated as of March 1, 1990, supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit 4-B-60).
58
<PAGE>
EXHIBIT
NUMBER
4-B-62 --Supplemental Indenture, dated as of May 15, 1990, supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit 4-B-62).
4-B-63 --Supplemental Indenture, dated as of March 1, 1991, supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1990, File No. 1-4928, as Exhibit 4-B-63).
4-B-64 --Supplemental Indenture, dated as of July 1, 1991, supplementing said Mortgage (filed with Form S-3, File No.
33-45501, effective February 13, 1992, as Exhibit 4-B-64).
4-B-65 --Supplemental Indenture, dated as of December 1, 1991, supplementing said Mortgage (filed with
Form S-3, File No. 33-45501, effective February 13, 1992, as Exhibit 4-B-65).
4-B-66 --Supplemental Indenture, dated as of March 1, 1992, supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1991, File No. 1-4928, as Exhibit 4-B-66).
4-B-67 --Supplemental Indenture, dated as of June 1, 1992, supplementing said Mortgage (filed with Form S-3, File No.
33-50592, effective August 11, 1992, as Exhibit 4-B-67).
4-B-68 --Supplemental Indenture, dated as of July 1, 1992, supplementing said Mortgage (filed with Form S-3, File No.
33-50592, effective August 11, 1992, as Exhibit 4-B-68).
4-B-69 --Supplemental Indenture, dated as of September 1, 1992, supplementing said Mortgage (filed with
Form S-3, File No. 33-53308, effective November 24, 1992, as Exhibit 4-B-69).
4-B-70 --Supplemental Indenture, dated as of February 1, 1993, supplementing said Mortgage (filed with
Form 10-K for the year ended December 31, 1992, File No. 1-4928, as Exhibit 4-B-70).
4-B-71 --Supplemental Indenture, dated as of March 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-59448, effective March 17, 1993, as Exhibit 4-B-71).
4-B-72 --Supplemental Indenture, dated as of April 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-72).
4-B-73 --Supplemental Indenture, dated as of May 1, 1993, supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-73).
4-B-74 --Supplemental Indenture, dated as of June 1, 1993, supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-74).
4-B-75 --Supplemental Indenture, dated as of July 1, 1993, supplementing said Mortgage (filed with Form S-3, File No.
33-50543, effective October 20, 1993, as Exhibit 4-B-75).
4-B-76 --Supplemental Indenture, dated as of August 1, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-76).
4-B-77 --Supplemental Indenture, dated as of August 20, 1993, supplementing said Mortgage (filed with Form S-3, File
No. 33-50543, effective October 20, 1993, as Exhibit 4-B-77).
4-B-78 --Supplemental Indenture, dated as of May 1, 1994, supplementing said Mortgage (filed with Form 10-K for the
year ended December 31, 1994, File No. 1-4928, as Exhibit 4-B-78).
4-B-79 --Supplemental Indenture, dated as of November 1, 1994, supplementing said Mortgage (filed with
Form 10-K for the year ended December 31, 1994, File No. 1-4928, as Exhibit 4-B-79).
4-B-80 --Supplemental Indenture, dated as of August 1, 1995, supplementing said Mortgage (filed with Form 10-K for
the year ended December 31, 1995, File No. 1-4928, as Exhibit 4-B-80).
4-C --Instrument of Resignation, Appointment and Acceptance among Duke Power Company, Morgan Guaranty Trust
Company of New York, as Trustee, and Chemical Bank, as Successor Trustee, dated as of August 30, 1994 (filed
with Form 10-K for the year ended December 31, 1994, File No. 1-4928, as Exhibit 4-C).
10-A --Agreement, dated March 6, 1978, between the registrant and the North Carolina Municipal Power Agency No. 1
(filed with Form 8-K for the month of March 1978, File No. 1-4928).
10-B --Agreement, dated August 1, 1980, between the registrant and Piedmont Municipal Power Agency (filed with Form
8-K for the month of August 1980, File No. 1-4928).
10-C --Agreement, dated October 14, 1980 between the registrant and North Carolina Electric Membership Corporation
(filed with Form 10-Q for the quarter ended September 30, 1980, File No. 1-4928).
10-D --Agreement, dated October 14, 1980 between the registrant and Saluda River Electric Cooperative, Inc. (filed
with Form 10-Q for the quarter ended September 30, 1980, File No. 1-4928).
10-E+ --Employees' Stock Ownership Plan.
10-F++ --Employee Incentive Plan.
10-G++ --1993 Executive Long-Term Incentive Plan.
10-H+ --Supplemental Security Plan.
10-I+ --Stock Purchase-Savings Program for Employees.
10-J+ --Employees' Retirement Plan.
10-K+ --Supplemental Retirement Plan.
59
<PAGE>
EXHIBIT
NUMBER
10-L+ --Compensation Deferral Plan.
10-M+ --Compensation Deferral Plan for Outside Directors.
10-N+ --Retirement Plan for Outside Directors.
10-O+ --Supplementary Defined Contribution Plan for Employees.
10-P+ --Directors' Charitable Giving Program.
10-Q+ --Vacation Banking Plan.
10-R+ --Estate Conservation Plan.
10-S+ --Supplemental Insurance Plan.
10-T+ --Group Life Insurance Plan.
10-U+ --Stock Ownership Plan for Nonemployee Directors.
10-V+++ --Executive Short-Term Incentive Plan.
10-W+++ --Executive Long-Term Incentive Plan.
*10-X --Retirement Savings Plan.
*10-Y --Retirement Cash Balance Plan.
*10-Z --Executive Savings Plan.
*10-AA --Executive Cash Balance Plan.
*10-BB --Directors' Savings Plan.
*12 --Computation of Ratio of Earnings to Fixed Charges.
*23 --Consent of Independent Auditors.
*24(a) --Power of attorney authorizing Ellen T. Ruff and others to sign the annual report on behalf of the registrant
and certain of its directors and officers.
*24(b) --Certified copy of resolution of the Board of Directors of the registrant authorizing power of attorney.
*27 --Financial Data Schedule.
</TABLE>
+ Compensatory plan or arrangement filed with Form 10-K for the year ended
December 31, 1992, File No. 1-4928, under the same exhibit number as listed
herein.
++ Compensatory plan or arrangement filed with Form 10-K for the year ended
December 31, 1993, File No. 1-4928, under the same exhibit number as listed
herein.
+++ Compensatory plan or arrangement filed with Form 10-K for the year ended
December 31, 1994, File No. 1-4928, under the same exhibit number as listed
herein.
60
[zz]
EXHIBIT NO. 10-X
DUKE POWER COMPANY
RETIREMENT SAVINGS PLAN
(As Amended to January 1, 1997)
ARTICLE I. PURPOSE
Duke Power Company adopted the Duke Power Company Stock
Purchase-Savings Program for Employees as of July 1, 1959, to provide an
opportunity for employees to become shareholders of Duke Power Company ("Duke")
and to encourage them to save on a regular basis by setting aside part of their
earnings. The name of the Plan was changed to the Duke Power Company Retirement
Savings Plan effective as of January 1, 1997. The Plan also has been adopted by
Crescent Resources, Inc. ("Crescent"), DE&S Northwest, Inc. ("DE&S Northwest"),
Duke Energy Corp. ("Duke Energy"), Duke Engineering & Services, Inc. ("Duke
Engineering"), Intera, Inc. ("Intera") and Nantahala Power and Light Company
("Nantahala"). The Plan is a profit sharing plan intended to satisfy the
requirements of section 401(a) of the Code as well as the guidelines set forth
in section 404(c) of the Employee Retirement Income Security Act and the
regulations thereunder.
The primary Plan provisions set forth herein are effective on and after
January 1, 1997, except where an earlier or later date is specified. Employees
of Nantahala Power and Light Company and Employees who on January 1, 1997, are
covered by a collective bargaining agreement applicable to a collective
bargaining unit which has not adopted the Plan as restated on January 1, 1997,
shall continue to participate based upon the terms and conditions of the Plan in
the form that it existed on December 31, 1996, a copy of which is attached to
and made a part of this Plan as Appendix B. Notwithstanding the foregoing, when
necessary to comply with federal laws and regulations, the provisions of the
January 1, 1997 document shall be applied in lieu of the corresponding
provisions of Appendix B; including without limitation Section 2.27, Sections
4.7-4.13(d), Article XIII and Article XIV.
ARTICLE II. DEFINITIONS
Wherever used herein, a pronoun or adjective in the masculine gender
includes the feminine gender, the singular includes the plural, and the
following terms have the following meanings unless a different meaning is
clearly required by the context:
2.1 Actual Deferral Percentage: The ratio (expressed as a percentage)
of Deferrals and Additional Deferrals on behalf of an Eligible Employee for the
Plan Year to the Eligible Employee's Compensation for the Plan Year. The Actual
Deferral Percentage of an Eligible Employee who does not make a Deferral or
Additional Deferral is zero.
2.2 Additional Contributions: Eligible Earnings which an Eligible
Employee could elect to contribute to the Plan by payroll deduction in Plan
Years ending prior to November 1, 1991.
<PAGE>
2.3 Additional Deferrals: Eligible Earnings which an Eligible
Employee elects to defer in accordance with section 4.2.
2.4 Adjustment Factor: The cost of living factor prescribed by the
Secretary of the Treasury under section 415(d) of the Code for years beginning
after December 31, 1987, as applied to such items and in such manner as the
Secretary shall provide, but subject to the limitations of section 401(a)(17)(B)
for Plan Years commencing after December 31, 1993.
2.5 Affiliated Employer: Any corporation which is a member of a
controlled group of corporations (as defined in section 414(b) of the Code)
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in section 414(c) of the Code) with
the Employer; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in section 414(m) of the Code) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to regulations under section 414(o) of the Code.
2.6 Average Actual Deferral Percentage: The average (expressed as a
percentage) of the Actual Deferral Percentages of the Eligible Employees in a
group.
2.7 Average Contribution Percentage: The average (expressed as a
percentage) of the Contribution Percentages of the Eligible Employees in a
group.
2.8 Break in Service: A 12-consecutive month period during which an
Employee does not have more than 500 Hours of Service with the Employer. The
computation period described in Section 2.38 for measuring a Year of Service for
eligibility purposes shall be used in determining a Break in Service.
2.9 Code: The Internal Revenue Code of 1986, as amended from time to
time.
2.10 Committee: The Duke Power Company Stock Purchase-Savings Program
Committee, which is the administrator of the Plan.
2.11 Compensation: Compensation shall mean (except as otherwise defined
in Article XV) all of each Eligible Employee's compensation as described in
section 1.415-2(d)(2) of the regulations, but excluding those items described in
section 1.415-2(d)(3) of the regulations, received during the Plan Year by the
Eligible Employee from the Employer, including amounts that are not currently
includible in the Employee's gross income by reason of application of sections
125 or 402(a)(8) of the Code. The annual compensation of each Eligible Employee
taken into account under the Plan for any Plan Year commencing after 1988 but
before 1994 shall not exceed $200,000, as increased by the Adjustment Factor.
The annual compensation of each Eligible Employee taken into account under the
Plan for any Plan Year commencing after 1993 shall not exceed $150,000, as
increased by the Adjustment Factor.
2.12 Contribution Percentage: The ratio (expressed as a percentage) of
the sum of Employee contributions, Matching Contributions and Qualified Matching
Contributions (to the extent not taken into account for the Actual Deferral
Percentage test) under the Plan on behalf of
2
<PAGE>
the Eligible Employee for the Plan Year to the Eligible Employee's Compensation
for the Plan Year.
2.13 Deferrals: Eligible Earnings which an Eligible Employee elects to
defer in accordance with section 4.1.
2.14 Determination Date: The last day of each Plan Year.
2.15 Direct Rollover: A Direct Rollover is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
2.16 Distributee: A Distributee includes an Employee or former
employee. In addition, the Employee's or former employee's surviving spouse and
the Employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in section 414(p)
of the Code, are Distributees with regard to the interest of the spouse or
former spouse.
2.17 Duke Power Company Common Stock Fund: A Fund established under the
Plan which will be invested primarily in the common stock of Duke Power Company
plus a small percentage of cash. Participants within the Diversified Option may
direct that all or a part of their Deferrals and Additional Deferrals, if any,
be invested in this fund and all Matching Contributions for such Participants
shall be initially invested in this fund.
2.18 Eligible Earnings: Eligible Earnings shall mean, for all
Participants, all amounts received for services actually rendered in the course
of employment with the Employer maintaining the Plan to the extent that such
amounts are includible in the Participant's gross income as wages required to be
reported under Code Sections 6041, 6051 and 6052 (Box 1 of Form W-2), without
regard to limits on wages under Code Section 3401, such as the exemption for
agricultural labor. Eligible Earnings shall also include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and which
is not includible in the gross income of the Participant under Code Sections 125
or 401(k). However, Eligible Earnings shall not include expense reimbursements
and allowances, cash or noncash fringe benefits, moving expenses, the receipt of
compensation previously deferred, severance pay, pay for unused vacation,
excellence awards, welfare benefits, or long-term incentive payments (incentives
attributable to multi-year performance periods for which no incentive is earned
or paid until the end of the multi-year period). Incentive pay, including that
attributable to participation in equity awards, that is paid to employees of
Crescent Resources, Inc. will not constitute Eligible Earnings unless it is paid
from the Crescent Resources Employee Goals Program. Notwithstanding the
foregoing, individually determined incentive pay as distinguished from group
incentive pay, that is paid to any individual employed by Crescent Resources
Inc. shall be counted as Eligible Earnings to the extent such incentive pay does
not exceed twenty percent of the individual's base pay determined as of the time
the payment is made. Incentive pay that is payable to certain officers of
Crescent Resources, who on January 1, 1983 first participated in an incentive
compensation arrangement which was implemented on that date, and incentive pay
that is payable to any officer who participated in such arrangement by
employment agreement executed on January 1, 1983, shall not be counted as
Eligible Earnings even if less than 20 percent of Base Pay.
3
<PAGE>
Earnings of a Participant in excess of the amount authorized pursuant
to Code Section 401(a)(17)($150,000 for 1996) for any Plan Year or any portion
of a Plan Year shall not be recognized; provided that the greatest amount
authorized for Plan Years before 1994 shall be used retroactively to the extent
permitted by the Code.
2.19 Eligible Employee: An Employee who has attained age 18; satisfied
the participation requirements of Article III; is not a leased employee within
the meaning of section 414(n)(2) of the Code; and is employed by an Employer
listed on Appendix A. An Employee who is a nonresident alien (within the meaning
of Section 7701(b)(1)(B) of the Code) and who receives no earned income (within
the meaning of section 911(d)(2) of the Code) from the Employer that constitutes
income from sources within the United States (within the meaning of Section
861(a)(3) of the Code) shall not be eligible to participate in the Program.
Employees who on January 1, 1997, are covered by a collective bargaining
agreement applicable to a collective bargaining unit which has not adopted this
Plan, shall be ineligible to participate in this Plan as restated effective
January 1, 1997, but shall instead continue to participate in the Plan as it
existed on December 31, 1996, a copy of which is attached as Appendix B.
Effective as soon as practicable following the ratification of a collective
bargaining agreement which specifically adopts this Plan as restated on January
1, 1997, such Employees shall commence participation in the restated version of
this Plan. Employees of Nantahala shall also participate in the Plan based upon
the provisions set forth in Appendix B until Nantahala adopts the Plan as
restated on January 1, 1997.
2.20 Eligible Retirement Plan: A plan defined in section 402(c)(8)(B)
of the Code; however, in the case of an Eligible Rollover Distribution to the
surviving spouse, an Eligible Retirement Plan is a plan described in subsection
(i) or (ii) of section 402(c)(8)(B) of the Code.
2.21 Eligible Rollover Distribution: An Eligible Rollover Distribution
is any distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the Distributee or the joint lives (or life expectancies) of the Distributee and
the Distributee's designated beneficiary, or for a specified period of ten years
or more; any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
2.22 Employee: An individual employed by an Affiliated Employer
including a leased employee within the meaning of section 414(n)(2) of the Code.
Notwithstanding the foregoing, if such leased employees constitute less than
twenty (20) percent of the Affiliated Employer's Nonhighly Compensated work
force within the meaning of section 414(n)(5)(C)(ii) of the Code, the term
"Employee" shall not include those leased employees covered by a plan described
in section 414(n)(5)(B) of the Code.
2.23 Employer: Duke Power Company, a North Carolina corporation, and
those Affiliated Employers which have adopted the Plan as listed on Appendix A.
4
<PAGE>
2.24 Excess Aggregate Contributions: With respect to any Plan Year, the
aggregate Contribution Percentage amounts actually paid over to the Trust on
behalf of Highly Compensated Employees for the Plan Year, over the maximum
amount of such contributions permitted under section 4.11.
2.25 Excess Deferrals: With respect to any Plan Year, the aggregate
amount of Deferrals and Additional Deferrals actually paid over to the Trust on
behalf of Highly Compensated Employees for such Plan Year, over the maximum
amount of such contributions permitted under section 4.7.
2.26 Fund: Any of the funds, including the Duke Power Company Common
Stock Fund, established under the Plan for investment of Participants' Accounts
within the Diversified Option. The Committee shall have the discretion to
establish and terminate such funds as it shall deem appropriate both on a
prospective basis and with respect to existing Investment Accounts.
2.27 Highly Compensated Employee: The term "Highly Compensated
Employee" shall include highly compensated active employees and highly
compensated former employees. A highly compensated active employee includes any
Employee who performs service for an Affiliated Employer during the
determination year and who, during the preceding year: (i) received Compensation
from the Employer in excess of $80,000 (as adjusted by the Adjustment Factor)
and was a member of the top-paid group for such year; or (ii) was a 5-percent
owner at any time during the determination year or the preceding year. An
Employee is in the top-paid group of Employees for any year if such Employee is
in the group consisting of the top 20 percent of the Employees when ranked on
the basis of Compensation paid during such year. An Employee is a 5-percent
owner for any year if such Employee owns or is considered as owning (within the
meaning of section 318 of the Code) more than 5 percent of the outstanding stock
where the Employer is a corporation, or if the employer is not a corporation any
person who owns more than 5 percent of the capital or profits interest. For this
purpose, the determination year shall be the Plan Year. The preceding year shall
be the twelve-month period immediately preceding the determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for either the
separation year or any determination year ending on or after the Employee's 55th
birthday, based upon the applicable definition of a highly compensated active
employee for such earlier separation year or determination year.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the top-paid group
and the Compensation that is considered, will be made in accordance with section
414(q) of the Code and the regulations thereunder.
2.28 Hour of Service: Each hour for which an Employee is directly or
indirectly paid, or entitled to payment, by an Affiliated Employer (including
the Duke/Fluor Daniel partnership).
5
<PAGE>
Hours in which duties are performed shall be credited to the computation period
in which the duties are performed. Hours in which no duties are performed but
for which payment is made for reasons such as vacations, holidays, illness and
hours for which back pay is awarded or agreed to shall be credited to the
computation period to which the payment pertains. No duplicate credit shall be
given on account of an award or agreement for back pay. Hours of Service shall
be calculated and credited pursuant to section 2530.200b-2 of the Department of
Labor Regulations.
2.29 Matching Contribution: Any contribution to the Plan made by the
Employer for the Plan Year and allocated to a Participant's account by reason of
the Participant's Deferrals.
2.30 Nonhighly Compensated Employee: An Employee of the Affiliated
Employer who is not a Highly Compensated Employee.
2.31 Participant: Either an Eligible Employee who has met the
participation requirements of Article III and currently is making contributions
under the Plan or an individual who is not making contributions currently but to
whose account there are investments under the Plan.
2.32 Plan: The Duke Power Company Retirement Savings Plan, the Plan set
forth herein, as amended from time to time.
2.33 Plan Manager: The person appointed by the Committee to have
primary responsibility for management of regular operations of the Plan.
2.34 Plan Year: The calendar year.
2.35 Qualified Matching Contribution: Matching Contributions which are
subject to the distribution and nonforfeitability requirements under section
401(k) of the Code when made.
2.36 Rollover Account: The account established pursuant to section 17.4
to accept and hold rollover contributions under Article XVII.
2.37 Termination of Employment: The ending of the employment
relationship between the Affiliated Employer and Employee for a cause other than
death. No Termination of Employment results when an Employee takes a leave of
absence authorized by the Affiliated Employer under the Affiliated Employer's
established and nondiscriminatory personnel practices.
2.38 Trustee; Trust: The Trustee provided for in Article XVIII and the
Trust that the Trustee is to administer.
2.39 Valuation Date: With respect to the Basic Option, the Valuation
Date shall be the last day of each calendar month. With respect to the
Diversified Option, the Valuation Date shall be each day during which shares of
stock are traded on the New York Stock Exchange, or such other date or dates
which may be established by the Committee.
2.40 Year of Service: A one-year period during which the Employee has
at least 1,000 Hours of Service. The initial computation period shall commence
on the first day an Employee is
6
<PAGE>
entitled to be credited with an Hour of Service. Succeeding computation periods
shall be Plan Years, beginning with the Plan Year which includes the first
anniversary of the employment commencement date.
ARTICLE III. ELECTION OF PARTICIPATION
3.1 General Rule for Participation: An individual who is an
Eligible Employee may elect in accordance with provisions of section 3.2 to
commence participation after the individual has completed a Year of Service or
was an Employee, throughout the three immediately preceding calendar months.
Participation shall commence as soon as practicable following both the
satisfaction of the service requirements and the filing of an election to
participate under Section 3.2.
3.2 Election to Participate: An election to participate shall be made
by written notice delivered to the Employer or by electronic communication on or
before the day on which participation is to commence. The notice shall include a
salary deferral election as permitted under sections 4.1 and 4.2. Eligible
Employees shall be notified of their eligibility in ample time for them to be
able to commence participation at the earliest possible date.
3.3 An Eligible Employee who was a Participant on December 31, 1996,
shall continue to participate in accordance with the Plan provisions set forth
herein.
3.4 Immediate Participation: An Eligible Employee may elect in
accordance with the provisions of section 3.3 to commence participation on the
date of being reemployed, if the individual had at any time satisfied the
participation requirements of Article III.
3.5 Break in Service: A Break in Service shall have the following
consequences:
(a) Employee with Vested Benefit: The pre-break and post-break Years of
Service of an Employee who had satisfied the requirements of Article XI for a
vested benefit before commencement of a Break in Service shall be added together
for the purpose of determining his or her rights and benefits.
(b) Employee with no Vested Benefit: The pre-break vesting and
participating Years of Service of an Employee who had not earned a vested
benefit before commencement of a Break in Service shall be lost unless (a) the
Employee acquires at least 1,000 Hours of Service in a calendar year which
follows the Break in Service and (b) the number of consecutive one-year Breaks
in Service is less than the number of earlier Years of Service or five,
whichever is greater.
(c) Solely for purposes of determining whether a Break in Service for
participation and vesting purposes has occurred, an individual who is absent
from work for maternity or paternity reasons shall receive credit for the Hours
of Service which would otherwise have been credited to such individual but for
such absence, or in any case in which such hours cannot be determined, eight
hours of service per day of such absence. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means an absence (i) by
reason of the pregnancy of the
7
<PAGE>
individual, (ii) by reason of a birth of a child of the individual, (iii) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (iv) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this paragraph shall be credited (i) in the
computation period in which the absence begins if the crediting is necessary to
prevent a Break in Service in that period, or (ii) in all other cases, in the
following computation period
ARTICLE IV. EMPLOYEE DEFERRALS AND ADDITIONAL DEFERRALS
4.1 Deferrals: An Eligible Employee may defer, in increments one
percent, a percentage of Eligible Earnings to the Plan. The minimum Deferral
shall be one percent of Eligible Earnings and the maximum Deferral shall be six
percent of Eligible Earnings. The Participant's Eligible Earnings for the Plan
Year shall be reduced by an amount equal to the Deferrals authorized by the
Participant, and the Employer shall contribute to the Trust for each Plan Year
an amount equal to the Deferrals elected by the Participant. Any such Employer
contribution shall be credited to the Deferral account of the Participant and
shall be subject to the restrictions on distributions set forth in Article IX.
4.2 Additional Deferrals. An Eligible Employee may authorize Additional
Deferrals, which are not matched by the Employer, in increments of one percent
of Eligible Earnings. The minimum Additional Deferral shall be one percent of
Eligible Earnings, and the maximum Additional Deferral shall be four percent of
Eligible Earnings. The Participant's Eligible Earnings for the Plan Year shall
be reduced by an amount equal to the Additional Deferrals authorized by the
Participant, and the Employer shall contribute to the Trust for each Plan Year
an amount equal to the Additional Deferrals elected by the Participant. Any such
Employer contribution shall be credited to the Additional Deferral account of
the Participant and shall be subject to the restrictions on distributions set
forth in Article IX.
4.3 Maximum Amount of Deferrals and Additional Deferrals: No
Participant shall be permitted to elect Deferrals and Additional Deferrals under
this Plan and any other similar program for a calendar year in excess of $7,000,
multiplied by the Adjustment Factor. Notwithstanding a Participant's election
under section 4.1 or section 4.2, the Plan Manager shall on a prospective basis
limit the Deferrals or Additional Deferrals elected by some or all Highly
Compensated Employees to prevent a violation of the Average Actual Deferral
Percentage test described in section 4.7 or the Average Contribution Percentage
test described in section 4.11. The Plan Manager shall adjust the Additional
Deferrals of Highly Compensated Employees, beginning with the Highly Compensated
Employee(s) with the highest amount of Additional Deferrals, in a manner
consistent with the method described in section 401(k)(8)(C) of the Code, prior
to adjusting the Deferrals of any Highly Compensated Employee. If it then
becomes necessary to reduce the Deferrals of any Highly Compensated Employee,
such reduction shall also be conducted in accordance with section 401(k)(8)(C)
of the Code. The Plan Manager shall give written notice to each Participant
whose Deferrals or Additional Deferrals will be reduced or eliminated pursuant
to this section.
8
<PAGE>
4.4 Changes in Contributions: A Participant may change the percentage
of his Deferrals or Additional Deferrals as of the first day of the Plan Year
immediately following the date the Employer receives a notice of change.
4.5 Suspension of Contributions: A Participant may suspend Deferrals or
Additional Deferrals by giving written or electronic notice before the start of
the first payroll period affected by the suspension. A Participant whose
Deferrals or Additional Deferrals have been suspended may resume contributions
by executing a new payroll authorization. The authorization shall be effective
as of the first day of the Plan Year next following the date the Employer
receives written or electronic notice.
4.6 Rounding of Amounts: Amounts of payroll reductions may be rounded
in a manner determined by the Plan Manager for the purposes of facilitating
administration of the Plan.
4.7 Average Actual Deferral Percentage: The Average Actual Deferral
Percentage for Highly Compensated Employees for the Plan Year and the Average
Actual Deferral Percentage for Nonhighly Compensated Employees for the preceding
Plan Year must satisfy one of the following tests:
(a) The Average Actual Deferral Percentage for Eligible Employees who
are Highly Compensated Employees for the Plan Year shall not exceed the Average
Actual Deferral Percentage for Eligible Employees who are Nonhighly Compensated
Employees for the Plan Year multiplied by 1.25; or
(b) The Average Actual Deferral Percentage for the Plan Year for
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Actual Deferral Percentage for the Plan Year for Eligible
Employees who are Nonhighly Compensated Employees for the Plan Year multiplied
by 2.0, provided that the Average Actual Deferral Percentage for the Plan Year
for Eligible Employees who are Highly Compensated Employees does not exceed the
Average Actual Deferral Percentage for the Plan Year for Eligible Employees who
are Nonhighly Compensated Employees by more than two (2) percentage points or
such lesser amount as the Secretary of the Treasury shall prescribe to prevent
the multiple use of this alternative limitation with respect to any Highly
Compensated Employee.
4.8 Special Rules:
4.8(a) The Actual Deferral Percentage for the Plan Year for any
Eligible Employee who is a Highly Compensated Employee for the Plan Year and who
is eligible to have Deferrals or Additional Deferrals allocated to his or her
account under two or more arrangements described in section 401(k) of the Code
that are maintained by the Employer shall be determined as if such Deferrals and
Additional Deferrals were made under a single arrangement.
4.8(b) The determination and treatment of the Deferrals, Additional
Deferrals, and Actual Deferral Percentage of any Eligible Employee shall satisfy
such other requirements as may be prescribed by the Secretary of the Treasury.
9
<PAGE>
4.9 Distribution of Excess Deferrals: Notwithstanding any other
provision of the Plan, Excess Deferrals, plus any income and minus any loss
allocable thereto, shall be distributed no later than the last day of each Plan
Year to Participants to whose accounts Deferrals and Additional Deferrals were
allocated for the preceding Plan Year. Excess Deferrals shall be treated as
annual additions under the Plan. Excess Deferrals shall be determined and
distributed in accordance with Section 401(k)(8)(C) of the Code beginning with
the Highly Compensated Employee(s) with the highest amount of Additional
Deferrals and Deferrals.
4.10 Determination of Income or Loss:
4.10(a) The Excess Deferrals shall be adjusted for income or loss. The
income or loss allocable to Excess Deferrals shall be determined (i) by
multiplying the income or loss allocable to the Participant's Deferrals and
Additional Deferrals for the Plan Year by a fraction, the numerator of which is
the Excess Deferral on behalf of the Participant for the preceding Plan Year and
the denominator of which is the sum of the Participant's account balances
attributable to Deferrals and Additional Deferrals on the last day of the
preceding Plan Year, or (ii) by any other method authorized by the Code or
regulations thereunder.
4.10(b) Accounting for Excess Deferrals: Amounts distributed under this
section shall first be treated as distributions from the Participant's
Additional Deferral account and shall be treated as distributed from the
Participant's Deferral account only to the extent such Excess Deferrals exceed
the balance in the Participant's Additional Deferral account.
4.11 Contribution Percentage:
4.11(a) The Average Contribution Percentage for the Plan Year for
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Contribution Percentage for the Plan Year for Eligible
Employees who are Nonhighly Compensated Employees for the Plan Year multiplied
by 1.25; or
4.11(b) The Average Contribution Percentage for the Plan Year for
Eligible Employees who are Highly Compensated Employees for the Plan Year shall
not exceed the Average Contribution Percentage for the Plan Year for Eligible
Employees who are Nonhighly Compensated Employees for the Plan Year multiplied
by two (2), provided that the Average Contribution Percentage for the Plan Year
for Eligible Employees who are Highly Compensated Employees does not exceed the
Average Contribution Percentage for the Plan Year for Eligible Employees who are
Nonhighly Compensated Employees by more than two (2) percentage points or such
lesser amount as the Secretary of the Treasury shall prescribe to prevent the
multiple use of this alternative limitation with respect to any Highly
Compensated Employee.
4.12 Special Rules:
4.12(a) Multiple Use: If one or more Highly Compensated Employees
participate in both a cash or deferred arrangement and a plan subject to the
Average Contribution Percentage test maintained by the employer and the sum of
the Average Deferral Percentage and Average Contribution Percentage of those
Highly Compensated Employees subject to either or both tests
10
<PAGE>
exceeds the aggregate limit, then the Average Contribution Percentage of those
Highly Compensated Employees who also participate in a cash or deferred
arrangement will be reduced (beginning with such Highly Compensated Employee
whose Average Contribution Percentage is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated Employee's Contribution
Percentage Amounts is reduced shall be treated as an Excess Aggregate
Contribution. The Average Deferral Percentage and Average Contribution
Percentage of the Highly Compensated Employees are determined after any
corrections required to meet the Average Deferral Percentage and Average
Contribution Percentage tests. Multiple use does not occur if either the Average
Deferral Percentage or Average Contribution Percentage of the Highly Compensated
Employees does not exceed 1.25 multiplied by the Average Deferral Percentage and
Average Contribution Percentage of the Nonhighly Compensated Employees.
4.12(b) The Contribution Percentage for any Eligible Employee who is a
Highly Compensated Employee for the Plan Year and who is eligible to make
employee contributions, or to have Matching Contributions allocated to his
account under two or more plans described in section 401(a) of the Code, or
arrangements described in section 401(k) of the Code, that are maintained by the
Employer, shall be determined as if the total of such employee contributions and
Matching Contributions was made under a single plan.
4.12(c) In the event that this Plan satisfies the requirements of
sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy such sections of the
Code only if aggregated with this Plan, then this section shall be applied by
determining the Contribution Percentages of Eligible Employees as if all such
plans were a single plan. For plan years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Section 401(m) of the Code only if
they have the same plan year.
4.12(d) The determination and treatment of the Contribution Percentage
of any Eligible Employee shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
4.13 Distribution of Excess Aggregate Contributions:
4.13(a) General Rule: Notwithstanding any other provision of this Plan,
Excess Aggregate Contributions, plus any income and minus any loss allocable
thereto, shall be distributed (or, if forfeitable, forfeited) no later than the
last day of each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions shall be treated as annual additions under the Plan. Any
distribution of the Excess Aggregate Contributions for any Plan Year shall be
made to Highly Compensated Employees on the basis of the amount of contribution
on behalf of, or by, each such Highly Compensated Employee.
4.13(b) Determination of Income or Loss: The Excess Aggregate
Contributions shall be adjusted for income or loss. The income or loss allocable
to Excess Aggregate Contributions shall be determined (i) by multiplying the
income or loss allocable to the Participant's employee contributions, Matching
Contributions and Qualified Matching Contribution Account (if any, and if all
amounts therein are not used in the Actual Deferral Percentage test) for the
Plan Year by a
11
<PAGE>
fraction, the numerator of which is the Excess Aggregate Contributions on behalf
of the Participant for the preceding Plan Year and the denominator of which is
the sum of the Participant's account balance attributable to Contribution
Percentage amounts on the last day of the preceding Plan Year, or (ii) by any
other method authorized by the Code or regulations thereunder.
4.13(c) Treatment of Forfeitures: Forfeitures of Excess Aggregate
Contributions shall serve to reduce Employer contributions. Amounts forfeited by
Highly Compensated Employees under this section shall be treated as annual
additions under the Plan.
4.13(d) Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be forfeited on a pro rata basis from the Participant's
employee contribution account, Matching Contributions account and Qualified
Matching Contribution Account. The determination of the Excess Aggregate
Contributions shall be made after first determining the Excess Elective
Deferrals, and then determining the Excess Contributions.
4.14 Military Service: Notwithstanding any provisions of the Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u)(4)
of the Code.
ARTICLE V. EMPLOYER CONTRIBUTIONS - MATCHING
5.1 Amount of Matching Contributions: Subject to the limitation in
section 5.2, each Employer shall contribute out of current or accumulated
earnings an amount equal to one hundred percent of the first three percent of
all Deferrals made by its Employees under provisions of section 4.1 and an
amount equal to fifty percent of the next three percent of Deferrals made by its
Employees, except that the Matching Contribution attributable to Excess
Deferrals must be forfeited. If an Employer does not have current or accumulated
earnings that are adequate for this purpose, the other Employers shall
contribute on its behalf in proportion to the sum of the current and accumulated
earnings of each.
5.2 Forfeiture of Matching Contributions: Duke Power Company common
stock and uninvested cash which represent Employer contributions or earnings
thereon that are forfeited by Participants who receive distributions, make
withdrawals or are attributable to Excess Deferrals shall be applied to restore
forfeitures in accordance with provisions of Article XIV or to reduce subsequent
contributions of the Employer, or, if the Plan should be terminated, any amount
not so applied shall be credited ratably to the accounts of all Participants at
the time of termination. There shall be no forfeiture of Matching Contributions
by a Participant who has at least one Hour of Service on or after April 1, 1993,
with respect to any distribution or withdrawal made on or after that date.
5.3 Maturity of Matching Contributions: Matching Contributions which
are not forfeitable will mature at the end of the 24th month following the month
for which the matching contributions are posted to the Participant's account.
Upon the expiration of the 24-month period the Matching Contributions may be
distributed pursuant to Article IX, and transferred into
12
<PAGE>
investment options other than the Duke Power Company Common Stock Fund, except
in the case of accounts within the Basic Option which must remain invested in
Duke Power Company common stock.
ARTICLE VI. PLAN INVESTMENTS
6.1 General: A Participant shall have the choice of investing both
pretax and after-tax accounts in either the Basic Option as described in section
6.2 or the Diversified Option as described in section 6.3. A Participant who
holds United States Savings Bonds in his or her account, shall be restricted to
investing both pretax and after-tax accounts in the Basic Option until such time
that he or she liquidates his or her investment in United States Savings Bonds.
A Participant who does not hold any investment in United States Savings Bonds in
his or her account shall be restricted to investing in the Diversified Option.
6.2 Basic Option: Each Participant within the Basic Option shall have
all of his or her Deferrals and Additional Deferrals invested in the Duke Power
Company Common Stock Fund. This investment election shall remain in effect
throughout such Plan Year, unless the Participant elects in accordance with
procedures established by the Plan Manager to transfer into the Diversified
Option by choosing to liquidate all United States Savings Bonds held in his
account. All Matching Contributions for Participants in the Basic Option shall
be invested in Duke Power Company Common Stock Fund.
6.2(a) Earnings on Investments within the Basic Option: Earnings, gains
and losses on the Duke Power Company Common Stock Fund shall be allocated as
under Section 6.3(a). Interest on United States Savings Bonds shall be invested
in, or reflected in the redemption value of, such United States Savings Bonds.
6.2(b) Uninvested Cash within the Basic Option: Any uninvested cash in
the account of a Participant at the end of a Plan Year shall be carried over to
the next Plan Year, if the Employee continues as a Participant, and then
invested.
6.3 Diversified Option: Each Participant within the Diversified Option
shall direct whether his Deferrals and Additional Deferrals, if any, shall be
invested in the Duke Power Company Common Stock Fund or in any other Fund
offered as an investment option within the Diversified Option. At such time and
in such manner as the Plan Manager shall prescribe, each Participant may file
with the Plan Manager such Participant's direction with respect to what
percentage, if any, of future Deferrals and Additional Deferrals shall be
invested in any one or more of the Funds or in the Duke Power Company Common
Stock Fund. The percentages so specified by the Participant shall be stated in
one percent increments (ten percent increments prior to April 1, 1997). Each
such election (or change of election) shall be effective as soon as practicable,
but no later than five business days, after the date on which the Plan Manager
receives actual notice of the election. If by a date designated by the Plan
Manager prior to the allocation of contributions and/or forfeitures there shall
not be in effect a valid investment election from a Participant, any amounts
allocated to such participant's account shall be invested entirely in the Duke
Power Company Common Stock Fund. A Participant shall be eligible to file one
election
13
<PAGE>
(or change of election) in any calendar month with respect to existing
accounts and one such change per calendar month with respect to the investment
of future Deferrals or Additional deferrals during any month prior to April 1,
1997. On and after April 1, 1997, a Participant may change investment options
without limitation. For this purpose an election (or change of election) shall
be defined to mean any investment notification received by the Plan Manager in
any one day, regardless of the number of investment elections made on such day.
All Matching Contributions made on behalf of Participants within the Diversified
Option shall be allocated to the Duke Power Company Common Stock Fund and such
investments, including earnings thereon, must remain in the Duke Power Company
Common Stock Fund until the end of the 24th month following the month for which
the Matching Contributions are posted to the account.
6.3(a) Amounts that are to be invested in the Duke Power Company Common
Stock Fund, whether on account of Deferrals, Additional Deferrals or Matching
Contributions, shall be transferred to the Trustee for investment or invested in
Duke Power Company common stock by Duke Power Company for transfer to the
Trustee. Trust earnings shall be invested by the Trustee in the Fund. Purchase
of Duke Power Company common stock may be by open market purchase, by private
purchase or from Duke Power Company by subscription or purchase, whichever may
be directed by the Plan Manager. Investment by subscription or purchase from
Duke Power Company shall be at the daily closing market price on the New York
Stock Exchange on the date of subscription or purchase. While the Duke Power
Company Common Stock Fund will consist primarily of Duke Power Company common
stock, it will also contain a small cash balance sufficient to cover transfers,
withdrawals, and similar Plan transactions. The Plan Manager shall from time to
time instruct the Trustee with respect to the percentage of the Duke Power
Company Common Stock Fund which shall be held in the form of cash or cash
equivalents.
6.3(b) Accounts and Funds held within the Diversified Option shall be
valued as of each Valuation Date. Earnings, gains, and losses (realized or
unrealized) for each Fund shall be allocated to the portion ("subaccount") of a
Participant's Account maintained with respect to that Fund, in the same ratio
that the value of the subaccount (determined as of the Valuation Date) bears to
the sum of the values of all participant's subaccounts maintained with respect
to the Funds. For the purpose of determining the ratio, the value of the
subaccount shall be the value of the subaccount as of the last previous
Valuation Date, adjusted for contributions, reallocated forfeitures, loans and
loan repayments, interfund transfers, distributions, withdrawals, and expenses.
ARTICLE VII. INVESTMENT ELECTIONS; TRANSFERS
7.1 Elections: At such time and in such manner as the Plan Manager
shall prescribe, each Participant shall file with the Plan Manager notice of his
or her direction with respect to any election granted to such Participant under
the terms of the Plan. The Plan Manager may establish procedures to accept
Participant direction by telephone or other electronic means.
7.2 Transfers among Options. A Participant's subaccounts within the
Basic Option shall be transferred to the Diversified Option, as soon as
practicable following the date on which the Participant elects to liquidate all
United States Savings Bonds held in his or her account. Cash
14
<PAGE>
held within the Basic Option shall be transferred into a Fund selected by the
Participant, or in the absence of such direction, such cash shall be invested in
a money market mutual fund offered as a Fund within the Diversified Option. No
transfers shall be permitted from the Diversified Option into the Basic Option.
7.3 Transfers within the Basic Option: A Participant shall not be
entitled to transfer amounts held in one subaccount within the Basic Option to
any other subaccount within the Basic Option.
7.4 Transfers within the Diversified Option: A Participant shall be
entitled to transfer amounts held within the Diversified Option between Funds.
Transfers shall be allowed only in increments of one percent of the balance of
any Fund determined as of the date on which the transfer is made (ten percent
for transfers prior to April 1, 1997). No transfer shall be allowable at any
time from Matching Contributions which have not matured. The Plan Manager shall
direct the Trustee to transfer moneys or other property from one Fund to another
Fund as may be necessary to carry out the Participant's transfer transactions in
accordance with uniform rules established by the Plan Manager. Transfers will be
allowable on any day on which the New York Stock Exchange is open for trading.
7.5 Restrictions on Transfers: Notwithstanding any other provision of
the Plan, the Plan Manager may establish procedures to delay or cancel any
transaction directed by a Participant to the extent such transaction may result
in a violation of federal securities laws.
ARTICLE VIII. INVESTMENT ACCOUNTS
8.1 Separate Accounts: Separate accounts for each Participant shall
reflect the form of investment, the Option (Basic or Diversified) in which he
has investments, and the source of the original investment (Participant
Deferrals, Additional Deferrals, and Matching Contributions). The Deferral
account may be consolidated with the Additional Deferral account and the
Rollover Account upon the maturity of Matching Contributions attributable to the
Deferrals. Original investments and income thereon shall be reflected separately
in the account. Income shall be applied to the Plan Year of the original
investment to which it relates.
8.2 Account Information: United States Savings Bonds shall be accounted
for on a cost basis. Funds held within the Diversified Option shall be accounted
for on the unit accounting basis.
ARTICLE IX. DISTRIBUTION
9.1 Distribution Before Termination of Employment:
(a) A Participant may elect any time during the Plan Year to receive
distributions from his accounts in the following order. Except as provided in
sections 9.1(c) and (d), distribution will not be made from an account until the
account previously listed has been exhausted.
15
<PAGE>
1. Employee after-tax accounts
2. Employer contribution accounts including matured
Matching Contribution accounts
(b) Matching Contribution accounts will mature at the end of the 24th
month following the month for which the contributions are posted to the
accounts.
(c) A Participant may request a cash distribution from his or her
Deferral account, Additional Deferral account and Rollover Account if he or she
suffers a hardship or is at least age 59 1/2. A hardship will be determined by
the Plan Manager to exist if the distribution is necessary in light of immediate
and heavy financial needs of the Participant, and if funds to alleviate such
financial needs are not reasonably available from other resources of the
Participant. A distribution due to a hardship must not exceed the lesser of (1)
the amount necessary to alleviate the hardship, or (2) the balance in the
Participant's Deferral, Additional Deferral, and Rollover Accounts, exclusive of
any income allocable to such accounts after December 31, 1988.
Any distribution on and after April 1, 1989, will be deemed to be on
account of an immediate and heavy financial need of the Participant if the
distribution is on account of:
1. Medical expenses described in section 213(d) of the Code incurred
by the Participant, the Participant's spouse, or any dependents of
the Participant (as defined in section 152 of the Code);
2. Purchase (excluding mortgage payments) of a principal residence
of the Participant;
3. Payment of tuition and related educational fees for the next 12
months of post-secondary education for the Participant, his or her
spouse, children, or dependents;
4. The need to prevent the eviction of the Participant from his or
her principal residence or foreclosure on the mortgage on the
Participant's principal residence; or
5. Any additional needs specified by the Commissioner of the
Internal Revenue Service through the publication of revenue
rulings, notices, and other documents of general applicability.
Any distribution on and after April 1, 1989, will be treated as
necessary to satisfy a financial need if the Plan Manager reasonably relies upon
the Participant's written representation, unless the Plan Manager has actual
knowledge to the contrary, that the need cannot be relieved:
1. Through reimbursement or compensation by insurance or otherwise;
2. By reasonable liquidation of the Participant's assets (including
those of his or her spouse or minor children that are reasonably
available), to the extent such liquidation would not itself cause
an immediate and heavy financial need;
16
<PAGE>
3. By cessation of Deferrals or Additional Deferrals under the Plan;
or
4. By distributions or nontaxable (at the time of the loan) loans
from plans maintained by the Employer or any other employer, or by
borrowing from commercial sources on reasonable commercial terms.
(d) Distributions under section 9(c) will be made in the following order:
1. Employee after-tax accounts
2. Employer contribution accounts including matured Matching
Contribution accounts
3. Rollover Account
4. Deferral account
5. Additional Deferral account
9.2 Distribution on Termination of Employment: If a Participant
terminates employment, he or she may elect to receive in a single distribution
the entire balance in his or her accounts. If a Participant does not elect an
immediate distribution under this section, he or she may defer the distribution
until any date prior to the first day of April of the calendar year immediately
following the calendar year in which the Participant attains age 70 1/2.
9.3 Distributions on Death: A distribution occasioned by the death of a
Participant shall be made to the surviving spouse of the Participant. If there
is no surviving spouse, or if the spouse has consented in writing properly
witnessed by a Plan representative or notary public, the distribution shall be
made to the specific beneficiary or beneficiaries designated by the Participant.
If there is no surviving spouse, and if no valid designation has been made or a
beneficiary does not survive the Participant, the distribution shall be made to
the Participant's estate. A Participant may file with the Plan Manager a written
designation of beneficiary. Such a designation may be changed or revoked by a
written notice filed with the Plan Manager; however, such a change must be
properly consented to by the Participant's spouse, if the spouse is not named as
Beneficiary. A distribution shall be made as soon as practicable after the death
of the Participant and in any event within 60 days after the close of the Plan
Year in which that occasion falls, except that a beneficiary of a deceased
Participant may elect no later than 60 days after the death of the Participant,
that a distribution be delayed until either:
(a) A date that follows the occasion for the distribution by not more
than one year, or, if later,
(b) a date in the distributee's taxable year in which there will be
lump-sum distribution, as defined in section 402(e)(4)(A) of the Internal
Revenue Code, from another qualified plan maintained by the Employer.
17
<PAGE>
9.4 Eligible Rollover Distributions: Notwithstanding any provision of
the Plan to the contrary that would otherwise limit a Distributee's election
under this section, a Distributee may elect, at the time and in the manner
prescribed by the Plan Manager, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover, except that only one such Eligible Retirement
Plan may be designated for any single Eligible Rollover Distribution.
9.5 Amount of Distribution: A distribution from a Participant's account
shall include all assets in the account, except that if the distribution is the
result of a Termination of Employment, assets that represent Matching
Contributions that are not vested under Article XIII and earnings thereon shall
not be distributed.
9.6 Form of Distribution: Distribution of amounts invested in the Duke
Power Company Common Stock Fund shall be made in whole shares of Duke Power
Company common stock. Distribution of amounts invested in United States Savings
Bonds shall be made in United States Savings Bonds. Distribution of amounts
invested in any Fund other than the Duke Power Company Common Stock Fund shall
be made in cash. Notwithstanding the foregoing, a distribution shall be made in
cash to the extent it represents (a) uninvested cash, (b) cash for fractional
shares of Duke Power Company common stock, or (c) cash in lieu of whole shares
of Duke Power Company common stock provided such a cash distribution is elected
by a Participant from his or her account in the Duke Power Company Common Stock
Fund.
9.7 Fractional Shares: No fractional shares of Duke Power Company
common stock shall be distributed. A fractional share that is the last item in
an account shall be paid in cash. Cash settlements for fractional shares shall
be based on fair market value at the time of settlement.
9.8 Required Minimum Distributions: Effective for Plan Years beginning
on and after the effective date of section 401(a)(9) of the Code and regulations
thereunder, and notwithstanding any other provisions of the Plan which may
authorize a later distribution, all distributions shall satisfy the following
requirements:
(a) With respect to the interest of an active Participant, distribution
of the Participant's interest must commence no later than April 1 of the
calendar year following the later of the calendar year in which he or she
attains age 70 1/2 or, except in the case of a Participant who is a five-percent
owner (as defined in section 416 of the Code), the taxable year in which he or
she retires. Distribution of the Participant's entire interest shall be made
over a period not extending beyond the life expectancy of the Participant, or if
married the joint life and last survivor expectancy of the Participant and his
or her spouse, provided the spouse is the designated beneficiary.
(b) With respect to the interest of a deceased Participant, the entire
interest of the Participant must be distributed no later than December 31 of the
calendar year which contains the fifth anniversary of the date of the
Participant's death.
18
<PAGE>
(c) The requirements of this section shall not be construed to expand
the period of time by which a distribution must be made where a shorter period
of time is specified elsewhere in this document.
9.9 Consent for Cash Out of Distributions: No distribution of a vested
benefit with a present value which exceeds $3,500 shall be made without the
written or electronic consent of the Participant. Effective on and after April
1, 1997, vested benefits with a present value of less than $3,500 shall be
distributed to any Participant who is no longer employed by an Affiliated
Employer.
9.10 Waiver of Notice: No distribution shall be made to any participant
unless such participant has received the notice required by section
1.411(a)-11(c) of the Income Tax Regulations no less than 30 days and no more
than 90 days before the date of the distribution. If a distribution is one to
which sections 401(a)(11) and 417 of the Internal Revenue Code do not apply,
such distribution may commence less than 30 days after the notice required under
section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(a) the plan administrator clearly informs the participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
(b) the participant, after receiving the notice, affirmatively elects
a distribution.
9.11 Qualified Domestic Relations Order: Notwithstanding any other
provision of this Plan, a portion of all of the account balance of any
Participant, including Deferrals, Additional Deferrals, Matching Contributions
and Rollover Accounts shall be paid to an alternate payee to the extent required
by a Qualified Domestic Relations Order that satisfies the requirements of
section 414(p) of the Code. A distribution to an alternate payee from a
Participant's Deferral and Additional Deferral accounts may be made prior to the
date on which the Participant attains age 59 1/2 pursuant to a Qualified
Domestic Relations Order which satisfies section 414(p) of the Code. Unmatured
Matching Contributions shall not be distributable to an alternate payee until
they become distributable to the Participant. If a separate account is
established for an alternate payee, he or she may elect to withdraw the entire
balance in one distribution, which shall be made no later than April 1 of the
calendar year following the calendar year in which he or she attains age 70 1/2.
ARTICLE X. LOANS TO PARTICIPANTS
10.1 Amount of Loan: A Participant may request a loan from his Rollover
Account, Deferral account and Additional Deferral account, except that no loans
may be made to a Participant in the Basic Option. The Plan Manager upon request,
shall lend to such participant from his Rollover Account, Deferral account and
Additional Deferral account in that order an amount which when added to the
Participant's outstanding loans from any other plan maintained by the Employer
is not in excess of the lesser of:
19
<PAGE>
(a) $50,000, reduced by the excess (if any) of
1. the highest outstanding balance of loans from all plans
maintained by the Employer during the one-year period
ending on the day before the date on which such loan was
made, over
2. the outstanding balance of loans from all plans maintained
by the Employer on the date on which the loan was made; or
(b) fifty percent (50%) of the value of the Participant's accounts
which are vested under the rules of Article XI, such value to be determined as
of the Valuation Date coinciding with or immediately preceding the origination
date of the loan. If between the date on which a Participant makes application
for a loan and the date on which the loan is actually made there is a decline in
value of the Participant's Deferral, Additional Deferral and Rollover accounts
such that there are insufficient funds in such accounts from which to make a
loan in the requested amount, then the loan proceeds shall be taken from other
accounts in the order set forth in section 9.1(a). Notwithstanding the
foregoing, no loan shall be in an amount which would exceed the limitations set
forth in this section 10.1.
10.2 Terms of Loan: In addition to such rules and regulations as the
Committee may adopt, all loans shall comply with the following terms and
conditions:
(a) An application for a loan by Participant shall be made in writing
or by electronic communication to the Plan Manager.
(b) The period of repayment for any loan except as set forth in
subsection (c) below, shall be arrived at by mutual agreement between the Plan
manager and the borrower, but such period in no event shall exceed five (5)
years.
(c) Notwithstanding the above, the period of repayment for any loan
used to acquire any dwelling unit which within a reasonable time is to be used
as the principal residence of the Participant in no event shall exceed ten (10)
years.
(d) Each loan shall be made against collateral being the assignment of
fifty percent (50%) of the borrower's right, title and vested interest in and to
his or her vested account balances supported by the borrower's collateral
promissory note for the amount of the loan, including interest, payable to the
order of the Trustee.
(e) Each loan shall bear interest at the rate which would be charged by
Wachovia Bank of North Carolina, N.A., on similar commercial loans.
(f) The minimum loan amount shall be $500.
(g) Repayment of loans shall be made by payroll deduction or as
specified in the loan agreement; however, except as may be provided by
regulations issued by the Department of the Treasury, substantially level
amortization of a loan is required with payments not less frequently
20
<PAGE>
than quarterly. Since loan repayment must be made by payroll deduction, no loan
shall be made to an alternate payee under a Qualified Domestic Relations Order
or to a terminated Participant.
(h) A Participant may have no more than two loans (one loan prior to
April 1, 1997) from this Plan outstanding at a time.
(i) Assets in the Participant's accounts shall be converted to cash,
and then the amount of such loan shall be removed from the accounts and
transferred to a special loan account in the name of the borrowing Participant.
As of each Valuation Date following the making of the loan and until the loan is
repaid, all payments on the loan, including interest, shall be reallocated from
the Participant's loan account and reinvested within either the Basic Option or
the Diversified Option depending upon the Option in which the Participant has
investments at the time of the repayment. Repayments shall be allocated among
investment alternatives within an Option on a proportionate basis in accordance
with the Participant's election with respect to the investment of current
Deferrals. If the Participant has not elected current Deferrals, all repayments
shall be allocated to the Duke Power Company Common Stock Fund.
(j) Upon termination of employment a Participant must repay the
outstanding balance of the loan plus interest due in full.
(k) In the event of default, foreclosure on the note and attachment of
security will not occur until a distributable event occurs under the Plan.
(l) A reasonable origination fee in an amount determined from time to
time by the Plan Administrator may be charged to any Participant who makes a
loan under the Plan. The origination fee will be withheld from the proceeds of
the loan.
10.3 Loans to Former Employees: Loans shall be made available only to
former Employees who are also "parties-in-interest" as defined in section 3(14)
of the Employee's Retirement Income Security Act of 1974.
10.4. Military Service: Loan repayments will be suspended under this
Plan as permitted under Section 414(u)(4) of the Code.
ARTICLE XI. VESTING
A Participant's Deferral and Additional Deferral accounts shall be
fully vested at all times. Matching Contributions made in accordance with
Article V and earnings thereon shall be fully vested with respect to any
Participant with at least one Hour of Service on or after April 1, 1993.
Matching Contributions made on behalf of a Participant who does not have at
least one Hour of Service on or after April 1, 1993, shall vest in accordance
with the provisions of this Plan as in effect on and before March 31, 1993, as
set forth in Appendix C, except that any Participant who elected to terminate
employment pursuant to the Limited Period Separation Opportunity sponsored by
the Employer during February 1993, shall be fully vested in all Matching
Contributions.
21
<PAGE>
ARTICLE XII. FORFEITURES
There shall be no forfeiture with respect to any Participant who has at
least one Hour of Service on or after April 1, 1993, except to the extent that
Matching Contributions attributable to Excess Deferrals or Excess Aggregate
Contributions are required by law to be forfeited. Any forfeiture occurring
under provisions of the Plan as in effect prior to April 1, 1993, shall be
subject to the forfeiture and repayment rules set forth in the Plan on the date
of the event giving rise to the forfeiture.
ARTICLE XIII LIMITATION OF CONTRIBUTIONS AND BENEFITS
13.1(a) Annual Addition: "Annual Addition" shall mean all employee and
employer contribution amounts allocated to a Participant's account during the
Limitation Year that constitutes:
1. Employer contributions,
2. Employee contributions,
3. Forfeitures, and
4. Amounts described in sections 415(1)(1) and 419 (A)(d)(2)
of the Code.
13.1(b) Maximum Annual Addition: The maximum Annual Addition that may
be contributed or allocated to a Participant's account under the Plan for any
Limitation Year shall not exceed the lesser of:
1. the Defined Contribution Dollar Limitation, or
2. 25 percent of the Participant's compensation, within the
meaning of section 415(c)(3) of the Code for the
Limitation Year.
13.1(c) Special Rules: The compensation limitation referred to in
section 15.1(b)(ii) shall not apply to:
1. Any contribution for medical benefits (within the meaning
of section 419A(f)(2) of the Code) after separation from
service which is otherwise treated as an Annual Addition,
or
2. Any amount otherwise treated as an Annual Addition under
section 415(1)(1) of the Code.
13.1(d) Defined Contribution Dollar Limitation: For purposes of section
15.1(b), "Defined Contribution Dollar Limitation" shall mean $30,000 or, if
greater, one-fourth of the defined benefit dollar limitation set forth in
section 415(b)(1) of the Code as in effect for the Limitation Year.
22
<PAGE>
13.1(e) Recomputation Not Required: The Annual Addition for any
Limitation Year beginning before January 1, 1987, shall not be recomputed to
treat all Employee Contributions as an Annual Addition.
13.1(f) Excess Annual Additions: If the Annual Additions made to this
Plan on behalf of any Participant exceed the maximum, the Employer shall treat
the excess amount of such Annual Additions as follows:
1. So much of the Participant's contributions, including
Deferrals and Additional Deferrals, which cause the
Participant's accounts to exceed the maximum Annual
Additions shall be returned to the Participant;
2. So much of any Employer contribution allocated to the
Participant's accounts in excess of the maximum Annual
Additions shall be used to reduce the Employer's
contribution for the following Plan Year (and succeeding
Plan Years as necessary) for the Participant if that
Participant is covered by the Plan as of the end of the
following Plan Year. If such Participant is not covered by
the Plan for the following Plan Year, the excess Annual
Additions shall be allocated to the accounts of other
Participants.
A Participant may not choose to defer an amount that would cause the
Annual Additions in this Plan alone to exceed the maximum allowed.
13.2(a) Combined Plan Limitations on Contributions and Benefits: If an
Employee is or was a Participant in one or more defined benefit plans and one or
more defined contribution plans maintained by the Employer, the sum of the
Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction shall
not exceed 1.0 for any Limitation Year which begins before January 1, 2000. If
the sum of the Defined Benefit Plan Fraction or the Defined Contribution Plan
Fraction shall exceed 1.0 in any year for any Participant in this Plan, the
Employer shall reduce the Plan benefits in such manner that the limitations of
section 415(e) of the Internal Revenue Code will be satisfied without reduction,
or with minimum reduction, of Employer or Employee contributions to defined
contribution plans of the Employer.
13.2(b) Defined Benefit Plan Fraction: For the purpose of this Article
XIII, the term "Defined Benefit Plan Fraction" for any year shall mean a
fraction, the numerator of which is the projected annual benefit payable to a
Participant as of the close of the then current year under all plans maintained
by this Employer and the denominator of which is the lessor of:
1. The product of 1.25 multiplied by the maximum dollar
limitation for the Plan Year concerned as provided under
Code section 415, or
2. The product of 1.4 multiplied by the
applicable percentage of compensation limit as defined
for this purpose under Code section 415.
13.2(c) Defined Contribution Plan Fraction: The term "Defined
Contribution Plan Fraction" for any year shall mean a fraction the numerator of
which is the aggregate amount of Annual Additions made to a Participant's
accounts under all plans maintained by this Employer as
23
<PAGE>
of the close of the then current year and the denominator of which is the sum of
the lesser of the following amounts determined for such year and for each prior
Year of Service with the Employer:
1. The product of 1.25 multiplied by the maximum dollar
limitation for the Plan Year concerned as provided under
Code section 415, or
2. The product of 1.4 multiplied by the
applicable percentage of compensation limit as defined
for this purpose under Code section 415.
13.2(d) Adjustment of Defined Contribution Plan Fraction: If the Plan
satisfied the applicable requirements of section 415 of the Code as in effect
for all Limitation Years beginning before January 1, 1987, an amount shall be
subtracted from the numerator of the Defined Contribution Plan Fraction (not
exceeding such numerator) as prescribed by the Secretary of the Treasury so that
the sum of the Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction computed under section 415(e)(1) of the Code (as revised by this
Article XIII) does not exceed 1.0 for such Limitation Year.
13.3 Compensation: For purposes of this Article XV, "Compensation" will
be determined under Section 2.11 Amounts that are not currently includible in
the Participant's gross income by reason of the application of section 125 or
section 402(a)(8) of the Code shall not be counted except in Limitation Years
beginning after December 31, 1997.
13.4 Limitation Year: For purposes of this Article XIII, "Limitation
Year" shall mean the calendar year.
13.5 Transitional Rule: At the election of the Plan Manager, with
respect to any year ending after December 31, 1982, the amount taken into
account in determining the defined contribution plan fraction with respect to
each Participant for all years ending before January 1, 1983, shall be an amount
equal to the product of (a) and (b), where
(a) is the Defined Contribution Plan Fraction in effect for the year
ending in 1982, and
(b) is the Transition Fraction.
Transition Fraction means a fraction, the numerator of which is the lesser of
$51,874, or 1.4 multiplied by 25 percent of the Compensation of the Participant
for the year ending in 1981 and, the denominator of which is the lesser of
$41,500 or 25 percent of the Compensation of the Participant for the year ending
in 1981. If the plan is a Top-Heavy Plan, as defined by the Tax Equity and
Fiscal Responsibility Act of 1982, then $41,500 shall be substituted for $51,874
in the numerator of the Transition Fraction.
24
<PAGE>
ARTICLE XIV. TOP HEAVY PROVISIONS
14.1 Definitions. If the Plan is or becomes top-heavy in any Plan Year
beginning after December 31, 1983, the provisions of this Article will supersede
any conflicting provisions in the Plan and the following definitions will apply:
(a) Key employee: Any Employee or former employee (and the
beneficiaries of such Employee) who at any time during the determination period
was an officer of the Employer if such individual's annual compensation exceeds
50 percent of the dollar limitation under section 415(b)(1)(A) of the Code, an
owner (or considered an owner under section 318 of the Code) or one of the ten
largest interests in the Employer if such individual's Compensation exceeds 100
percent of the dollar limitation under section 415(c)(1)(A) of the Code, a
five-percent owner of the Employer, or a one-percent owner of the Employer who
has an annual compensation of more than $150,000. Annual compensation means
Compensation as defined in section 2.11. The determination period is the Plan
Year containing the determination date and the four preceding Plan Years. The
determination of who is a key employee will be made in accordance with section
416(i)(1) of the Code and the regulations thereunder.
(b) Top-heavy plan: For any Plan Year beginning after December 31,
1983, this Plan is top-heavy if any of the following conditions exists:
1. If the top-heavy ratio for this Plan exceeds 60
percent and this Plan is not part of any required
aggregation group or permissive aggregation group of
plans.
2. If this Plan is a part of a required aggregation group of
plans but not part of a permissive aggregation group and
the top-heavy ratio for the group of plans exceeds 60
percent.
3. If this Plan is a part of a required aggregation group
and part of a permissive aggregation group of plans and
the top-heavy ratio for the permissive aggregation group
exceeds 60 percent.
(c) Top-heavy ratio:
1. If the Employer maintains one or more defined
contribution plans (including any simplified employee
pension plan) and the Employer has not maintained any
defined benefit plan which during the five-year period
ending on the determination date(s) has or has had accrued
benefits, the top-heavy ratio for this Plan alone or for
the required or permissive aggregation group as
appropriate is a fraction, the numerator of which is the
sum of the account balances of all key employees as of the
determination date(s) (including any part of any account
balance distributed in the five-year period ending on the
determination date(s)), and the denominator of which is
the sum of all account balances (including any part of any
account balance distributed in the five-year period ending
on the determination date(s), both computed in accordance
with section 416 of the Code and the regulations
thereunder. Both the numerator and denominator of the
top-heavy ratio are increased to reflect any contribution
not actually made as of the determination date, but which
is
25
<PAGE>
required to be taken into account on that date under
section 416 of the Code and the regulations thereunder.
2. If the Employer maintains one or more defined
contribution plans (including any simplified employee
pension plan) and the Employer maintains or has maintained
one or more defined benefit plans which during the
five-year period ending on the determination date(s) has
or has had any accrued benefits, the top-heavy ratio for
any required or permissive aggregation group as
appropriate is a fraction, the numerator of which is the
sum of account balances under the aggregated defined
contribution plan or plans for all key employees,
determined in accordance with (1) above, and the present
value of accrued benefits under the aggregated defined
benefit plan or plans for all key employees as of the
determination date(s), and the denominator of which is the
sum of the account balances under the aggregated defined
contribution plan or plans for all Participants,
determined in accordance with (1) above, and the present
value of accrued benefits under the defined benefit plan
or plans for all Participants as of the determination
date(s), all determined in accordance with section 416 of
the Code and the regulations thereunder. The accrued
benefits under a defined benefit plan in both the
numerator and denominator of the top-heavy ratio are
increased for any distribution of an accrued benefit made
in the five-year period ending on the determination date.
3. For purposes of (1) and (2) above the value of account
balances and the present value of accrued benefits will be
determined as of the most recent valuation date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in section 416 of
the Code and the regulations thereunder for the first and
second plan years of a defined benefit plan. The account
balances and accrued benefits of a Participant (i) who is
not a key employee but who was a key employee in a prior
year, or (ii) who has not been credited with at least one
hour of service with any employer maintaining the Plan at
any time during the five-year period ending on the
determination date will be disregarded. The calculation of
the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into
account will be made in accordance with section 416 of the
Code and the regulations thereunder. Deductible employee
contributions will not be taken into account for purposes
of computing the top-heavy ratio. When aggregating plans
the value of account balances and accrued benefits will be
calculated with reference to the determination dates that
fall within the same calendar year.
The accrued benefit of a Participant other than a key employee shall be
determined under (a) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of section 411(b)(1)(C)
of the Code.
26
<PAGE>
(d) Permissive aggregation group: The required aggregation group of
plans plus any other plan or plans of the Employer which, when considered as a
group with the required aggregation group, would continue to satisfy the
requirements of sections 401(a)(4) or 410 of the Code.
(e) Required aggregation group: (1) Each qualified plan of the Employer
in which at least one key employee participates or participated at any time
during the determination period (regardless of whether the plan has terminated),
and (2) any other qualified plan of the Employer which enables a plan described
in (1) to meet the requirements of sections 401(a)(4) or 410 of the Code.
(f) Determination date: For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan Year of the
Plan, the last day of that year.
(g) Valuation date: For purposes of computing the top-heavy ratio, the
valuation date shall be December 31 of each year.
(h) For purposes of establishing present value to compute the top-heavy
ratio, any benefit shall be discounted only for mortality and interest based on
the following:
Interest rate: 8% Mortality table: 1984 Unisex Pension Mortality Table
14.2 Minimum allocation
(a) Except as otherwise provided in (c) and (d) below, the employer
contributions and forfeitures allocated on behalf of any Participant who is not
a key employee shall not be less than the lesser of three percent of such
Participant's Compensation or in the case where the Employer has no defined
benefit plan which designates this Plan to satisfy section 401 of the Code, the
largest percentage of employer contributions and forfeitures, as a percentage of
key employee's Compensation, as limited by section 401(a)(17) of the Code,
allocated on behalf of any key employee for that year. The minimum allocation is
determined without regard to any Social Security contribution. This minimum
allocation shall be made even though, under other Plan provisions, the
Participant would not otherwise be entitled to receive an allocation, or would
have received a lesser allocation for the year because of (i) the Participant's
failure to complete 1,000 hours of service (of any equivalent provided in the
Plan), or (ii) the Participant's failure to make mandatory employee
contributions to the Plan, or (iii) Compensation less than a stated amount.
(b) For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in section 2.11 as limited by section
401(a)(17) of the Code.
(c) The provision in (a) above shall not apply to any Participant who
was not employed by the Employer on the last day of the Plan Year.
(d) The provision in (a) above shall not apply to any Participant to
the extent the Participant is covered under a top-heavy defined benefit plan.
Each Participant covered by both a
27
<PAGE>
top-heavy defined benefit plan and a top-heavy defined contribution plan shall
receive the minimum benefit provided under the defined benefit plan.
14.3 Minimum vesting schedules. For any Plan Year in which this Plan is
top-heavy, the nonforfeitable interest of each Employee in his or her account
balance attributable to employer contributions shall be determined on the basis
of 100% vesting after three years of service. The minimum vesting schedule
applies to all benefits within the meaning of section 411(a)(7) of the Code
except those attributable to employee contributions, including benefits accrued
before the effective date of section 416 and benefits accrued before the Plan
became top-heavy. Further, no decrease in a Participant's nonforfeitable
percentage may occur in the event the Plan's status as top-heavy changes for any
Plan Year. However, this section does not apply to the account balances of any
Employee who does not have an hour of service after the Plan has initially
become top-heavy and such Employee's account balance attributable to employer
contributions and forfeitures will be determined without regard to this section.
If the vesting schedule under the plans shifts in or out of the above schedule
for any plan year because of the Plan's top-heavy status, such shift is an
amendment to the vesting schedule and each Participant with at least three years
of service may elect to have the nonforfeitable percentage under the Plan
computed without regard to the change.
14.4 Effect on section 415 limitations: If the Employer maintains both
a defined contribution plan and a defined benefit plan with an Employee who
participates, or could participate, in both plans, then for purposes of
computing the defined contribution fraction and defined benefit fraction
described in section 13.2 (b) and (c), the dollar limitation of sections
415(b)(1)(A) and 415(c)(1)(A) shall be multiplied by 1.0 in lieu of 1.25,
unless:
(a) Either (1) the benefits under each plan satisfy the minimum
requirements of section 416(h)(A)(ii)(I) and (II); or (2) the Plan benefits
satisfy standards otherwise developed by the Secretary of the Treasury; and
(b) The Plan would not be top heavy if 90 percent were substituted for
60 percent in paragraph 14.1 (b) above.
This Section shall be applicable for any Limitation Year which begins
after December 31, 1998.
ARTICLE XV. VOTING OF STOCK
A Participant may instruct the Trustee, in accordance with procedures
approved by the Committee, how to vote shares of Duke Power Company common stock
or units of the Duke Power Company Common Stock Fund credited to the Employee's
accounts. The Trustee shall vote the shares with respect to which it has
received instructions in accordance with the instructions. It shall vote other
shares held by it under the Plan in its capacity as Trustee.
28
<PAGE>
ARTICLE XVI. ADMINISTRATION
16.1 Plan Administrator: The Plan shall be administered by the Duke
Power Company Employees' Stock Purchase-Savings Program Committee or by a
successor individual or body designated by the Board of Directors of Duke Power
Company.
16.2 Power and Duties of the Committee: Except where prohibited by law,
the Committee retains the discretionary authority to determine eligibility for
benefits and to construe the terms of the Plan. The Committee shall have all
such powers as may be necessary to discharge its duties hereunder, including,
but not by way of limitation, the power to (a) interpret or construe the Plan,
(b) determine all questions of eligibility, (c) determine the classification,
status and rights of Employees, Participants and beneficiaries of Participants,
(d) determine the amount, manner and time of any distribution hereunder, and (e)
fix minimum periods of notice where notice is required, all in a manner not
inconsistent with the terms of the Plan. All rules and decisions of the
Committee shall be uniformly and consistently applied to all persons in similar
circumstances. The Committee shall be entitled to rely upon certificates of the
Employer and the Trustee as to information pertinent to any determination made
pursuant to the Plan.
The Committee shall cause to be maintained such books of accounts,
records and other data as may be necessary or advisable in its judgment for the
purpose of the proper administration of the Plan. The Committee shall appoint a
Plan Manager who shall have primary responsibility for management of regular
operations of the Plan and may appoint or employ such agents, attorneys and
clerical assistants as it deems necessary.
The Committee shall direct the Trustee concerning all payments that
shall be made from the Trust pursuant to the Plan.
The Committee shall by rule or regulation establish a claims procedure
under which each claimant shall receive notice in writing in the event any claim
for benefits under the Plan has been denied. The notice shall set forth the
specific reasons for the denial. The claims procedure shall also provide an
opportunity for full and fair review by the Committee of any denial of a claim.
If, in the Committee's judgment, any person to whom a distribution is
due is lacking in capacity because of illness, accident or otherwise, the
Committee may authorize the making of the distribution to any person or
institution that in the Committee's judgment is responsible for caring for the
person who is entitled to the distribution.
The Committee may act at a meeting or in writing without a meeting. It
may adopt such rules and regulations as it deems desirable for the conduct of
its affairs. Decisions by the Committee shall be made by the vote or assent of a
majority of its members. The Committee shall have the power to assign or
allocate any of its responsibilities among its members and to designate one or
more persons (including persons who are not members of the Committee) to carry
out its responsibilities.
Any action by the Committee on matters within its discretion shall be
final and conclusive as to all interested persons.
29
<PAGE>
16.3 Plan Expenses: Expenses of administering the Plan shall be paid by
the Employer to the extent such expenses are not paid by the Plan or charged
directly to Plan Participants.
ARTICLE XVII. ROLLOVER CONTRIBUTIONS
17.1 Rollover of Funds from Other Plans. In the event that an
individual
(a) becomes an Eligible Employee who meets the participation
requirements of the Plan under Section 3.1 other than the
service requirements, and
(b) shall have been a participant in an employer's plan
described in Section 401(a) of the Code, the trust of
which is exempt from tax under Section 501(a) of the Code,
and
(c) received from such trust an Eligible Rollover
Distribution, and
(d) such property consists of money, then, the Eligible
Employee may on and after April 1, 1997, transfer any
portion of the distribution greater than or equal to $500,
to the extent that it does not exceed the amount referred
to in subsection 402(c)(2) of the Code, to this Trust by
Direct Rollover from such other plan or by transferring
the distribution to the Trust on or before the sixtieth
(60th) day after the day on which he received such
property. Upon receipt by the Trust, such amount shall be
credited to the Rollover Account established hereunder.
The eligible Employee shall have a one-hundred percent
(100%) vested and nonforfeitable right to all amounts
credited to his Rollover Account as a result of such
transfer.
17.2 Transfer of amount distributed from a rollover IRA.
(a) An Eligible Employee who has received a distribution meeting the
requirements of Section 17.1, and who subsequently deposited such distribution
in an individual retirement account, as defined in Section 408, in accordance
with Code Section 408(d)(3)(A)(ii), may contribute part or all of a distribution
from such account (the "transferred amount") to the trust provided the
conditions set forth in (b) and (c) are satisfied.
(b) The transferred amount must be contributed to the Trust on or
before the 60th day following the Eligible Employee's receipt of the amount from
the individual retirement account.
(c) The distribution must consist of the entire amount in the
individual retirement account, and must include no amount attributable to any
source other than a qualified plan described in Code Section 401(a).
30
<PAGE>
17.3 Monitoring of rollovers.
(a) The Plan Administrator shall establish such procedures and require
such information from transferring employees as it deems necessary to insure
that amounts transferred under this Article XVII meet the requirements for
tax-free rollovers established by such section and by the Code and Treasury
regulations.
(b) No amount may be transferred under this Article XVII until approved
by the Plan Administrator.
17.4 Treatment of transferred amount under the Plan.
(a) The Administrator will establish an account (the "Rollover
Account") for each Eligible Employee making a contribution described in Section
17.1 or 17.2 above. The transferred amount will be invested as directed by the
Eligible Employee as if the Rollover Account were a Deferral or Additional
Deferral account. Upon retirement, death, or other termination of employment,
the Eligible Employee's rollover account shall be distributed to him in
accordance with Article IX.
(b) Notwithstanding any provision of this Plan to the contrary, to the
extent that any optional form of benefit under this Plan permits a distribution
prior to the Eligible Employee's retirement, death, disability, or severance
from employment, and prior to Plan termination, the optional form of benefit is
not available with respect to benefits attributable to assets (including the
post-transfer earnings thereon) and liabilities that are transferred, within the
meaning of section 414(l) of the Internal Revenue Code, to this Plan from a
money purchase pension plan qualified under section 401(a) of the Internal
Revenue Code (other than any portion of those assets and liabilities
attributable to voluntary employee contributions).
(c) The Eligible Employee will at all times have a fully vested and
nonforfeitable interest in the amount credited to his Rollover Account.
(d) An Eligible Employee who contributes an amount to the Plan in
accordance with this Article XVII will not become a Participant until he or she
has satisfied the requirements of Article III. However, such an Eligible
Employee will be treated as a Participant, with respect to his or her interest
in Rollover Account, except that such a Participant may not receive either
in-service withdrawals or loans until he or she has satisfied the general
participation requirements set forth in Section 3.1.
ARTICLE XVIII. TRUSTEE
Duke Power Company, representing the Employer, shall enter into a trust
agreement which shall provide, among other things, for a Trust to which all
contributions shall be paid, and the Trustee shall have such rights, powers and
duties as are set forth in the trust agreement. All assets of the Trust shall be
held and invested in accordance with the provisions of the trust agreement and
the Plan for the sole benefit of Participants and their beneficiaries. The
Trustee
31
<PAGE>
shall be responsible solely for the investment and safekeeping of the
assets of the Trust and shall have no responsibility for the operation or
administration of the Plan. The Trustee shall have the authority to make
distributions and to pay moneys to or on the order of the Committee upon
requisition drawn upon the Trustee.
ARTICLE XIX. FIDUCIARY LIABILITIES
The Employer, Officers and Directors of the Employer, the Committee
(including the individual members thereof), the Trustee, the Plan Manager, and
any person who is deemed to be a fiduciary under the Plan (these persons and
entities are referred to below as "they") shall not be liable for a breach of
fiduciary responsibility of another fiduciary under the Plan except to the
extent (a) they shall have participated knowingly in, or knowingly undertaken to
conceal, an act or omission of such fiduciary, knowing such act or omission was
a breach of such fiduciary's fiduciary responsibilities, (b) they shall have
through a breach of their fiduciary responsibilities enabled such fiduciary to
commit a breach of its fiduciary responsibilities, or (c) they shall have
knowledge of a breach of fiduciary responsibilities by such fiduciary, unless
they have made reasonable efforts to remedy the breach.
They also shall not be liable for the acts or omissions of any person
or persons to whom any authority, power or responsibility has been allocated or
who have been designated to carry out their responsibilities, except to the
extent they shall have violated their fiduciary responsibilities with respect to
such allocation or designation or would otherwise be liable under provisions of
the immediately preceding paragraph.
The Committee, its individual members and other fiduciaries who are
employed by the Employer shall be indemnified by the Employer or from proceeds
under insurance policies purchased by the Employer against any and all
liabilities arising by reason of any act or failure to act made in good faith
pursuant to the provisions of the Plan, including expenses reasonably incurred
in the defense of any claim relating thereto.
ARTICLE XX. AMENDMENT OR TERMINATION
The Plan may be amended or terminated by action of the Management
Committee of the Board of Directors of Duke Power Company, but no amendment or
termination shall cause any of the assets of the Trust to be used for or be
diverted to any purpose other than the exclusive benefit of Participants or
their beneficiaries and no amendment may retroactively reduce a Participant's
account. In the case of a termination, partial termination or a complete
discontinuance of contributions to the Plan, all amounts credited to the
accounts of Participants shall become nonforfeitable.
32
<PAGE>
ARTICLE XXI. GENERAL PROVISIONS
21.1 Source of Distributions: Distributions under this Plan shall be
made only out of the Trust. No persons shall have any rights under the Plan with
respect to the Trust, or against the Trustee or the Employer, except as
specifically provided for herein.
21.2 Inalienability of Benefits: Except as otherwise provided by law,
no person shall have the right to assign, alienate, transfer, hypothecate or
otherwise subject to lien an interest in or benefit under the Plan nor shall
benefits under the Plan be subject to the claims of any creditor.
21.3 Merger or Consolidation: In case of a merger or consolidation
with, or transfer of assets or liabilities to, any other plan, each Participant
shall (if a termination immediately occurs) receive a benefit at least as large
as that he would have been entitled to had the Plan been terminated immediately
before the merger, consolidation or transfer.
21.4 No Right to Employment: The Plan confers no right upon any
Employee to continue employment with an Employer company.
21.5 Controlling Law: The administration of the Plan shall be governed
by the laws of the state of North Carolina, except to the extent preempted by
the laws of the United States, and any persons or corporation who now are or
later become parties to the Plan shall be deemed to consent to this provision.
21.6 Investment Risk: Each Participant assumes all investment risk
connected with the Plan, including the selection of investment Funds and any
changes in the market price of Duke Power Company common stock, United States
Savings Bonds, or any units of the Funds offered under the Plan; the Committee
retains the right to modify the investment options offered under the Plan at any
time with respect to both existing account balances and future investments.
33
<PAGE>
In witness whereof this plan has been executed by the Company,
pursuant to action of the Management Committee of the Board of Directors on
December 23, 1996.
ATTEST: DUKE POWER COMPANY
- -------------------------------- --------------------------------
Ellen T. Ruff W. H. Grigg
Secretary & Deputy General Counsel Chairman and Chief Executive Officer
34
<PAGE>
APPENDIX A
Affiliated Employers which have been authorized to participate in the
plan and have adopted the plan:
Crescent Resources, Inc.
Duke Engineering & Services, Inc.
DE&S Northwest, Inc.
Duke Energy Corp.
Nantahala Power and Light Company
Intera, Inc.
35
<PAGE>
APPENDIX B
Duke Power Company Stock Purchase-Savings Program as effective on
December 31, 1996, which continues in effect for Employees of Nantahala Power
and Light Company and for certain Employees covered by collective bargaining
agreements as more fully described in Section 2.19.
36
<PAGE>
APPENDIX C
VESTING PROVISIONS APPLICABLE PRIOR TO APRIL 1, 1993
ARTICLE XII. VESTING
A Participant's Deferral, Additional Deferral, Regular Contribution and
Additional Contribution accounts shall be fully vested at all times. Matching
Contributions made in accordance with Article V and earnings thereon shall vest
at the earliest of:
(a) With respect to a Participant with at least one Hour of Service on
or after November 1, 1989, the completion by such Participant of at least five
Years of Service with the Employer, whether or not consecutive. (In determining
the Years of Service completed by a Participant in Plan Years ending prior to
November 1, 1989, a Participant shall receive a year of service for each such
prior Plan Year if the Participant was performing services on the last day of
such prior Plan Year. Similarly, if the Participant was not performing services
on the last day of such prior Plan Years, the Participant shall be treated as if
a one-year Break in Service occurred for such prior Plan Year.);
(b) The end of the second Plan Year following the Plan Year for which
the contributions were made,
(c) death of the Participant,
(d) retirement under provisions of the Duke Power Company
Employees' Retirement Plan or the Retirement Plans for Salaried and Hourly
Employees of Nantahala Power and Light Company,
(e) a layoff because of lack of available work,
(f) Termination of Employment if a showing of hardship, as defined
in section 10.1(d), is made to the satisfaction of the Plan Manger,
(g) the time of termination or partial termination of the Plan or a
complete discontinuance of contributions,
(h) attainment by the Participant of age 65, and
(i) Involuntary Termination of Employment on account of the sale or
other disposition by an Employer of substantially all of its operating assets or
the sale or other disposition of all of the stock of an Employer to an entity
not required to be aggregated under sections 414(b), (c), (m) or (o) of the
Code.
Employer contributions made in accordance with Article VI or Article
VII shall vest on the December 31 as of which eligibility for the contributions
is determined.
37
Exhibit No. 10-Y
DUKE POWER COMPANY
RETIREMENT CASH BALANCE PLAN
As Amended and Restated
Effective January 1, 1997
<PAGE>
DUKE POWER COMPANY RETIREMENT CASH BALANCE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE................................................................................ 1
ARTICLE 1 DEFINITIONS AND CONSTRUCTION................................................. 2
1.1 ACCRUED BENEFIT........................................................ 2
1.2 ACTIVE PARTICIPANT..................................................... 2
1.3 ACTUARIAL EQUIVALENT................................................... 2
1.4 ACTUARIAL VALUE........................................................ 3
1.5 ACTUARY................................................................ 3
1.6 AFFILIATE.............................................................. 3
1.7 ATTAINED AGE........................................................... 3
1.8 ANNUITY STARTING DATE.................................................. 3
1.9 BENEFICIARY............................................................ 3
1.10 BOARD.................................................................. 3
1.11 BREAK IN SERVICE.........................................................4
1.12 CASH BALANCE ACCOUNT................................................... 4
1.13 CODE................................................................... 4
1.14 COMPANY................................................................ 4
1.15 COMPENSATION........................................................... 4
1.16 CONTRIBUTION CREDITS................................................... 5
1.17 CREDITABLE SERVICE..................................................... 5
1.18 DEATH BENEFIT.......................................................... 6
1.19 DEFINED BENEFIT PLAN................................................... 6
1.20 DEFINED CONTRIBUTION PLAN.............................................. 6
1.21 DISABILITY BENEFIT..................................................... 6
1.22 DISABILITY DATE........................................................ 6
1.23 DISABILITY DISTRIBUTION DATE........................................... 6
1.24 DISABLED PARTICIPANT................................................... 6
1.25 EARLY RETIREMENT DATE.................................................. 6
1.26 EFFECTIVE DATE...........................................................7
1.27 EMPLOYEE............................................................... 7
1.28 EMPLOYER............................................................... 7
1.29 EMPLOYMENT COMMENCEMENT DATE........................................... 7
1.30 EMPLOYMENT TERMINATION DATE............................................ 7
1.31 ERISA.................................................................. 7
1.32 GRANDFATHERED EARLY RETIREMENT DATE..................................... 7
1.33 HIGHLY COMPENSATED EMPLOYEE............................................. 7
1.34 HOUR OF SERVICE......................................................... 8
1.35 INTEREST CREDITS....................................................... 10
i
<PAGE>
1.36 INVESTMENT MANAGER..................................................... 10
1.37 KEY EMPLOYEE........................................................... 11
1.38 LATE RETIREMENT DATE................................................... 11
1.39 LEASED EMPLOYEE........................................................ 11
1.40 LIMITATION YEAR........................................................ 11
1.41 1996 PLAN BENEFIT...................................................... 12
1.42 1996 TERMINATED PARTICIPANT............................................ 12
1.43 NORMAL RETIREMENT DATE................................................. 12
1.44 PARTIAL DISABILITY..................................................... 12
1.45 PARTICIPANT............................................................ 12
1.46 PERMISSIVE AGGREGATION GROUP........................................... 12
1.47 PLAN................................................................... 12
1.48 PLAN ADMINISTRATOR..................................................... 13
1.49 PLAN YEAR.............................................................. 13
1.50 PRIOR PLAN............................................................. 13
1.51 QUALIFIED JOINT AND SURVIVOR ANNUITY................................... 13
1.52 REQUIRED AGGREGATION GROUP............................................. 13
1.53 REEMPLOYMENT COMMENCEMENT DATE......................................... 13
1.54 RETIREMENT BENEFIT..................................................... 13
1.55 RETIREMENT PLAN COMMITTEE............................................. 13
1.56 SEVERANCE FROM SERVICE DATE............................................ 13
1.57 SPOUSE................................................................. 13
1.58 TERMINATION BENEFIT.....................................................14
1.59 TOP HEAVY PLAN..........................................................14
1.60 TOTAL AND PERMANENT DISABILITY OR TOTALLY AND PERMANENTLY DISABLED......15
1.61 TRUST FUND..............................................................15
1.62 TRUST AGREEMENT.........................................................15
1.63 TRUSTEE.................................................................15
1.64 VESTING SERVICE.........................................................15
ARTICLE 2 PARTICIPATION................................................................ 17
2.1 GRANDFATHERED PARTICIPATION............................................ 17
2.2 PARTICIPATION UPON EMPLOYMENT OR RE-EMPLOYMENT......................... 17
2.3 LIMITATIONS ON PARTICIPATION........................................... 17
2.4 PLAN BINDING........................................................... 17
ARTICLE 3 RETIREMENT BENEFITS........................................................... 18
3.1 GENERAL................................................................ 18
3.2 NORMAL RETIREMENT...................................................... 18
3.3 EARLY RETIREMENT....................................................... 18
3.4 LATE RETIREMENT........................................................ 19
3.5 DISABILITY DISTRIBUTION................................................ 19
3.6 CASH BALANCE ACCOUNT................................................... 19
ii
<PAGE>
3.7 OPENING BALANCE........................................................ 19
3.8 CONTRIBUTION CREDITS................................................... 21
3.9 INTEREST CREDITS....................................................... 22
3.10 TERMINATION OF CASH BALANCE ACCOUNT.................................... 23
ARTICLE 4 PAYMENT OF RETIREMENT BENEFITS............................................... 24
4.1 BENEFIT FORMS.......................................................... 24
4.2 PROOF OF ENTITLEMENT................................................... 25
4.3 NONFORFEITABLE RIGHT AT NORMAL RETIREMENT.............................. 25
4.4 DIRECT ROLLOVER........................................................ 26
4.5 LUMP SUM DISTRIBUTIONS LESS THAN $3,500................................ 26
4.6 REEMPLOYMENT OF A RETIRED PARTICIPANT.................................. 27
ARTICLE 5 BENEFITS UPON TERMINATION OF EMPLOYMENT...................................... 28
5.1 DEFERRED VESTED BENEFIT................................................ 28
ARTICLE 6 BENEFITS UPON DEATH.......................................................... 29
6.1 DEATH BENEFIT FOR MARRIED PARTICIPANTS................................. 29
6.2 DEATH BENEFIT FOR PARTICIPANTS WHO ARE NOT MARRIED..................... 29
6.3 DEATH OF A RETIRED PARTICIPANT......................................... 30
ARTICLE 7 RESTRICTIONS ON BENEFITS AND DISTRIBUTION.................................... 31
7.1 BENEFIT COMMENCEMENT LIMITATIONS....................................... 31
7.2 MINIMUM DISTRIBUTION RULES............................................. 31
7.3 REQUIRED DISTRIBUTION PERIODS.......................................... 32
7.4 LIMITATION ON ANNUAL BENEFITS.......................................... 33
7.5 COMBINED BENEFIT LIMITATIONS........................................... 36
7.6 CORRECTIVE ADJUSTMENTS................................................. 38
7.7 BENEFIT OFFSET......................................................... 38
7.8 TOP-25 HIGHEST PAID LIMITATION......................................... 38
7.9 QUALIFIED DOMESTIC RELATIONS ORDER..................................... 39
ARTICLE 8 SPECIAL PROVISIONS APPLICABLE TO MERGERS, ACQUISITIONS AND RELATED EMPLOYERS. 40
8.1 PRIOR SERVICE AS AN EMPLOYEE OF VECTRA TECHNOLOGIES, INC. ............. 40
8.2 PRIOR SERVICE AS AN EMPLOYEE OF DE&S NORTHWEST, INC. OR
INTERA, INC. .......................................................... 40
ARTICLE 9 MEDICAL BENEFITS............................................................. 41
9.1 MEDICAL BENEFITS FOR RETIRED EMPLOYEES................................. 41
9.2 ELIGIBLE INDIVIDUALS................................................... 41
9.3 MEDICAL BENEFITS....................................................... 41
9.4 SEPARATE ACCOUNT....................................................... 42
9.5 CONTRIBUTIONS...........................................................42
iii
<PAGE>
9.6 PAYMENT OF BENEFITS.....................................................42
9.7 DISCRIMINATION..........................................................42
9.8 IMPOSSIBILITY OF DIVERSION..............................................43
9.9 FORFEITURES.............................................................43
9.10 RIGHT TO TERMINATE BENEFITS.............................................43
ARTICLE 10 PLAN ADMINISTRATION......................................................... 44
10.1 PLAN ADMINISTRATOR..................................................... 44
10.2 APPOINTMENT ........................................................... 44
10.3 TERM AND COMPENSATION.................................................. 44
10.4 CLAIMS REVIEW.......................................................... 44
10.5 PLAN ADMINISTRATOR ACTIONS............................................. 45
10.6 BENEFIT PAYMENT DIRECTIONS............................................. 45
10.7 NONDISCRIMINATION...................................................... 46
10.8 AGENTS..................................................................46
10.9 RECORDS AND REPORTS.....................................................46
10.10 INDEMNIFICATION.........................................................46
10.11 FUNDING POLICY..........................................................47
10.12 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR.............................47
10.13 EMPLOYER TO SUPPLY INFORMATION..........................................48
10.14 SELF-INTEREST...........................................................48
ARTICLE 11 CONTRIBUTIONS BY THE EMPLOYER............................................... 49
11.1 EMPLOYER CONTRIBUTIONS................................................. 49
11.2 EXPENSES............................................................... 49
11.3 ACTUARY................................................................ 49
11.4 FUNDING STANDARD ACCOUNT............................................... 49
ARTICLE 12 THE TRUST FUND AND TRUSTEE.................................................. 50
12.1 TRUST AGREEMENT........................................................ 50
12.2 TRUST FUND............................................................. 50
12.3 APPOINTMENT OF TRUSTEE..................................................50
12.4 INVESTMENT MANAGERS.....................................................50
12.5 POWERS..................................................................51
12.6 PLAN A PART OF TRUST AGREEMENT..........................................51
12.7 SETTLEMENT OF ACCOUNTS..................................................51
ARTICLE 13 RESERVATION AND LIMITATIONS ON RIGHTS ...................................... 52
13.1 BENEFITS............................................................... 52
13.2 CONTRIBUTIONS.......................................................... 52
13.3 NO EMPLOYMENT CONTRACT................................................. 52
13.4 SPENDTHRIFT CLAUSE..................................................... 52
13.5 RETURN OF CONTRIBUTIONS................................................ 53
iv
<PAGE>
ARTICLE 14 AMENDMENTS................................................................... 54
14.1 AMENDMENT OF THE PLAN.................................................. 54
14.2 LIMITATIONS ON RIGHT TO AMEND.......................................... 54
ARTICLE 15 TERMINATION OR TEMPORARY DISCONTINUANCE OF THE PLAN.......................... 55
15.1 TERMINATION............................................................ 55
15.2 APPOINTMENT OF TRUST FUND...............................................55
15.3 ALLOCATION OF TRUST FUND............................................... 55
15.4 DISTRIBUTION OF TRUST FUND..............................................55
15.5 LIMITATIONS ON BENEFITS.................................................56
15.6 NONFORFEITABILITY.......................................................56
ARTICLE 16 ACTUARY.......................................................................57
16.1 DUTIES..................................................................57
16.2 INFORMATION.............................................................57
16.3 RELIANCE................................................................57
16.4 ACTUARIAL DETERMINATIONS................................................57
ARTICLE 17 PLAN FIDUCIARIES..............................................................58
17.1 NAMED FIDUCIARIES.......................................................58
17.2 ALLOCATION OF DUTIES OF FIDUCIARIES.....................................58
ARTICLE 18 ENTRY AND WITHDRAWAL OF A PARTICIPATING EMPLOYER..............................59
18.1 ADOPTING EMPLOYERS......................................................59
18.2 SUCCESSOR COMPANIES.....................................................59
18.3 WITHDRAWAL OF AN EMPLOYER...............................................60
ARTICLE 19 TOP HEAVY RULES...............................................................61
19.1 GENERALLY...............................................................61
19.2 VESTING.................................................................61
19.3 MINIMUM BENEFIT.........................................................61
19.4 TOP HEAVY COMPENSATION..................................................62
19.5 TESTING YEAR............................................................62
19.6 FULL COMPENSATION.......................................................62
19.7 TOP HEAVY SERVICE.......................................................62
19.8 COMBINED LIMITATION OF BENEFITS.........................................62
ARTICLE 20 MISCELLANEOUS................................................................ 64
20.1 INTERPRETATION BY PLAN ADMINISTRATOR................................... 64
20.2 HEADINGS............................................................... 64
v
<PAGE>
20.3 GOVERNING LAW.......................................................... 64
20.4 BENEFITS TO MINORS AND INCOMPETENTS.................................... 64
20.5 SEVERABILITY........................................................... 64
20.6 MISSTATEMENT OF FACTS.................................................. 65
20.7 BENEFITS ON MERGER OR CONSOLIDATION TO SUCCESSOR PLAN.................. 65
20.8 UNCLAIMED BENEFITS..................................................... 65
20.9 EXCLUSIVE BENEFIT...................................................... 65
SIGNATURES................................................................................66
</TABLE>
vi
<PAGE>
DUKE POWER COMPANY RETIREMENT CASH BALANCE PLAN
As Amended and Restated
Effective January 1, 1997
PREAMBLE
Duke Power Company, a corporation organized under the laws of the
state of North Carolina adopted the Duke Power Company
Employee's Retirement Plan as of January 1, 1943, to provide
retirement benefits for its employees. The Plan was later
adopted by Crescent Resources, Inc., Duke Engineering & Services,
Inc., Intera, Inc., Duke Energy Corp., and DE&S Northwest, Inc.
to provide retirement benefits for their employees.
This Plan modifies and retains the program of benefits previously
maintained and makes those changes necessary to comply with
current law and incorporate additional benefit modifications.
The terms and conditions of the Plan shall, except as otherwise
specifically provided in this Plan and this Preamble, apply only
to Participants who have not retired or terminated their
employment with the Company as of January 1, 1997. Except as
otherwise provided herein, the right to any benefits under the
Plan, with respect to a Participant who retired or terminated
employment with the Company prior to January 1, 1997, shall be
determined in accordance with the terms of the Plan as in effect
at his date of retirement or termination of employment. However,
the Plan shall not apply to any collective bargaining unit until
the Plan is implemented with respect to such collective
bargaining unit. The terms and conditions of the Prior Plan shall
remain in full force and effect for any Participant that is a
member of a collective bargaining unit for whom benefits under
the Prior Plan have been negotiated in good faith and for whom
benefits under this Plan have not been implemented.
The Plan, as restated, is intended to continue the Plan as a
retirement plan qualified under Code Section 401(a) and the
separate Trust Agreement is intended to continue the Trust as tax-
exempt under Code Section 501(a).
The purpose of this Plan is to provide Employees who qualify as
Participants with retirement and incidental benefits from the
assets of the Trust in addition to any other benefits such
Participants may be entitled to receive under any other benefit
program sponsored by the Company or under the federal Social
Security Act.
The Company intends this Plan, in conjunction with the Trust
Agreement, to meet all of the requirements of ERISA and the Code
and the terms of this Plan shall be interpreted to comply with
ERISA and the Code and all final regulations and formal rulings
issued under ERISA and the Code.
<PAGE>
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
The following words and phrases shall have the meanings specified
and set forth opposite such terms for purposes of this Plan:
1.1 Accrued Benefit shall mean, as of any date, the following
amount:
(a) A Participant's Cash Balance Account described in
Section 3.6. However, in no event will a Participant's
Accrued Benefit be less than the Actuarial Value of his
retirement benefit as of the date of adoption of this
restated Plan, as determined pursuant to the provisions
of the Prior Plan as in effect immediately prior to the
Effective Date.
(b) If the Participant is a 1996 Terminated
Participant, the Participant's Accrued Benefit shall be
the sum of the Participant's Cash Balance Account and
the Actuarial Value of the Participant's 1996 Plan
Benefit, if any.
1.2 Active Participant shall mean an Employee who has become a
Participant as provided in Section 2.1 and who
(a) is an Employee as of the date of reference, or
(b) terminated employment following his Disability Date and continues to
suffer from a Total and Permanent Disability as of the date of
reference, but not yet commenced distribution of benefits under the
Plan.
However, an Active Participant shall not include an Employee
who is receiving retirement disability benefits under the
Duke Power Company Group Life Insurance Plan as of the
Effective Date.
1.3 Actuarial Equivalent shall mean a benefit of equivalent
value, as certified by the Actuary, computed on the basis of
the following assumptions with respect to determinations
made on and after January 1, 1997.
Mortality - the blended (50/50) 1983 Group
Annuity Mortality Table.
Interest - 7%, compounded annually.
2
<PAGE>
1.4 Actuarial Value shall mean a benefit of equivalent value, as
certified by the Actuary, of a Participant's benefit
provided under the Plan, computed on and after January 1,
1997, on the basis of the following assumptions:
Mortality - the table described in Section
417(e) of the Code, which for 1997 is the
blended (50/50) 1983 Group Annuity Mortality
Table.
Interest - the annual yield on 30-year
Treasury securities determined as the average
for the month of November prior to the
beginning of the Plan Year during which the
Annuity Starting Date begins, determined in
accordance with Section 417(e) of the Code.
1.5 Actuary shall mean a person who has been enrolled by the
Joint Board for the Enrollment of Actuaries, or a firm of
actuaries at least one of whose members is a person who has
been so enrolled. The Actuary shall be designated by the
Plan Administrator.
1.6 Affiliate shall mean an organization which is a member of
the same controlled group of organizations as the
Corporation, as defined in Code Section 414(b), (c), (m),
and (o).
1.7 Attained Age shall mean, unless clearly indicated to the
contrary, the age of an Employee or Participant on such
date, determined in whole and partial years.
1.8 Annuity Starting Date shall mean the first day of the first
month with respect to which an amount is received as a benefit
under the Plan.
1.9 Beneficiary shall mean any person or persons (or a trust)
designated by a Participant in such form and manner as the
Retirement Plan Committee shall prescribe to receive a Death
Benefit, other than a Death Benefit in the form specified in
Section 6.1, payable hereunder if such person or persons
survive the Participant. This designation may be revoked at
any time in similar manner and form prior to the
commencement of benefits. In the event of the death of the
designated Beneficiary prior to the death of the
Participant, the Contingent Beneficiary shall be entitled to
receive the Death Benefit unless the Beneficiary was named
pursuant to Section 6.1, in which case the provisions of
Section 6.1 shall govern. Notwithstanding the above, a
married Participant may not designate a Beneficiary who is
not his Spouse without the written consent of his Spouse
obtained in the manner required by the Plan Administrator.
1.10 Board shall mean the Board of Directors of the Company
or the Management Committee of the Board of Directors to the
extent that such committee has authority to act on behalf of
the Board of Directors of the Company.
3
<PAGE>
1.11 Break in Service shall mean a Plan Year in which the
Employee is credited with fewer than five hundred and one
(501) Hours of Service following his Severance from Service
Date.
Notwithstanding the preceding paragraph and solely to
determine whether a Break in Service has occurred, a
Participant who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of
Service that would otherwise have been credited to the
Participant but for such absence, or in any case in which
such Hours cannot be determined, ten (10) Hours of Service
for each day of such absence. In no event, however, shall
the Hours of Service credited pursuant to the immediately
preceding sentence exceed five hundred and one (501). For
purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence (i) by
reason of the pregnancy of the Participant, (ii) by reason
of the birth of a child of the Participant, (iii) by reason
of the placement of a child with the Participant in
connection with the adoption of such child by the
Participant, or (iv) for purposes of caring for such child
for a period beginning immediately following such birth or
placement. The Hours of Service credited under this
paragraph shall be credited (i) in the Plan Year or other
applicable computation period in which the absence begins if
the crediting is necessary to prevent a Break in Service in
that Plan Year or other computation period, or (ii) in all
other cases, in the following Plan Year or other applicable
computation period. Hours of Service shall also be credited
to the extent necessary to comply with the Company's
nondiscriminatory policies and procedures (such as an
approved leave of absence or applicable layoff period), or
the Family and Medical Leave Act, the Uniformed Services
Employment and Reemployment Rights Act and other applicable
law.
1.12 Cash Balance Account shall mean the bookkeeping entry
reflecting a Participant's Accrued Benefit, as described in
Section 3.6.
1.13 Code shall mean the Internal Revenue Code of 1986, as
amended.
1.14 Company shall mean Duke Power Company, a North Carolina
corporation, and any successor, assign or other entity
required to be included as part of the Company as a single
employer under applicable provisions of the Code or ERISA.
1.15 Compensation shall mean, for all Participants, all amounts
received for services actually rendered in the course of
employment with the Employer maintaining the Plan to the
extent that such amounts are includible in the Participant's
gross income as wages required to be reported under Code
Sections 6041, 6051 and 6052 (Box 1 of Form W-2), without
regard to limits on wages under Code Section 3401, such as
the exemption for agricultural labor. Compensation shall
also include any amount which is contributed by the Employer
pursuant to a salary reduction agreement and which is not
includible in the gross income of the Participant under Code
Sections 125 or 401(k). However,
4
<PAGE>
Compensation shall not include expense reimbursements and allowances, cash
or noncash fringe benefits, moving expenses, the receipt of compensation
previously deferred, excellence awards, welfare benefits, severance pay,
pay for unused vacation, incentive pay paid after termination of
employment, or long-term incentive payments (incentives attributable to
multi-year performance periods for which no incentive is earned or paid
until the end of the multi-year period). Incentive pay, including that
attributable to participation in equity awards, that is paid to employees
of Crescent Resources, Inc. will not constitute Compensation unless it is
paid from the Crescent Resources Employee Goal Program.
Compensation of a Participant in excess of the amount
authorized pursuant to Code Section 401(a)(17) ($160,000 for
1997) for any Plan Year or any portion of a Plan Year shall
not be recognized; provided that the greatest amount
authorized for Plan Years before 1994 shall be used
retroactively to the extent permitted by the Code.
1.16 Contribution Credits shall mean the bookkeeping entry used
to account for benefit contributions made on behalf of an
Active Participant, as determined in accordance with Section
3.8.
1.17 Creditable Service shall mean the number of full years and
fractions of years for which a Participant is given credit
in calculating his Retirement Benefit, Termination Benefit
or Death Benefit payable from the Plan, determined as
follows:
(a) A Participant who was an employee on or before
December 31, 1992, shall be credited with years of
Creditable Service for the years and fractions of years
during his employment prior to January 1, 1992 while he
was eligible to participate, in accordance with the
terms of the Prior Plan.
(b) For Plan Years beginning after December 31, 1992,
a Participant shall be credited with one twelfth (1/12)
year of Creditable Service for each full month in each
period beginning on the date he satisfies the
requirements for membership in the Plan or his Re-
employment Commencement Date and ending on his
Employment Termination Date and any partial calendar
months ending on his Employment Termination Date during
which he was a Participant.
(c) In determining a Participant's 1996 Plan Benefit,
no more than 30 years of Creditable Service is taken
into account, in accordance with the terms of the Prior
Plan.
(d) If a Participant whose vested Accrued Benefit is
zero (0) incurs five (5) or more consecutive Breaks in
Service, the number of which equaled or exceeded the
number of his years of Creditable Service prior to such
consecutive Breaks in
5
<PAGE>
Service, his years of Creditable Service completed before such
consecutive Breaks in Service shall be disregarded in determining
his total years of Creditable Service.
Notwithstanding any other provision to the contrary,
Creditable Service shall also include service credited to
the extent necessary to comply with the Family and Medical
Leave Act, the Uniformed Services Employment and
Reemployment Rights Act and other applicable law.
1.18 Death Benefit shall mean any benefit paid to a Beneficiary
or Contingent Beneficiary or other person at the death of a
Participant or a Retired Participant, as provided under the
terms of the Plan.
1.19 Defined Benefit Plan shall mean a plan that is established
and qualified under Code Section 401 or 404 except to the
extent it is, or is treated as, a Defined Contribution Plan.
1.20 Defined Contribution Plan shall mean a plan that is
established and qualified under Code Section 401 or 403,
which provides for an individual account for each
participant therein and for benefits based solely on the
amount contributed to each participant's account and any
income and expenses or gains or losses (both realized and
unrealized) which may be allocated to such account.
1.21 Disability Benefit shall mean the Retirement Benefit due a
Disabled Participant.
1.22 Disability Date shall mean the date on which a Participant
ceases to perform services for the Employer because of his
Total and Permanent Disability.
1.23 Disability Distribution Date shall mean the first day of the
month following a Participant's Disability Date that is
coincident with or subsequent to the Participant's Early
Retirement Date on which the Participant ceases to perform
services for the Employer and he no longer receives
Creditable Service because of his Total and Permanent
Disability.
1.24 Disabled Participant shall mean any Active Participant who
is Totally and Permanently Disabled.
1.25 Early Retirement Date shall mean, in the case of a
Participant who has reached Attained Age fifty-five (55) and
been credited with five (5) or more years of Vesting
Service, the first day of the month coinciding with or
otherwise immediately following the later of (a) the date
the Participant shall leave the employ of the Company, or
(b) the date the Participant directs in writing shall be his
Early Retirement Date.
6
<PAGE>
1.26 Effective Date shall mean the January 1, 1997, effective
date of this amended and restated Plan, except as otherwise
specifically provided herein.
1.27 Employee shall mean any individual who is a common law
employee of the Employer, including Leased Employees, unless
such Leased Employees are members of a money purchase
pension plan sponsored by the leasing organization that
provides immediate participation, full and immediate vesting
and a non-integrated contribution equal to at least seven
and one-half percent (7-1/2%) of the employee's
compensation.
1.28 Employer shall mean Duke Power Company, and any other
Affiliate that adopts this Plan in writing, or any successor
to Duke Power Company or Affiliate.
1.29 Employment Commencement Date shall mean the date an Employee
first performs an Hour of Service for the Employer
coincident with or following his date of hire or rehire.
1.30 Employment Termination Date shall mean the date on which an
Employee dies, or the date on which he quits, retires, or is
discharged, otherwise terminates employment with the
Employer.
1.31 ERISA shall mean the Employee Retirement Income Security Act
of 1974, as such Act may be amended from time to time.
1.32 Grandfathered Early Retirement Date shall mean, in the case
of a Participant who was an Employee before the Effective
Date, was a participant in the Prior Plan, has reached
Attained Age fifty-one (51), and has been credited with
thirty (30) or more years of Creditable Service under the
terms of the Prior Plan, the first day of the month
coinciding with or otherwise immediately following the date
the Participant leaves employment with the Company and he
directs in writing that his Annuity Starting Date begin
before Attained Age fifty-five (55).
1.33 Highly Compensated Employee shall mean a person who, (1)
during the look-back year or the determination year, was at
any time a five percent (5%) owner of the Employer; or (2)
during the look-back year received compensation from the
Employer in excess of eighty thousand dollars ($80,000) (or
such higher amount as may be provided under Code Section
414(q));
(a) For purposes of determining Highly Compensated
Employees, compensation shall mean compensation paid by
the Employer for purposes of Code Section 415(c)(3) and
shall include amounts deferred pursuant to Code
Sections 125 (flexible benefit plans); 402(g)(3)
(salary redirection); and 402(h)(1)(B) (simplified
employee plans).
7
<PAGE>
(b) A former employee shall be treated as a Highly
Compensated Employee if (1) such employee was a Highly
Compensated Employee when he separated from service, or
(2) he was a Highly Compensated Employee at any time
after reaching Attained Age fifty-five (55).
(c) Except as otherwise provided in this Section, the
look-back year shall be the twelve (12) month period
immediately preceding the determination year and the
determination year shall be the current Plan Year.
(d) Highly Compensated Employees shall be determined
on a Company-wide basis (including all Affiliates)
rather than by Employer or by plan.
(e) The determination of Highly Compensated Employees
shall be governed by Code Section 414(q) and the
regulations issued thereunder.
1.34 Hour of Service shall mean each hour for which an
Employee is paid, or entitled to payment, by the Company
during the applicable computation period (i) for the
performance of duties; (ii) on account of a period of time
during which no duties are performed, regardless of whether
the employment relationship has terminated; and (iii) as a
result of a back pay award that has been agreed to or made
by the Employer to the extent that such hour has not
previously been credited under item (i) or item (ii)
preceding (irrespective of mitigation of damages).
(a) The number of Hours of Service to be credited on
account of a period of time during which no duties are
performed (including hours resulting from a back pay
award) shall be determined as follows. If the payment
which is made or due is calculated on the basis of
units of time, the number of Hours of Service to be
credited shall be the number of regularly scheduled
working hours included in the units of time on the
basis of which the payment is calculated. If an
employee does not have a regular work schedule, the
number of Hours of Service to be credited shall be
calculated on the basis of an eight (8) hour work day.
If the payment which is made or due is not calculated
on the basis of units of time, the number of Hours of
Service to be credited shall be calculated by dividing
the amount of the payment by the employee's most recent
hourly rate of compensation before the period during
which no duties were performed, determined as follows:
(1) If the employee's compensation is
determined on the basis of an hourly rate, such
hourly rate shall be the employee's most recent
hourly rate of compensation.
(2) If the employee's compensation is
determined on the basis of a fixed rate for a
specified period of time other than hours, his
hourly rate of
8
<PAGE>
compensation shall be his most recent rate of compensation for
the specified period of time, divided by the number of hours
regularly scheduled for the performance of duties during such
period of time; if an employee does not have a regular work
schedule, his hourly rate of compensation shall be calculated on
the basis of an eight (8) hour work day.
(3) If the employee's compensation is not
determined on the basis of a fixed rate for a
specified period of time, his hourly rate of
compensation shall be the lowest hourly rate paid
to employees in his job classification, or, if no
employees in his job classification have an hourly
rate of compensation, the minimum non-training
wage in effect under Section 6(a)(1) of the Fair
Labor Standards Act of 1938, as amended.
(b) In no event shall the application of the terms of
Section 1.34(a) result in crediting an employee with a
number of Hours of Service during the period which is
greater than the number of hours regularly scheduled
for the performance of duties. If an employee has no
regular work schedule, the number of Hours of Service
to be credited to him shall not exceed the number which
would be credited calculated on the basis of an eight
(8) hour work day.
(c) No employee shall be credited with more than five
hundred and one (501) Hours of Service as a result of
the application of Section 1.34(a) for any single
continuous period during which he performs no duties,
regardless of whether such period extends beyond one
(1) Plan Year or other applicable computation period.
(d) The Plan Year or other applicable computation
period to which Hours of Service shall be credited
shall be determined as follows:
(1) Except as hereinafter provided, Hours of
Service credited in accordance with item (i) of
the first paragraph of Section 1.34(a) shall be
credited in the Plan Year or other applicable
computation period in which the duties were
performed.
(2) Except as hereinafter provided, Hours of
Service credited in accordance with item (ii) of
the first paragraph of Section 1.34(a) shall be
credited: if calculated on the basis of units of
time, to the Plan Year or Plan Years or other
applicable computation period in which the period
during which no duties are
9
<PAGE>
performed occurs, beginning with the first unit of time to which
the payment relates; otherwise, to the Plan Year or other
applicable computation period in which the period during which no
duties are performed occurs, provided that if the period during
which no duties are performed extends beyond one (1) Plan Year or
other applicable computation period, such Hours of Service shall
be allocated between not more than the first two (2) Plan Years
or other applicable computation periods on any reasonable basis
consistently applied.
(3) Except as hereinafter provided, Hours of
Service credited in accordance with item (iii) of
the first paragraph of Section 1.34(a) shall be
credited to the Plan Year or other applicable
computation period to which the award or agreement
for back pay pertains rather than to the Plan Year
or other applicable computation period in which
the award, agreement, or payment is made.
(4) Hours of Service to be credited to an
employee in connection with a period of no more
than thirty-one (31) days which extends beyond one
(1) Plan Year or other applicable computation
period may be credited to the first or the second
computation period, provided such crediting is
done on a reasonable and nondiscriminatory basis.
(e) An Employee or Participant for whom hourly records
are not maintained who is compensated on a bi-weekly
basis shall be credited with ninety-five (95) Hours of
Service for each bi-weekly payroll period in which he
would otherwise be credited with one (1) Hour of
Service in accordance with the first paragraph of
Section 1.34(a). An Employee or Participant for whom
hourly records are not maintained who is compensated on
a monthly basis shall be credited with one hundred and
ninety (190) Hours of Service for each monthly payroll
period in which he would otherwise be credited with one
(1) Hour of Service in accordance with the first
paragraph of Section 1.34(a).
(f) Nothing in this Section shall be construed to
alter, amend, modify, invalidate, impair or supersede
any law of the United States or any rule or regulation
issued under any such law. The nature and extent of
any credit for Hours of Service under this Section
shall be determined under such law.
1.35 Interest Credits shall mean the bookkeeping entry used to
account for investment earnings contributions made on behalf
of a Participant, as determined in accordance with Section
3.9.
1.36 Investment Manager shall mean any fiduciary appointed
under Section 12.4 who meets the definition of the term
"investment manager" under Section 3(38) of ERISA and who
acknowledges in writing that he is a fiduciary with respect
to this Plan.
10
<PAGE>
1.37 Key Employee shall mean any employee, former employee or
beneficiary thereof in an Internal Revenue Service qualified
plan adopted by the Employer who at any time during the
applicable Plan Year or any of the four (4) preceding Plan
Years is defined in Sections (a) through (d) of this
Section.
(a) An officer of the Company, including Affiliates,
having annual compensation during the Plan Year greater
than fifty percent (50%) of the amount in effect under
Code Section 415(b)(1)(A) for the calendar year in
which such Plan Year ends;
(b) One (1) of the ten (10) employees having annual
compensation from the Company for a Plan Year of more
than the limitation in effect under Code Section
415(c)(1)(A) for the calendar year in which such Plan
Year ends, and owning (or considered as owning within
the meaning of Code Section 318) both more than a
one-half percent (1/2%) interest, and the largest
interest, in the Employer;
(c) A five percent (5%) owner of the Employer; or
(d) A one percent (1%) owner of the Employer having
annual compensation from the Company or Affiliate for a
Plan Year of more than one hundred and fifty thousand
dollars ($150,000).
(e) For purposes of this Section, compensation has the
same meaning as under Code Section 415(c)(3).
(f) This definition shall be interpreted consistent
with Code Section 416 and rules and regulations issued
thereunder. Further, such law and regulations shall be
controlling in all determinations under this
definition, inclusive of any provisions and
requirements stated thereunder but hereinabove absent.
1.38 Late Retirement Date shall mean the first day of any
month subsequent to the Participant's Normal Retirement Date
coincident with or otherwise immediately following the date
the Participant terminates employment for any reason other
than death.
1.39 Leased Employee shall mean any person (other than an
employee of the Employer) who provides services to the
Employer as a "leased employee," as such term is defined in
Section 414(n) and (o) of the Code.
1.40 Limitation Year shall mean the Plan Year.
1.41 1996 Plan Benefit shall mean the benefit which a Participant
had accrued as of December 31, 1996 under the terms of the
Prior Plan in effect on December 31, 1996, based on
Compensation and Creditable Service earned through such
date.
11
<PAGE>
1.42 1996 Terminated Participant shall mean
(a) an individual who was not an Employee as of the
Effective Date, who was an active Participant in the
Prior Plan or any predecessor plan to such Prior Plan,
who has a Reemployment Commencement Date after the
Effective Date, who has not commenced receiving a
distribution of the Participant's benefit as of such
Reemployment Commencement Date or whose benefit
payments have ceased in accordance with Section 4.6,
and whose prior Vesting Service as of such Reemployment
Commencement Date is not lost because of an application
of the rule provided in the definition of Vesting
Service, or
(b) an individual who was an Employee who had
commenced receiving a distribution as of the Effective
Date and whose benefit payments subsequently ceased in
accordance with Section 4.6 following the Effective
Date.
1.43 Normal Retirement Date shall mean the first day of the month
coincident with or otherwise immediately following the date
a Participant reaches Attained Age sixty-five (65).
1.44 Partial Disability shall mean a physical or mental disability that prevents
a participant from engaging in his normal occupation with the Employer and
which causes the Participant to be eligible for partial disability payments
as a result of a long-term disability, pursuant to the Duke Power Company
Disability Plan or other long-term disability plan maintained by the
Company for the purpose of providing long-term disability benefits.
1.45 Participant shall mean any Employee who has met the
eligibility requirements for participation in the Plan as
set forth in Article 2, or any former Employee with an
undistributed, nonforfeitable Accrued Benefit under this
Plan.
1.46 Permissive Aggregation Group shall mean the Required
Aggregation Group and any other plan or plans of the Company
that are not required to be included in the Required
Aggregation Group, but which, if treated as being part of
such Group, would not cause such Group to fail to meet the
requirements of Code Sections 401(a)(4) and 410.
1.47 Plan shall mean the Duke Power Company Retirement Cash
Balance Plan, as amended from time to time.
1.48 Plan Administrator shall mean the Company, unless the
Employer designates another person to hold the position as
Plan Administrator. A Retirement Plan Committee may be
designated to carry out the functions of the Plan
Administrator.
12
<PAGE>
1.49 Plan Year shall mean the calendar year.
1.50 Prior Plan shall mean the provisions of this Plan as in
effect prior to January 1, 1997, and amended as of the
Effective Date as part of this restatement. Such provisions
are included in the Plan by this reference.
1.51 Qualified Joint and Survivor Annuity shall mean the
Actuarial Equivalent of a Participant's normal form of
Retirement Benefit payable as a monthly income for the
lifetime of the Participant and continuing thereafter, in an
amount fifty percent (50%) as large, to the Participant's
Spouse for the lifetime of the Spouse.
1.52 Required Aggregation Group shall mean (1) each plan of the
Company in which a Key Employee is a participant, (2) each
other plan of the Company which enables any plan in (1) to
meet the requirements of Code Section 401(a)(4) or 410; and
(3) each terminated plan maintained by the Company within
the five (5) year period ending on the determination date
for the Plan Year in question which would, but for the fact
that it terminated, meet the criteria of (1) or (2)
preceding.
1.53 Reemployment Commencement Date shall mean the date on which
an Employee first performs an Hour of Service for the
Employer after terminating his employment and incurring a
Break in Service.
1.54 Retirement Benefit shall mean the pension benefit due a
retired Participant which shall commence as of his
Grandfathered Early, Early, Normal or Late Retirement Date,
or Disability Distribution Date and continue for the period
indicated in Article 4 hereof.
1.55 Retirement Plan Committee shall mean the Employer's
administrative committee for the Plan, as described in
Article 10.
1.56 Severance from Service Date shall mean the date a
Participant terminates employment with the Company.
1.57 Spouse shall mean the individual to whom a Participant
is legally married as of the earlier of such Participant's
date of death or the date of retirement to the Participant,
or any former Spouse or surviving Spouse of the Participant
treated as his Spouse under Code Section 414(p).
1.58 Termination Benefit shall mean the benefit payable to a
Participant who has separated from employment with the
Company with a right to receive a vested benefit under
Section 5.1 of the Plan.
13
<PAGE>
1.59 Top Heavy Plan shall mean, for Plan Years beginning after
December 31, 1983, any plan under which, as of any
determination date, the present value of the cumulative
accrued benefits for Key Employees exceeds sixty percent
(60%) of the present value of the cumulative accrued
benefits under the plan for all employees. The accrued
benefit of any employee other than a Key Employee shall be
determined under the method which is used for accrual
purposes for all plans of the Company or Affiliate, or, if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional accrual rule of Code Section 411(b)(1)(C). For
purposes of this Section, the following definitions shall
apply.
(a) If such plan is a Defined Contribution Plan, the
present value of cumulative accrued benefits shall be
deemed to be the market value of all employee accounts
under the plan, other than voluntary deductible
employee contributions. If such plan is a Defined
Benefit Plan, the present value of cumulative accrued
benefits shall be the lump sum present value determined
pursuant to actuarial assumptions adopted by the
Employer for purposes of determining if this Plan is a
Top Heavy Plan. Moreover, the present value of the
cumulative accrued benefits shall be increased by the
amount of all Plan distributions made with respect to
an employee during the five (5) year period ending on
the determination date, including distributions under a
terminated plan which is a part of a Required
Aggregation Group.
(b) A plan shall be considered a Top Heavy Plan for
any Plan Year if, on the last day of the preceding Plan
Year (the determination date), the above criteria were
met. For the first Plan Year that the Plan shall be in
effect, the determination of whether said Plan is a Top
Heavy Plan shall be made as of the last day of such
Plan Year.
(c) Each plan of the Company or Affiliate required to
be included in a Required Aggregation Group shall be
treated as a Top Heavy Plan if such Group is a top
heavy Group.
(d) With respect to a Participant or former
Participant who has not performed any service for the
Employer at any time during the five (5) year period
ending on the determination date, and with respect to a
Participant or former Participant who was formerly a
Key Employee, but who is not a Key Employee on the
determination date, the present value of the cumulative
accrued benefit for such Participant or former
Participant shall not be taken into account for the
purposes of determining whether this Plan is a Top
Heavy Plan.
(e) This definition shall be interpreted consistent
with Code Section 416 and rules and regulations issued
thereunder. Further, such law and regulations shall be
14
<PAGE>
controlling in all determinations under this definition
inclusive of any provisions and requirements stated
thereunder but hereinabove absent.
1.60 Total and Permanent Disability or Totally and
Permanently Disabled shall mean a physical or mental
condition arising after the date on which an Employee first
completes an Hour of Service for the Employer which totally
prevents him from engaging in any occupation or employment
for remuneration or profit, except for the purpose of
rehabilitation not incompatible with a finding of Total and
Permanent Disability. The determination of a Total and
Permanent Disability shall be made on evidence that the
Participant is either eligible for disability benefits under
the Federal Social Security Act or is considered fully
disabled under the Duke Power Company Disability Plan (or
other long-term disability plan maintained by the Company
for the purpose of providing long-term disability benefits)
and is receiving long-term disability payments from such
plan.
1.61 Trust Fund shall mean all cash, securities, life insurance
and/or annuity contracts, real estate, or any other property
held by the Trustee pursuant to the terms of the Trust
Agreement, together with income thereon.
1.62 Trust Agreement shall mean the trust agreement entered into
between the Company and the Trustee, as adopted by the
Company and as amended from time to time.
1.63 Trustee shall mean the person or persons acting from time to
time as the trustee of the Trust in accordance with the
Trust Agreement.
1.64 Vesting Service shall mean the number of Plan Years in which
an Employee has been credited with one thousand (1,000)
Hours of Service with the Company or Affiliate.
Notwithstanding the preceding sentence, the following years
shall not be included as years of Vesting Service:
(a) Any year of employment prior to January 1, 1976,
that would have been disregarded because of an
Employee's termination of employment under a Plan
provision in effect and adopted before January 1, 1976.
(b) Any Plan Year before the Plan Year in which the
Employee reached Attained Age eighteen (18).
(c) Any Plan Year preceding a Participant's initial
Break in Service if such Participant's vested Accrued
Benefit before such Break in Service was zero (0) and
the Participant incurred five (5) or more consecutive
Breaks in Service, the number of which equaled or
exceeded the number of his years of Vesting Service
prior to such consecutive Breaks in Service.
15
<PAGE>
Notwithstanding any other provision to the contrary, Vesting
Service shall also include service credited to the extent
necessary to comply with the Family and Medical Leave Act,
the Uniformed Services Employment and Reemployment Rights
Act and other applicable law.
16
<PAGE>
ARTICLE 2
PARTICIPATION
2.1 Grandfathered Participation
Each person who is an Employee and a Participant on December 31,
1996, and who continues as an Employee after that date shall
continue as a Participant as of January 1, 1997, without further
action on his part.
2.2 Participation upon Employment or Reemployment
An Employee who is not a Participant as of the Effective Date
shall become a Participant on his Employment Commencement Date
or, if later, the date immediately following the date he reaches
Attained Age twenty-one (21). An Employee who was a former
Participant shall resume participation in the Plan on his
Employment Commencement Date coincident with or following his
date of reemployment by the Employer.
2.3 Limitations on Participation
Notwithstanding any provision of the Plan to the contrary, no
Employee shall participate in this Plan as long as he is a Leased
Employee or a non-resident alien with no U.S. source income.
2.4 Plan Binding
Upon becoming a Participant, a Participant shall be bound then
and thereafter by the terms of the Plan and the Trust Agreement,
including all amendments to the Plan and the Trust Agreement made
in the manner herein authorized.
17
<PAGE>
ARTICLE 3
RETIREMENT BENEFITS
3.1 General
Retirement Benefits and Termination Benefits payable under the
terms of the Plan shall be subject to the restrictions and
limitations of Article 7, and elsewhere in this Plan and shall be
paid by the Trustee only by or at the direction of the Retirement
Plan Committee. Neither the Employer, the Retirement Plan
Committee nor the Trustee shall be under any obligation to pay
any Retirement Benefits or Termination Benefits other than from
the Trust.
3.2 Normal Retirement
(a) A Participant whose employment terminates, for any
reason other than death or Total and Permanent
Disability, on his Normal Retirement Date, shall be
entitled to receive a Retirement Benefit. The amount of
such Retirement Benefit shall be the Participant's
Accrued Benefit, determined in accordance with Section
3.6, as of his Annuity Starting Date coincident with
his Normal Retirement Date.
(b) The Annuity Starting Date of any Participant who
is to receive his benefit pursuant to this Section
shall be his Normal Retirement Date.
3.3 Early Retirement
(a) A Participant whose employment terminates at his Early
Retirement Date or Grandfathered Early Retirement Date,
for any reason other than death or Total and Permanent
Disability, shall be entitled to receive a Retirement
Benefit. The amount of such Retirement Benefit shall be
the Participant's Accrued Benefit as of his Annuity
Starting Date coincident with or following his Early
Retirement Date or Grandfathered Early Retirement Date.
(b) The Annuity Starting Date of any Participant who is to
receive his benefit pursuant to this Section shall be
his Normal Retirement Date. Notwithstanding anything
contained herein to the contrary, a Participant who
retires at an Early Retirement Date or his
Grandfathered Early Retirement Date shall have the
right to elect in writing to receive his Retirement
Benefit commencing as of his Early Retirement Date, his
Grandfathered Early Retirement Date, or the first day
of any month thereafter which precedes his Normal
Retirement Date.
18
<PAGE>
3.4 Late Retirement
(a) A Participant who remains employed after his Normal
Retirement Date shall be entitled to receive a
Retirement Benefit. The amount of such Retirement
Benefit shall be the Participant's Accrued Benefit as
of his Annuity Starting Date following his Normal
Retirement Date.
(b) The Annuity Starting Date of any Participant who is to
receive his benefit pursuant to this Section shall be
his Late Retirement Date.
3.5 Disability Distribution
(a) An Active Participant who becomes Totally and
Permanently Disabled shall be entitled to receive a
Disability Benefit equal to his Accrued Benefit, as
modified by Section 3.7(c). The amount of such
Disability Benefit shall be the Participant's Accrued
Benefit as of his Annuity Starting Date.
(b) The Annuity Starting Date of any Participant who is to
receive his benefit pursuant to this Section shall be
his Disability Distribution Date.
3.6 Cash Balance Account
As of the Effective Date or, if later, the first day after the
Effective Date that an Employee becomes an Active Participant, a
Cash Balance Account shall be established for the participant.
The Cash Balance Account shall have an opening balance as
determined under Section 3.7, and shall be credited with
Contribution Credits and Interest Credits as provided under
Sections 3.8 and 3.9. The Cash Balance Accounts shall be
bookkeeping accounts only, and neither the maintenance of, nor
the crediting of amounts to, such Accounts shall be treated as an
allocation of assets of the Plan to, or a segregation of such
assets in, any such Account or as otherwise creating a right in
any person to receive specific assets of the Plan.
Notwithstanding the foregoing or any other provision of the Plan,
any benefit computed in the manner set forth under this Section
is contingent upon the express or implicit approval of the
Internal Revenue Service of such benefit as having satisfied the
requirements of the Code for Plan Years beginning on or after
the Effective Date.
3.7 Opening Balance
The opening balance of a Participant's Cash Balance Account shall
be established in accordance with the rules of this Section.
19
<PAGE>
(a) In the case of a Participant who was not a
Participant in the Prior Plan or a predecessor to the
Prior Plan, or whose Vesting Service was disregarded
under Section 1.62(c), the Participant shall have an
opening Cash Balance Account of zero (0).
(b) In the case of a Participant in the Prior Plan on December 31, 1996,
who becomes an Active Participant in this Plan on the Effective Date,
the Participant's opening balance shall be determined as follows:
(1) For an Employee who has reached Attained
Age 60 or older and who is eligible for an
immediate pension benefit under the Prior Plan,
the present value of the immediate benefit for
which the Employee is eligible as of the Effective
Date. Present value is determined using a 7%
interest rate and the blended (50/50) 1983 Group
Annuity Mortality Table.
(2) For an Employee who is not eligible for an immediate pension
benefit under the terms of the Prior Plan, or who is eligible for
an immediate pension benefit under the Prior Plan, but has not
yet reached Attained Age 60, the opening balance identified for
the Participant in the Duke Power Company Retirement Cash Balance
Plan Schedule of Opening Cash Balance Accounts which is herein
incorporated in the Plan by this reference
(3) For a Participant who has reached Attained Age 70 1/2 or older
and who is receiving an immediate unreduced pension benefit under
the Prior Plan, the Participant shall have an opening Cash
Balance Account of zero (0).
(c) In the case of a Participant in the Prior Plan on
or before December 31, 1996, who terminates employment
with the Employer and later becomes an Active
Participant in this Plan after the Effective Date, the
Participant shall have an opening Cash Balance Account
of zero (0).
(d) In the case of a Participant in the Plan on or after the Effective
Date, who terminates employment with the Employer and later becomes an
Active Participant in the Plan, the Participant's opening balance
following his Reemployment Commencement Date shall be determined as
follows:
(1) For an Employee who is not vested at his Severance from
Service Date and is rehired prior to incurring five
consecutive Breaks in Service, his Cash Balance Account that
was forfeited at his prior Severance from
20
<PAGE>
Service Date under the rules provided in Section 4.5, will be
restored upon rehire with applicable Interest Credits for
intervening years.
(2) For an Employee who was vested in his Accrued Benefit as of
his Severance from Service Date but who did not receive a
distribution of his Accrued Benefit, such Participant's Cash
Balance Account shall equal his Cash Balance Account upon his
Reemployment Commencement Date, including applicable Interest
Credits.
(3) For an Employee who was vested in his Accrued Benefit at his
Severance from Service Date and who began receiving a
distribution of his Accrued Benefit, such Participant's Cash
Balance Account shall equal zero (0) upon his Reemployment
Commencement Date.
3.8 Contribution Credits
(a) Contribution Credits shall be added to an Active
Participant's Cash Balance Account as of the end of
each calendar month in which the Active Participant is
an Employee for any part of the month.
(b) The Contribution Credit for a given month shall equal
the sum of (1) and (2) below, determined as follows:
(1) The applicable Contribution Credit
Percentage determined under the table as follows,
multiplied by the Active Participant's
Compensation paid during such month.
Points Contribution Credit
Percentage
Less than 35 4%
At least 35, but not more than 49 5%
At least 50, but not more than 64 6%
65 or more 7%
A Participant's points for any month during a calendar year shall
be the sum of (i) the Participant's Attained Age as of January 1
of such year (or as of the most recent January in the case of a
Break in Service), expressed in whole years, and days divided by
365, plus (ii) the Participant's Creditable Service as of January
1 of such year, expressed in whole years, and days divided by
365, and the sum shall be truncated to delete less than whole
points.
21
<PAGE>
(2) 4%, multiplied by the Participant's
Compensation paid during such month that, when
combined with Compensation paid during the Plan
Year, is Compensation in excess of the Social
Security Taxable Wage Base for the Plan Year.
(c) For purpose of this Section, Contribution Credits
for disabled Employees shall be determined as follows:
(1) An Active Participant who becomes Totally and
Permanently Disabled shall be considered an
Employee during the period following his
Disability Date and preceding his Disability
Distribution Date during which he remains Totally
and Permanently Disabled. Such a Participant
shall be credited with Creditable Service and
Compensation during such period of disability.
Compensation credited under this Section shall be
equal to the Participant's most recent full
monthly rate of pay that was paid to him preceding
his Disability Date, plus the average monthly
overtime and incentive pay (to the extent included
in the definition of Compensation) paid to him for
the twelve (12) month period preceding his
Disability Date. If the Participant recovers from
his Total and Permanent Disability and is rehired
by the Employer while suffering a Partial
Disability, the Participant shall be credited with
monthly Compensation during his period of Partial
Disability as an Employee, equal to the greater of
the Participant's actual Compensation paid during
such month or the Compensation credited to him
under the Plan while he was considered Totally and
Permanently Disabled.
(2) An Active Participant who becomes Partially
Disabled and remains an Employee shall be credited
with monthly Compensation during his period of
Partial Disability as an Employee, equal to the
greater of the Participant's actual Compensation
paid during such month or the Participant's most
recent full monthly rate of pay that was paid to
him preceding his Partial Disability, plus the
average monthly overtime and incentive pay (to the
extent included in the definition of Compensation)
paid to him for the twelve (12) month period
preceding his Partial Disability.
3.9 Interest Credits
Interest Credits shall be added to a Participant's Cash Balance
Account as of the end of each calendar month ending prior to the
Participant's Annuity Starting Date.
22
<PAGE>
The amount of Interest Credits added to a Participant's Cash
Balance Account shall equal the balance of the Participant's Cash
Balance Account as of the end of the prior month (after adding
Contribution Credits and Interest Credits for the prior month),
multiplied by the monthly interest rate for the month. The
monthly interest rate for a particular month is equal to one (1)
plus the interest factor for the month raised to the one-twelfth
(1/12th) power, minus one (1). The interest factor for a
particular month shall be the average yield on 30-year Treasury
bonds published in the Federal Reserve Statistical Release H.15
for the end of the third full business week prior to the
beginning of the calendar quarter preceding the first day of the
calendar quarter in which the particular month occurs, but not
more than an annual percentage rate of nine percent (9%) and not
less than an annual percentage rate of four percent (4%).
3.10 Termination of Cash Balance Account
A Participant's Cash Balance Account shall be terminated as
follows:
(a) If distributions commence under Article 4, the Participant's Cash
Balance Account shall be terminated as of the Participant's Annuity
Starting Date.
(b) If a Participant dies prior to the Annuity Starting Date at a time
when the Participant was fully vested, the Participant's Cash Balance
Account shall cease to exist upon the commencement of the Death
Benefit.
(c) A Participant's Cash Balance Account shall be eliminated if the
Participant is deemed to have received a distribution under the third
sentence of Section 4.5, the Participant's entire vested Accrued
Benefit as of the Participant's Severance from Service Date provided
that the Cash Balance Account shall be restored if the Participant has
a Reemployment Commencement Date prior to when the Participant incurs
five (5) consecutive Breaks in Service. If applicable, the Cash
Balance Account shall be restored to the same balance it would have
had if it had never been eliminated.
23
<PAGE>
ARTICLE 4
PAYMENT OF RETIREMENT BENEFITS
4.1 Benefit Forms
(a) The Retirement Benefit and Termination Benefit
from the Plan shall be a Life Annuity equal to the
Actuarial Value of a Participant's Accrued Benefit
commencing on the Participant's Early, Grandfathered
Early, Normal, Late or Disability Distribution Date,
and continuing for his and/or her lifetime thereafter,
if applicable. If the Participant is married on his
Annuity Starting Date, his Retirement Benefit shall be
payable in the Form of a Qualified Joint and Survivor
Annuity, except as provided in Section 4.1(b) and 4.5
below.
(b) At any time during an applicable election period,
a Participant may elect, in a written application
provided by the Retirement Plan Committee, and with
Spouse consent, if applicable, to receive his
Retirement Benefit or Termination Benefit payable after
age fifty five (55) in one of the alternative forms
listed below, which shall each be the Actuarial
Equivalent of his Retirement Benefit or Termination
Benefit payable under the Plan. An election period
shall mean a period during which a Participant and
Spouse are provided a written explanation to the effect
of benefit forms payable under the Plan, beginning at
least thirty (30) days and no more than ninety (90)
days immediately prior to a Participant's Annuity
Starting Date begins, and ending on that Participant's
Annuity Starting Date. However, a Participant's
Annuity Starting Date may begin before the end of such
30 day period, provided the election period is waived
by the Participant with the Consent of his Spouse and
his Annuity Starting Date begins at least seven (7)
days following the date such explanation is provided.
Any election under this Section may be revoked and a
new election may be made at any time prior to the
commencement of benefits. Pre-age fifty five (55)
distributions may not be taken in the form of a lump
sum payment. Once a Participant's Annuity Starting
Date has begun, no further revocation or election
(including the designation of an alternate Beneficiary)
may be made.
(1) Life Annuity. A monthly income payable for
the Participant's lifetime.
(2) Joint and 50% or 100% Survivor Annuity.
A monthly income payable for the Participant's
lifetime and continuing thereafter in an amount
equal to either fifty percent (50%) or one hundred
percent (100%) of the benefit payable to the
Participant, that is payable to a Spouse
designated in writing by the Participant. Should
the Spouse named by the Participant die prior to
24
<PAGE>
the Participant's Annuity Starting Date, the
election shall be void and the Participant may
elect another form of benefit identified in
Section 4.1(b).
(3) Life or Survivor Annuity with 3 1/2%
Adjustment. A Life Annuity, or a Joint and 50% or
100% Survivor Annuity (determined in accordance
with Sections 4.1(b)(1) or (2)) with payments
increasing at three and one-half percent (3 1/2%)
each year.
(4) 15-Year Certain and Continuous Annuity.
A monthly income payable for the Participant's
lifetime with one hundred and eighty (180)
payments guaranteed.
(5) Lump Sum Payment. A lump sum payment
equal to the Participant's Cash Balance Account
provided under the Plan and directly rolled over
to an eligible retirement plan in accordance with
Section 4.4.
(6) Lump Sum and Annuity Payment. A
combination of a Lump Sum Payment with the
remainder payable as a Life Annuity or Joint and
50% Survivor Annuity (determined in accordance
with Sections 4.1(b)(1) or (2)), except that the
amount payable as an annuity may not have an
Actuarial Equivalent value of less than thirty
five hundred dollars ($3,500).
(c) If the Participant's Beneficiary is other than his
Spouse, the Retirement Benefit or Termination Benefit
payable to the Participant shall comply with the
provisions of Code Section 401(a)(9), and regulations
thereunder, including any incidental benefit
requirements, for the benefits payable to the
Participant and his beneficiary or survivor.
4.2 Proof of Entitlement
Each Participant entitled to receive benefits under this Article
shall complete such forms and furnish such proofs as the
Retirement Plan Committee shall require.
4.3 Nonforfeitable Right at Normal Retirement
A Participant who reaches Normal Retirement Age while in the
employ of the Company shall have a non-forfeitable right, upon
his actual retirement, to receive a Retirement Benefit determined
in accordance with Article 3.
25
<PAGE>
4.4 Direct Rollovers
Any Participant, Spouse or alternate payee who is a spouse or
former spouse under a qualified domestic relations order entitled
to receive an eligible rollover distribution in an amount equal
to at least two hundred dollars ($200) from the Plan may elect to
have all or some portion of such amount rolled over directly to
an eligible retirement plan, in which case such person shall
specify to the Employer, in such form and manner as the Plan
Administrator may require, the eligible retirement plan to which
the eligible rollover distribution is to be rolled over. If the
Participant, Spouse or alternate payee makes such an election,
the distribution shall be made by the Trustee in the form of a
direct rollover to the eligible retirement plan.
For purposes of the preceding paragraph, an eligible rollover
distribution is a distribution of all or any portion of the
balance to the credit of the Participant, Spouse or alternate
payee spouse or former spouse in the Plan, excluding (a) any
distribution which is one of a series of substantially equal
periodic payments (made not less frequently than annually) made
(i) for the life or life expectancy of the individual or the
joint lives or joint life expectancies of the individual and his
designated beneficiary; or (ii) for a specified period of ten
(10) years or more; (b) any distribution which is required to be
made under Code Section 401(a)(9); and (c) any portion of a
distribution that is not includible in the individual's gross
income.
An eligible retirement plan is an individual retirement account
described in Code Section (408(a), an individual retirement
annuity described in Code Section 408(b) (other than an endowment
contract), a qualified plan described in Code Section 401(a) that
is exempt from tax under Code Section 501(a) or an annuity plan
described in Code Section 403(a).
In the event a Participant, Spouse or alternate payee spouse or
former spouse does not elect within the time period prescribed by
law to have his eligible rollover distribution rolled over
directly, he will be deemed to have elected not to make a direct
rollover. The individual's distribution will be paid directly to
him with Federal income tax withheld from such eligible rollover
distribution at the rate of at least twenty percent (20%)
pursuant to Code Section 3405(c), provided that nothing in this
Section shall give rise to a right to a lump sum distribution
that is not otherwise provided in the Plan.
4.5 Lump Sum Distributions less than $3,500
If the vested Accrued Benefit or lump sum value of the Death
Benefit with respect to a Participant or Beneficiary is less than
or equal to three thousand five hundred dollars ($3,500), the
Plan Administrator shall direct that the vested Accrued Benefit
or Death Benefit as calculated at the Participant's Severance
from Service Date be paid as soon as reasonably possible in a
lump sum to such terminated Participant or his Beneficiary. Such
benefit shall be considered to fully satisfy the Plan's
obligation to such former Participant and no other benefits of
any type shall be payable under the Plan. If the Participant
terminates without being vested in his Accrued Benefit, he shall
26
<PAGE>
be deemed to have received a distribution pursuant to this
Section as of the date of his Severance from Service Date. If a
Participant receives or is deemed to have received a distribution
pursuant to this Section, the portion of his Accrued Benefit that
is not vested shall be forfeited as of the date he receives or is
deemed to have received the distribution.
4.6 Reemployment of a Retired Participant
Payment of a Retirement Benefit shall be suspended for a calendar
month during which a reemployed Participant has at least eighty-
five (85) Hours of Service with an Employer commencing after the
second such month in a period of reemployment. The suspension
may be effected by deduction from future benefit payments, except
that no more than twenty-five percent (25%) of any benefit may be
so reduced, in accordance with the requirements described in
Department of Labor Regulations Section 2530.203-3(c)(1). The
reemployed Participant shall be personally notified in the first
calendar month during which such suspension is effected of the
basis for the suspension, including the method of deduction, if
any, from future Retirement Benefit payments.
27
<PAGE>
ARTICLE 5
BENEFITS UPON TERMINATION OF EMPLOYMENT
5.1 Deferred Vested Benefit
(a) If a Participant's employment with an Employer
terminates for reasons other than the Participant's
death, Total and Permanent Disability, or Retirement
(including Early, Grandfathered Early, Normal, or Late
and Disability Distribution), either voluntarily or
involuntarily, such Participant shall cease to be an
Active Participant in the Plan. Subject to the
limitations and restrictions in this Plan, if the
Participant has been credited with Creditable Service
under the Plan, he shall be entitled at Normal
Retirement Date to receive a Termination Benefit equal
to his Accrued Benefit as of his Annuity Starting Date
in accordance with the following vesting schedule:
Years of Vesting Service Vested %
less than 5 0%
5 or more 100%
(b) In lieu of the Termination Benefit payable at
Normal Retirement Date provided above, a terminated
Participant who reaches his Early Retirement Date or
Grandfathered Early Retirement Date may elect the
immediate commencement of benefits. Commencing on the
first day of the month coincident with or otherwise
immediately following such election, the Participant
shall be entitled to a Termination Benefit which shall
be equal to his Accrued Benefit calculated as of the
date payment of the Termination Benefit begins.
(c) Subject to Spouse consent, if applicable, a
terminated Participant may elect before his Annuity
Starting Date to receive his Termination Benefit in an
alternative form provided in Section 3.1. However, if
the Participant dies prior to the commencement of his
Termination Benefit, his Spouse will be entitled to the
Death Benefit provided under Section 6.1 of the Plan.
28
<PAGE>
ARTICLE 6
BENEFITS UPON DEATH
6.1 Death Benefit for Married Participants
(a) The Death Benefit described herein shall only be
payable with respect to a Participant who dies after
August 22, 1984, and either (i) completed at least one
(1) Hour of Service with the Employer after August 22,
1984, or (ii) separated from service with at least ten
(10) years of Vesting Service and completed at least
one (1) Hour of Service with the Employer in a Plan
Year beginning on or after January 1, 1976.
(b) If an Active Participant, Disabled Participant, or
a former Participant (including a terminated
Participant or retired Participant whose benefit is
being deferred) should die prior to commencement of
benefits and be survived by a Spouse to whom he was
married on his date of death, such Spouse shall be
entitled to a Death Benefit as hereinafter provided.
Such Death Benefit shall be a monthly income, payable
for the life of the Spouse, that is equal to the
Actuarial Value of the Participant's Accrued Benefit as
of the Annuity Starting Date. In no event will the
Death Benefit be less than the benefit that would have
been payable to such Spouse if the Participant had
retired or terminated pursuant to the appropriate
Section of the Plan on his date of death and elected to
receive his Retirement Benefit or Termination Benefit
in the form of a Joint and 50% Survivor Annuity under
Section 4.1(b)(2).
(c) The Death Benefit shall commence as soon as
practicable following the Participant's death, unless
the Spouse elects later commencement. A Spouse may
elect to postpone payment of the Death Benefit but not
beyond the date the Participant would have reached
Attained Age seventy and one-half (70-1/2).
(d) The Death Benefit shall be payable in the form as
provided in Section 6.1(b). However, the Spouse may
elect to receive the Death Benefit in an alternative
form provided in Section 4.1(b)(5), but without regard
to the limitation for the commencement of benefits
before a Participant reached Attained Age fifty-five
(55).
6.2 Death Benefit for Participants Who Are Not Married
If an Active Participant, Disabled Participant, or a former
Participant (including a terminated Participant or retired
Participant whose benefit is being deferred) should die and the
Participant is
29
<PAGE>
not married as of his date of death, a Death
Benefit will be payable on his behalf, to his designated
Beneficiary equal to the Participant's Accrued Benefit as of his
death. Such Death Benefit shall be distributed in the form of a
lump sum payment to the Participant's designated Beneficiary as
soon as practicable following the Participant's death. If the
Participant has not designated a Beneficiary, or if his
Beneficiary has predeceased him, the Death Benefit shall be
payable to the Participant's estate.
6.3 Death of a Retired Participant
When a Participant who is receiving Retirement Benefits or
Termination Benefits hereunder shall die, his Beneficiary (or
Spouse, if applicable) shall be entitled to any benefits due
under the form of payment elected by the Participant. Should all
periods of payments be exhausted at the death of the Participant,
no additional Death Benefit shall be payable.
30
<PAGE>
ARTICLE 7
RESTRICTIONS ON BENEFITS AND DISTRIBUTION
7.1 Benefit Commencement Limitations
Unless the Participant otherwise elects, any payment of benefits
to the Participant shall commence not later than sixty (60) days
after the close of the Plan Year in which occurs the latest of:
(a) the Participant's reaching Attained Age sixty-five
(65); and
(b) termination of service of the Participant.
7.2 Minimum Distribution Rules
Effective January 1, 1997, the Accrued Benefit of any
Participants who was a five percent (5%) owner at any time after
reaching Attained Age sixty-five and one-half (65-1/2) must
commence to be distributed no later than the April 1 following
the calendar year in which such individual reaches Attained Age
seventy and one-half (70-1/2). If the Participant was not a five
percent (5%) owner in any Plan Year after reaching Attaining Age
sixty-five and one-half (65-1/2) and had attained age seventy and
one-half (70-1/2), distributions must commence no later than the
April 1 following the calendar year in which the later of his
Severance from Service Date or reaching age seventy and one-half
(70-1/2) occurs, or until the individual becomes a five percent
(5%) owner. If a Participant does not elect a form of payment, a
minimum distribution shall be made on his behalf. If the
Participant is not married, the minimum distribution shall be
made in the form of a Life Annuity, determined in accordance with
Section 4.1(b)(1). If the Participant is married, the minimum
distribution shall be made in the form of a Joint and 50%
Survivor Annuity, determined in accordance with Section
4.1(b)(2).
If a Participant is required to commence benefits pursuant to
this Section while remaining employed by the Employer, he shall
continue to accrue benefits under the Plan. The monthly benefit
due a Participant pursuant to this Section shall be recalculated
annually, as provided in Code Section 401(a)(9) and the
regulations thereunder. Upon his actual retirement, his
Retirement Benefit shall be reduced by the Actuarial Value of the
Retirement Benefit he received prior to his retirement; provided,
however, that the reduction shall not result in a Retirement
Benefit, payable under the basic form, of less than the amount he
received prior to his retirement.
Minimum distributions shall not be made to any other Participants
who become age seventy and one-half (70-1/2) after the Effective
Date and remain Employees, except to the extent required in
accordance with Section 411(d) of the Code and other applicable
law or regulations.
31
<PAGE>
7.3 Required Distribution Periods
Notwithstanding the forms of payment provided in Article 4,
distributions of benefits may only be made over one of the
following periods (or a combination thereof):
(a) the life of the Participant;
(b) the life of the Participant and a designated
Beneficiary;
(c) a period certain not extending beyond the life
expectancy of the Participant; or
(d) a period certain not extending beyond the joint
and last survivor life expectancy of the Participant
and a designated Beneficiary.
Upon the death of the Participant, the following distribution
provisions shall take effect:
(e) If the Participant dies after distribution of his
interest has commenced, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution in effect
prior to the Participant's death.
(f) If the Participant dies before distribution of his
interest commences, the Participant's entire interest
will be distributed no later than five (5) years after
the Participant's death except to the extent that an
election is made to receive distributions in accordance
with (1) or (2) below:
(1) If any portion of the Participant's
interest is payable to a designated Beneficiary,
distributions may be made in substantially equal
installments over the life or life expectancy of
the designated beneficiary commencing no later
than one (1) year after the Participant's death.
(2) If the designated Beneficiary is the
Participant's surviving Spouse, the date
distributions are required to begin in accordance
with (1) above shall not be earlier than the date
on which the Participant would have reached
Attained Age seventy and one-half (70-1/2), and,
if the Spouse dies before payments begin,
subsequent distributions shall be made as if the
Spouse had been the Participant.
(g) If the Participant's entire interest is to be
distributed in other than a lump sum, the amount to be
distributed each year must be at least an amount equal
to the quotient obtained by dividing the Participant's
entire interest by the Participant's life expectancy or
the joint and last survivor life expectancy of the
Participant and
32
<PAGE>
the designated beneficiary. Life expectancies are computed by the use
of the return multiples contained in Section 1.72-9 of the Treasury
Regulations. For purposes of this calculation, a Participant's life
expectancy or a spouse's life expectancy may be recalculated no more
frequently than annually; however, the life expectancy of a non-spouse
beneficiary may not be recalculated. If the form of payment includes a
life contingency, life expectancy may not be recalculated.
7.4 Limitation on Annual Benefits
The total annual benefit (as defined hereinafter) of any
Participant shall not, at any time during any Limitation Year,
exceed the limitations set forth in this Section and its
Sections.
(h) For purposes of this Section, the term "annual
benefit" means a benefit payable in the form of a
straight life annuity with no ancillary benefits, under
a plan to which employees do not contribute and under
which no rollover contributions (as defined in Sections
402(a)(5), 403(a)(4) and 408(d)(3) of the Code) are
made.
(i) The total annual benefit shall not exceed the
lesser of
(1) ninety thousand dollars ($90,000) or the
specific amount, determined by the Commissioner of
Internal Revenue as of January 1 of each calendar
year, to apply to the Limitation Year ending with
or within that calendar year, or
(2) one hundred percent (100%) of the
Participant's average compensation for his/her
high three (3) years (as defined in Section (e) of
this Section).
(j) When retirement benefits under this Plan are
payable in any form other than the form described in
Section (a) of this Section or if the Participants
contribute to the Plan or make rollover contributions,
the determination as to whether the limitation described
in this Section has been satisfied shall be made, in
accordance with regulations prescribed by the Secretary
of the Treasury or his/her delegate, by adjusting such
benefit so that it is equivalent to the benefit
described in Section (a) of this Section, provided that
the interest rate used to determine such equivalence
shall be not be less than five percent (5%).
For purposes of this Section, any ancillary benefit
which is not directly related to retirement income
benefits shall not be taken into account; and that
portion of any joint and survivor annuity which
constitutes a qualified joint and survivor annuity (as
defined in Section 417(b) of the Internal Revenue Code)
shall not be taken into account.
33
<PAGE>
(k) If the retirement income benefit under this
Plan begins before the Social Security normal retirement
age, the determination as to whether the dollar
limitation set forth in clause (1) of Section (b) of
this Section has been satisfied shall be made, in
accordance with regulations prescribed by the Secretary
of the Treasury or his/her delegate, by reducing the
dollar limitation so that such limitation (as so
reduced) equals an annual benefit (beginning when such
retirement income benefit begins) which is equivalent to
a ninety thousand dollar ($90,000) annual benefit
beginning at Social Security normal retirement age. The
reductions required by this paragraph for determining
equivalent maximum benefits which commence between age
sixty-two (62) and the Social Security normal retirement
age under the Social Security Act shall be consistent
with the reductions provided by the Social Security Act
for benefits commencing during that period. The factors
used to determine the equivalent maximum benefit for
benefits that commence prior to age sixty-two (62) shall
be the reductions provided by the Social Security Act,
but in no event less than five percent (5%).
(l) For purposes of this Section, a Participant's high
three (3) years shall be the period of consecutive
calendar years (not more than three (3)) during which
the Participant both was an active Participant in the
Plan and had the greatest aggregate compensation from
the Company. In the case of a Participant who is an
"employee" within the meaning of Section 401(c)(1) of
the Code, the preceding sentence shall be applied by
substituting "the Participant's earned income (within
the meaning of Section 401(c)(2) of the Code but
determined without regard to any exclusion under Section
911 of the Code)," for "compensation from the Company."
Compensation, for purposes of this Section, shall mean
the Participant's earned income, wages, salaries, fees
for professional services actually rendered in the
course of employment with the Employer (including, but
not limited to, commissions paid salesmen, compensation
for services on the basis of a percentage of profits,
commissions on insurance premiums, tips and bonuses.)
For purposes of this Section, compensation shall not
include:
(1) Employer contributions to a plan of
deferred compensation to the extent the
contributions are not included in the gross income
of the Participant for the taxable year in which
contributed, on behalf of a Participant to a
simplified employee pension plan to the extent
such contributions are deductible by the
Participant, and any distributions from a plan of
deferred compensation, regardless of whether such
amounts are includible in the gross income of the
Participant;
34
<PAGE>
(2) Amounts realized from the exercise of a
non-qualified stock option, or when restricted
stock (or property) held by a Participant either
becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange
or other disposition of stock acquired under a
qualified stock option; and
(4) Other amounts that receive special tax
benefits, such as premiums for group term life
insurance (but only to the extent that the
premiums are not includible in the gross income of
the Participant), or contributions made by the
Employer (whether or not under a salary reduction
agreement) toward the purchase of any annuity
contract described in Code Section 403(b) (whether
or not the contributions are excludable from the
gross income of the Participant).
(m) Notwithstanding the preceding provisions of this
Section, the benefits payable with respect to a
Participant under this Plan shall be deemed not to
exceed the limitations of this Section if:
(1) the retirement benefits payable with
respect to such Participant under this Plan and
under all other Defined Benefit Plans to which the
Company contributes do not exceed ten thousand
dollars ($10,000) for the applicable Limitation
Year and for any prior Limitation Year; and
(2) the Company has not at any time
maintained a Defined Contribution Plan in which
the Participant participated.
(n) In the case of a Participant who has fewer than
ten (10) years of participation in the Plan, the
limitation referred to in clause (1) of Section (b) of
this Section shall be multiplied by a fraction, the
numerator of which is the number of years (or part
thereof) of participation in the Plan and the
denominator of which is ten (10).
In the case of a Participant who has fewer than ten
(10) years of employment with the Company, the
limitation referred to in clause (2) of Section (b) of
this Section (or in Section (f) of this Section, if
applicable) shall be multiplied by a fraction, the
numerator of which is the number of years (or parts
thereof) of employment with the Company and the
denominator of which is ten (10).
In no event shall this Section reduce the limitation
referred to in Section (b) of this Section (or in
Section (f) of this Section, if applicable) to an amount
less than one-tenth (1/10) of such limitation
(determined without regard to this Section).
35
<PAGE>
To the extent provided in regulations under the Code,
this Section shall be applied separately with respect to
each change in the benefit structure of the Plan.
(o) In the case of a Participant who is separated from
service with the Company, the one hundred percent (100%)
limitation in clause (2) of Section (b) of this Section
shall be automatically adjusted to reflect any
regulations issued by the Secretary of the Treasury
pursuant to Section 415(d) of the Code, concerning
cost-of-living adjustments.
(p) If the Retirement Benefit under this Plan
begins after the Social Security normal retirement age,
the determination as to whether the dollar limitation
set forth in clause (1) of Section (b) of this Section
has been satisfied shall be made, in accordance with
regulations prescribed by the Secretary of the Treasury,
by increasing the dollar limitation so that such
limitation (as so increased) equals an annual benefit
(beginning when such retirement income benefit begins)
which is equivalent to a ninety thousand dollar
($90,000) annual benefit beginning at the Social
Security normal retirement age.
(q) If the current accrued benefit of a Participant on
October 31, 1987, exceeds the limitation referred to in
Section (b) of this Section as modified by the
applicable provisions of the other Sections of this
Section, then, with respect to such Participant, the
limitation described in clause (1) of Section (b) of
this Section shall be equal to such current accrued
benefit.
For purposes of this Section, "current accrued benefit"
means a Participant's Accrued Benefit determined as if
the Participant had separated from service with the
Company as of October 31, 1987, expressed as an annual
benefit within the meaning of Code Section 415(b)(2).
In determining the amount of a Participant's current
accrued benefit, (1) any change in the terms and
conditions of the Plan after May 5, 1986, and (2) any
cost of living adjustment occurring after May 5, 1986,
shall be disregarded.
(r) This Section is effective as of November 1, 1987.
7.5 Combined Benefit Limitations
If a Participant is a participant in one or more Defined Benefit
Plans and one or more Defined Contribution Plans maintained by
the Company, the sum of his/her defined benefit plan fraction and
his/her defined contribution plan fraction shall not exceed unity
(1.0) during any Limitation Year.
36
<PAGE>
If the sum of the defined benefit plan fraction and the defined
contribution plan fraction would exceed unity (1.0) for any
Limitation Year, the Company shall adjust the rate of benefit
accrual for purposes of a Defined Benefit Plan on behalf of the
Participant so that the sum of such fractions shall not exceed
unity (1.0).
For purposes of determining maximum annual additions to Defined
Contribution Plans and maximum annual benefits payable from
Defined Benefit Plans, all Defined Contribution Plans and all
Defined Benefit Plans, whether or not terminated, shall be
combined and treated as one plan.
(a) The term "defined benefit plan fraction" shall
mean a fraction the numerator of which is the
Participant's projected annual benefit (as defined in
the said Defined Benefit Plan) determined as of the
close of the Limitation Year, and the denominator of
which is the lesser of:
(1) the product of one and twenty-five
hundredths (1.25) multiplied by the dollar
limitation described in clause (i) of Section 0
for such Limitation Year; or
(2) the product of one and four-tenths (1.4)
multiplied by the amount, described in clause (ii)
of Section 0, which may be taken into account with
respect to each individual under the Plan for such
Limitation Year.
(b) The term "defined contribution plan fraction"
shall mean a fraction the numerator of which is the sum
of all of the annual additions to the Participant's
individual account under the Defined Contribution Plan
as of the close of the Limitation Year and the
denominator of which is the sum of the lesser of the
following amounts determined for such Limitation Year
and for each prior Limitation Year of employment with
the Company:
(1) the product of one and twenty-five
hundredths (1.25) multiplied by the dollar
limitation in effect in Code Section 415(c)(1)(A)
for such Limitation Year; and
(2) the product of one and four-tenths (1.4)
multiplied by the amount which may be taken into
account pursuant to Code Section 415(c)(1)(B) with
respect to each individual under the Defined
Contribution Plan for such Limitation Year. If
the Plan satisfied the applicable requirements of
Section 415 of the Code as in effect for all
Limitation Years prior to November 1, 1987, the
numerator of the defined contribution plan
fraction shall be adjusted by permanently
subtracting therefrom an amount equal to the
product of the amount by which the sum of the
defined benefit plan fraction and the defined
contribution plan fraction exceeds one (1), times
37
<PAGE>
the denominator of the defined contribution plan
fraction as of October 31, 1987.
(c) The limitation on aggregate benefits from a
Defined Benefit Plan and a Defined Contribution Plan
which is contained in Section 2004 of ERISA as amended
shall be complied with by a reduction (if necessary) in
the Participant's benefits under this Defined Benefit
Plan before a reduction in benefits in the Defined
Contribution Plan.
(d) This Section is effective for the period January
1, 1987 through December 31, 1999, unless otherwise
required under applicable law.
7.6 Corrective Adjustments
In the event that corrective adjustments are required pursuant to
Section 7.4 or Section 7.5, the Participant's annual benefit
shall be reduced by an amount, determined by the Actuary,
adequate to ensure compliance with Section 7.4 and Section 7.5.
7.7 Benefit Offset
If any Participant is or becomes, or upon proper application
would become, entitled to a pension or other benefits under any
other "qualified" defined benefit pension plan of which the
Employer has borne, or is required to bear, any part of the cost,
the Retirement Benefit payable to such Participant under the
provisions of this Plan shall be reduced to reflect the value of
such other plan to the extent that credit is granted under both
plans for the same period of service. The term "other
'qualified' defined benefit pension plan" shall not include any
plan or program under which benefits are provided wholly or in
part by public funds, state or Federal.
7.8 Top-25 Highest Paid Limitation
In any year, the payment of Retirement Benefits or Termination
Benefits to or on behalf of any Participant who is a Restricted
Participant (as hereinafter defined) shall not exceed the amount
that would be payable as a single life annuity that is the
Actuarial Equivalent of the Participant's Accrued Benefit and his
other benefits (loans in excess of the amounts set forth in Code
Section 72(p)(2)(A), any periodic income, any withdrawal values
payable to a living employee, and any death benefit not provided
through insurance on the Participant's life) under the Plan. A
Restricted Participant is any Highly Compensated Employee or
former Highly Compensated Employee; provided, however, that such
a Highly Compensated Employee or former Highly Compensated
Employee shall not be a Restricted Participant in the current
year if the Highly Compensated Employee or former Highly
Compensated Employee is not one of the twenty-five (25) non-
excludable employees and former employees of the Company or
Affiliate with the largest compensation in the current or any
prior year.
38
<PAGE>
The restrictions set forth in the preceding paragraph shall not
apply if (i) after taking into account payment to or on behalf of
the Restricted Participant of all benefits payable to or on
behalf of that Restricted Participant, the value of Plan assets
equals or exceeds one hundred and ten percent (110%) of the value
of current Plan liabilities as defined in Code Section 412(l)(7),
(ii) the value of the benefits payable to or on behalf of the
Restricted Participant is less than one percent (1%) of the
Plan's current liabilities as defined in Code Section 412(l)(7)
before distribution, or (iii) the value of the benefits payable
to or on behalf of the Restricted Participant does not exceed the
amount described in Code Section 411(a)(11)(A).
7.9 Qualified Domestic Relations Orders
Notwithstanding any other provision to the contrary in this Plan,
the Accrued Benefit of a Participant shall be distributed as soon
as reasonably possible to an alternate payee at the time and in
the manner specified in a Qualified Domestic Relations Order (as
defined in Code Section 414(p)) to the extent that such
distribution is permitted under the Plan, the Code, ERISA and
other applicable law. No distribution shall be paid to an
alternate payee in a form of payment or at a time not otherwise
available to a Participant under the Plan.
39
<PAGE>
ARTICLE 8
SPECIAL PROVISIONS APPLICABLE TO MERGERS,
ACQUISITIONS, AND RELATED EMPLOYERS
8.1 Prior Service as an Employee of Vectra Technologies, Inc.
In the case of an Employee who was employed by Vectra
Technologies, Inc. immediately prior to the date on which he
becomes an Employee, the Retirement Benefit under this Plan
shall be equal to the greater of:
(a) the Participant's Accrued Benefit under this Plan,
determined using an opening Cash Balance Account
calculated as of the Effective Date in accordance with
Section 3.8, and Vesting Service and Creditable Service
in accordance with the terms of this Plan for the
period of service while an Employee, or
(b) the Actuarial Value of the Participant's 1996 Plan
Benefit, plus Contribution Credits and Interest Credits
determined in accordance with Section 8.1(a) above. In
this case, such Participant shall be credited with
Vesting Service for his employment with Vectra
Technologies, Inc., in addition to his service as an
Employee.
8.2 Prior Service as an Employee of DE&S Northwest, Inc. or
Intera, Inc.
In the case of an Employee who is employed by DE&S
Northwest, Inc. or was employed by Intera, Inc. immediately
prior to the date on which he becomes an Employee, the
Retirement Benefit under this Plan shall be equal to the
Participant's Accrued Benefit under this Plan, determined
using an opening Cash Balance Account calculated as of the
Effective Date in accordance with Section 3.8, and Vesting
Service and Creditable Service in accordance with the terms
of this Plan for his service as an Employee, plus
any continuous employment service with DE&S Northwest, Inc.
(including prior service with Westinghouse Hanford, Inc.) or
Intera, Inc.
40
<PAGE>
ARTICLE 9
MEDICAL BENEFITS
9.1 Medical Benefits for Retired Employees
Sickness, accident, hospitalization and medical expenses for
certain retired employees and their eligible dependents shall be
provided under this Plan in accordance with Code Section 401(h).
Unless otherwise provided, the other provisions of this Plan
shall not apply to Medical Benefits under this Article.
9.2 Eligible Individuals
Medical Benefits, as defined in Section 9.3, shall be provided
only to the following eligible individuals:
(a) An Employee who terminated employment on or after
January 1, 1992 following his Normal, Early or
Disability Distribution Date and is eligible for
coverage under the Duke Power Company Retiree Medical
Plan,
(b) An Employee who terminated employment before
January 1, 1992 following his Normal, Early or
Disability Distribution Date and is eligible for
coverage under the Duke Power Company Retiree Medical
Plan as of January 1, 1999, and
(c) A Spouse or other dependent of an individual who
meets the conditions described in (a) or (b) above, who
also meets the eligibility requirements for receiving
medical benefits under the Duke Power Company Retiree
Medical Plan.
Notwithstanding the preceding terms of this paragraph, Medical
Benefits shall not be payable under this Plan for any Key
Employee as defined in Section 416 of the Code.
This Article defines the extent to which medical benefits will
be funded under the 401(h) provision of the Plan. The level of
medical benefits provided shall be determined in accordance with
the Duke Power Company Retiree Medical Plan.
9.3 Medical Benefits
Medical Benefits shall mean any medical expense properly
reimbursable as retiree medical benefits under the Duke Power
Company Retiree Medical Plan, as in effect on January 1, 1997,
whether insured or self-funded, and maintained or sponsored by
the Company to provide medical coverage to former employees,
their Spouses and dependents.
41
<PAGE>
9.4 Separate Account
A separate account shall be maintained for record-keeping
purposes for contributions made to fund the Medical Benefits,
which shall hereinafter be referred to as the "Medical Account."
The funds deposited in the Medical Account need not be separately
invested; however, if funds in the Medical Account are not
separately invested, any earnings on such funds shall be
allocated to the funds in the Medical Account on a reasonable and
consistent basis.
9.5 Contributions
Amounts contributed by the Employer to fund the Medical Account
shall be both reasonable and ascertainable, and such
contributions shall be conditioned on their deductibility under
the Code. The Employer shall designate the portion of each
contribution to the Plan that is allocable to the Medical
Account. In no event shall aggregate contributions to the
Medical Account, when added to actual contributions, if any, for
life insurance protection under the Plan, exceed twenty-five
percent (25%) of the total actual contributions to the Plan
(other than contributions to fund past service credits) after the
date on which the Medical Account is established. For purposes
of this Section, life insurance protection includes any benefit
paid under the Plan on behalf of a Participant as a result of the
death of the Participant to the extent such payment exceeds the
amount of the reserve to provide retirement benefits for the
Participant existing at his death. No contributions to the
Medical Account shall be accepted from Employees or retired
Participants.
9.6 Payment of Benefits
An amount shall be paid for any year from the Medical Account to
Duke Power Company equal to the actual cost of coverage
(including administrative cost) under the Duke Power Company
Retiree Medical Plan, for those eligible individuals described in
Section 9.2. In the event that the cost of coverage for any year
exceeds the value of the assets in the Medical Account, the
amount required to be paid from the Medical Account shall be the
value of the assets in the Medical Account to the extent such
value exceeds a de minimis amount. For this purpose, a de
minimis amount shall be deemed to be twenty-five thousand dollars
($25,000) or less. In no event shall the Employer be required to
make additional contributions to the Medical Account because the
cost of coverage for a year exceeds the value of the assets in
the Medical Account.
9.7 Discrimination
No benefit from the Medical Account shall be paid in a manner
that discriminates in favor of highly compensated employees as
defined in Section 414(q) of the Code.
42
<PAGE>
9.8 Impossibility of Diversion
No amount contributed to the Medical Account and no income
thereon may be used for or diverted to any purpose other than
providing Medical Benefits under the Plan, unless all liabilities
of the Employer under the Duke Power Company Retiree Medical Plan
or any successor welfare benefit plan have been satisfied.
Amounts that are contributed to the Medical Account, and any
earnings thereon, may be returned to the Employer upon the
satisfaction of all liabilities under the Duke Power Company
Retiree Medical Plan or any successor welfare benefit plan. If
Federal law is amended after the Effective Date of the Plan, to
provide for governmental provision of post-retirement medical
expenses, mandatory payment or reimbursement by employers, or
other sources of post-retirement medical expenses in a manner
that substantially provides for the post-retirement medical
expenses of eligible individuals described in Section 9.2, the
preceding provisions of this Section 9.8 shall cease to apply to
the extent that payment of Medical Benefits would duplicate
payment of medical expenses provided for by such amendment to the
law.
9.9 Forfeitures
To the extent, if any, that individual contributions are
accepted, in the event an individual's interest in the Medical
Account is forfeited prior to termination of the Medical Account,
an amount equal to the forfeiture shall be applied as soon as
possible to reduce Employer Contributions.
9.10 Right To Terminate Benefits
The Employer reserves the right, in its sole and absolute
discretion, to amend or terminate the Medical Benefits provided
hereunder or under the Duke Power Company Retiree Medical Plan at
any time, subject to the requirements of Section 9.8.
43
<PAGE>
ARTICLE 10
PLAN ADMINISTRATION
10.1 Plan Administrator
The Company shall be the Plan Administrator for purposes of ERISA
and for purposes of satisfying any requirement now or hereafter
imposed through Federal or state legislation to report and
disclose to any Federal or state department or agency, or to any
Participant, Spouse or Beneficiary, any information respecting
the establishment or maintenance of this Plan.
10.2 Appointment
The Company may appoint a Retirement Plan Committee which shall
perform the duties as Plan Administrator. Any individual,
including but not limited to Employees and Participants, may be
appointed to the Retirement Plan Committee serving on behalf of
the Company as Plan Administrator.
10.3 Term and Compensation
The Plan Administrator or the Retirement Plan Committee members
performing the duties of the Plan Administrator shall serve on
the Retirement Plan Committee until their resignation or
dismissal by the Company. Vacancies shall be filled in the same
manner as the original appointments. Members shall serve as such
without compensation.
10.4 Claims Review
The Plan Administrator shall interpret this Plan and shall make
all determinations with regard to the administration and
application of this Plan. All such determinations shall be
final, conclusive and binding except to the extent that they are
appealed with regard to benefit claims under the following
procedure. In the event that the claim of any person to all or
any part of any payment or benefit under this Plan shall be
denied, the Plan Administrator shall provide to the claimant,
within sixty (60) days after receipt of such claim, a written
notice setting forth, in a manner calculated to be understood by
the claimant:
(a) the specific reason or reasons for the denial;
(b) specific references to the pertinent Plan
provision or provisions on which the denial is based;
44
<PAGE>
(c) a description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation as to why such material or
information is necessary; and
(d) an explanation of the Plan's claim procedure.
Within sixty (60) days after receipt of the material described
above, the claimant shall have a reasonable opportunity to appeal
the claim denial to the Plan Administrator for a full and fair
review. The claimant or his duly authorized representative may
request a review upon written notice to the Plan Administrator;
review pertinent documents; and submit issues and comments in
writing.
Within twenty (20) days of receiving a request for review, the
Plan Administrator shall notify the claimant of a date for a
hearing, which shall be within thirty (30) days of receiving such
request. Following such hearing, regardless of whether the
claimant or his representative elects to be present or to make an
oral or written presentation at such hearing, and not later than
sixty (60) days after receipt of a request for review, a decision
by the Plan Administrator shall be made unless special
circumstances require an extension of time for processing, in
which event a decision shall be rendered as soon as possible, but
in no event later than one hundred twenty (120) days after such
receipt.
The Plan Administrator's decision on review shall be written and
shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, with specific
references to the pertinent Plan provision or provisions on which
the decision is based.
10.5 Plan Administrator Actions
Except as otherwise specifically provided in the Plan, every
decision and action of the Plan Administrator shall be by a
majority vote of the Retirement Plan Committee taken at a
meeting, or without a formal meeting by the written consent of a
majority of the members of the Retirement Plan Committee then in
office. The Plan Administrator shall select a Secretary and any
other officers deemed necessary who shall be authorized to bind
the Retirement Plan Committee members by their signatures, and
shall adopt rules governing its procedures consistent with the
terms of this Plan. The Plan Administrator shall keep a
permanent record of its meeting and actions.
10.6 Benefit Payment Directions
The Plan Administrator shall direct the Trustee or shall cause
the Trustee to be directed in writing to make benefit payments
from the Trust to Participants, Spouses or Beneficiaries who
qualify for such payments under the Plan. Such written order to
the Trustee shall specify the name of each
45
<PAGE>
such recipient, his address, his Social Security number, and the amount and
frequency of such payments.
10.7 Nondiscrimination
The Plan Administrator shall act and shall direct the Trustee to
act or cause such action with respect to any Plan benefits or any
other matter under the powers of the Plan Administrator under
this Plan in a uniform and nondiscriminatory manner toward all
Participants and Employees under substantially similar sets of
facts and shall not permit discrimination in favor of any
officers, owners or Highly Compensated Employees of the Employer.
10.8 Agents
The Plan Administrator may employ such counsel (who may be
counsel for the Employer), consultants, accountants, and other
agents as it shall deem advisable. All costs and expenses of the
Plan Administrator and the fees of legal counsel, consultants,
accountants, and other agents shall be paid by the Employer, or
the Employer shall cause such costs and expenses to by paid by
the Trustee out of the Trust Fund.
10.9 Records and Reports
The Plan Administrator shall keep all records relating to
Participants (including former Participants) and obtain annual
reports from the Trustee and any Investment Manager and collect
from the Trustee and any such Investment Manager and other
sources any such records as are necessary for proper operation of
the Plan. The Plan Administrator shall make an annual report of
the assets and liabilities of the Plan and a brief description of
the Plan's operation for the immediately preceding Plan Year to
the Employer and shall make such report and any other such
records available to the Employer, or any Participant, Spouse or
Beneficiary for examination during business hours except that a
Participant, Spouse or Beneficiary shall examine only such
records as pertain exclusively to the examining Participant,
Spouse or Beneficiary and the Plan and Trust Agreement as
currently in effect or hereafter amended.
10.10 Indemnification
The Employer shall indemnify and hold harmless the Plan
Administrator, any member thereof and any Employee who may act on
behalf of the Employer in the administration of this Plan from
and against any liability, loss, cost or expense (including
reasonable attorneys' fees) incurred by it at any time as a
result of or in connection with any claims, demands, actions or
causes of action of any Participants, any person claiming through
or under any of them, or any other person, party or authority
claiming to have an interest in this Plan or Trust or standing to
act for any persons or groups having an interest in this Plan or
Trust, for or on account of, any of the acts or omissions
46
<PAGE>
(or alleged acts or omissions) of any member of the Plan Administrator or any
such employee, except to the extent resulting from such person's willful
misconduct.
10.11 Funding Policy
The Plan Administrator shall be responsible for establishing a
policy to carry out the objectives of the Plan and a method to
determine the liquidity and investments needed under that policy.
At least annually, the Plan Administrator shall communicate
information concerning the short- and long-term liquidity and
investment needs of the Plan to the Trustee and any Investment
Managers, so that the investment policy for the Trust Fund can be
appropriately coordinated with Plan needs. In investing and
reinvesting the Trust, the Trustee and any Investment Managers
shall have due regard for the funding policy and method of the
Plan as communicated to it by the Plan Administrator, but the
Trustee and every Investment Manager each shall be fully
responsible for the selection and retention or disposition of the
investments or reinvestments of the assets of the Trust in its
possession to fulfill such funding policy and method.
10.12 Powers and Duties of the Plan Administrator
The Plan Administrator shall supervise the administration and
enforcement of the Plan according to the terms and provisions of
this Plan and shall have all powers necessary to accomplish these
purposes, including, without limitation and in addition to any
other powers described in this Article, the right, power,
authority and duty:
(a) to make rules, regulations and bylaws for the
administration of the Plan which are not inconsistent
with the terms and provisions of this Plan, provided
such rules, regulations and bylaws are evidenced in
writing and copies thereof are delivered to the Trustee
and to the Employer;
(b) to construe all terms, provisions, conditions and
limitations of the Plan (in all cases, the construction
necessary for the Plan to qualify under the applicable
provisions of the Code shall control);
(c) to correct any defect or supply any omission or
reconcile any inconsistency that may appear in the Plan,
in such manner and to such extent as it shall deem
expedient to carry the Plan into effect for the greatest
benefit of all interested parties;
(d) to determine all questions relating to
eligibility;
(e) to determine the amount, manner and time of
payment of any Plan benefits and to prescribe procedures
to be followed by distributees in obtaining benefits;
47
<PAGE>
(f) to prepare, file and distribute, in such manner as
the Plan Administrator determines to be appropriate,
such information and material as is required by the
reporting and disclosure requirements of ERISA;
(g) to make a determination as to the right of any
person to a benefit under the Plan;
(h) to receive and review reports from the Trustee and
any Investment Manager as to the financial condition of
the Trust, including its receipts and disbursements; and
(i) to delegate, in its sole discretion, any of its
powers or duties to subcommittees, task forces or study
groups at such times and in such manner as it shall deem
expedient to administer and enforce the Plan in a
uniform and nondiscriminatory manner for the benefit of
all interested parties.
10.13 Employer to Supply Information
The Employer shall supply full and timely information to the Plan
Administrator relating to the Compensation of all Participants,
their ages, their retirement, death or other cause for
termination of employment and such other pertinent facts as the
Plan Administrator may require. The Employer also shall supply
such information to the Trustee and every Investment Manager as
necessary for the Trustee and each Investment Manager to carry
out its duties. When making a determination in connection with
the Plan, the Plan Administrator shall be entitled to rely upon
information furnished by the Employer provided that the Plan
Administrator shall resolve any factual dispute under this Plan
by giving weight to all information available to it.
10.14 Self-Interest
Neither the Plan Administrator nor any member of the Retirement
Plan Committee shall have any right to vote or decide upon any
matter related directly to him or any right of his to claim any
benefit under the Plan. In any case in which a Retirement Plan
Committee member is so disqualified to act, and the remaining
members cannot agree, the Board may appoint a temporary
substitute member to exercise all the powers of the disqualified
member concerning the matter in which he is disqualified.
48
<PAGE>
ARTICLE 11
CONTRIBUTIONS BY THE EMPLOYER
11.1 Employer Contributions
The Employer intends but it does not guarantee to make
contributions to the Trust Fund in such amount and at such times
as are required to maintain the Plan and Trust Fund for
Participants in compliance with the provisions of ERISA and
regulations issued thereunder. All such contributions made to
the Trust Fund shall be used to fund benefits under the Plan or
to pay expenses of the Plan and shall be irrevocable, except as
otherwise provided in Section 13.5 or Section 15.5. Employees
and Participants are neither required nor permitted to make
contributions to the Plan.
11.2 Expenses
The Employer may pay all costs, expenses and fees incurred in
providing services to the Plan and all other costs and expenses
of administering and operating the Plan. The Employer shall
direct the Trustee to pay from the Trust Fund any expenses that
the Employer does not pay or for which the Employer may not be
liable, such as real and personal property taxes, income taxes,
excise taxes, transfer taxes, and any and all expenses of a
similar nature that may be levied or chargeable on account of the
Trust, other than expenses for services rendered on behalf of the
Plan or the Trust Fund in connection with the establishment or
termination of such Plan or Trust Fund. Such expenses, until
they are paid, shall constitute a charge against the Trust to be
satisfied before any distribution upon Plan termination.
11.3 Actuary
The Actuary shall perform period valuations of the Plan, no less
than annually. The Actuary in the actuarial valuation shall
apply all gains arising in the operation of the Plan, including
but not necessarily limited to gains arising from terminations of
employment of Participants prior to qualifying for benefits
hereunder, to reduce the contributions of the Employer pursuant
to the funding method and actuarial tables then in use.
11.4 Funding Standard Account
The Plan Administrator shall cause the Plan to establish and
maintain a funding standard account so that it may be determined
whether or not the Plan has complied with minimum funding
standards.
49
<PAGE>
ARTICLE 12
THE TRUST FUND AND TRUSTEE
12.1 Trust Agreement
The Company has entered into a Trust Agreement with the Trustee
to hold the funds necessary to provide the benefits set forth in
the Plan. The Trust Agreement shall be deemed to form a part of
the Plan and all rights of Participants or others under the Plan
shall be subject to the provisions of the Trust Agreement to the
extent such provisions are not contradicted by specific
provisions of the Plan. The Trust Agreement may contain
provisions granting authority to the Employer to settle the
accounts of the Trustee on behalf of all persons having or
claiming an interest in the Trust Fund.
12.2 Trust Fund
The Trust Fund shall be received, held in Trust, and disbursed by
the Trustee in accordance with the provisions of the Trust
Agreement and the provisions as set forth in this Plan. No part
of the Trust Fund shall be used for or diverted to purposes other
than the exclusive benefit of Participants and their
beneficiaries under this Plan, prior to the satisfaction of all
liabilities hereunder with respect to them, except as provided in
Section 13.5 and except as provided in Section 15.5 hereof at
time of termination of the Plan and Trust. No person shall have
interest in or right to the Trust Fund or any part thereof,
except as specifically provided for in this Plan and/or the Trust
Agreement.
12.3 Appointment of Trustee
The Trustee may be any individual, corporation or other legal
person qualified to serve as a trustee under ERISA. The Company
may remove the Trustee at any time upon notice required by the
terms of the Trust Agreement and, upon such removal or upon the
resignation of the Trustee, the Company shall designate and
appoint a successor Trustee and direct the transfer of the Trust
Fund as provided in the Trust Agreement.
12.4 Investment Managers
The Company may appoint, in writing and from time to time, one
(1) or more Investment Managers to manage and/or invest and
reinvest the Trust Fund or any part thereof. Any such Investment
Manager shall be certified as such to the Trustee by the Company,
and the Trustee shall not be liable for the acts or omissions of
any such Investment Manager or be under any obligation to manage
or invest the assets of the Trust Fund that are subject to
management by such Investment Manager. Each such Investment
Manager shall at all times be a person or
50
<PAGE>
organization qualified to act as an "investment adviser" under the Investment
Advisers Act of 1940 and regulations issued thereunder, and shall acknowledge in
writing acceptance of its fiduciary status under this Plan.
The Company may remove any Investment Manager at any time upon
written notice and, upon such removal or upon the resignation of
any Investment Manager, the Company may designate and appoint a
successor Investment Manager and shall direct the former
Investment Manager to transfer the assets of the Trust Fund in
its possession to the Trustee or the successor Investment
Manager. The Trustee shall not be responsible for assets of the
Trust Fund while they are in the possession of an Investment
Manager, except as provided in the Trust Agreement.
12.5 Powers
The Trustee and any Investment Manager shall have such powers to
purchase insurance on the lives of Participants and to hold,
invest, reinvest, control, and disburse funds as shall be set
forth at that time in the Trust Agreement or written appointment,
respectively.
12.6 Plan a Part of Trust Agreement
The Trust Agreement shall be deemed to form a part of this Plan
and all rights of Participants or others under this Plan shall be
subject to the provisions of the Trust Agreement to the extent
such provisions are not contradicted by specific provisions of
this Plan.
12.7 Settlement of Accounts
The Trust Agreement may contain provisions granting authority to
the Company to settle the accounts of the Trustee on behalf of
all persons having or claiming an interest in the Trust Fund.
51
<PAGE>
ARTICLE 13
RESERVATION OF AND LIMITATIONS ON RIGHTS
13.1 Benefits
Although it is the intention of the Employer that this Plan shall
be continued and its contributions made regularly each year, this
Plan is entirely voluntary on the part of the Employers and the
continuance of the Plan and the payments thereunder are not
assumed as a contractual obligation of the Employer. The
Employer does not guarantee or promise to pay or cause to be paid
any of the benefits provided by the Plan.
13.2 Contributions
The Employer specifically reserves the right, in its sole and
uncontrolled discretion and by official and authorized act, to
modify, suspend, in whole or in part, at any time or from time to
time, and for any period or periods, or to discontinue at any
time, the contributions specified in Article 11 of this Plan.
13.3 No Employment Contract
This Plan shall not be deemed to constitute a contract between
the Employer and any Participant or to be a consideration or an
inducement for the employment of any Participant or Employee.
Nothing contained in this Plan shall be deemed to give any
Participant or Employee the right to be retained in the service
of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of
the effect which such discharge shall have upon him as a
Participant in the Plan.
13.4 Spendthrift Clause
None of the benefits provided under this Plan are subject to the
claims of creditors of Participants, Retired Participant or their
beneficiaries and will not be subject to attachment, garnishment
or any other legal process. Neither a Participant nor a retired
Participant nor his Beneficiaries may assign, sell, borrow on or
otherwise encumber any of his beneficial interest in this Plan
nor shall any such benefits be in any manner liable for or
subject to the deeds, contracts, liabilities, engagements, or
torts of any Participant, retired Participant or Beneficiary.
The preceding sentences shall also apply to the creation,
assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order,
unless such order is determined by the Plan Administrator to be a
qualified domestic relations order, as defined in Code Section
414(p).
52
<PAGE>
13.5 Return of Contributions
It is intended that this Plan shall be approved and qualified by
the Internal Revenue Service as meeting the requirements of the
Code and regulations issued thereunder:
(a) so as to permit the Employer to deduct for Federal
income tax purposes the amounts of its contributions to
the Trust Fund;
(b) so that the contributions so made and the income
of the Trust Fund will not be taxable to Participants as
income until received; and
(c) so that the income of the Trust Fund shall be
exempt from Federal income tax.
The Employer's contributions under this Plan are conditioned on
their being deductible under Code Section 404. In the event the
Commissioner of Internal Revenue or his delegate rules that a
deduction for all or a part of the Employer's contribution is not
allowed, the Employer will recover, within one (1) year of the
disallowance of the deduction, that portion or all of its
contribution for which no deduction is allowed. The Employer
also reserves the right to recover that portion or all of any
contribution made by a mistake of fact, provided such recovery is
made within one (1) year of the payment of the contribution to
the Trustee. No earnings on a contribution shall be returned to
the Employer and losses on the contribution will reduce the
amount to be returned.
53
<PAGE>
ARTICLE 14
AMENDMENTS
14.1 Amendment of the Plan
The Company reserves the right, at any time and from time to
time, to modify or amend, in whole or in part, any or all of the
provisions of this Plan, without the consent of the Employer,
Participant, Spouse, Beneficiary, or any other person or persons
claiming through them, by action of the Board through resolutions
duly adopted by the Board, including specifically the right to
make any such modifications or amendments effective
retroactively, if necessary; provided that no such modification
or amendment shall make it possible for any part of the assets of
this Plan to be used for or diverted to purposes other than the
exclusive benefit of Participants and their Spouses and
Beneficiaries under this Plan, prior to the satisfaction of all
liabilities with respect to such Participants, Spouses, and
Beneficiaries, except as indicated in Section 13.5 and Section
15.5.
14.2 Limitations on Right to Amend
No amendment to the Plan (including this restatement of the Prior
Plan) shall be effective to the extent that it has the effect of
decreasing a Participant's Accrued Benefit, or otherwise
violating Section 411(d)(6) of the Code. Notwithstanding the
preceding sentence, a Participant's Accrued Benefit may be
reduced to the extent permitted by Code Section 412(c)(8). For
purposes of this paragraph, a Plan amendment that has the effect
of (1) eliminating or reducing an early retirement benefit or a
retirement-type subsidy, or (2) eliminating an optional form of
benefit, with respect to benefits attributable to Creditable
Service earned before the amendment, shall be treated as reducing
Accrued Benefits. In the case of a retirement-type subsidy, the
preceding sentence shall apply only with respect to a Participant
who satisfies the pre-amendment conditions for the subsidy. In
general, a retirement-type subsidy is a subsidy that continues
after retirement, but does not include a qualified disability
benefit, a medical benefit, a Social Security supplement, a death
benefit (including life insurance), or a plant shutdown benefit
(that does not continue after retirement age.) Furthermore, no
amendment to the Plan shall have the effect of decreasing a
Participant's vested interest determined without regard to such
amendment as of the later of the date such amendment is adopted,
or the date it becomes effective.
54
<PAGE>
ARTICLE 15
TERMINATION OR TEMPORARY DISCONTINUANCE OF THE PLAN
15.1 Termination
The Company, by action of the Management Committee of the Board
through resolutions duly adopted by the Board, may suspend
payments to the Trust Fund for any year and may terminate the
Plan at any time.
15.2 Apportionment of Trust Fund
If the Company terminates the Plan or permanently suspends
contributions, the Trustee shall compute the value of the Trust
Fund held for the benefit of Participants, retired Participants,
qualified terminated Participants, Spouses, and Beneficiaries
otherwise eligible to receive Retirement or Termination Benefits
from the Plan. The Plan Administrator, based upon the
certification of the Actuary, shall apportion the amount so
valued to all such Participants, Retired Participants, qualified
terminated Participants, and/or their Spouses and Beneficiaries
in shares as determined in Section 15.3, but subject to the
provisions of Section 15.6.
15.3 Allocation of Trust Fund
The value of the Trust Fund computed above remaining after
providing for the expenses of administration of the Plan and the
Trust shall be allocated for the purposes of paying Retirement
Benefits, Termination Benefits and Death Benefits in the order of
precedence indicated and in the amounts indicated in Section 4044
of ERISA as amended, and including any regulations issued
thereunder.
The allocation of the Trust Fund in accordance with this Section
shall be based on the method of payment of Retirement Benefits,
Termination Benefits or Death Benefits specified in the Plan. In
the event that the Trust Fund assets on or after the date of
termination are insufficient to fund all benefits within any
class, the benefits of all higher order of precedence shall be
funded, the benefits of all lower order of precedence shall be
unfunded, and the assets remaining shall be allocated among
members of that class on the basis of their respective actuarial
reserves, subject to the provisions of Section 4044 of ERISA.
15.4 Distribution of Trust Fund
The application of the Trust Fund on the foregoing basis shall be
calculated by the Actuary and certified to the Trustee as of the
date on which the Plan terminated. Subject to the restrictions
of ERISA, when the calculations shall be completed, the interest
of each Participant, Retired
55
<PAGE>
Participant, Spouse, and Beneficiary shall continue to be held in the Trust Fund
pursuant to the terms of Section 15.3 hereof, or, at the direction of the Plan
Administrator, the Trust Fund shall be liquidated and each of their interests
distributed to them in the form of annuity contracts, annuity payments,
installments or in a lump sum as determined by the Plan Administrator. Subject
to the limitations of Section 4044(d)(2) of ERISA, any funds remaining after the
satisfaction of all liabilities to such Participants, Retired Participants,
Spouses, Beneficiaries and Contingent Beneficiaries under the Plan due to
erroneous actuarial computation shall be returned to the Company.
15.5 Limitations on Benefits
In the event of termination of the Plan, the benefit of any
Highly Compensated Employee (including a former employee who is a
Highly Compensated Employee) who is among the twenty-five (25)
non-excludable employees and former employees of the Company with
the largest amount of compensation in the current or any prior
year is limited to a benefit that is non-discriminatory under
Code Section 401(a)(4).
15.6 Nonforfeitability
Notwithstanding any other provision herein to the contrary,
except the provisions of Section 15.6, should the Plan terminate
or partially terminate, the rights of all affected past or
present Participants to benefits accrued to the date of such
termination or partial termination, to the extent then funded, or
to the amounts then credited to the Participants' accounts, shall
be nonforfeitable. A partial termination shall be deemed to have
occurred in accordance with a determination to that effect by the
Federal regulatory agency (the Department of Treasury, the
Department of Labor or the Pension Benefit Guaranty Corporation)
having jurisdiction so to determine under ERISA.
56
<PAGE>
ARTICLE 16
ACTUARY
16.1 Duties
The Actuary shall make all actuarial calculations and perform all
actuarial duties required of him under the terms of the Plan. In
making an actuarial valuation of the Plan from time to time, the
Actuary may rely upon information provided by the Trustee
concerning the assets in the Trust and shall not be required to
make any independent calculations with respect to such
information. The Actuary shall certify to the Company in writing
the results of the calculations required of him hereunder and the
Employers may rely thereon. In making all calculations
hereunder, the Actuary shall use such actuarial tables as he
deems appropriate but he shall use the same tables in making all
his calculations during a specified period. The Actuary shall
employ actuarial assumptions and methods each of which are
reasonable (taking into account the experience of the Plan and
reasonable expectations) or which, in the aggregate, result in a
total contribution equivalent to that which would be determined
if each such method and assumption were reasonable, and which, in
combination, offer the Actuary's best estimate of anticipated
experience under the Plan. The Actuary may from time to time
change the actuarial tables and other assumptions used by him
hereunder.
16.2 Information
The Company shall furnish the Actuary such information on
employees, payrolls, and other related data as the Actuary may
require from time to time.
16.3 Reliance
The Actuary may rely upon any information furnished him by the
Company or by the Trustee.
16.4 Actuarial Determinations
All actuarial determinations necessary in the administration of
this Plan shall be made by the Actuary. The Plan Administrator
shall be free to consult the Actuary at any time and neither the
Plan Administrator nor the Company shall be liable for the
actuarial correctness of any determination made by the Actuary.
57
<PAGE>
ARTICLE 17
PLAN FIDUCIARIES
17.1 Named Fiduciaries
For purposes of Part 4 of Title I of ERISA, the Plan
Administrator, the Company, the Retirement Plan Committee and
those parties to whom any duties are allocated pursuant to the
Plan or the Trust Agreement, as such provisions may hereafter be
amended, shall each be named fiduciaries. All actions by named
fiduciaries shall be in accordance with the terms of this Plan
and of the Trust Agreement insofar as such documents are
consistent with the provisions of Title I of ERISA. Each named
fiduciary while discharging his/her duties under this Plan shall
act solely in the interest of Participants and beneficiaries and
for the exclusive purpose of providing benefits and defraying
reasonable administrative expenses. Each named fiduciary shall
discharge his/her duties hereunder with the care, skill, prudence
and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims. Without limiting the generality of
the above, it is specifically provided that the appointment and
retention of the Retirement Plan Committee is a duty of the
Company for purposes of this Section.
17.2 Allocation of Duties of Fiduciaries
The Company, as Plan Administrator, shall be responsible for the
administration and management of the Plan except for those duties
specifically allocated to the Trustee. The Trustee shall have
exclusive responsibility for the management and control of the
assets of the Plan (but may, pursuant to the Plan and the Trust
Agreement, delegate all or a portion of such responsibility).
58
<PAGE>
ARTICLE 18
ENTRY AND WITHDRAWAL OF A PARTICIPATING EMPLOYER
18.1 Adopting Employers
If approved by the written resolution of the Board, any Employer
may participate in this Plan as an Employer and include its
employees as Employees under this Plan by executing, as
authorized by a written resolution of its board of directors, an
adoption agreement with the Company to be bound by all of the
provisions of this Plan, as in effect on the date of such
adoption, which shall become a part of this Plan. Such adoption
agreement shall include, without limitation, provisions regarding
the counting of Vesting Service and Creditable Service prior to
the effective date of such agreement. The Employer need not
execute the original or amended Plan. The sole authority of the
Company to amend the Plan and any authority of the Board under
this Plan or the Trust Agreement to appoint or remove the
Trustee, Plan Administrator members shall not be diminished by
the adoption of this Plan by any Employer under this Section and
any such amendments, appointments, removals or other changes
shall be binding on any such Employer and its employees.
Successors to such Employers may adopt this Plan only in
accordance with the provisions of Section 17.2 and upon approval
by written resolution of the Board. An Employer may withdraw
from this Plan only under the terms and conditions as established
or approved by the Board.
18.2 Successor Companies
In the event of a merger or consolidation of the Company or any
other Employer or transfer of all or substantially all of its
assets to any other corporation, partnership or association,
provision may be made by such successor corporation, partnership
or association at its election for the continuance of this Plan.
Such successor shall upon its election to continue this Plan, be
substituted in place of the Company or such other Employer by an
instrument duly authorizing such substitution and duly executed
by the Company, such Employer, if applicable, and such successor.
Upon the delivery to the Trustee of notice of such substitution
accompanied by a copy of such instrument and a certified copy of
the resolutions of the Board and the boards of directors of any
such Employer and such successor authorizing such substitution,
the Trustee and all Participants shall be authorized to recognize
such successor in the place of the Company or such Employer.
59
<PAGE>
18.3 Withdrawal of an Employer.
An Employer that is withdrawing from this Plan and the Trust
Agreement shall deliver to the Board a resolution of its board of
directors evidencing its withdrawal. Notice of withdrawal must
be submitted to the Plan Administrator at least six (6) months
prior to the date the withdrawal is to be effective unless such
time requirement is waived in writing by the Plan Administrator.
(a) Upon the withdrawal of an Employer, the provisions
of Article 15, with the exception of the provision
concerning erroneous actuarial computation, shall apply
to such Employer's withdrawal as if the withdrawal were
a part of the complete termination of this Plan, but the
participation of other Employers hereunder shall not be
affected nor shall the continuation of the Plan with
respect to the participation therein by other Employers
be affected by such withdrawal of an Employer.
(b) Notwithstanding the terms of Section (a) above, if
employees of the withdrawing Employer who are covered by
this Plan will, immediately upon withdrawal of the
Employer from this Plan, be covered by a different
retirement plan, and if the Employer and the sponsor of
that different retirement plan agree and deem it
desirable, the Plan Administrator, upon being furnished
evidence of the terms of such retirement plan and that
such plan has been approved by the Internal Revenue
Service as qualified under Section 401(a) of the Code as
now in effect or hereafter amended, shall direct the
Trustee (1) to establish the value of the portion of the
Trust Fund necessary to provide the accrued benefits of
the Participants attributable to such Employer, with the
withdrawing Employer funding any asset shortfall
attributable to its liabilities under the Plan, and (2)
to transfer the value of the portion of the Trust Fund
so determined to the trustee or trustees of the
different retirement plan or to the insurance company
which is to hold the funds of that retirement plan. The
Plan Administrator in its sole discretion shall have the
right to direct the Trustee to transfer the appropriate
portion of the Trust Fund to the trustee or trustees or
to the designated insurance company in the form of
installments, in cash or in cash and securities over a
period of time not to exceed six (6) months following
the effective date of the Employer's withdrawal.
The application of the withdrawing Employer's interest in the
Trust Fund pursuant to the terms of this Section shall constitute
a complete discharge of the responsibility of remaining
Employers, the Plan Administrator and the Trustee, without any
responsibility on their part collectively or individually to see
to the application thereof.
60
<PAGE>
ARTICLE 19
TOP HEAVY RULES
19.1 Generally
Notwithstanding anything contained in the Plan to the contrary,
in the event that this Plan is part of a Required Aggregation
Group and is a Top Heavy Plan for any Plan Year, this Article
shall become operative with respect to such Plan Year.
19.2 Vesting
In the event the vesting schedule set forth in Section 5.1 is
less liberal than the vesting schedule hereinafter provided, the
following vesting schedule shall be substituted for such vesting
schedule to the extent the following schedule is more favorable:
Years of
Vesting Service Vested Percentage
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
Should the Plan cease to be a Top Heavy Plan, the vesting
schedule in Section 5.1 shall be put back into effect. However,
the vested percentage of any Participant cannot be decreased as a
result of the return to the prior vesting schedule and any
Participant with three (3) or more years of Vesting Service may
elect, within the later of (i) sixty (60) days after the Plan
ceases to be a Top Heavy Plan, or (ii) sixty (60) days after the
date the Participant is issued written notification of the change
in the vesting schedules, to remain under the special vesting
rules described in this Section.
19.3 Minimum Benefit
For the first Plan Year that the Plan shall be a Top Heavy Plan,
and all future Plan Years during which the Plan is a Top Heavy
Plan, there shall be a minimum accrued benefit applicable to each
Participant who is not a Key Employee who earns a year of
Creditable Service during the Plan Year equal to the lesser of
two percent (2%) of Top Heavy Compensation multiplied by the
Participant's years of Top Heavy Service up to a maximum of ten
(10) years.
61
<PAGE>
19.4 Top Heavy Compensation
"Top Heavy Compensation" means one-twelfth (1/12) of a
Participant's average annual Full Compensation during that period
of five (5) consecutive Testing Years for which his aggregate
Full Compensation was the greatest. If he shall have fewer than
five (5) consecutive Testing Years, his Top Heavy Compensation
shall mean his average annual Full Compensation during that
period containing the largest number of consecutive Testing
Years; provided that, if there shall be more than one (1) such
period, Top Heavy Compensation shall be calculated on the basis
of such period for which such average is the greatest.
19.5 Testing Year
"Testing Year" means a Plan Year which begins prior to the end of
the last Plan Year for which the Plan was a Top Heavy Plan, but
excluding Plan Years beginning before 1984.
19.6 Full Compensation
"Full Compensation" means, for any Participant for any Plan Year,
his compensation (as such term is defined in section 1.415-2(d)
of the regulations issued under the Code) from the Company for
the calendar year which ends with such Plan Year.
19.7 Top Heavy Service
"Top Heavy Service" means a year of Creditable Service for a Plan
Year in which the Plan is a Top Heavy Plan, with the exception
that Creditable Service earned under this Plan or a predecessor
plan for Plan Years beginning prior to January 1, 1984, shall be
excluded.
19.8 Combined Limitation of Benefits
In the event the Plan is a Top Heavy Plan for the Plan Year, the
multiplier of one and twenty-five hundredths (1.25) in Sections
7.5(a) and (b) shall be reduced to one (1.0) unless:
(a) The Required Aggregation Group and any Permissive
Aggregation Group, if applicable, are ninety percent
(90%) or less top heavy; and
(b) The minimum accrued benefit referenced in Section
19.3 is modified by substituting for such minimum
accrued benefit a minimum accrued benefit applicable to
all Participants who are not Key Employees equal to the
lesser of three percent (3%) of the Participant's Top
Heavy Compensation multiplied by his years of Top Heavy
Service, or twenty percent (20%) of the Participant's
Top Heavy Compensation
62
<PAGE>
increased by one percent (1%) for each Plan Year (up to ten percent
(10%)) taken into account under Section 19.7.
63
<PAGE>
ARTICLE 20
MISCELLANEOUS
20.1 Interpretation by Plan Administrator
Any rules, regulations, or procedures that may be necessary for
the proper administration or functioning of this Plan that are
not covered in this Plan or the Trust Agreement shall be
promulgated and adopted by the Plan Administrator.
20.2 Headings
Any headings or subheadings in this Plan are inserted for
convenience of reference only and are to be ignored in the
construction of any provisions hereof.
20.3 Governing Law
This Plan shall be construed in accordance with the laws of the
State of North Carolina, except where such laws are superseded by
ERISA, in which case such Act shall control.
20.4 Benefits to Minors and Incompetents
In making any distribution to or for the benefit of any person
who is a minor or incompetent, the Plan Administrator, in its
sole, absolute and uncontrolled discretion, may, but need not,
make such distribution to a legal or natural guardian or other
relative of such minor or court-appointed committee of such
incompetent, or to any adult with whom such minor or incompetent
temporarily or permanently resides, and any such guardian,
committee, relative or other person shall have full authority and
discretion to expend such distribution for the use and benefit of
such minor or incompetent. The receipt of such guardian,
committee, relative or other person shall be a complete discharge
to the Plan Administrator, without any responsibility on its part
to see to the application thereof.
20.5 Severability
In case any provision of this Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of this Plan and this Plan shall be
construed and enforced as if such illegal and invalid provisions
had never been inserted herein.
64
<PAGE>
20.6 Misstatement of Facts
A misstatement in the age, sex, length of service, date of
employment or birth, or compensation of a Participant, or any
other such matter, shall be corrected when it becomes known that
any such misstatement of fact has occurred.
20.7 Benefits on Merger or Consolidation to Successor Plan
In the case of any merger or consolidation with or transfer of
assets or liabilities of the Plan to any other plan, such merger,
transfer or consolidation shall, by its terms, provide that each
Participant in the Plan would, if the Plan then terminated,
receive a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit he/she
would have been entitled to receive immediately before the
merger, consolidation, or transfer if this Plan had then
terminated.
20.8 Unclaimed Benefits
Any benefits payable to, or on behalf of, a Participant or former
Participant which are not claimed shall not bear Interest Credit
under Section 3.10, but shall be deemed abandoned or relinquished
only if the Participant or beneficiary cannot be located after
reasonable efforts at the time of termination of the Plan.
20.9 Exclusive Benefit
The Employer shall not be entitled to any part of the corpus or
income of the Trust Fund and no part thereof shall be used for or
diverted to purposes other than the exclusive benefit of the
Participants and beneficiaries hereunder, except as otherwise
specified in this Plan.
65
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Company, duly authorized to
execute this Plan on behalf of the Employer as specified in this
Plan, has caused its duly authorized officers to execute and seal
this Plan as of this 23rd day of December, 1996, to be effective as
of the first day of January, 1997.
DUKE POWER COMPANY
By William H. Grigg
Title Chairman of the Board and
Chief Executive Officer
(CORPORATE SEAL)
Attest Ellen T. Ruff
Title Secretary
66
EXHIBIT NO. 10-Z
DUKE POWER COMPANY
EXECUTIVE SAVINGS PLAN
PURPOSE
The purpose of this Plan is to provide deferred compensation to a
select group of management or highly compensated Employees. This Plan replaces
the Supplementary Defined Contribution Plan, the Compensation Deferral Plan and
the Incentive Deferral Plan, all of which were formerly maintained by the
Company.
ARTICLE I
TITLE AND EFFECTIVE DATE
1.1 This Plan shall be known as the Duke Power Company Executive
Savings Plan (hereinafter referred to as "Plan").
1.2 The effective date of this Plan is January 1, 1997.
ARTICLE II
DEFINITIONS
2.1 "Account" shall mean the record of deferrals and contributions and
adjustments thereto maintained with respect to each Participant pursuant to
Article VI.
2.2 "Base Pay" shall mean, for each Participant, the amount received
during a Plan Year for services actually rendered in the course of employment
with the Company to the extent that such amounts are includable in the
Participant's gross income as wages required to be reported under Code Sections
6041, 6051 and 6052 (Box 1 of Form W-2), without regard to limits on wages under
Code Section 3401, such as the exemption for agricultural labor. Base Pay shall
include any amount which is contributed by the Company pursuant to a salary
reduction agreement and which is not includable in the gross income of the
Participant under Code Sections 125 or 401(k). Also, Base Pay shall not include
expense reimbursements and allowances, cash or noncash fringe benefits, moving
expenses, the receipt of compensation previously deferred, severance pay, pay
for unused vacation, excellence awards, welfare benefits, or amounts received
pursuant to Incentive Plans or other incentive pay.
2.3 "Beneficiary" means the person or persons designated by a
Participant, or by another person entitled to receive benefits hereunder, to
receive benefits following the death of such person.
2.4 "CDP" shall mean the Duke Power Company Compensation Deferral Plan,
first effective as of July 1, 1983.
<PAGE>
2.5 "CDP Subaccounts" shall mean the subaccounts established pursuant
to Section 5.3 and maintained pursuant to Section 6.4.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
2.7 "Compensation Committee" shall mean the Compensation Committee of
the Board of Directors of Duke Power Company.
2.8 "Common Stock" shall mean shares of the common stock of Duke Power
Company.
2.9 "Company" shall mean Duke Power Company and its affiliates.
2.10 "Company-matching Subaccount" shall mean the subaccount
established and maintained pursuant to Section 6.3.
2.11 "Duke Common Stock Fund" shall mean the RSP Investment Option that
invests primarily in Common Stock.
2.12 "Effective Date" shall mean January 1, 1997.
2.13 "Eligible Earnings" shall have the same meaning as under the
Retirement Savings Plan.
2.14 "Election Date" shall mean a date that is at least 367 days prior
to the last day of the performance period during which executive incentive
compensation is earned pursuant to one of the Incentive Plans.
2.15 "Employee" shall mean any individual who is in the regular,
full-time employment of the Company as determined by the personnel rules and
practices of the Company.
2.16 "Fair Market Value" of Common Stock shall be the closing price on
the composite tape of the New York Stock Exchange on the most recently completed
trading day.
2.17 "General Account" shall mean that portion of a Participant's
Account that is not in a Subaccount.
2.18 "IDP" shall mean the Duke Power Company Incentive Deferral Plan,
first effective as of October 29, 1991.
2.19 "IDP Subaccounts" shall mean the accounts established and
maintained pursuant to Section 6.5.
2
<PAGE>
2.20 "Incentive Plans" shall mean the executive incentive compensation
plans designated on Schedule 2.20 or that were designated as "Incentive Plans"
pursuant to the IDP.
2.21 "Management Committee" shall mean the Management Committee of the
Board of Directors of Duke Power Company.
2.22 "Participant" shall mean any Employee for whom an account is
maintained under the Plan.
2.23 "Plan" shall mean the Duke Power Company Executive Savings Plan.
2.24 "Plan Year" shall mean the calendar year.
2.25 "RSP" shall mean the Duke Power Company Retirement Savings Plan.
2.26 "RSP Investment Options" shall mean the various mutual funds and
investment funds in which participants in the RSP can elect to have their RSP
account balances invested.
2.27 "Stock Purchase-Savings Program Committee" means the Stock
Purchase-Savings Program Committee of Duke Power Company.
2.28 "SDCP" shall mean the Supplementary Defined Contribution Plan for
Employees of Duke Power Company and Subsidiaries, first adopted as of January 1,
1978.
2.29 "Stock Unit" shall mean a unit of measure which is equal in Fair
Market Value to one share of Common Stock. Stock Units will accrue amounts equal
to the dividends paid on shares of Common Stock and such imputed dividends will
be converted into additional Stock Units based upon Fair Market Value on the
allocation date.
2.30 "Subaccounts" shall mean the CDP Subaccounts, the Company-matching
Subaccount, and the IDP Subaccounts.
2.31 "Termination of Employment" shall mean the date of a Participant's
severance from employment with the Company by reason of death, retirement,
resignation, discharge or otherwise.
2.32 "Valuation Date" shall mean, with respect to a Participant, the
last business day of the month during which such Participant's Termination of
Employment occurs.
3
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Only those management or highly compensated Employees selected by
the Management Committee shall be eligible to become Participants in the Plan,
except that any Employee whose annualized rate of Base Pay is $125,000 or higher
and who becomes entitled to a contribution under Section 4.3 shall become a
Participant without action by the Management Committee, but only with respect to
the benefit provided under Section 4.3. An Employee must be admitted to
participation by the Management Committee in order to defer compensation under
Sections 4.1 and 4.2.
ARTICLE IV
PARTICIPANT DEFERRALS
4.1 Salary Deferrals. Each eligible Participant may irrevocably elect
to defer in accordance with the terms of this Plan, a percentage (such
percentage to be a multiple of 1%) of such Participant's Base Pay for the Plan
Year, not to exceed 25%. Such election must be made by the Participant before
the beginning of such Plan Year. Base Pay deferred pursuant to this Section
shall be credited to the Participant's Account on a monthly basis.
4.2 Incentive Plan Deferrals. Each eligible Participant may irrevocably
elect to defer, in accordance with the terms of this Plan a percentage (such
percentage to be a multiple of 5%) of the amount payable with respect to a Plan
Year to such Participant as an award under any of the incentive plans listed on
Schedule 4.2. Such election must be made by the Participant not later than the
applicable Election Date with respect to the final Plan Year with respect to
which the incentive awards under such incentive plans are awarded (or, for a
newly eligible Employee, not later than 30 days after the Committee determines
such Employee to be eligible). Such amounts will be credited to the
Participant's Account as of the dates that awards under the Incentive Plans
become payable.
4.3 Retirement Savings Plan - Excess Deferrals and Matching
Contribution. The Company maintains a Retirement Savings Plan pursuant to which
Employees are permitted to elect to defer up to 6% of Eligible Earnings and
pursuant to which the Company makes certain matching contributions, based on the
Employee's deferral election. To the extent that (i) the application of Section
401(a)(17) of the Code, (ii) the application of Section 402(g) of the Code or
(iii) the application of Section 415 of the Code result in such Participant's
actual deferral being less than 6% of Eligible Earnings, then the amount of such
Participant's deferrals and corresponding Company-matching contributions that
are not contributed to the RSP on account of such limitations shall be credited
to the Participant's Account hereunder to the extent necessary to bring
deferrals under this Section and under the RSP up to a total of 6%. To the
extent that a Participant elects to defer an amount of Base Pay under Section
4.1 and/or an amount of short-term incentive pay under Section 4.2, the Company
shall credit to the Participant's Account a matching contribution under this
Plan equal in amount to 4.5% of such deferrals.
4
<PAGE>
4.4 Crescent Resources, Inc. Certain officers of Crescent Resources,
Inc. who on January 1, 1983, first participated in a certain incentive
compensation arrangement implemented by Crescent Resources, Inc. on January 1,
1983, and any officer who first participated in such arrangement by employment
agreement signed on December 3, 1987, shall be eligible to elect to defer up to
6% of such incentive compensation and the Company shall credit their Account
under this Plan with such amounts and with a matching contribution equal to 4.5%
of the incentive compensation .
4.5 Elections. An election to defer Base Pay or incentive pay will
remain in effect until revoked, except that no revocation will be effective
unless it is made prior to the beginning of the plan year to which it relates,
or in the case of incentive pay, prior to the applicable Election Date.
ARTICLE V
COORDINATION WITH FORMER PLANS
5.1 Supplementary Defined Contribution Plan. As of the Effective Date
of the Plan, the Participant's Account shall be credited with Stock Units, if
any, equal to the number of "SDCP Units" in such Participant's Account in the
Company's SDCP as of December 31, 1996.
5.2 Incentive Deferral Plan. As of the Effective Date of this Plan, the
Participant's Account shall be credited with Stock Units, if any, equal to the
number of "Phantom Shares" in such Participant's Account under the IDP as of
December 31, 1996.
5.3 Compensation Deferral Plan. As of the Effective Date of this Plan,
the Participant's Account shall be credited with the amount, if any, that the
Participant has deferred into the CDP, plus interest compounded at the Benefit
Rate applicable to such deferred amounts through December 31, 1996. Pursuant to
the terms of the CDP, accounts maintained under the CDP have been credited with
interest at one of two fixed rates, depending on the periods during which
deferrals were credited to such accounts. With respect to each Participant, the
amounts credited to such Participant's Account pursuant to this Section 5.3 will
be maintained in one or two separate subaccounts, (the "CDP Subaccounts") and
amounts therein will continue to be credited with interest at the rate formerly
applicable to such accounts under the CDP.
ARTICLE VI
ACCOUNTS
6.1 Maintenance of Participant Accounts. An Account shall be
established and maintained with respect to each Participant. Each Account shall
reflect the amounts or Stock Units credited thereto pursuant to Article IV and
V, plus or minus adjustments, made in accordance with the provisions of this
Article VI.
5
<PAGE>
6.2 "Investment Options" Generally.
(a) Pursuant to the terms of the RSP, employees who are
participants in the RSP must direct their account balances thereunder
into one or more of the RSP Investment Options available to them
pursuant to the RSP. Each Participant hereunder shall from time to time
specify one or more of the RSP Investment Options (or such other
investment options that may be made available from time to time) and
direct that specified portions of his or her Account (but not the
Subaccounts maintained pursuant to Sections 6.4 and 6.5) hereunder be
automatically adjusted (on a monthly basis), upward or downward, in
proportion to the total percentage return experienced on funds invested
in such investment options. Investments linked to the performance of
Common Stock shall be credited in the form of Stock Units.
(b) Notwithstanding the foregoing, as of the Effective Date
the Company will be in the process of reviewing the current RSP
Investment Options and deciding on changes to such options. Until the
Company notifies Participants that it has completed the process of
changing the RSP Investment Options, then the Participant shall direct
that specified portions of his or her General Account hereunder shall
either (i) be credited as Stock Units which are automatically adjusted
(on a monthly basis), upward or downward, in proportion to the total
return (including dividends) experienced by a holder of shares of
Common Stock, or (ii) be credited (on a monthly basis) with simple
interest at a rate determined by using the average yield on 30-year
Treasury Bonds as published in the Federal Reserve Statistical Release
H. 15 for the third full business week of the month prior to the
beginning of the quarter for which the monthly accrual is being
applied.
6.3 Company-matching Contributions Subaccount. Amounts contributed to a
Participant's Account as a Company-matching contribution, pursuant to Sections
4.3 or 4.4, and amounts credited to a Participant's Account as of the Effective
Date pursuant to Section 5.1 (the Participant's account under the SDCP) that are
in the SDCP as a result of Company-matching contributions, shall be held in a
subaccount within such Participant's Account (the "Company-matching
Subaccount"). The amounts in the Company-matching Subaccount shall be credited
as Stock Units. At any time after the date on which Company-matching
contributions were credited to the Participant's Account hereunder such amounts
may, at the election of the Participant, be transferred out of Stock Units and
transferred to an investment linked to the performance of other funds that may
be made available from time to time.
6.4 CDP Subaccounts. The amounts credited to a Participant's Account
pursuant to Section 5.3 will be maintained in separate subaccounts hereunder
(the "CDP Subaccounts"), and will continue to be credited with interest at the
rate(s) formerly applicable to such accounts under the CDP. At any time the
Participant may elect to transfer any amount from such CDP Subaccount(s) and
into the Participant's General Account, but no amount so removed from the CDP
Subaccount(s) may be transferred back to such CDP Subaccounts.
6
<PAGE>
6.5 Certain IDP Subaccounts. Pursuant to the terms of the IDP and
elections made thereunder, or under the terms of the Incentive Plans,
Participants are currently entitled to receive payment of certain deferred
amounts at certain times. Amounts that, pursuant to elections made pursuant to
the IDP, are to be paid to a Participant upon his or her Termination of
Employment, or thereafter, shall be held in the Participant's General Account
pursuant to Section 6.2 and paid to the Participant pursuant to the payment
option specified in accordance with Section 7.2. Amounts that are to be paid to
a Participant on a date certain shall be held in subaccounts hereunder (the "IDP
Subaccounts"), and the amounts in these IDP Subaccounts shall be automatically
adjusted (on a monthly basis), upward or downward, in proportion to the total
percentage return (including dividends) experienced by a holder of shares of
Common Stock, and shall be paid to the Participant on such date certain.
Notwithstanding the foregoing, if the date certain applicable to a deferred
amount is on or after January 1, 1998, then the Participant may, pursuant to an
election filed before the Effective Date, elect to have any such deferred amount
deferred until such Participant's Termination of Employment, in which case such
deferred amount will be held in the Participant's General Account and paid
pursuant to the payment option specified in accordance with Section 7.2.
6.6 Monthly Transfer Election. A Participant may elect to transfer
amounts out of Subaccounts (pursuant to Sections 6.3, 6.4 and 6.5) or to make
changes to his or her designation of investment options pursuant to Section 6.2,
only on a monthly basis. Each such election to transfer or change shall be
effective as of the end of the last day of the month during which the
Participant gives the Duke Power Company notice of such election in accordance
with procedures established by the Compensation Committee from time to time.
Participants or Beneficiaries who are receiving installment payments may elect
to transfer monies between funds on a monthly basis. All transfers must be in
increments of 1%.
6.7 Calculation of Total Return. The Fair Market Value of Common Stock
shall be used for purposes of calculating the total return on Stock Units during
any period.
ARTICLE VII
BENEFITS
7.1 Termination of Employment. Upon the Participant's Termination of
Employment, for any reason, the amount in the Participant's Account will be paid
to the Participant (or to the Beneficiary designated pursuant to Section 8.1) in
accordance with the terms of the payment option elected by the Participant,
except that a Participant who has a Termination of Employment for any reason
except death, layoff or disability prior to becoming eligible for early
retirement under the defined benefit pension plan in which he or she
participates and who has elected term payments of 10 years or 15 years, shall be
paid instead over a 3-year period.
7.2 Election of Payment Option. Each Participant shall, before the
Effective Date (or, with respect to Employees who become Participants after the
Effective Date, before becoming a
7
<PAGE>
Participant), elect from among the payment options specified in Section 7.3, the
manner in which such Participant's Account will be paid following Termination of
Employment. The Stock Purchase-Savings Program Committee, in its sole
discretion, may change or modify the payment option in any case where a
Participant has a Termination of Employment within 367 days following his or her
election under this Section 7.2.
7.3 Payment Options. The payment options are:
(a) LUMP SUM. Payment of the full amount of the
Participant's Account on the last business day of the month following
the month in which Termination of Employment occurs.
(b) TERM PAYMENTS. Payments over a term of years, which
shall be either 3 years, 10 years or 15 years, as follows: The Company
will determine the amount of the Participant's Account on the Valuation
Date, and as of the last business day of each month thereafter. The
Participant will receive on the last business day of each month during
the term, beginning with the last day of the month following the
Valuation Date, an amount determined pursuant to the following formula:
amount = V / N
where
N represents the number of months remaining in the term
(including the month for which the payment is being
calculated) and
V represents the amount of the Participant's Account as of
the last day of the preceding month.
Any balance in the Participant's Account shall be paid to the
Participant on the last day of the last month of the term.
7.4 Payments After Death. If a Participant (or a Beneficiary previously
designated by a deceased Participant) dies before receiving all amounts payable
hereunder, then the remaining amounts payable will be paid to the specified
Beneficiary of such deceased person; provided, however, that (i) if such
deceased person has failed to specify a surviving Beneficiary then the person's
estate will be considered to be the Beneficiary, and (ii) if a person receiving
payments over a term of years dies and an estate is such person's Beneficiary,
then such term payments will cease and the amount in the Account will be paid to
such estate in lump sum.
7.5 Form of Payment. All amounts due under the Plan shall be paid in
cash.
8
<PAGE>
ARTICLE VIII
BENEFICIARY
8.1 Designation of Beneficiary. A Participant shall designate a
Beneficiary to receive benefits under the Plan by submitting to the Stock
Purchase-Savings Program Committee a Designation of Beneficiary in the form
provided by the Stock Purchase-Savings Program Committee. If more than one
Beneficiary is named, the share and precedence of each Beneficiary shall be
indicated. A Participant shall have the right to change the Beneficiary by
submitting to the Stock Purchase-Savings Program Committee a Change of
Beneficiary in the form provided, but no change of Beneficiary shall be
effective until acknowledged in writing by the Duke Power Company.
8.2 Designation by Beneficiary. A Beneficiary who has become entitled
to receive benefits shall designate a Beneficiary.
8.3 Discharge of Obligations. Any payment made by the Company, in good
faith and in accordance with this Plan, shall fully discharge the Company from
all further obligations with respect to that payment. If the Company has any
doubt as to the proper Beneficiary to receive payments hereunder, the Company
shall have the right to withhold such payments until the matter is finally
adjudicated.
8.4 Payment to Minors, Etc. In making any payment to or for the benefit
of any minor or an incompetent Beneficiary, the Stock Purchase-Savings Program
Committee, in its sole and absolute discretion, may make a distribution to a
legal or natural guardian or other relative of a minor or court-appointed
committee of such incompetent. It may also make a payment to any adult with whom
the minor or incompetent temporarily or permanently resides. The receipt by a
guardian, committee, relative or other person shall be a complete discharge to
the Company. Neither the Stock Purchase-Savings Program Committee nor the
Company shall have any responsibility to see to the proper application of any
payments so made.
ARTICLE IX
NATURE OF COMPANY'S OBLIGATION
9.1 Unsecured Promise. The Company's obligation to the Participant
under this Plan shall be an unfunded and unsecured promise to pay. The rights of
a Participant or Beneficiary under this Plan shall be solely those of an
unsecured general creditor of the Company. The Company shall not be obligated
under any circumstances to set aside or hold assets to fund its financial
obligations under this Plan.
9.2 No Right to Specific Assets. Any assets which the Company may set
aside, acquire or hold to help cover its financial liabilities under this Plan
are and remain general assets of the Company subject to the claims of its
creditors. The Company does not give, and the Plan does not give, any
9
<PAGE>
beneficial ownership interest in any assets of the Company to a Participant or
Beneficiary. All rights of ownership in any assets are and remain in the
Company. Any general asset used or acquired by the Company in connection with
the liabilities it has assumed under this Plan shall not be deemed to be held
under any trust for the benefit of the Participant or any Beneficiary, and no
general asset shall be considered security for the performance of the
obligations of the Company. Any asset shall remain a general, unpledged, and
unrestricted asset of the Company.
9.3 Plan Provisions. The Company's liability for payment of benefits
shall be determined only under the provisions of this Plan, as it may be amended
from time to time.
ARTICLE X
TERMINATION, AMENDMENT, MODIFICATION OR
SUPPLEMENTATION OF PLAN
10.1 Right to Terminate. The Compensation Committee retains the sole
and unilateral right to terminate, amend, modify or supplement this Plan, in
whole or in part, at any time. No such action shall adversely affect a
Participant's right to receive amounts then in a Participant's account.
ARTICLE XI
RESTRICTIONS ON ALIENATION OF BENEFITS
11.1 No Assignment. No right or benefit under the Plan shall be subject
to anticipation, alienation, sale, assignment, pledge, encumbrance or charge.
Any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
these benefits shall be void. No right or benefit under this Plan shall in any
manner be liable for or subject to the debts, contracts, liabilities, or torts
of the person entitled to the benefit. If any Participant or Beneficiary under
the Plan should become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right to a benefit hereunder, then the
right or benefit, in the discretion of the Stock Purchase-Savings Program
Committee, shall cease. In these circumstances, the Stock Purchase-Savings
Program Committee may hold or apply the benefit payment or payments, or any part
of it, for the benefit of the Participant or his Beneficiary, the Participant's
spouse, children, or other dependents, or any of them, in any manner and in any
portion that the Stock Purchase-Savings Program Committee may deem proper.
ARTICLE XII
ADMINISTRATION
12.1 The Company is the plan sponsor under section 3(16)(B) of ERISA.
10
<PAGE>
12.2 The Stock Purchase-Savings Program Committee is the named
fiduciary of the Plan and as such shall have the authority to control and manage
the operation and administration of such the Plan except as otherwise expressly
provided in this plan document. The named fiduciary may designate persons other
than the named fiduciary to carry out fiduciary responsibilities under the Plan.
Any such allocation or designation must be in writing and must be accepted in
writing by any such other person.
12.3 The Stock Purchase-Savings Program Committee is the administrator
of the Plan within the meaning section 3(16)(A) of ERISA. As administrator, the
Stock Purchase-Savings Program Committee has the authority (without limitation
as to other authority) to delegate its duties to agents and to make rules and
regulations that it believes are necessary or appropriate to carry out the Plan.
The Stock Purchase-Savings Program Committee has the discretion as a Plan
fiduciary (i) to interpret and construe the terms and provisions of the Plan
(including any rules or regulations adopted under the Plan), (ii) to determine
questions of eligibility to participate in the Plan and (iii) to make factual
determinations in connection with any of the foregoing. A decision of the Stock
Purchase-Savings Program Committee with respect to any matter pertaining to the
Plan including without limitation the Employees determined to be Participants,
the benefits payable, and the construction or interpretation of any provision
thereof, shall be conclusive and binding upon all interested persons. No Stock
Purchase-Savings Program Committee member shall participate in any decision of
the Stock Purchase-Savings Program Committee that would directly and
specifically affect the timing or amount of his benefits under the Plan, except
to the extent that such decision applies to all Participants under the Plan.
ARTICLE XIII
CLAIMS PROCEDURE
13.1 Claim. A person with an interest in the Plan shall have the right
to file a claim for benefits under the Plan and to appeal any denial of a claim
for benefits. Any request for a Plan benefit or to clarify the claimant's rights
to future benefits under the terms of the Plan shall be considered to be a
claim.
13.2 Written Claim. A claim for benefits will be considered as having
been made when submitted in writing by the claimant to the Stock
Purchase-Savings Program Committee. No particular form is required for the
claim, but the written claim must identify the name of the claimant and describe
generally the benefit to which the claimant believes he is entitled. The claim
may be delivered personally during normal business hours or mailed to the
Committee.
13.3 Committee Determination. The Stock Purchase-Savings Program
Committee will determine whether, or to what extent, the claim may be allowed or
denied under the terms of the Plan. If the claim is wholly or partially denied,
the claimant shall be so informed by written notice within 90 days after the day
the claim is submitted unless special circumstances require an extension of time
for
11
<PAGE>
processing the claim. If such an extension of time for processing is
required, written notice of the extension shall be furnished to the claimant
prior to the termination of the initial 90-day period. Such extension may not
exceed an additional 90 days from the end of the initial 90-day period. The
extension notice shall indicate the special circumstances requiring an extension
of time and the date by which the Plan expects to render the final decision. If
notice of denial of a claim (in whole or in part) is not furnished within the
initial 90-day period after the claim is submitted (or, if applicable, the
extended 90-day period), the claimant shall consider that his claim has been
denied just as if he had received actual notice of denial.
13.4 Notice of Determination. The notice informing the claimant that
his claim has been wholly or partially denied shall be written in a manner
calculated to be understood by the claimant and shall include:
(1) The specific reason(s) for the denial.
(2) Specific reference to pertinent Plan provisions on which
the denial is based.
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary.
(4) Appropriate information as to the steps to be taken if the
Participant or Beneficiary wishes to submit his claim for
review.
13.5 Appeal. If the claim is wholly or partially denied, the claimant
(or his authorized representative) may file an appeal of the denied claim with
the Stock Purchase-Savings Program Committee requesting that the claim be
reviewed. The Stock Purchase-Savings Program Committee shall conduct a full and
fair review of each appealed claim and its denial. Unless the Stock
Purchase-Savings Program Committee notifies the claimant that due to the nature
of the benefit and other attendant circumstances he is entitled to a greater
period of time within which to submit his request for review of a denied claim,
the claimant shall have 60 days after he (or his authorized representative)
receives written notice of denial of his claim within which such request must be
submitted to the Stock Purchase-Savings Program Committee.
13.6 Request for Review. The request for review of a denied claim must
be made in writing In connection with making such request, the claimant or his
authorized representative may:
(1) Review pertinent documents.
(2) Submit issues and comments in writing.
13.7 Determination of Appeal. The decision of the Stock
Purchase-Savings Program Committee regarding the appeal shall be promptly given
to the claimant in writing and shall normally be
12
<PAGE>
given no later than 60 days following the receipt of the request for review.
However, if special circumstances (for example, if the Stock Purchase-Savings
Program Committee decides to hold a hearing on the appeal) require a further
extension of time for processing, the decision shall be rendered as soon as
possible, but no later than 120 days after receipt of the request for review.
However, if the Stock Purchase-Savings Program Committee holds regularly
scheduled meetings at least quarterly, a decision on review shall be made by no
later than the date of the meeting which immediately follows the Plan's receipt
of a request for review, unless the request is filed within 30 days preceding
the date of such meeting. In such case, a decision may be made by no later than
the date of the second meeting following the Plan's receipt of the request for
review. If special circumstances (for example, if the Stock Purchase-Savings
Program Committee decides to hold a hearing on the appeal) require a further
extension of time for processing, the decision shall be rendered as soon as
possible, but no later than the third meeting following the Plan's receipt of
the request for review. If special circumstances require that the decision will
be made beyond the initial time for furnishing the decision, written notice of
the extension shall be furnished to the claimant (or his authorized
representative) prior to the commencement of the extension. The decision on
review shall be in writing and shall be furnished to the claimant or to his
authorized representative within the appropriate time for the decision. If a
decision on review is not furnished within the appropriate time, the claim shall
be deemed to have been denied on appeal.
13.8 Hearing. The Stock Purchase-Savings Program Committee may, in its
sole discretion, decide to hold a hearing if it determines that a hearing is
necessary or appropriate in order to make a full and fair review of the appealed
claim.
13.9 Decision. The decision on review shall include specific reasons
for the decision, written in a manner calculated to be understood by the
claimant, as well as specific references to the pertinent Plan provisions on
which the decision is based.
13.10 Exhaustion of Appeals. A Participant must exhaust his rights to
file a claim and to request a review of the denial of his claim before bringing
any civil action to recover benefits due to him under the terms of the Plan, to
enforce his rights under the terms of the Plan, or to clarify his rights to
future benefits under the terms of the Plan.
13.11 Committee's Authority. The Stock Purchase-Savings Program
Committee shall exercise its responsibility and authority under this claims
procedure as a fiduciary and, in such capacity, shall have the discretionary
authority and responsibility (1) to interpret and construe the Plan and any
rules or regulations under the Plan, (2) to determine the eligibility of
Employees to participate in the Plan, and the rights of Participants to receive
benefits under the Plan, and (3) to make factual determinations in connection
with any of the foregoing.
13
<PAGE>
ARTICLE XIV
GENERAL PROVISIONS
14.1 No Right to Employment. Nothing in this Plan shall be deemed to
give any person the right to remain in the employ of the Company, its
subsidiaries or affiliates or affect the right of the Company to terminate any
Participant's employment with or without cause.
14.2 Withholding. Any amount required to be withheld under applicable
Federal, state and local tax laws (including any amounts required to be withheld
under Section 3121(v)) will be withheld in such manner as the Stock
Purchase-Savings Program Committee will determine and any payment under the Plan
will be reduced by the amount so withheld.
14.3 Section 16. Notwithstanding anything in this Plan to the contrary,
any Participant who is subject to the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") shall not liquidate,
transfer or dispose of any Stock Units credited to such Participant's Account
under Article IV during the six-month period following the crediting of such
Stock Units to such Participant's Account, nor shall any such Participant elect
to make a Discretionary Transaction (as such term is defined in Rule 16b-3(b)(1)
under the Exchange Act) within six months of the election of an "opposite way"
(as such term is used for purposes of Section 16(b) of the Exchange Act)
Discretionary Transaction under any Plan of the Company in which the Participant
participates. Any provision hereof related to a credit, grant or award of Stock
Units under this Plan to a Participant who is subject to the reporting
requirements of Section 16(a) under the Exchange Act shall be interpreted, in
the event of any ambiguity, such that the transaction or transactions relating
thereto shall qualify for exemption from liability under Section 16(b) of such
Act.
14.4 Governing Law. This Plan shall be construed and administered in
accordance with the laws of the State of North Carolina to the extent that such
laws are not preempted by Federal law.
This plan document has been executed on behalf of the Company this
31st day of December, 1996.
ATTEST: DUKE POWER COMPANY
- ------------------------------- ----------------------------------
Ellen T. Ruff W.H. Grigg
Secretary and Deputy General Counsel Chairman of the Board and Chief
Executive Officer
14
<PAGE>
DUKE POWER COMPANY
EXECUTIVE SAVINGS PLAN
SCHEDULE 2.20
INCENTIVE PLANS
Duke Power Company Short-term Incentive Plan
Duke Power Company Long-term Incentive Plan
AEG Short-term Incentive Plan
AEG Annual Bonus Plan
Fluor Daniel EMT Plan
DCI Short-term Incentive Plan
DE&S Incentive Plan
INEL Incentive Plan
Duke Energy Incentive Plan
Duke Merchandising Profit Bonus Plan
15
EXHIBIT NO. 10-AA
DUKE POWER COMPANY
EXECUTIVE CASH BALANCE PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE OF PLAN
The Duke Power Company Executive Cash Balance Plan (the
"Plan") is hereby established by Duke Power Company. The purpose of the Plan is
to provide additional retirement benefits for a select group of management or
highly compensated employees. The Plan is effective as of January 1, 1997.
SECTION 2
DEFINITIONS
Wherever used herein, a pronoun or adjective in the masculine gender
includes the feminine gender, the singular includes the plural, and the
following terms have the following meanings unless a different meaning is
clearly required by the context:
2.1 "Board of Directors" means the Board of Directors of Duke Power
Company.
2.2 "Cash Balance Account" means a bookkeeping account in which a
Participant's Make-Whole Benefits and Supplemental Benefits will be recorded.
The balance will be denominated in dollars which may be credited with Pay
Credits and/or Interest Credits.
2.3 "Compensation" means, for all Participants, all amounts received
for services actually rendered in the course of employment with the Company, to
the extent that such amounts are includable in the Participant's gross income as
wages required to be reported under Internal Revenue Code ss.ss. 6041, 6051 and
6052 (box 1 of Form W-2), without regard to limits on wages under Internal
Revenue Code ss. 3401, such as the exemption for agricultural labor.
Compensation shall also include (a) any amount which is contributed by the
Company, pursuant to salary reduction agreement and which is not includable in
the gross income of the Participant under
<PAGE>
Internal Revenue Code ss.ss. 125 or 401(k), and (b) Deferred Compensation.
However, Compensation shall not include expense reimbursements or allowances,
cash or non-cash fringe benefits, moving expenses, the receipt of compensation
previously deferred, severance pay, pay for unused vacation, excellence awards,
welfare benefits, long-term incentive payments (incentive pay attributable to
multi-year performance periods for which no incentive pay is earned until the
end of the multi-year period) or distributions from the Duke Power Company
Executive Savings Plan. Compensation shall include certain incentive
compensation, whether or not deferred, payable to certain officers of Crescent
Resources, Inc., who on January 1, 1983, first participated in a certain
incentive compensation arrangement implemented by Crescent on January 1, 1983,
and any officer who first participated in such arrangement by employment
agreement signed on December 3, 1987. Such incentive compensation, whether or
not deferred, shall not be considered as Compensation to the extent it is
counted as creditable compensation under the Retirement Cash Balance Plan or
where it would result in a duplication of benefits. Personal, short-term
incentive pay, including participation in equity awards, that is paid to
employees of Crescent Resources, Inc. will not constitute "Compensation" unless
it is paid from the Crescent Resources Employee Goal Program.
2.4 "Compensation Committee" means the Compensation Committee of the
Board of Directors.
2.5 "Company" means Duke Power Company and its affiliates.
2.6 "Deferred Compensation" means amounts deferred under the Duke Power
Company Executive Savings Plan, but excluding amounts deferred under such plan
that are attributable to long-term incentive awards.
2.7 "Effective Date" means January 1, 1997.
2.8 "Employee" means a person employed by the Company or an affiliate.
2.9 "Interest Credit" means the amount determined by multiplying the
balance of a Cash Balance Account by the Interest Factor for a month.
2
<PAGE>
2.10 "Interest Factor" means the interest rate determined by the
formula (1 + i)1/12 - 1, where "i" equals the yield on 30-year Treasury Bonds as
published in the Federal Reserve Statistical Release H.15 for the end of the
third full business week of the month prior to the beginning of the calendar
quarter for which the monthly accrual is being applied, but not more than an
annual percentage rate of nine percent (9%) and not less than an annual
percentage rate of four percent (4%).
2.11 "Make-Whole Benefit" means the benefit provided under Section
4.2 of the Plan.
2.12 "Make-Whole Cash Balance Account" means the portion of a
Participant's Cash Balance Account that is attributable to a Make-Whole
Benefit.
2.13 "Management Committee" means the Management Committee of
the Board of Directors.
2.14 "Pay Credit" means the percentage of Compensation that is added
to a Cash Balance Account under Section 4.3(d).
2.15 "Participant" means an Employee who is entitled to receive
benefits from the Plan.
2.16 "Retirement Cash Balance Plan" means the Duke Power Company
Retirement Cash Balance Plan as in effect from time to time.
2.17 "Retirement Plan Committee" means the Retirement Plan Committee
of Duke Power Company.
2.18 "Supplemental Cash Balance Account" means the portion of a
Participant's Cash Balance Account that is attributable to a Supplemental
Benefit.
2.19 "Supplemental Benefit" means the benefit provided under
Section 4.3 of the Plan.
2.20 "Supplemental Retirement Plan" means the Supplemental Retirement
Plan for Employees of Duke Power Company as it existed on December 31, 1996.
2.21 "Supplemental Security Plan" means the Duke Power Company
Supplemental Security Plan as it existed on December 31, 1996.
3
<PAGE>
SECTION 3
ELIGIBILITY
3.1 Active Employees participating in the Supplemental Retirement Plan
or Supplemental Security Plan on December 31, 1996 will become participants in
the Plan effective January 1, 1997, except for any individual whose eligibility
to participate in the Supplemental Security Plan had been withdrawn effective on
December 31, 1996. These Employees will not receive any benefits under the
Supplemental Security Plan or the Supplemental Retirement Plan.
3.2 The Management Committee, in its sole discretion, will determine
whether, and at what time, an Employee who is not described in Section 3.1 will
be eligible to participate in the Plan, except that those management or highly
compensated employees who are entitled to a benefit under Section 4.2 and whose
annualized rate of base pay is $125,000 or more shall become Participants
without action by Management Committee, but only with respect to benefits
provided under Section 4.2.
3.3 Former Employees, who on December 31, 1996 have accrued benefits
under the Supplemental Retirement Plan or Supplemental Security Plan will
receive payment, or will continue to receive payment, of their benefits from
these plans. Such former Employees will not participate in this Plan.
SECTION 4
BENEFITS
4.1 As explained below, the Plan provides a Make-Whole Benefit and a
Supplemental Benefit. The Management Committee will determine whether a
Participant will receive a Supplemental Benefit; however, any Employee of the
Company for whom a Cash Balance Account has been established under this Plan and
whose benefit under the Retirement Cash Balance Plan is reduced on account of
one or more of the limitations described in Section 4.2 shall be eligible for a
Make-Whole Benefit. Other Employees shall be eligible for a Make-Whole Benefit
in the discretion of the Management Committee or if their annualized rate of
base pay is
4
<PAGE>
$125,000 or more.
4.2(a) The Make-Whole Benefit provides a benefit reflected as monthly
allocations to the Cash Balance Account equal to the excess, if any, of (a) the
monthly allocations that would have been made under the Retirement Cash Balance
Plan if (i) the Retirement Cash Balance Plan considered Deferred Compensation
and other types of excludable pay (as determined by the Compensation Committee
from time to time) as eligible compensation; and (ii) if the Retirement Cash
Balance Plan did not include limitations on eligible pay that are imposed by
Section 401(a)(17) of the Code and the limitations on benefits imposed by
Section 415 of the Code, over (b) the monthly allocations that are actually made
under the Retirement Cash Balance Plan. A Make-Whole Cash Balance Account will
be established to reflect a Participant's Make-Whole Benefit, if any, for any
Employee whose annualized rate of base pay is $125,000 or more. If the value of
the benefit which a Participant had accrued under the Supplemental Retirement
Plan as of December 31, 1996 is greater than the value of the Participant's
Make-Whole Cash Balance Account on the date the Participant retires, he or she
shall be paid such higher value.
4.2(b) In addition, the Compensation Committee, in its sole discretion,
may establish an opening balance for a Participant in the Make-Whole Cash
Balance Account that is designed to provide a transition strategy comparable to
that employed in establishing opening account balances under the Retirement Cash
Balance Plan as of January 1, 1997.
4.3(a) The Supplemental Benefit provides a benefit reflected as a
balance in the Cash Balance Account. As of the Effective Date or, if later, the
first day after the Effective Date that an Employee becomes a Participant, a
Supplemental Cash Balance Account will be established for the Participant. The
Supplemental Cash Balance Account is a bookkeeping account. The Supplemental
Cash Balance Account will have an opening balance as determined under Sections
4.3(b) and 4.3(c), and will be credited with Pay Credits to the extent provided
in Section 4.3(d).
4.3(b) For a Participant who did not participate in the Supplemental
Security Plan, the Participant's opening Supplemental Cash Balance Account will
be zero (0). However, the Compensation Committee, in its sole discretion, may
approve an opening balance for such a
5
<PAGE>
Participant.
4.3(c) For a Participant who participated in the Supplemental Security
Plan, the Compensation Committee in its sole discretion will establish the
Participant's opening Supplemental Cash Balance Account. The amount to be
credited to a Participant's opening Cash Balance Account shall be based on
factors which include (i) the Participant's Position Classification (I, II or
III) under the Supplemental Security Plan, (ii) whether the Participant has
reached the earliest retirement age under the Retirement Cash Balance Plan,
(iii) a comparison of the values of the Participant's "Alternate Early
Retirement Benefit" and "Retirement Benefit" under the Supplemental Security
Plan, and (iv) the extent to which the Participant will receive Pay Credits, if
any, on and after the date on which the opening Supplemental Cash Balance
Account is established.
4.3(d) Pay Credits will be added to a Participant's Supplemental Cash
Balance Account as of the end of each calendar month in which the Participant is
an Employee for any part of a month. The Pay Credit for a month will be two
percent (2%) of a Participant's Compensation paid during such month, or such
other percentage which may be determined from time to time by the Compensation
Committee. Pay Credits will continue to be made on behalf of a Participant who
is determined by the Retirement Plan Committee to be disabled; shall continue
for the period of time during which such credits are continued under the
Retirement Cash Balance Plan; and shall be calculated in a manner similar to the
Retirement Cash Balance Plan but utilizing the definition of Compensation set
forth in this Plan. The Compensation Committee may establish different Pay
Credit levels for different business units or employee groups. Notwithstanding
the above, Employees who were in Position Classification III under the
Supplemental Security Plan will not receive any Pay Credits under this Plan.
4.3(e) In the case of a Participant for whom an initial balance in the
Supplemental Cash Balance Account was calculated by assuming that Pay Credits
would be allocated to the Participant's account under Section 4.3(d), a Minimum
Benefit will be determined in the event such a Participant should terminate
employment with the Company prior to attaining eligibility for
6
<PAGE>
retirement under the Retirement Cash Balance Plan. The Minimum benefit shall be
an amount that is calculated in accordance with Section 4.3(c), except that Pay
Credits will be excluded from consideration in determining the initial balance.
Interest Credits will be allocated to the Minimum Benefit from the Effective
Date until the date on which the Participant terminates employment with the
Company. Interest Credits will recommence when the Participant commences his or
her benefit under this Plan. The Minimum Benefit will become the Supplemental
Benefit where it is greater than the balance in the Supplemental Cash Balance
Account on the date the Participant terminates employment with the Company.
4.4 Interest Credits will be added to a Participant's Supplemental Cash
Balance Account as of the end of each calendar month ending prior to the month
in which a Participant receives the entire balance in his or her Cash Balance
Account. The amount of Interest Credits added to these will equal the balance of
the accounts as of the end of the prior month (after adding Pay Credits, if any,
and Interest Credits for the prior month) multiplied by the Interest Factor for
the month. Notwithstanding the foregoing, Interest Credits will not be added to
the Supplemental Cash Balance Account of a Participant who terminates employment
with the Company before attaining the earliest retirement age under the
Retirement Cash Balance Plan between the date on which a Participant terminates
employment and the date on which the Participant commences receipt of his or her
Supplemental Benefit.
SECTION 5.
VESTING
Unless the Management Committee provides otherwise for a particular
Participant at the time the Participant initially becomes eligible to
participate in the Plan, the benefits of a Participant under the Plan will vest
after the Participant has accrued five years of vesting service under the
Retirement Cash Balance Plan. Notwithstanding the foregoing, no Supplemental
Benefit shall be payable under this Plan if the Participant's employment is
terminated for cause. For purposes of the Plan, the Company shall have "cause"
to terminate the Participant's employment upon (a) the
7
<PAGE>
willful and continued failure by the Participant to substantially perform his
employment duties (other than any such failure resulting from the Participant's
incapacity due to physical or mental illness) after demand for substantial
performance is delivered by the Company, specifically identifying the manner in
which the Company believes the Participant has not substantially performed his
duties, or (b) the willful engaging by the Participant in misconduct which is
materially injurious to the Company, monetarily or otherwise. For purposes of
this section, no act, or failure to act, on the Participant's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company.
SECTION 6.
PAYMENT OF BENEFITS
6.1 A Participant who terminates employment prior to his earliest
retirement age under the Retirement Cash Balance Plan will receive, or will
begin to receive, payment of his benefits under this Plan at the age of 55. A
Participant who terminates employment after reaching his earliest retirement age
under the Retirement Cash Balance Plan will receive, or will begin to receive,
payment of his benefits under this Plan at the time his employment terminates. A
Participant who terminates employment on account of a disability, as defined
under the Retirement Cash Balance Plan, will receive, or will begin to receive
benefits under this Plan at the same time benefits commence under the Retirement
Cash Balance Plan.
6.2(a) A Participant who is eligible to participate in the Plan on the
Effective Date must elect his form of benefit payment prior to the Effective
Date by completing a form provided by the Plan manager. Other Participants must
elect a form of benefit payment within 30 days after the Management Committee
approves their participation in the Plan or after they first become entitled to
a Make Whole Benefit, if earlier. The Retirement Plan Committee, in its sole
discretion, may change or modify the payment option in any case where a
Participant has a Termination of Employment within 367 days following his or her
election under this Section 6.2(a).
8
<PAGE>
6.2(b) The alternative forms of benefit payment under the Plan are:
(1) single sum payment;
(2) monthly payments for three years;
(3) monthly payments for ten years;
(4) monthly payments for fifteen years.
(5) life annuity (for an unmarried Participant)
(6) joint and 50% or 100% survivor annuity (for a married
Participant)
Notwithstanding any election of another form of benefit payment, an account with
a present value of less than $3,500 shall be paid as a single sum.
6.2(c) If a Participant elects a single sum payment, the Participant
will receive a single cash payment equal to the sum of the Participant's
Make-Whole Cash Balance Account and Supplemental Cash Balance Account as of the
end of the calendar month prior to the month in which the payment is made.
6.2(d) If a Participant elects monthly payments for either three,
ten or fifteen years, then the amount of each monthly payment will be determined
as follows: The Company will determine the sum of the Participant's Make-Whole
Cash Balance Account and Supplemental Cash Balance Account as of the end of the
preceding calendar month after both Pay Credits (if any) and Interest Credits
have been allocated. Interest Credits, but not Pay Credits, will be allocated
after the date on which a Participant terminates employment with the Company;
however, where a Participant terminates employment prior to becoming eligible
for retirement under the Retirement Cash Balance Plan, Interest Credits will not
be allocated to the Supplemental Cash Balance Account until distributions
commence. The Participant will receive on the last day of each month for which a
payment is due an amount determined pursuant to the following formula:
9
<PAGE>
Monthly amount = V / N
where
N represents the number of months remaining
in the term and
V represents the sum of the Participant's
Make-Whole and Supplemental Cash Balance
Accounts as of the end of the preceding month
Installment payments shall be recalculated each month and paid on a pro
rata basis across all Cash Balance Accounts.
6.2(e) If Participant elects a life annuity or a joint and 50% or 100% survivor
annuity, the benefit shall be an annual annuity equal to the actuarial value,
determined on the basis of the assumptions set forth in the Retirement Cash
Balance Plan, of the sum of the Participant's Make-Whole Cash Balance Account
and Supplemental Cash Balance Account as of the date of the Participant's
termination of employment. If a Participant who has elected a joint and survivor
annuity should die before commencing benefits under this Plan, the surviving
spouse shall be entitled to a life annuity of equivalent actuarial value to the
sum of the Participant's Make-Whole Cash Balance Account and the Supplemental
Cash Balance Account (or the benefit calculated under Section 7.5 if greater
than the Supplemental Cash Balance Account). If an unmarried Participant who has
elected a life annuity should die before commencing benefits under this Plan,
the balances shall be paid to the estate or other named beneficiary in lump sum.
6.3 Any amount required to be withheld under applicable Federal, state
and local income tax laws will be withheld and any payment under the Plan will
be reduced by the amount so withheld.
6.4 All payments under the Plan will be made from the general funds of
the Company. The Company may, at its discretion, establish a trust, commonly
known as a "Rabbi" trust, to hold assets from which benefit payments may be
made. The Plan is intended in all events to be
10
<PAGE>
unfunded within the meaning of ERISA.
SECTION 7.
DEATH BENEFITS
7.1 The amount in the Cash Balance Accounts shall be paid to the
beneficiary or beneficiaries of a Participant who dies while still having an
account balance under the Plan. The Plan manager will provide each Participant
with a form whereby the Participant may designate a beneficiary or
beneficiaries.
7.2 If the Participant does not name a beneficiary, or if the
beneficiary who is named should predecease the Participant, the death benefit of
the Participant shall be paid to the estate of the Participant in a single cash
payment.
7.3 If a Participant should die while still employed by the Company and
before benefits have commenced, payments will be made to his or her beneficiary
in the same alternate form selected by the Participant under Section 6.2(b),
except in a case where his estate is designated as beneficiary or where Section
7.2 would be applicable.
7.4 If a Participant should die after benefits have commenced, payments
will continue to be made to the beneficiary or beneficiaries in the alternate
form selected by the Participant, except in a case where Section 7.2 would be
applicable.
7.5 If a Participant should die while still employed by the Company and
if the Supplemental Cash Balance Account is less than two point five (2.5)
multiplied by the annualized base rate of pay of the Participant on the date of
death, the death benefit attributable to the Supplemental Benefit shall be equal
to the amount determined by multiplying two point five (2.5) times such
annualized base rate of pay. The death benefit payable under this Section 7.5
shall be in lieu of the amount in the Supplemental Cash Balance Account and
shall be paid in the alternate
11
<PAGE>
form selected by the Participant, except in a case where Section 7.2 would be
applicable. This Section 7.5 shall only apply in the case of an Employee who was
an active participant in the Supplemental Security Plan on December 31, 1996.
SECTION 8.
AMENDMENT AND TERMINATION
The Compensation Committee may:
(a) terminate the Plan with respect to future Participants or
future benefit accruals for current Participants; and
(b) amend the Plan in any respect, at any time.
SECTION 9.
ADMINISTRATION
9.1 The Company is the plan sponsor under section 3(16)(B) of ERISA.
9.2 The Retirement Plan Committee is the named fiduciary of the Plan
and as such shall have the authority to control and manage the operation and
administration of the Plan except as otherwise expressly provided in this plan
document. The named fiduciary may designate persons other than the named
fiduciary to carry out fiduciary responsibilities under the Plan. Any such
allocation or designation must be in writing and must be accepted in writing by
any such other person.
9.3 The Retirement Plan Committee is the administrator of the Plan
within the meaning section 3(16)(A) of ERISA. As administrator, the Retirement
Plan Committee has the authority (without limitation as to other authority) to
delegate its duties to agents and to make rules and regulations that it believes
are necessary or appropriate to carry out the Plan. The Retirement Plan
Committee has the discretion as a Plan fiduciary (i) to interpret and construe
the terms and provisions of the Plan (including any rules or regulations adopted
under the Plan), (ii) to determine questions of eligibility to participate in
the Plan and (iii) to make factual determinations
12
<PAGE>
in connection with any of the foregoing. A decision of the Retirement Plan
Committee with respect to any matter pertaining to the Plan including without
limitation the Employees determined to be Participants, the benefits payable,
and the construction or interpretation of any provision thereof, shall be
conclusive and binding upon all interested persons. No Retirement Plan Committee
member shall participate in any decision of the Retirement Plan Committee that
would directly and specifically affect the timing or amount of his benefits
under the Plan, except to the extent that such decision applies to all
Participants under the Plan.
SECTION 10.
CLAIMS PROCEDURE
10.1 A person with an interest in the Plan shall have the right to file
a claim for benefits under the Plan and to appeal any denial of a claim for
benefits. Any request for a Plan benefit or to clarify the claimant's rights to
future benefits under the terms of the Plan shall be considered to be a claim.
10.2 A claim for benefits will be considered as having been made when
submitted in writing by the claimant (or by such claimant's authorized
representative) to the Retirement Plan Committee. No particular form is required
for the claim, but the written claim must identify the name of the claimant and
describe generally the benefit to which the claimant believes he is entitled.
The claim may be delivered personally during normal business hours or mailed to
the Retirement Plan Committee.
10.3 The Retirement Plan Committee will determine whether, or to what
extent, the claim may be allowed or denied under the terms of the Plan. If the
claim is wholly or partially denied, the claimant shall be so informed by
written notice within 90 days after the day the claim is submitted unless
special circumstances require an extension of time for processing the claim. If
such an extension of time for processing is required, written notice of the
extension shall be furnished to the claimant prior to the termination of the
initial 90-day period. Such extension may not exceed an additional 90 days from
the end of the initial 90-day period. The extension notice
13
<PAGE>
shall indicate the special circumstances requiring an extension of time and the
date by which the Plan expects to render the final decision. If notice of denial
of a claim (in whole or in part) is not furnished within the initial 90-day
period after the claim is submitted (or, if applicable, the extended 90-day
period), the claimant shall consider that his claim has been denied just as if
he had received actual notice of denial.
10.4 The notice informing the claimant that his claim has been wholly
or partially denied shall be written in a manner calculated to be understood
by the claimant and shall include:
(1) The specific reason(s) for the denial.
(2) Specific reference to pertinent Plan provisions on which the
denial is based.
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary.
(4) Appropriate information as to the steps to be taken if the
claimant wishes to submit his claim for review.
10.5 If the claim is wholly or partially denied, the claimant (or his
authorized representative) may file an appeal of the denied claim with the
Retirement Plan Committee requesting that the claim be reviewed. The Retirement
Plan Committee shall conduct a full and fair review of each appealed claim and
its denial. Unless the Retirement Plan Committee notifies the claimant that due
to the nature of the benefit and other attendant circumstances he is entitled to
a greater period of time within which to submit his request for review of a
denied claim, the claimant shall have 60 days after he (or his authorized
representative) receives written notice of denial of his claim within which such
request must be submitted to the Retirement Plan Committee.
10.6 The request for review of a denied claim must be made in writing.
In connection with making such request, the claimant or his authorized
representative may:
(1) Review pertinent documents.
(2) Submit issues and comments in writing.
14
<PAGE>
10.7 The decision of the Retirement Plan Committee regarding the appeal
shall be promptly given to the claimant in writing and shall normally be given
no later than 60 days following the receipt of the request for review. However,
if special circumstances (for example, if the Retirement Plan Committee decides
to hold a hearing on the appeal) require a further extension of time for
processing, the decision shall be rendered as soon as possible, but no later
than 120 days after receipt of the request for review. However, if the
Retirement Plan Committee holds regularly scheduled meetings at least quarterly,
a decision on review shall be made by no later than the date of the meeting
which immediately follows the Plan's receipt of a request for review, unless the
request is filed within 30 days preceding the date of such meeting. In such
case, a decision may be made by no later than the date of the second meeting
following the Plan's receipt of the request for review. If special circumstances
(for example, if the Retirement Plan Committee decides to hold a hearing on the
appeal) require a further extension of time for processing, the decision shall
be rendered as soon as possible, but no later than the third meeting following
the Plan's receipt of the request for review. If special circumstances require
that the decision will be made beyond the initial time for furnishing the
decision, written notice of the extension shall be furnished to the claimant (or
his authorized representative) prior to the commencement of the extension. The
decision on review shall be in writing and shall be furnished to the claimant or
to his authorized representative within the appropriate time for the decision.
If a decision on review is not furnished within the appropriate time, the claim
shall be deemed to have been denied on appeal.
10.8 The Retirement Plan Committee may, in its sole discretion, decide
to hold a hearing if it determines that a hearing is necessary or appropriate in
order to make a full and fair review of the appealed claim.
10.9 The decision on review shall include specific reasons for the
decision, written in a manner calculated to be understood by the claimant, as
well as specific references to the pertinent Plan provisions on which the
decision is based.
10.10 A person must exhaust his rights to file a claim and to request a
review of the
15
<PAGE>
denial of his claim before bringing any civil action to recover
benefits due to him under the terms of the Plan, to enforce his rights under the
terms of the Plan, or to clarify his rights to future benefits under the terms
of the Plan.
10.11 The Retirement Plan Committee shall exercise its responsibility
and authority under this claims procedure as a fiduciary and, in such capacity,
shall have the discretionary authority and responsibility (1) to interpret and
construe the Plan and any rules or regulations under the Plan, (2) to determine
the eligibility of Employees to participate in the Plan, and the rights of
Participants to receive benefits under the Plan, and (3) to make factual
determinations in connection with any of the foregoing.
SECTION 11.
GENERAL PROVISIONS
11.1 Nothing in this Plan shall be deemed to give any person the right
to remain in the employ of the Company, its subsidiaries or affiliates or affect
the right of the Company to terminate any Participant's employment with or
without cause.
11.2 No right or interest of any person entitled to a benefit under
the Plan shall be subject to voluntary or involuntary alienation, assignment,
or transfer of any kind.
11.3 This Plan shall be construed and administered in accordance
with the laws of the State of North Carolina to the extent that such laws are
not preempted by Federal law.
16
<PAGE>
This plan document has been executed on behalf of the Company this
31st day of December, 1996.
ATTEST: DUKE POWER COMPANY
- -------------------------- ---------------------------
Ellen T. Ruff W. H. Grigg
Secretary and Deputy General Counsel Chairman of the Board and Chief
Executive Officer
17
EXHIBIT NO. 10-BB
DUKE POWER COMPANY
DIRECTORS' SAVINGS PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE OF PLAN
The Duke Power Company Directors' Savings Plan (the "Plan") is hereby
established by Duke Power Company. The purpose of the Plan is to provide
retirement benefits and investments linked to the performance of Duke Power
Company common stock for the Nonemployee Directors of the Board. The Plan is
effective as of January 1, 1997 (the "Effective Date").
ARTICLE II
DEFINITIONS
Wherever used herein, a pronoun or adjective in the masculine gender includes
the feminine gender, the singular includes the plural, and the following terms
have the following meanings unless a different meaning is clearly required by
the context.
2.1 "Board of Directors" means the Board of Directors of Duke Power Company.
2.2 "Change in Control" of the Company will be deemed to have occurred
as of the first day any one (1) or more of the following paragraphs shall have
been satisfied:
(a) Any person (other than the Company or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their
ownership of stock of the Company) becomes the beneficial owner,
directly or indirectly, of securities of the Company, representing
more than twenty-five percent (25%) of the combined voting power
of the Company's then outstanding securities; or
(b) During any period of two (2) consecutive years (not including any
period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board of Directors (and
any new Directors, whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the Directors then still
in office who either were Directors at the beginning of the period
or whose election or nomination for election was so approved)
cease for any reason (except for death, disability or voluntary
retirement ) to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or
disposition of all or substantially all the Company's assets; or
(iii) a merger, consolidation, or
<PAGE>
reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or reorganization
that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least seventy-five percent
(75%) of the combined voting power of the voting securities of the
Company (or such surviving entity) outstanding immediately after
such merger, consolidation, or reorganization.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if that Participant is "part of a
purchasing group" which consummates the Change-in-Control transaction. The
Participant shall be deemed "part of a purchasing group" for purposes of the
preceding sentence if the Participant is an equity participant or has agreed to
become an equity participant in the purchasing company or group (except for (i)
passive ownership of less than three percent (3%) of the voting equity
securities of the purchasing company or (ii) ownership of equity participation
in the purchasing company or group which is otherwise deemed not to be
significant, as determined prior to the Change in Control by a majority of the
nonemployee continuing Directors).
2.3 "Company" means Duke Power Company and its affiliates.
2.4 "Company Stock Portion of Compensation" means that portion of "Compensation"
that must be taken as Duke Power Company stock or Restricted Stock Units.
2.5 "Compensation" means all retainers, Committee chair fees and
meeting/committee fees received by Nonemployee Directors for services actually
rendered in conjunction with service on the Board of Directors.
2.6 "Compensation Committee" means the Compensation Committee of the Board of
Directors.
2.7 "Compensation Deferral Plan (CDP)" means the Compensation Deferral Plan for
Outside Directors as it existed December 31, 1996.
2.8 "Deferred Compensation" or "Deferrals" mean amounts deferred under the Duke
Power Company Directors' Savings Plan.
2.9 "Director" means a member of the Board of Directors of Duke Power Company.
2.10 "Director Stock Ownership Plan (DSOP)" means the Stock Ownership Plan for
Nonemployee Directors of Duke Power Company as it existed December 31, 1996.
2.11 "Effective Date" means January 1, 1997.
2.12 "Fair Market Value" means the last price at which shares of Duke Power
Company common stock were sold on the New York Stock Exchange as indicated in
the Composite Transactions.
2.13 "Fixed Interest Account" means the account bearing interest at the fixed
rates applicable under the CDP.
2.14 "Interest Credit" means the amount determined by multiplying the balance in
a Variable Interest Account by the Interest Factor for a month.
2.15 "Interest Factor" means the monthly rate of interest, such that when
compounded, is equivalent to the yield on 30 year Treasury Bonds as published in
the Federal Reserve Statistical
2
<PAGE>
Release H.15 for the end of the third full business week of the month prior to
the beginning of the calendar quarter.
2.16 "Nonemployee Director" means a member of the Board of Directors, not
employed by Duke Power Company.
2.17 "Participant" means a Nonemployee Director who is eligible to participate
in the Plan.
2.18 "Retirement Plan" means the Duke Power Company Retirement Plan for Outside
Directors as it existed December 31, 1996.
2.19 "Restricted Stock Fund" means the fund crediting Restricted Stock Units as
defined in 2.20.
2.20 "Restricted Stock Unit" means a unit of measure which is equal in value to
one share of Duke Power Company common stock, restricted until a specified age
or event. Restricted Stock Units will accrue amounts equal to the dividends paid
on shares of Duke Power Company common stock, and such imputed dividends shall
be converted into additional Restricted Stock Units based upon Fair Market Value
on the allocation date.
2.21 "Stock Grants" means the Duke Power Stock Units granted semi-annually,
restricted until termination of service on the Board of Directors.
2.22 "Variable Interest Account" means the account earning a variable Interest
Rate calculated with the Interest Factor defined in 2.15.
ARTICLE III
ELIGIBILITY
3.1 Active nonemployee members of the Board of Directors participating in the
Retirement Plan, DSOP or CDP on December 31, 1996 will become participants in
the Plan effective January 1, 1997.
3.2 Any new Nonemployee Directors of the Board will become a participant in the
Plan on the first day of the month in which the Nonemployee Director begins to
serve as a member of the Board of Directors.
ARTICLE IV
BENEFITS
4.1 A subaccount will be established for any Participant who has a balance in
the Compensation Deferral Plan as of December 31, 1996. This subaccount, the
Fixed Interest Account, shall continue to be credited with interest in the same
manner as and at the rates applicable under the Compensation Deferral Plan;
however, no additional allocations of principal shall be made to the Fixed
Interest Account except to the extent required under the terms of a previous
election for a CDP period which does not end until after the Effective Date.
Amounts credited under this subsection shall be payable upon termination of
service on the Board of Directors.
3
<PAGE>
4.2 A subaccount will be established for any Participant who participated in the
Retirement Plan as of December 31, 1996. This subaccount, within the Restricted
Stock Fund, shall be credited with Restricted Stock Units with a Fair Market
Value comparable to the value of the benefit that had accrued for a Participant
under the Retirement Plan as of December 31, 1996. Amounts credited under this
section will be payable upon the earlier of (i) death or disability, (ii)
retirement from the Board of Directors after attaining age 62, or (iii)
termination of service on the Board of Directors prior to the age of 62 on
account of a Change in Control.
4.3 A subaccount will be established for any Participant who participated in the
Directors' Stock Ownership Plan as of December 31, 1996. This subaccount, within
the Restricted Stock Fund, shall be credited with Restricted Stock Units equal
in amount to the number of stock units credited to the Participant's account
under the Directors' Stock Ownership Plan as of December 31, 1996. Amounts
credited under this subsection shall be payable upon termination of service on
the Board of Directors.
4.4 A subaccount will be established for any Participant who elects to defer as
Restricted Stock Units all or a portion of his or her Compensation paid on or
after January 1, 1997. This subaccount, within the Restricted Stock Fund, shall
be credited with Restricted Stock Units with a Fair Market Value equal to the
Participant's Deferred Compensation. No payment shall be made with respect to
any Restricted Stock Unit until the later of six months after such Restricted
Stock Unit is credited to a Participant's account or termination of such
Participant's service on the Board of Directors.
4.5 A subaccount will be established for any Participant who elects to defer all
or a portion (not to exceed 50 percent) of his or her Compensation paid on or
after January 1, 1997, in the Variable Interest Account. Amounts credited to the
Variable Interest Account will be payable upon termination of service on the
Board of Directors.
4.6 A subaccount will be established for any Participant who serves on the Board
of Directors on and after January 1, 1997. This subaccount, within the
Restricted Stock Fund, shall be credited with 100 Restricted Stock Units on
January 1st of each year and 100 Restricted Stock Units on July 1st of each
year, provided the Participant continues to serve on the Board of Directors on
the allocation date. Amounts credited under this subsection will be payable upon
termination of service on the Board of Directors.
4.7 Accounts and subaccounts established under this Section 4 may be combined as
may be necessary or desirable for record keeping purposes.
ARTICLE V
VESTING
5.1 Amounts credited pursuant to subsections 4.1, 4.3, 4.4, 4.5 and 4.6 are 100
percent vested.
4
<PAGE>
5.2 Amounts credited pursuant to subsection 4.2 shall vest upon the earlier of
(i) death, (ii) disability, (iii) termination of service on the Board of
Directors after attaining age 62, or (iv) termination of service on the Board of
Directors prior to age 62 on account of a Change in Control.
ARTICLE VI
PAYMENT OF BENEFITS
6.1 A Participant who terminates or retires from service on the Board of
Directors will receive, upon such termination or such retirement, or will begin
to receive, payment of his benefits under this Plan.
6.2(a) A Nonemployee Director who is eligible to participate in the Plan on the
Effective Date must elect his form of benefit payment prior to the Effective
Date by completing a form provided by the plan administrator.
6.2(b) The alternative forms of benefit under the Plan are:
(1) Single lump sum payment;
(2) Five annual installments;
(3) Ten annual installments.
6.2(c) If the participant elects a single lump sum payment, the participant will
receive a single cash payment equal to the balance of the Participant's
investment in the Fixed Interest Account and/or the Variable Interest Account.
The balance in the Restricted Stock Fund will be paid in whole shares with any
fractional share paid in cash. Payments will be calculated as of the close of
business on the last business day of the calendar month prior to the month in
which payment is made.
6.2(d) The Board of Directors may, in its sole direction, shorten or lengthen
the time period over which a benefit is to be paid or to provide for periodic
payment of a benefit that otherwise would be paid in lump sum or for lump-sum
payment of a benefit that otherwise would be paid periodically.
6.2(e) If a Participant elects either five or ten annual installments, the
amount of each annual payment will be determined as follows: The Company will
determine the closing balance of the Fixed Interest Account and/or the Variable
Interest Account as of the retirement anniversary month after Interest Credits
and/or interest credited at the fixed rate(s) have been allocated. The closing
balance amount will be divided by the number of remaining installments to obtain
the annual payment from the Fixed Interest Account and/or the Variable Interest
Account. Deferrals invested in the Restricted Stock Fund will be paid in whole
shares with any fractional share paid in cash based on the closing balance as of
the retirement anniversary month after dividends have been allocated. Payments
will be calculated as of the end of the calendar month prior to the month in
which payment is made.
6.3 All payments under the Plan will be made from the general funds of the
Company. The Company may, at its discretion, establish a trust, commonly known
as a "Rabbi" trust, to hold assets from which benefit payments may be made. In
lieu of some of all of the Stock Units, the
5
<PAGE>
Company may at its discretion credit and hold within the "Rabbi" trust shares of
Duke Power Company common stock for the benefit for the Participants in the
Plan.
6
<PAGE>
ARTICLE VII
DEATH BENEFITS
7.1 Death benefits shall be paid to the beneficiary or beneficiaries of a
Participant who dies while still having an account balance under the Plan. The
plan administrator will provide each Participant with a form whereby the
Participant may designate a beneficiary or beneficiaries.
7.2 If the Participant does not name a beneficiary, or if the beneficiary who is
named should predecease the Participant, the death benefit of the Participant
shall be paid to the estate of the Participant in a single cash payment.
7.3 If a Participant should die while still employed by the Company and before
benefits have commenced, payments will be made to his or her beneficiary in the
same alternate form selected by the Participant under Section 6.2(b), except
where Section 7.2 would be applicable.
7.4 If a Participant should die after benefits have commenced, payments will
continue to be made to the beneficiary or beneficiaries in the alternate form
selected by the Participant, except where Section 7.2 would be applicable.
ARTICLE VIII
AMENDMENT AND TERMINATION
The Board of Directors may:
(1) Terminate the Plan with respect to future Participants or future
benefit accruals for current Participants; and
(2) Amend the Plan in any respect, at any time. No such termination or
amendment may reduce the amount of any then accrued benefit of any
Participant and any such purported termination or amendment shall
be void.
ARTICLE IX
ADMINISTRATION
9.1 The Company is the Plan sponsor.
9.2 The Compensation Committee is the named fiduciary of the Plan and as such
shall have the authority to control and manage the operation and administration
of the Plan except as otherwise expressly provided in this Plan document. The
named fiduciary may designate persons other than the named fiduciary to carry
out fiduciary responsibilities under the Plan. Any such allocation or
designation must be in writing and must be accepted in writing by any such other
person.
9.3 The Compensation Committee is the administrator of the Plan. As
administrator, the Compensation Committee has the authority (without limitation
as to other authority) to delegate
7
<PAGE>
its duties to agents and to make rules and regulations that it believes are
necessary or appropriate to carry out the Plan. The Compensation Committee has
the discretion as a Plan fiduciary (i) to interpret and construe the terms and
provisions of the Plan (including any rules or regulations adopted under the
Plan), (ii) to determine questions of eligibility to participate in the Plan and
(iii) to make factual determinations in connection with any of the foregoing. A
decision of the Compensation Committee with respect to any matter pertaining to
the Plan including without limitation the individuals determined to be
Participants, the benefits payable, and the construction or interpretation of
any provision thereof, shall be conclusive and binding upon all interested
persons. No Compensation Committee member shall participate in any decision of
the Compensation Committee that would directly and specifically affect the
timing or amount of his or her benefits under the Plan, except to the extent
that such decision applies to all Participants under the Plan.
ARTICLE X
CLAIMS PROCEDURE
10.1 A person with an interest in the Plan shall have the right to file a claim
for benefits under the Plan and to appeal any denial of a claim for benefits.
Any request for a Plan benefit or to clarify the claimant's rights to future
benefits under the terms of the Plan shall be considered to be a claim.
10.2 A claim for benefits will be considered as having been made when submitted
in writing by the claimant (or by such claimant's authorized representative) to
the Compensation Committee. No particular form is required for the claim, but
the written claim must identify the name of the claimant and describe generally
the benefit to which the claimant believes he is entitled. The claim may be
delivered personally during business hours or mailed to the Compensation
Committee.
10.3 The Compensation Committee will determine whether, or to what extent, the
claim may be allowed or denied under the terms of the Plan. If the claim is
wholly or partially denied, the claimant shall be so informed by written notice
90 days after the day the claim is submitted unless special circumstances
require an extension of time for processing the claim. If such an extension of
time for processing is required, written notice of the extension shall be
furnished to the claimant prior to the termination of the initial 90-day period.
The extension notice shall indicate the special circumstances requiring an
extension of time and the date by which the Plan expects to render the final
decision. If notice of denial of a claim (in whole or in part) is not furnished
within the initial 90-day period after the claim is submitted (or, if
applicable, the extended 90-day period), the claimant shall consider that his
claim has been denied just as if he had received actual notice of denial.
10.4 The notice informing the claimant that his claim has been wholly or
partially denied shall be written in a manner calculated to be understood by the
claimant and shall include:
(1) The specific reason(s) for the denial.
(2) Specific reference to pertinent Plan provisions on which the
denial is based.
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary.
8
<PAGE>
(4) Appropriate information as to the steps to be taken if the
claimant wishes to submit his claim for review.
10.5 If the claim is wholly or partially denied, the claimant (or his authorized
representative) may file an appeal of the denied claim with the Compensation
Committee requesting that the claim be reviewed. The Compensation Committee
shall conduct a full and fair review of each appealed claim and its denial.
Unless the Compensation Committee notifies the claimant that due to the nature
of the benefit and other attendant circumstances he is entitled to a greater
period of time within which to submit his request for review of a denied claim,
the claimant shall have 60 days after he (or his authorized representative)
receives written notice of denial of his claim within which such request must be
submitted to the Compensation Committee.
10.6 The request for review of a denied claim must be made in writing. In
connection with making such request, the claimant or his authorized
representative may:
(1) Review pertinent documents.
(2) Submit issues and comments in writing.
10.7 The decision of the Compensation Committee regarding the appeal shall be
promptly given to the claimant in writing and shall normally be given no later
than 60 days following the receipt of the request for review. However, if
special circumstances (for example, if the Compensation Committee decides to
hold a hearing on the appeal) require a further extension of time for
processing, the decision shall be rendered as soon as possible, but no later
than 120 days after receipt of the request for review. However, if the
Compensation Committee holds regularly scheduled meetings at least quarterly, a
decision on review shall be made by no later than the date of the meeting which
immediately follows the Plan's receipt of a request for review, unless the
request is filed within 30 days preceding the date of such meeting. In such
case, a decision may be made by no later than the date of the second meeting
following the Plan's receipt of the request for review. If special circumstances
(for example, if the Compensation Committee decides to hold a hearing on the
appeal) require a further extension of time for processing, the decision shall
be rendered as soon as possible, but no later than the third meeting following
the Plan's receipt of the request for review. If special circumstances require
that the decision will be made beyond the initial time for furnishing the
decision, written notice of the extension shall be furnished to the claimant (or
his authorized representative) prior to the commencement of the extension. The
decision on review shall be in writing and shall be furnished to the claimant or
his authorized representative within the appropriate time for the decision. If a
decision on review is not furnished within the appropriate time, the claim shall
be deemed to have been denied on appeal.
10.8 The Compensation Committee may, in its sole discretion, decide to hold a
hearing if it determines that a hearing is necessary or appropriate in order to
make a full and fair review of the appealed claim.
10.9 The decision on review shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, as well as
specific references to the pertinent Plan provisions on which the decision is
based.
10.10 A person must exhaust his rights to file a claim and to request a review
of the denial of his claim before bringing any civil action to recover benefits
due to him under the terms of the Plan, to enforce his rights under the terms of
the Plan, or to clarify his rights to future benefits under the terms of the
Plan.
9
<PAGE>
10.11 The Compensation Committee shall exercise its responsibility and authority
under this claims procedure as a fiduciary and, in such capacity, shall have the
discretionary authority and responsibility (1) to interpret and construe the
Plan and any rules or regulations under the Plan, (2) to determine the
eligibility of Nonemployee Directors to participate in the Plan, and the rights
of Participants to receive benefits under the Plan, and (3) to make factual
determinations in connection with any of the foregoing.
ARTICLE XI
GENERAL PROVISIONS
11.1 No right or interest of any person entitled to a benefit under the Plan
shall be subject to voluntary or involuntary alienation, assignment, or transfer
of any kind.
11.2 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
benefits under this Plan.
11.3 The Company's obligations under this Plan shall be as unfunded and
unsecured promise to pay. The Company shall not be obligated under any
circumstances to fund its financial obligations under this Plan. The Company may
establish a grantor trust to assist it in meeting its obligations under this
Plan. The Company shall not be obligated to establish such a trust, and if
established, the Company shall not be obligated to make contributions to the
trust.
11.4 This Plan shall be construed and administered in accordance with the laws
of the State of North Carolina to the extent that such laws are not preempted by
Federal law.
This Plan document has been executed on behalf of the Company this 31st day
of December, 1996.
ATTEST: DUKE POWER COMPANY
- -------------------------- ---------------------------
Ellen T. Ruff W. H. Grigg
Secretary and Deputy General Counsel Chairman of the Board and Chief
Executive Officer
10
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Earnings Before Income Tax............................. $1,205,657 $1,180,979 $1,035,895 $1,036,392 $ 812,053
Fixed Charges.......................................... 296,065 299,633 278,117 281,428 326,575
Total.................................................. $1,501,722 $1,480,612 $1,314,012 $1,317,820 $1,138,628
Fixed Charges
Interest on long-term debt............................. $ 253,395 $ 253,058 $ 237,063 $ 243,047 $ 257,149
Other interest......................................... 16,174 21,143 16,814 17,704 47,239
Amortization of debt discount, premium and expense..... 15,963 16,239 16,340 13,300 8,497
Interest component of rentals.......................... 10,533 9,193 7,900 7,377 13,690
Fixed Charges.......................................... $ 296,065 $ 299,633 $ 278,117 $ 281,428 $ 326,575
Ratio of Earnings to Fixed Charges..................... 5.07 4.94 4.72 4.68 3.49
</TABLE>
<PAGE>
EXHIBIT NO. 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
Nos. 33-19274, 33-50543, 33-50715, 33-50617, 333-02571 and 333-14209 of Duke
Power Company on Form S-3, Registration Statement No. 2-72172 of Duke Power
Company on Form S-8 and Registration Statement No. 333-23227 on Form S-4 of our
report dated February 7, 1997, appearing in this Form 10-K of Duke Power Company
for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 24, 1997
EXHIBIT NO. 24(A)
DUKE POWER COMPANY
POWER OF ATTORNEY
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
(Annual Report)
The undersigned DUKE POWER COMPANY, a North Carolina corporation and
certain of its officers and/or directors, do each hereby constitute and appoint
W. H. Grigg, Richard J. Osborne, Ellen T. Ruff, Jeffrey L. Boyer, and each of
them, to act as attorneys-in-fact for and in the respective names, places, and
stead of the undersigned, to execute, seal, sign, and file with the Securities
and Exchange Commission the Annual Report of said Duke Power Company on Form
10-K and any and all amendments thereto, hereby granting to said
attorneys-in-fact, and each of them, full power and authority to do and perform
all and every act and thing whatsoever requisite, necessary, or proper to be
done in and about the premises, as fully to all intents and purposes as the
undersigned, or any of them, might or could do if personally present, hereby
ratifying and approving the acts of said attorneys-in-fact.
Executed the 25th day of February, 1997.
DUKE POWER COMPANY
By W. H. Grigg
Chairman and Chief Executive Officer
(Corporate Seal)
ATTEST:
Robert T. Lucas III
Assistant Secretary
<PAGE>
W. H. Grigg Chairman and Chief Executive Officer
W. H. Grigg (Principal Executive Officer and Director)
Richard J. Osborne Senior Vice President and Chief Financial
Richard J. Osborne Officer (Principal Financial Officer)
Jeffrey L. Boyer Controller (Principal Accounting Officer)
Jeffrey L. Boyer
G. Alex Bernhardt (Director)
G. Alex Bernhardt
Robert J. Brown (Director)
Robert J. Brown
William A. Coley (Director)
William A. Coley
Steve C. Griffith, Jr. (Director)
Steve C. Griffith, Jr.
____________________ (Director)
Paul H. Henson
George Dean Johnson, Jr. (Director)
George Dean Johnson, Jr.
W. W. Johnson (Director)
W. W. Johnson
Max Lennon (Director)
Max Lennon
<PAGE>
James G. Martin (Director)
James G. Martin
Buck Mickel (Director)
Buck Mickel
Richard B. Priory (Director)
Richard B. Priory
Russell M. Robinson, II (Director)
Russell M. Robinson, II
EXHIBIT NO. 24(B)
CERTIFIED COPY OF RESOLUTIONS FROM THE MINUTES OF
A REGULAR MEETING OF THE BOARD OF DIRECTORS OF
DUKE POWER COMPANY HELD ON FEBRUARY 25, 1997
Upon motion duly made and seconded, it was
RESOLVED, That the Form 10-K Annual Report, as
presented to the meeting, with such changes therein as may be
deemed necessary or advisable by the officers of the Company
be and hereby is in all respects approved; and
FURTHER RESOLVED, That the Power of Attorney as
presented to the meeting and executed by all the Directors
present be and hereby is approved in form and content for
purposes of filing the Form 10-K Annual Report with the
Securities and Exchange Commission.
* * * * * * * * * * * *
I, Ellen T. Ruff, Secretary of Duke Power Company, do hereby certify
that the above is a full, true and complete extract from the Minutes of the
regular meeting of the Board of Directors of Duke Power Company held on February
25, 1997, at which meeting a quorum was present; as taken from and compared with
the original Minutes of said meeting.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
Corporate Seal of said Duke Power Company this 20th day of March, 1997.
Ellen T. Ruff
Secretary
[SEAL]
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF
CASH FLOWS, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS
OF RETAINED EARNINGS FOR THE 12 MONTHS ENDED 12/31/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000030371
<NAME> DUKE POWER COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9386378
<OTHER-PROPERTY-AND-INVEST> 1172317
<TOTAL-CURRENT-ASSETS> 1144106
<TOTAL-DEFERRED-CHARGES> 1766889
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 13469690
<COMMON> 1896141
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 2992574
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4888715
234000
450000
<LONG-TERM-DEBT-NET> 3538114
<SHORT-TERM-NOTES> 105550
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 212309
0
<CAPITAL-LEASE-OBLIGATIONS> 9758
<LEASES-CURRENT> 1507
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4041002
<TOT-CAPITALIZATION-AND-LIAB> 13469690
<GROSS-OPERATING-REVENUE> 4757974
<INCOME-TAX-EXPENSE> 475691
<OTHER-OPERATING-EXPENSES> 3395771
<TOTAL-OPERATING-EXPENSES> 3871462
<OPERATING-INCOME-LOSS> 1362203
<OTHER-INCOME-NET> 126529
<INCOME-BEFORE-INTEREST-EXPEN> 1013041
<TOTAL-INTEREST-EXPENSE> 283075
<NET-INCOME> 729966
44245
<EARNINGS-AVAILABLE-FOR-COMM> 685721
<COMMON-STOCK-DIVIDENDS> 423064
<TOTAL-INTEREST-ON-BONDS> 244001
<CASH-FLOW-OPERATIONS> 1482664
<EPS-PRIMARY> 3.37
<EPS-DILUTED> 0
</TABLE>
