UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Exact name of Registrant as specified in I.R.S. Employer
Commission its charter, state of incorporation, address Identification
File No. of principal executive offices, telephone Number
------------ -------------------------------------------- ---------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (813) 824-6400
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
3201 34th Street South
St. Petersburg, Florida 33711
Telephone (813) 866-5151
Indicate by check mark whether each 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ___X___ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Description of Shares Outstanding
Registrant Class at June 30, 1997
---------- -------------- ------------------
Florida Progress Corporation Common Stock,
without par value 97,061,524
Florida Power Corporation Common Stock,
without par value 100 (all of which were
held by Florida
Progress Corporation)
This combined Form 10-Q represents separate filings by Florida Progress
Corporation and Florida Power Corporation. Florida Power makes no
representations as to the information relating to Florida Progress' diversified
operations.
For an explanation concerning the revised approach to recording nuclear
outage costs that prompted the filing of this amended Form 10-Q, see the
combined Florida Progress and Florida Power Form 8-K dated June 2, 1998, that
was filed with the Securities and Exchange Commission on June 2, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
REVENUES:
Electric utility $597.2 $588.7 $1,151.0 $1,136.0
Diversified 200.1 184.9 393.8 368.0
-------- -------- -------- --------
797.3 773.6 1,544.8 1,504.0
EXPENSES: -------- -------- -------- --------
Electric utility:
Fuel 118.8 90.7 213.7 175.6
Purchased power 116.8 137.7 244.0 260.6
Energy conservation cost 16.6 17.1 27.6 36.8
Operations and maintenance 110.7 97.8 213.1 198.2
Extended nuclear outage - O&M
and replacement fuel costs 89.9 - 97.8 -
Depreciation 74.2 89.2 148.5 166.8
Taxes other than income taxes 48.6 45.2 96.7 92.4
-------- -------- --------- ---------
575.6 477.7 1,041.4 930.4
-------- -------- --------- ---------
Diversified:
Cost of sales 169.1 154.3 340.9 309.4
Other 14.8 16.6 29.7 32.0
-------- -------- --------- ---------
183.9 170.9 370.6 341.4
-------- -------- --------- ---------
INCOME FROM OPERATIONS 37.8 125.0 132.8 232.2
-------- -------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 35.8 34.2 70.1 68.8
Allowance for funds used during
construction (2.3) (1.9) (4.4) (3.6)
Preferred dividend requirements of
Florida Power 0.4 2.1 0.8 4.4
Other expense (income), net (0.7) (1.4) (0.3) (4.7)
-------- -------- --------- ---------
33.2 33.0 66.2 64.9
-------- -------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 4.6 92.0 66.6 167.3
Income Taxes (1.7) 33.2 18.3 60.3
-------- -------- --------- ---------
NET INCOME FROM CONTINUING OPERATIONS 6.3 58.8 48.3 107.0
DISCONTINUED OPERATIONS, NET
OF INCOME TAXES - (25.0) - (25.0)
-------- -------- --------- ---------
NET INCOME $ 6.3 $33.8 $48.3 $82.0
======== ======== ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 97.1 96.8 97.0 96.6
======== ======== ========= =========
EARNINGS PER AVERAGE COMMON SHARE
CONTINUING OPERATIONS $ .07 $0.61 $ .50 $1.11
DISCONTINUED OPERATIONS - ( 0.26) - ( 0.26)
-------- -------- --------- ---------
EARNINGS PER AVERAGE COMMON SHARE $ .07 $0.35 $ .50 $0.85
======== ======== ========= =========
DIVIDENDS PER COMMON SHARE $0.525 $0.515 $1.050 $1.030
======== ======== ========= =========
Prior periods reflect the recapitalization of the spin-off company, Echelon
International, and its associated treatment as discontinued operations. The
accompanying notes are an integral part of these financial statements.
1
<PAGE>
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
June 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,994.8 $5,965.6
Less - Accumulated depreciation 2,440.2 2,335.8
Accumulated decommissioning for nuclear plant 207.1 193.3
Accumulated dismantlement for fossil plants 127.9 119.6
---------- ----------
3,219.6 3,316.9
Construction work in progress 240.6 140.3
Nuclear fuel, net of amortization of $356.7
in 1997 and $356.7 in 1996 63.7 59.9
---------- ----------
Net electric utility property 3,523.9 3,517.1
Other property, net of depreciation of $186.7
in 1997 and $173.8 in 1996 332.5 309.3
---------- ----------
3,856.4 3,826.4
---------- ----------
CURRENT ASSETS:
Cash and equivalents 19.1 5.2
Accounts receivable, net 326.7 265.0
Inventories at average cost:
Fuel 87.1 67.1
Materials and supplies 95.0 95.4
Diversified materials 138.1 125.5
Underrecovery of fuel cost 59.0 82.6
Deferred income taxes 60.8 35.6
Other 18.0 12.6
---------- ----------
803.8 689.0
---------- ----------
OTHER ASSETS:
Investments:
Loans receivable, net 35.0 68.1
Marketable securities 238.6 217.9
Nuclear plant decommissioning fund 232.5 207.8
Joint ventures and partnerships 53.2 41.9
Deferred insurance policy acquisition costs 123.9 120.9
Other 185.7 176.4
---------- ----------
868.9 833.0
---------- ----------
$5,529.1 $5,348.4
========== ==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
June 30, December 31,
1997 1996
----------- -----------
CAPITAL AND LIABILITIES (Unaudited)
COMMON STOCK EQUITY:
Common stock $1,209.0 $1,208.3
Retained earnings 662.9 716.5
Unrealized loss on securities available for sale (1.2) (0.6)
---------- ----------
1,870.7 1,924.2
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,826.5 1,776.9
---------- ----------
TOTAL CAPITAL 3,730.7 3,734.6
---------- ----------
CURRENT LIABILITIES:
Accounts payable 216.1 193.2
Customers' deposits 95.1 81.8
Income taxes payable 10.5 27.8
Accrued other taxes 51.6 13.4
Accrued interest 37.2 48.3
Other 68.8 78.5
---------- ----------
479.3 443.0
Notes payable 94.2 4.1
Current portion of long-term debt 25.0 34.9
---------- ----------
598.5 482.0
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 490.6 475.4
Unamortized investment tax credits 89.5 93.5
Insurance policy benefit reserves 356.1 325.3
Other postretirement benefit costs 103.9 100.0
Other 159.8 137.6
---------- ----------
1,199.9 1,131.8
---------- ----------
$5,529.1 $5,348.4
========== ==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
(In millions)
Six Months Ended
June 30,
1997 1996
----------- -----------
(Unaudited)
OPERATING ACTIVITIES:
Income from continuing operations $48.3 $107.0
Adjustments for noncash items:
Depreciation and amortization 166.3 187.6
Extended nuclear outage - replacement fuel costs 70.2 -
Deferred income taxes and
investment tax credits, net (20.9) (26.3)
Increase in accrued other postretirement
benefit costs 3.9 3.4
Net change in deferred insurance policy
acquisition costs (3.0) (8.6)
Net change in insurance policy
benefit reserves 30.8 30.7
Changes in working capital, net of effects
from acquisition or sale of businesses:
Accounts receivable (59.4) 8.5
Inventories (30.0) (31.5)
Underrecovery of fuel cost (46.6) (57.3)
Accounts payable 21.8 21.4
Income taxes payable (16.9) 21.2
Accrued other taxes 38.2 38.2
Other (13.1) (12.3)
Other operating activities 5.8 23.1
--------- ---------
Cash provided by continuing operations 195.4 305.1
--------- ---------
Loss from discontinued operations - (25.0)
Adjustments for non-cash items - 7.4
--------- ---------
Cash used by discontinued operations - (17.6)
--------- ---------
195.4 287.5
--------- ---------
INVESTING ACTIVITIES:
Property additions (including allowance for
borrowed funds used during construction) (188.5) (135.4)
Purchase of loans and securities, net (including
repayment of Echelon note) 11.8 (14.2)
Proceeds from sale of properties 4.2 6.1
Acquisition of businesses (14.3) (3.2)
Investing activities of discontinued operations - 12.0
Other investing activities (22.3) (19.2)
--------- ---------
(209.1) (153.9)
--------- ---------
FINANCING ACTIVITIES:
Repayment of long-term debt (22.2) (2.1)
Increase in commercial paper with long-term support 61.7 46.7
Redemption of preferred stock - (80.9)
Sale of common stock - 18.6
Dividends paid on common stock (101.9) (99.7)
Increase in short-term debt 90.1 -
Financing activities of discontinued operations - (10.2)
Other financing activities (0.1) (1.5)
--------- ---------
27.6 (129.1)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 13.9 4.5
Beginning cash and equivalents 5.2 4.3
--------- ---------
ENDING CASH AND EQUIVALENTS $19.1 $8.8
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $78.0 $66.4
Income taxes (net of refunds) $56.5 $61.0
Prior periods reflect the recapitalization of the spin-off company, Echelon
International, and its associated treatment as discontinued operations. The
accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA POWER CORPORATION
FINANCIAL STATEMENTS
FLORIDA POWER CORPORATION
Statements of Income
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Residential $ 306.3 $ 296.3 $ 597.0 $ 612.3
Commercial 145.4 131.7 269.6 246.8
Industrial 55.1 51.9 107.0 99.7
Sales for resale 20.3 37.1 57.4 80.1
Other 70.1 71.7 120.0 97.1
-------- -------- --------- ---------
597.2 588.7 1,151.0 1,136.0
-------- -------- --------- ---------
OPERATING EXPENSES:
Operation:
Fuel 118.8 90.7 213.7 175.6
Purchased power 116.8 137.7 244.0 260.6
Energy conservation cost 16.6 17.1 27.6 36.8
Operations and maintenance 110.7 97.8 213.1 198.2
Extended nuclear outage - O&M
and replacement fuel costs 89.9 - 97.8 -
Depreciation 74.2 89.2 148.5 166.8
Taxes other than income taxes 48.6 45.2 96.7 92.4
Income taxes:
Currently payable 3.8 43.8 36.0 74.0
Deferred, net (5.3) (9.9) (13.3) (12.9)
Investment tax credits, net (1.9) (2.0) (3.9) (4.0)
-------- -------- --------- ---------
(3.4) 31.9 18.8 57.1
-------- -------- --------- ---------
572.2 509.6 1,060.2 987.5
-------- -------- --------- ---------
OPERATING INCOME 25.0 79.1 90.8 148.5
-------- -------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 1.4 1.0 2.7 1.9
Miscellaneous other expense, net 0.1 (0.4) (0.9) (1.0)
-------- -------- --------- ---------
1.5 0.6 1.8 0.9
-------- -------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 22.4 21.8 44.7 43.9
Other interest expense 3.7 2.8 6.7 6.1
-------- -------- --------- ---------
26.1 24.6 51.4 50.0
Allowance for borrowed funds used
during construction (0.9) (0.9) (1.7) (1.7)
-------- -------- --------- ---------
25.2 23.7 49.7 48.3
-------- -------- --------- ---------
NET INCOME 1.3 56.0 42.9 101.1
DIVIDENDS ON PREFERRED STOCK 0.4 2.1 0.8 4.4
-------- -------- --------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $ .9 $53.9 $42.1 $96.7
======== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
June 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,994.8 $5,965.6
Less - Accumulated depreciation 2,440.2 2,335.8
Accumulated decommissioning for nuclear plant 207.1 193.3
Accumulated dismantlement for fossil plants 127.9 119.6
---------- ----------
3,219.6 3,316.9
Construction work in progress 240.6 140.3
Nuclear fuel, net of amortization of $356.7
in 1997 and $356.7 in 1996 63.7 59.9
---------- ----------
3,523.9 3,517.1
Other property, net 12.3 13.3
---------- ----------
3,536.2 3,530.4
---------- ----------
CURRENT ASSETS:
Cash and equivalents 14.1 -
Accounts receivable, less reserve of $4.3
in 1997 and $4.1 in 1996 218.6 174.7
Inventories at average cost:
Fuel 53.4 47.2
Materials and supplies 95.0 95.4
Underrecovery of fuel cost 59.0 82.6
Deferred income taxes 60.8 35.6
Other 8.6 6.2
---------- ----------
509.5 441.7
---------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 232.5 207.8
Unamortized debt expense, being amortized
over term of debt 23.9 25.0
Other 60.2 59.1
---------- ----------
316.6 291.9
---------- ----------
$4,362.3 $4,264.0
========== ==========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
June 30, December 31,
1997 1996
----------- -----------
CAPITALIZATION AND LIABILITIES (Unaudited)
CAPITALIZATION:
Common stock $1,004.4 $1,004.4
Retained earnings 766.9 821.1
---------- ----------
1,771.3 1,825.5
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,295.9 1,296.4
---------- ----------
TOTAL CAPITAL 3,100.7 3,155.4
---------- ----------
CURRENT LIABILITIES:
Accounts payable 121.0 115.5
Accounts payable to associated companies 23.4 21.2
Customers' deposits 95.1 81.7
Income taxes payable 13.2 10.4
Accrued other taxes 48.1 10.0
Accrued interest 27.2 34.8
Other 39.9 47.3
---------- ----------
367.9 320.9
Notes payable 94.2 4.1
Current portion of long-term debt 1.4 21.3
---------- ----------
463.5 346.3
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 491.7 472.3
Unamortized investment tax credits 88.9 92.8
Other postretirement benefit costs 100.2 96.5
Other 117.3 100.7
---------- ----------
798.1 762.3
---------- ----------
$4,362.3 $4,264.0
========== ==========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FLORIDA POWER CORPORATION
Statements of Cash Flows
(In millions)
Six Months Ended
June 30,
1997 1996
---------- ----------
(Unaudited)
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $42.1 $96.7
Adjustments for noncash items:
Depreciation and amortization 152.3 175.4
Extended nuclear outage - replacement fuel costs 70.2 -
Deferred income taxes and investment
tax credits, net (17.2) (16.9)
Increase in accrued other postretirement
benefit costs 3.7 3.0
Allowance for equity funds used during construction (2.7) (1.9)
Changes in working capital:
Accounts receivable (43.9) (10.7)
Inventories (5.8) (4.3)
Underrecovery of fuel cost (46.6) (57.3)
Accounts payable 5.6 6.3
Accounts payable to associated companies 2.2 (2.0)
Income taxes payable 2.8 11.3
Accrued other taxes 38.1 37.9
Other (4.0) (9.7)
Other operating activities 5.8 25.8
--------- ---------
202.6 253.6
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (151.8) (111.3)
Allowance for borrowed funds used during construction (1.7) (1.7)
Additions to non-utility property (1.7) (1.1)
Proceeds from sale of properties 3.2 3.8
Other investing activities (9.7) (18.1)
--------- ---------
(161.7) (128.4)
--------- ---------
FINANCING ACTIVITIES:
Repayment of long-term debt (20.6) (0.4)
Increase in commercial paper with
long term support - 29.4
Redemption of preferred stock - (80.9)
Dividends paid on common stock (96.3) (81.4)
Equity contributions from parent - 12.5
Increase in short-term debt 90.1 -
--------- ---------
(26.8) (120.8)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 14.1 4.4
Beginning cash and equivalents - 0.8
--------- ---------
ENDING CASH AND EQUIVALENTS $14.1 $5.2
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $55.8 $47.9
Income taxes (net of refunds) $32.4 $62.4
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) On November 21, 1996, the Board of Directors of Florida Progress
Corporation ("Florida Progress") declared a spin-off distribution to
common shareholders of record on December 5, 1996, of the common shares
of Echelon International Corporation ("Echelon"). Echelon comprised
Florida Progress' lending, leasing and real estate operations. As a
result of the spin-off, the former operations of Echelon are shown as
discontinued operations in the accompanying Consolidated Statements of
Income for the three and six months ended June 30,1996. Net assets of
Echelon as of December 18, 1996, the date of the spin-off, were $194.5
million. This amount has been charged against Florida Progress' retained
earnings in the accompanying December 31, 1996 Consolidated Balance Sheet
to reflect the distribution of Echelon common shares. As used in this
Form 10-Q, the term Florida Progress includes its consolidated
subsidiaries unless otherwise indicated.
2) As ordered by the Florida Public Service Commission ("FPSC"), Florida
Power Corporation ("Florida Power") is in its third year of conducting a
three-year test for residential revenue decoupling which began in January
1995. The difference between target revenues and actual revenues is
included as a current asset or current liability on the balance sheet.
Revenue decoupling increased residential revenues by $4.7 million and
$12.2 million for the three and six months ended June 30, 1997. For the
three and six month periods ended June 30, 1996, revenue decoupling
decreased residential revenues by $.8 million and $13.3 million,
respectively.
On June 26, 1997, the FPSC approved a settlement agreement between
Florida Power and all parties who intervened in Florida Power's request
to collect replacement fuel and purchased power costs ("replacement power
costs") resulting from the extended outage of its Crystal River Nuclear
Plant ("CR3"). CR3 has been off-line since September 1996 to address
certain design issues related to its safety systems. In accordance with
the terms of the agreement, Florida Power recorded $70 million in
replacement power costs in the second quarter of 1997 which will not be
collected from retail customers through the fuel adjustment clause.
3) In June 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting comprehensive income.
The standard defines comprehensive income as the change in equity of an
enterprise except those changes resulting from shareholder transactions.
All components of comprehensive income are required to be reported in a
new financial statement that is displayed with equal prominence as
existing financial statements. Florida Progress will be required to
adopt this statement January 1, 1998. As the standard addresses
reporting and presentation issues only, there will be no impact on
earnings from the adoption of this standard.
Also in June 1997, the FASB issued FAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" which establishes
standards for additional disclosure about operating segments for interim
and annual financial statements. The standard requires financial and
descriptive information to be disclosed for segments whose operating
results are reviewed by the chief operating officer for decisions on
resource allocation. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Florida Progress will be required to adopt this statement for
financial statements for the fiscal year ending December 31, 1998. As
the standard addresses reporting and disclosure issues only, there will
be no impact on earnings from the adoption of this standard.
9
<PAGE>
4) CONTINGENCIES
PURCHASED POWER COMMITMENTS
The purchased power contracts between Florida Power and qualifying
facilities employ separate pricing methodologies for capacity payments
and energy payments. Florida Power has interpreted the pricing provision
in these contracts to allow it to pay an as-available energy price rather
than a higher firm energy price when the avoided unit upon which the
contract is based would not have been operated.
Four cogenerators, Pasco Cogen, Ltd. ("Pasco"), Lake Cogen, Ltd,
("Lake"), Orlando Cogen, Limited ("Orlando"), and Metropolitan Dade
County and Montenay Power Corp. ("Metro-Dade"), filed separate suits
against Florida Power in disputes over the contract payment terms.
Florida Power entered into settlement agreements with Pasco, Lake and
Orlando. As of June 30, 1997, the agreements with Pasco and Orlando had
been approved by the FPSC and the litigation terminated, while the Lake
agreement was awaiting completion of the FPSC approval process.
In July 1997, the FPSC decided to review its approval of the Pasco
settlement agreement. The FPSC action was precipitated as a result of
the disclosure by Florida Power to the FPSC, that a Florida Power
employee who had been involved in cogeneration matters before the FPSC
had recently become engaged to be married to a former FPSC staff attorney
who had participated in the same matters on behalf of the FPSC. The FPSC
decided to review the Pasco settlement and the pending buyout of the last
ten years of a contract with Orlando in a docket separate from the
Orlando settlement agreement, to determine whether there was any bias in
the information that was presented by the staff attorney to the FPSC.
The FPSC also will reconsider the Lake settlement agreement on a number
of issues, including the conflict of interest issue discussed above.
An investigation by an outside law firm hired by Florida Power found no
evidence that the relationship between the Florida Power employee and the
FPSC staff attorney had any influence on regulatory proceedings involving
Florida Power. An FPSC staff investigation found no evidence of bias in
the information presented by staff. An FPSC hearing on the matter is
scheduled to be held in August 1997.
Management does not expect that the results of these FPSC proceedings
will have a material impact on Florida Power's financial position,
operations, or liquidity.
OFF-BALANCE SHEET RISK - Several of Florida Progress' subsidiaries are
general partners in unconsolidated partnerships and joint ventures.
Florida Progress or its subsidiaries have agreed to support certain loan
agreements of the partnerships and joint ventures. Those credit risks are
not material to the financial statements. Florida Progress considers
those credit risks to be minimal, based upon the asset values supporting
the liabilities of these entities.
INSURANCE - Florida Progress and its subsidiaries utilize various risk
management techniques to protect assets from risk of loss, including the
purchase of insurance. Risk avoidance, risk transfer and self-insurance
techniques are utilized depending on Florida Progress' ability to assume
risk, the relative cost and availability of methods for transferring risk
to third parties, and the requirements of applicable regulatory bodies.
10
<PAGE>
Florida Power self-insures its transmission and distribution lines
against loss due to storm damage and other natural disasters. Pursuant to
an FPSC order, Florida Power is accruing $6 million annually to a storm
damage reserve and may defer any losses in excess of the reserve.
Under the provisions of the Price Anderson Act, which limits liability
for accidents at nuclear power plants, Florida Power, as an owner of a
nuclear plant, can be assessed for a portion of any third-party liability
claims arising from an accident at any commercial nuclear power plant in
the United States. If total third-party claims relating to a single
nuclear incident exceed $200 million (the amount of currently available
commercial liability insurance), Florida Power could be assessed up to
$79.3 million per incident, with a maximum assessment of $10 million per
year.
Florida Power is a member of the Nuclear Electric Insurance, Ltd.
("NEIL"), an industry mutual insurer, which provides business
interruption and extra expense coverage in the event of a major
accidental outage at a covered nuclear power plant. Florida Power is
subject to a retroactive premium assessment by NEIL under this policy in
the event of adverse loss experience. Florida Power's present maximum
share of any such retroactive assessment is $2.5 million per policy year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance totaling $2.1
billion. The first layer of $500 million is purchased in the commercial
insurance market with the remaining excess coverage purchased from NEIL.
Florida Power is self-insured for any losses that are in excess of this
coverage. Under the terms of the NEIL policy, Florida Power could be
assessed up to a maximum of $10.3 million in any policy year if losses in
excess of NEIL's available surplus are incurred.
Florida Power has never been assessed under these nuclear indemnities or
insurance policies.
CONTAMINATED SITE CLEANUP - Florida Progress is subject to regulation
with respect to the environmental effects of its operations. Florida
Progress' disposal of hazardous waste through third-party vendors can
result in costs to clean up facilities found to be contaminated. Federal
and state statutes authorize governmental agencies to compel responsible
parties to pay for cleanup of these hazardous waste sites.
Florida Power and former subsidiaries of Florida Progress, whose
properties were sold in prior years, have been identified by the
Environmental Protection Agency ("EPA") as potentially responsible
parties ("PRPs") at certain sites, including a coal gasification plant
site in Sanford, Florida ("the Sanford site") that Florida Power
previously owned and operated. Four other parties have also been
identified as PRPs for the Sanford site. On July 11, 1997, the EPA sent a
general and special notice letter which advised Florida Power and others
that the EPA has documented the release or threatened release of
hazardous substances, pollutants, or contaminants from the Sanford site.
The EPA investigation concluded that such release or threatened release
includes the site itself and downgradient contamination in sediment
through an unnamed tributary for storm water drainage flowing through
Cloud Branch Creek into Lake Monroe at the confluence of the Creek and
Lake Monroe. Further, the EPA advised Florida Power of its potential
liability for clean-up under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). The EPA established a 60-day
moratorium beginning July 18, 1997 on further response activities,
pending the PRPs' submission of a good faith offer to conduct a
remedial investigation and feasibility study ("RI/FS"). If accepted by
the
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EPA, this study will be embodied in an administrative order on consent
and allow the PRPs to perform and finance clean-up activities at the site
under the guidance of the EPA. Liability for the cleanup costs of those
sites is joint and several.
In addition to those designated sites, there are other sites where
affiliates may be responsible for additional environmental cleanup.
Florida Progress believes that its subsidiaries will not be required to
pay a disproportionate share of the costs for cleanup of any of these
sites. Florida Progress' best estimates indicate that its proportionate
share of liability for cleaning up all sites, including the Sanford site,
ranges from $3.7 million to $5.4 million. Florida Progress has reserved
$3.7 million against these potential costs.
AGE DISCRIMINATION SUIT - Florida Power and Florida Progress have been
named defendants in an age discrimination lawsuit involving 116 former
Florida Power employees and one current employee. While no dollar amount
was requested, each plaintiff seeks back pay, reinstatement or front pay
through their projected dates of normal retirement, costs and attorneys'
fees. In October 1996, the court approved an agreement to provisionally
certify this case as a class action suit under the Age Discrimination in
Employment Act. The opportunity to opt into the provisional class
expired on May 28, 1997. Estimates of the potential liability associated
with this lawsuit cannot be determined until the final decision on
whether to certify the case as a class action suit has been made.
MID-CONTINENT LIFE INSURANCE COMPANY - On April 14, 1997, the Insurance
Commissioner of the State of Oklahoma (the "Insurance Commissioner")
received approval from the Oklahoma County District Court to temporarily
seize control of the operations of Mid-Continent Life Insurance Company
("Mid-Continent"), a wholly owned subsidiary of Florida Progress. On May
23, 1997, the Oklahoma County District Court granted the application of
the Insurance Commissioner to place Mid-Continent into receivership. The
Insurance Commissioner had alleged that Mid-Continent's reserves were
understated by more than $125 million, thus causing Mid-Continent to be
statutorily impaired, and further alleged that Mid-Continent had violated
Oklahoma law relating to deceptive trade practices in connection with the
sale of its "Extra Life" insurance policies. Mid-Continent believes it
is not statutorily impaired because the court ruled that it could raise
premiums on the insurance policies at issue. On June 18, 1997, Florida
Progress filed an appeal with the Oklahoma Supreme Court regarding the
decision that Mid-Continent remain in receivership. On June 30, 1997,
the Insurance Commissioner filed an appeal with the Oklahoma Supreme
Court regarding the district court's decision that Mid-Continent is
entitled to raise premiums. A decision from the Oklahoma Supreme Court
is not expected before the fourth quarter of 1997. On July 10, 1997, the
Commissioner of Insurance of the State of Texas entered a cease and
desist order prohibiting Mid-Continent from writing any new policies in
Texas. The Texas Commissioner cited the lack of permanent management at,
and plan of rehabilitation for, Mid-Continent and the alleged reserve
deficiency as reasons for the action. Texas currently has the largest
number of Mid-Continent policy holders.
Florida Progress believes that its investment in Mid-Continent has been
impaired by these proceedings and associated developments, but the amount
of impairment cannot currently be estimated. Given that the receivership
and the cease and desist order in Texas has resulted in significant
adverse publicity for Mid-Continent and has disrupted its business plan
for addressing its projected reserve deficiency on its "Extra Life"
policies, it is likely that Florida Progress will realize a loss of some
or all of its investment in Mid-Continent. Mid-Continent's earnings were
$1.9 million
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for the year ended December 31, 1996, and $.2 million for the six months
ended June 30, 1997. As of June 30, 1997, Florida Progress' equity
investment in Mid-Continent was approximately $85 million, and its tax
basis is significantly less. The Consolidated Balance Sheet at June 30,
1997 includes $238.6 million of marketable securities, $123.9 million
of deferred policy acquisition costs and $356.1 million of insurance
policy benefit reserves attributable to Mid-Continent Life.
REPLACEMENT POWER COST SETTLEMENT - On June 26, 1997, the FPSC
unanimously approved a settlement agreement between Florida Power and all
parties who intervened in Florida Power's request to recover replacement
power costs resulting from the extended outage of CR3. This settlement
supersedes the February 1997 FPSC approved rate increase described under
the heading "Contingencies - Rate Increase Investigation" in Note 4 to
the Financial Statements, in the combined Form 10-Q of Florida Progress
and Florida Power for the quarter ended March 31, 1997 (the "first
quarter 1997 Form 10-Q").
In accordance with the settlement agreement, effective July 1997, Florida
Power ceased any further recovery through its fuel clause of replacement
power costs related to the nuclear outage, except as described below.
Florida Power has completed a refund of the $16 million of replacement
power costs already collected through the fuel clause for the period
commencing April 1997 through June 1997, when rates reflected higher
replacement power costs.
Florida Power estimates that it will have incurred approximately $172
million in replacement power costs through the end of 1997. In the
second quarter of 1997, Florida Power recorded a charge of approximately
$70 million for replacement power costs incurred from December 1996
through June 1997 that will not be recovered through its fuel adjustment
clause. Of the remaining $102 million, Florida Power will recover
approximately $39 million through its fuel adjustment clause. The
remaining $63 million of replacement power costs for the period July
through December 1997 will be recorded as a regulatory asset and
amortized for a period of up to four years beginning in July 1997. The
effect of the amortization on the results of operations is expected to be
offset by the suspension of fossil plant dismantlement accruals during
the amortization period.
This accounting treatment is consistent with the terms of the above
mentioned settlement agreement. The parties to the settlement agreement
have agreed not to seek or support any reduction in Florida Power's base
rates or the authorized range of its return on equity during the
four-year amortization period. The agreement resolves all present and
future disputed issues between the parties regarding the extended outage
of CR3.
Florida Power reported income of $.9 million for the second quarter of
1997. This was lower than the same period in 1996 primarily as a result
of charges recorded for replacement power costs and operation and
maintenance costs associated with the extended outage of CR3. For the
three and six months ended June 30, 1997, Florida Power recognized $19.7
million and $27.6 million, respectively, of operation and maintenance
costs associated with the extended outage. Florida Power expects to
incur a total of $100 million of operation and maintenance costs in
connection with the outage through the end of 1997, when CR3 is expected
to be returned to service.
5) In the opinion of management, the accompanying financial statements
include all adjustments deemed necessary to summarize fairly and reflect
the financial position and results of operations of Florida Progress and
Florida Power for the interim periods presented. Results for these
interim periods are not necessarily indicative of results for the full
year. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto in the
combined Form 10-K of Florida Progress and Florida Power for the year
ended December 31, 1996 (the "1996 Form 10-K") and the first quarter 1997
Form 10-Q.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OPERATING RESULTS
Florida Progress' income from continuing operations for the three month period
ended June 30, 1997, was $.07 per share compared to earnings of $.61 cents per
share for the same period in 1996. The decrease resulted from Florida Power,
Florida Progress' largest operating unit, reporting income of $.01 per share
compared to earnings of $.56 per share for the same period last year. Earnings
per share from continuing operations for the six month period ended June 30,
1997, were $.50 compared to $1.11 for the same period last year. The decrease
for both the three and six month periods is primarily due to one-time charges
recorded by Florida Power related to the extended outage of CR3.
Diversified earnings per share from continuing operations were $.06 for the
second quarter of 1997, $.01 higher than the same quarter last year, due to
higher earnings at Electric Fuels Corporation ("Electric Fuels") which were
partially offset by lower earnings at Mid-Continent. For the six months ended
June 30, 1997, earnings per share from continuing diversified operations of $.06
were $.05 lower than the same period in 1996 primarily due to lower earnings
from Mid-Continent and costs associated with its receivership as well as lower
earnings from Electric Fuels due primarily to severe flooding conditions in the
first quarter of 1997. As a result of Florida Progress' announcement, on July 1,
1996, of its plan for a spin-off distribution to common shareholders of the
common shares of Echelon, Florida Progress recorded a loss from discontinued
operations of $.26 per share for the three and six months ended June 30, 1996.
Diversified gross margin percentages were lower for both the three and six
months ended June 30, 1997, due to higher reserve provisions at Mid-Continent,
and to higher diesel fuel costs and increased operating expenses at Electric
Fuels associated with flood conditions during the first quarter of 1997.
Florida Power - Operating Revenues
Florida Power's operating revenues were $8.5 million (1.4%) and $15.0 million
(1.3%) higher for the three and six month periods ended June 30, 1997, compared
to the same periods in 1996. Recoverable fuel revenues, including deferred fuel
revenue, were $7.0 million and $26.2 million higher for the three and six months
ended June 30, 1997 as a result of the corresponding increase in fuel and
purchased power expenses discussed below. Continued customer growth combined
with the increase in residential revenue decoupling adjustments largely offset
the effect of mild weather on operating revenues. Residential revenue decoupling
eliminates the earnings impact abnormal weather has on residential sales. (See
Note 2 to the Financial Statements.)
Florida Power - Operating Expenses
Fuel and purchased power costs were $7.2 million (3.2%) and $21.5 million (4.9%)
higher for the quarter and six months ended June 30, 1997 compared to the same
periods in 1996 due primarily to increased capacity payments.
Generally, Florida Power recovers substantially all of its fuel and purchased
power costs through an FPSC ordered fuel adjustment clause, thereby eliminating
any significant impact on net income. However, in June 1997, Florida Power
recorded a $70.2 million charge for replacement power costs incurred from
December 1996 through June 1997 in accordance with the above mentioned FPSC
approved settlement agreement. This treatment is consistent with the terms of
the settlement agreement between Florida Power and all parties who intervened in
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Florida Power's earlier request to recover replacement power costs resulting
from the extended outage of CR3. In the second quarter of 1997, Florida Power
also recorded $19.7 million of nuclear outage operation and maintenance costs
in connection with the outage. This brings the total extended nuclear outage
expenses to $89.9 million for the second quarter of 1997, and $97.8 for the six
months ended June 30, 1997.
Florida Power estimates that it will have incurred approximately $172 million in
replacement power costs through the end of 1997. As mentioned above, in the
second quarter of 1997, Florida Power recorded a charge of approximately $70
million for replacement power costs incurred from December 1996 through June
1997 that will not be recovered through its fuel adjustment clause. Of the
remaining $102 million, Florida Power will recover approximately $39 million
through its fuel adjustment clause. The remaining $63 million of replacement
power costs for the period July through December 1997 will be recorded as a
regulatory asset and amortized for a period of up to four years beginning in
July 1997. The effect of the amortization on the results of operations is
expected to be offset by the suspension of fossil plant dismantlement accruals
during the amortization period.
Other operation and maintenance expenses, excluding the impact of the extended
outage, for the three and six months ended June 30, 1997, were $12.9 million
(13.2%) and $14.9 million (7.5%) higher than the same period last year due
primarily to planned fossil plant outages, a lump-sum payment resulting from a
new union contract and additional expenditures for service reliability programs.
Depreciation expense was $15.0 million ($16.8%) and $18.3 (11.0%) lower for the
three and six months ended June 30, 1997 compared to the same periods last year.
These decreases were due primarily to the write-off of two oil-fired plants
(Higgins and Turner) in 1996 and the amortization in 1996 of a transmission line
project.
Florida Power - Purchased Power
Costs associated with purchased power contracts with qualifying facilities
raised Florida Power's system average cost for generation in 1996 and 1997. As
previously discussed, Florida Power has been seeking ways to mitigate the impact
of these escalating payments. Florida Power had negotiated settlements with
three cogenerators, Pasco, Lake, and Orlando. In July 1997, the FPSC decided to
review the Pasco, Lake and Orlando buyout, a docket separate from the Orlando
settlement agreement, cogeneration proceedings regarding a conflict of interest
on the part of a former FPSC staff attorney involved with the cases. See Note 4
to the Financial Statements entitled "Contingencies - Purchased Power
Commitments" and Part II, Item 1 "Legal Proceedings".
As discussed in the first quarter 1997 Form 10-Q, the purchase of the Tiger Bay
cogeneration plant by Florida Power was approved by the FPSC on May 19, 1997.
Tiger Bay was Florida Power's largest cogeneration power supplier, representing
more than 20% of the capacity received from qualifying facilities. The purchase
of the Tiger Bay facility was completed on July 15, 1997. The purchase was
financed initially by bank loans, which were repaid from the proceeds of the
sale of $450 million of medium-term notes (see Liquidity and Capital Resources
herein). The purchase is expected to result in an estimated total savings
between $2.0 billion and $2.4 billion for the period 2008 through 2025 to
Florida Power and its customers. Unlike its reopening of the Lake, Pasco and
Orlando cogeneration proceedings discussed above, the FPSC did not order a
review of the Tiger Bay cogeneration facility buyout docket, given that the case
was stipulated by all parties and the possibility of bias appeared unlikely.
Florida Power - Nuclear Operations
In September 1996, Florida Power shut down its CR3 nuclear plant to fix a broken
oil pipe in the main turbine. CR3 has remained offline to address certain design
issues related to the plant's safety systems.
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While CR3 remains on the NRC's Watch List, progress has been made on major
restart activities. Major accomplishments this quarter included completion of
the system readiness reviews, timely filing of license submittals for several
plant modifications and progress in reducing the backlog of maintenance
requests. Florida Power believes it is on schedule to return CR3 to service by
the end of 1997. See discussion in Note 4 to the Financial Statements entitled
"Contingencies - Replacement Power Cost Settlement".
Florida Progress Diversified Operations
Florida Progress' diversified revenues were $15.2 million and $25.8 million
higher for the three and six months ended June 30, 1997 compared to the same
period last year due primarily to a third quarter 1996 acquisition at Electric
Fuels. Gross margins were down for both the three and six month period ended
June 30, 1997 compared to last year due to higher reserve provisions at
Mid-Continent, and to higher diesel fuel costs and increased operating expenses
at Electric Fuels associated with flood conditions in the first quarter of 1997.
On April 14, 1997, the Insurance Commissioner of the State of Oklahoma received
approval from the Oklahoma County District Court to temporarily seize control of
the operations of Mid-Continent. On May 23, 1997, the District Court of Oklahoma
granted the application of the Insurance Commissioner of the State of Oklahoma
to place Mid-Continent into receivership. Mid-Continent is appealing the
decision to the Supreme Court of Oklahoma. See Note 4 to the Financial
Statements under the heading "Contingencies - Mid-Continent Life Insurance
Company" and paragraph 8 under Part II, Item 1 "Legal Proceedings" herein.
LIQUIDITY AND CAPITAL RESOURCES
Florida Power budgeted $372 million, excluding allowance for funds used during
construction, for its 1997 construction program, of which $148.1 million was
spent during the first six months of the year. Those expenditures were
financed primarily with funds from operations. Nuclear capital expenditures for
1997 could range between $30 to $45 million higher than the original budget
because of CR3 modifications. Florida Power anticipates using debt financing to
fund those additional capital expenditures.
On June 24, 1997, Florida Power filed a shelf registration statement with the
Securities and Exchange Commission to register an additional $550 million of
Medium-Term Notes, Series B, bringing the total amount of registered notes to
$850 million. On July 22, 1997, $450 million of these notes were sold to repay
bank loans obtained to finance the acquisition of the Tiger Bay cogeneration
facility. The notes were sold with nine different maturities ranging from two to
ten years, and bear interest at rates ranging from 6.21% to 6.81% per annum.
The issuance of the remaining registered but unissued notes ($400 million) will
depend upon capital requirements and on market conditions.
Florida Power's ratio of earnings to fixed charges was 3.78 for the twelve
months ended June 30, 1997. (See Exhibit 12 filed herewith).
"SAFE HARBOR" STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward looking statements, including projections
regarding the date by which CR3 is expected to be returned to service; the total
operating and maintenance costs that will be attributable to the nuclear outage;
the future treatment of replacement power costs associated with the outage; the
impact of FPSC reviews of the settlement agreements with cogenerators; the
proportionate liability for cleaning up certain environmental sites; the savings
to Florida Power and its customers resulting from the purchase of the Tiger Bay
facility; and the effect of certain legal proceedings on the operations of
Mid-Continent.
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Risk Factors
These statements, and any other statements contained in this report that are not
historical facts, are forward-looking statements that are based on a series of
projections and estimates regarding the economy, the electric utility business
and Florida Progress' other businesses in general, and on factors which impact
Florida Progress directly. The projections and estimates relate to the pricing
of services, the actions of regulatory bodies, and the effects of competition.
Key factors that have a direct impact on the ability to attain these projections
include various factors that could impact the successful execution of Florida
Power's nuclear plant restart plan, such as regulatory approvals, timely
completion of scheduled work by Florida Power and outside contractors and the
timely delivery of parts and materials; the actions of the FPSC and other
regulatory bodies; the success of cost containment efforts; and the efficient
operation of Florida Power's existing and future generating units. In addition,
in developing certain forward-looking statements, Florida Progress and Florida
Power have made certain assumptions relating to productivity improvements, the
lack of unforeseen new nuclear plant modifications that could extend the outage
beyond 1997, and the lack of disruption to markets.
If Florida Progress' and Florida Power's projections and estimates regarding the
economy, the electric utility business and other factors differ materially from
what actually occurs, or if various proceedings have unfavorable outcomes, then
actual results could vary significantly from the performance projected in the
forward-looking statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. In re: Petition for Expedited Approval of Settlement with Pasco Cogen,
Ltd., Florida Public Service Commission, Docket No. 961407-EI.
In re: Petition for Expedited Approval of Settlement with Lake Cogen,
Ltd., Florida Public Service Commission, Docket No. 961477-EQ.
In re: Petition for approval of early termination amendment to negotiated
qualifying facility contract with Orlando Cogen, Limited, Ltd., Florida
Public Service Commission, Docket No. 961184-EQ.
See prior discussion of these matters in the first quarter 1997 Form
10-Q, Part II, Item 1, paragraph 1, and in the 1996 Form 10-K, Item 3,
paragraphs 2, 3 and 4. On July 8, 1997, Florida Power filed a Notice of
Conflict of Interest in Docket No. 961477-EQ, notifying the FPSC of a
possible conflict of interest involving a Florida Power employee and a
former FPSC staff attorney ("staff attorney") who both worked on this
docket during a period in which they had a personal relationship. After
the notice was filed, the FPSC initiated a review of the various Florida
Power cases on which the staff attorney had worked. On July 15, 1997,
the FPSC decided to review the Pasco and Orlando buyout dockets to
determine if any bias had occurred. Also on July 15, the FPSC determined
to reconsider the Lake cogeneration matter on the merits, including a
review with respect to the conflict of interest issue. An investigation
by an outside law firm hired by Florida Power found no evidence that the
relationship between the Florida Power employee and the FPSC staff
attorney had any influence on regulatory proceedings involving Florida
Power. An FPSC staff investigation found no evidence of bias in the
information presented by staff. An FPSC hearing on the matter is
scheduled to be held in August 1997.
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2. In re: Lake Interest Holdings, Inc. v. Lake Cogen, Ltd., NCP Lake Power,
Inc., Lake Investment, LP. and Florida Power Corporation. Circuit Court
of the Fifth Judicial Court for Lake County, Florida, Case No. 97-549-
CA-01.
See prior discussion of this matter in the 1996 Form 10-K, Item 3, para-
graph 3. On June 25, 1997, the plaintiff, Lake Interest Holdings, Inc.
and three of the defendants, Lake Cogen, Inc., NCP Lake Power
Incorporated, and Lake Investment, L.P., filed a stipulation of dismissal
with prejudice. Florida Power has not opposed this stipulation. The
court is expected to dismiss the case in the near future.
3. In re: Petition for expedited approval of an agreement to purchase the
Tiger Bay cogeneration facility and terminate the related purchased power
contracts, FPSC Docket No. 970096-EQ.
See prior discussion of this matter in the 1996 Form 10-K, Item 3,
paragraph 8 and the first quarter 1997 Form 10-Q. On June 9, 1997, the
FPSC issued a final order approving the April 14, 1997 stipulations
entered into by the parties in the case. The purchase by Florida Power
of the Tiger Bay facility closed on July 15, 1997. In connection with
its investigation (see paragraph 1 above), the FPSC did not order a
review of the Tiger Bay cogeneration docket. This report concludes this
matter for reporting purposes.
4. In re: Fuel and Purchased Power Cost Recovery Clause and Generating
Performance Incentive Factor, Florida Public Service Commission, Docket
No. 970001-EI.
See prior discussion in the 1996 Form 10-K, Item 3, paragraph 1. On June
26, 1997, the FPSC approved the settlement agreement between Florida
Power and all intervenors involved in Florida Power's request to collect
replacement fuel and purchased power costs associated with the extended
outage of CR3. The parties to the stipulation agreement will not seek or
support any reduction in Florida Power's base rates or the authorized
range of its return on equity during the four-year amortization period.
See Note 4 to the Financial Statements entitled "Contingencies -
Replacement Power Cost Settlement".
The agreement resolves all present and future disputed issues between the
parties regarding the extended outage of CR3.
This report concludes this matter for reporting purposes.
5. Wanda L. Adams, et al v. Florida Power Corporation and Florida Progress
Corporation, U.S. District Court, Middle District of Florida, Ocala
Division; Case No. 95-123-CIV-OC-10.
See prior discussion of this matter in the 1996 Form 10-K, Item 3,
paragraph 11 and the first quarter 1997 Form 10-Q, Item 1, paragraph 4.
The period for potential class members to opt into the conditionally
certified class expired on May 28, 1997. The class now is comprised of
116 former employees and 1 current employee.
6. Charlie Crist, Jr. v. Julia Johnson, et al and Florida Power Corporation,
Florida Supreme Court, Case No. 90,346.
See prior discussion of this matter in the first quarter 1997 Form 10-Q,
Part II, Item 1, paragraph 3. On June 18, 1997, all parties entered into
a stipulation which resolves all present and future disputed issues
regarding the current extended outage of CR3. On June 26, the FPSC
unanimously
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approved the settlement agreement. The financial impact and details of
this agreement are discussed in Note 4 to the Financial Statement under
the heading "Replacement Power Cost Settlement". On July 21,
1997, the Court granted the motions to dismiss filed by Florida Power and
the FPSC, resulting in dismissal of Charlie Crist's Notice of Petition
For Review Of Florida Public Service Commission Order No.
PSC-97-0859-FOF-EI. This report concludes this matter for reporting
purposes.
7. In re: Standard Offer Contract for the purchase of firm capacity and
energy from a qualifying facility between Panda-Kathleen, L.P. and
Florida Power Corporation, FPSC Docket No. 950110-EI.
See prior discussion of this matter in the 1996 Form 10-K, Item 3,
paragraph 7. A decision is now not expected until the second half of
1997.
8. State of Oklahoma, ex rel. John P. Crawford, Insurance Commissioner v.
Mid-Continent Life Insurance Company, District Court of Oklahoma County,
State of Oklahoma, Case No. CJ-97-2518-62
See prior discussion in the first quarter 1997 Form 10-Q, Part II, Item
1, paragraph 6. On May 23, 1997, the District Court of Oklahoma County,
State of Oklahoma, granted the application of the Insurance Commissioner
of the State of Oklahoma ("Commissioner") to place Mid-Continent into
receivership and ordered the Commissioner to develop a plan of
rehabilitation for Mid-Continent. The Commissioner had alleged that
Mid-Continent's reserves were understated by more than $125 million, thus
causing Mid-Continent to be statutorily impaired, and further alleged
that Mid-Continent had violated Oklahoma law relating to deceptive trade
practices, in connection with the sale of its "Extra Life" insurance
policies. Mid-Continent is appealing the decision to the Supreme Court
of Oklahoma. Mid-Continent believes it is not statutorily impaired
because the court ruled that it could raise premiums on the insurance
policies at issue. See Note 4 to the Financial Statements under
"Contingencies - Mid-Continent Life Insurance Company".
In connection with this matter, the Commissioner of Insurance of the
State of Texas entered a cease and desist order on July 10, 1997,
prohibiting Mid-Continent from writing any new policies in the State of
Texas. The Texas Commissioner cited the lack of permanent management at,
and plan of rehabilitation for, Mid-Continent and the alleged reserve
deficiency as reasons for the action.
9. Northern States Power Company, et al., v. United States Department of
Energy, Case Number 97-1064, U.S. Court of Appeals, D.C. Circuit.
See prior discussion in the 1996 Form 10-K, Item 3, paragraph 9. On April
30, 1997, the court ordered the petitioners to file petitions for
mandamus. In their petitions, the utilities request, among other items,
that the court require the United States Department of Energy ("DOE") to
begin disposing of spent nuclear fuel ("SNF") on January 31, 1998 and
that the court find that the utilities be relieved of their reciprocal
obligation to pay fees into the Nuclear Waste Fund and be authorized to
place those fees into escrow accounts unless and until DOE commences
disposing of SNF. Failure of DOE to accept SNF will not immediately
affect the continued operation of Florida Power's CR3, which has
sufficient on-site temporary storage capacity for SNF through the year
2010.
10. Florida Power Corp. v. United States, United States Court of Federal
Claims, Case No. 96-702C.
See prior discussion in the 1996 Form 10-K, Item 3, paragraph 10. On May
6, 1997, the U.S. Court of Appeals for the Federal Circuit ruled against
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Yankee Atomic. Yankee Atomic has since requested rehearing "en banc" of
the court's decision. A decision on whether to grant rehearing in the
Yankee Atomic Electric matter is expected in the fourth quarter of 1997.
11. Sanford Gasification Plant Site, Sanford, Florida
See prior discussion in this matter in the 1996 Form 10-K, Item 3,
paragraph 13. The EPA completed the Expanded Site Investigation on June
27, 1997. On July 11, 1997 the EPA sent a general and special notice
letter which advised Florida Power and others that the EPA has documented
the release or threatened release of hazardous substances, pollutants, or
contaminants from the Sanford site. The EPA investigation concluded that
such release or threatened release includes the site itself and
downgradient contamination in sediment through an unnamed tributary
for storm water drainage flowing through Cloud Branch Creek into Lake
Monroe at the confluence of the Creek and Lake Monroe. Further, the EPA
advised Florida Power of its potential liability for clean-up under
CERCLA. The EPA established a 60-day moratorium beginning July 18, 1997
on further response activities, pending the PRPs submission of a good
faith offer to conduct a RI/FS. If accepted by the EPA, this study will
be embodied in an administrative order on consent and allow the PRPs to
perform and finance clean-up activities at the site under the guidance of
the EPA.
Item 5. Other Information.
1. UNION CONTRACT. As previously reported in Item 1 "Business - Utility
Operations - Florida Power - Employees" in the 1996 Form 10-K, and Item
5 "Other" in the first quarter 1997 Form 10-Q, the union contract with
the International Brotherhood of Electrical Workers ("IBEW") was to have
expired in December 1996. Both the IBEW and Florida Power agreed to
continue working beyond that date under the terms of the existing
contract while negotiations, which began in September 1996, proceeded. On
April 30, 1997, Florida Power and IBEW committees agreed on a new three
year contract. On May 19, 1997, the members of the IBEW voted to accept a
new contract with Florida Power. The new contract is effective from
December 9, 1996 through December 5, 1999.
2. EXECUTIVE OFFICER AND DIRECTOR CHANGES.
During the second quarter of 1997, Florida Progress and Florida Power
announced certain executive officer and director changes. At Florida
Progress, effective June 1, 1997, Richard Korpan was promoted to Chief
Executive Officer. Jack B. Critchfield, who held the position of Chief
Executive Officer, remains Chairman of the Board. Also effective June 1,
Stanley I. Garnett was named Executive Vice President of Florida Progress
and will be responsible for financial services, legal, human resources
and corporate development. Garnett was previously a senior adviser with
Putnam, Hayes & Bartlett, an economic and management consulting firm, and
the chief legal officer and then chief financial officer at Allegheny
Power System, Inc. At Florida Power, effective June 1, 1997, Joseph H.
Richardson became Chief Executive Officer, and Janice B. Case was
promoted to Senior Vice President. Richard Korpan who held the position
of Chief Executive Officer, remains Chairman of the Board of Florida
Power. In other Board action, it was decided that both Florida Progress
and Florida Power should have the same outside directors serving on their
boards. As a result, effective May 15, 1997, W.D. "Bill" Frederick, Jr.,
Michael P. Graney, Vincent J. Naimoli, Richard A. Nunis, Charles B. Reed
and Robert T.Stuart, Jr., members of the Florida Progress Board, were
elected as
20
<PAGE>
members of the Florida Power Board, and Frank C. Logan, a member of the
Florida Power Board, was appointed as a member of the Florida Progress
Board. In addition, Allen J.Keesler, Jr. and R. Mark Bostick resigned
as members of the Florida Power Board. Florida Progress now has a total
of twelve directors, each of whom also serves as a director of Florida
Power. Florida Power has a total of thirteen directors, the additional
director being Joseph H. Richardson, Florida Power's Chief Executive
Officer.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
12 Statement Regarding Computation of Ratio X
of Earnings to Fixed Charges for Florida
Power.
27.(a) Florida Progress Financial Data Schedule. X
27.(b) Florida Power Financial Data Schedule. X
X = Exhibit is filed for that respective company.
(b) Reports on Form 8-K:
During the second quarter 1997, Florida Progress and Florida
Power filed the following reports on Form 8-K:
Form 8-K dated April 15, 1997, reporting under Item
5 "Other Events" first quarter 1997 earnings, the
Tiger Bay cogeneration plant joint motion and the
temporary seizure of Mid-Continent by the Insurance
Commissioner of the state of Oklahoma.
Form 8-K dated May 12, 1997, reporting under Item
5 "Other Events" an update on the CR3 restart plan.
Form 8-K dated May 27, 1997, reporting under Item
5 "Other Events" Board action regarding changes in
officers and directors, and that the Oklahoma District
Judge placed Mid-Continent into receivership.
Form 8-K dated June 19, 1997, reporting under Item
5 "Other Events" an update to the CR3 outage and the
proposed settlement on replacement fuel costs due to
the CR3 outage.
Form 8-K dated June 25, 1997, reporting under Item
5 "Other Events" the FPSC's approval of a buy-down
of another Florida Power cogen contract and the FPSC's
approval of the fuel settlement agreement.
In addition, Florida Progress and Florida Power filed the
following report on Form 8-K subsequent to the second quarter
1997:
Form 8-K dated July 15, 1997, reporting under Item
5 "Other Events" the second quarter earnings for 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of each of the undersigned
on behalf of each listed company shall be deemed to relate only to matters
having reference to such company.
FLORIDA PROGRESS CORPORATION
FLORIDA POWER CORPORATION
Date: June 2, 1998 /s/ John Scardino, Jr.
-----------------------------
John Scardino, Jr.
Vice President and Controller
Date: June 2, 1998 /s/ Jeffrey R. Heinicka
-----------------------------
Jeffrey R. Heinicka
Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit Index
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
12 Statement Regarding Computation of Ratio X
of Earnings to Fixed Charges for Florida
Power.
27.(a) Florida Progress Financial Data Schedule. X
27.(b) Florida Power Financial Data Schedule. X
X = Exhibit is filed for that respective company.
Exhibit 12
FLORIDA POWER CORPORATION
Statement of Computation of Ratios
(Dollars In Millions)
Ratio of Earnings to Fixed Charges:
Twelve-Months Year Ended
Ended June 30, December 31,
1997 1996 1996 1995
------ ------ ------ ------
Net Income $180.1 $231.8 $238.4 $227.0
Add:
Operating Income Taxes 97.4 132.3 135.8 129.5
Other Income Taxes 0 0.2 (.1) 0.1
------ ------ ------ ------
Income Before Taxes 277.5 364.3 374.1 356.6
Total Interest Charges 99.9 100.7 98.4 104.5
------ ------ ------ ------
Total Earnings (A) $377.4 $465.0 $472.5 $461.1
------ ------ ------ ------
Fixed Charges (B) $ 99.9 $100.7 $ 98.4 $104.5
------ ------ ------ ------
Ratio of Earnings to
Fixed Charges (A/B) 3.78 4.62 4.80 4.41
===== ===== ===== =====
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