-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Y+GxBWxqdt5E7eyfcZMt6C3sNtZ7mPcvXNjH5mzC5SEcFODub+1+9UVwaDtAVqAo 1E0Wzv/7dHaJe1kZ61Lgvg== 0000017797-94-000020.txt : 19940812 0000017797-94-000020.hdr.sgml : 19940812 ACCESSION NUMBER: 0000017797-94-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAROLINA POWER & LIGHT CO CENTRAL INDEX KEY: 0000017797 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 560165465 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03382 FILM NUMBER: 94543063 BUSINESS ADDRESS: STREET 1: 411 FAYETTEVILLE ST CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9195466111 10-Q 1 THIRD QUARTER 1994 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to________ Commission file number 1-3382 CAROLINA POWER & LIGHT COMPANY _________________________________________________________________ (Exact name of registrant as specified in its charter) North Carolina 56-0165465 _________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 Fayetteville Street, Raleigh, North Carolina 27601-1748 _________________________________________________________________ (Address of principal executive offices) (Zip Code) 919-546-6111 _________________________________________________________________ (Registrant's telephone number, including area code) _________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) 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 (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 ___. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (Without Par Value) shares outstanding at July 31,1994: 160,675,322 PART I. FINANCIAL INFORMATION Item 1. Financial Statements _______ ____________________ Reference is made to the attached Appendix containing the Interim Financial Statements for the periods ended June 30, 1994. The amounts are unaudited but, in the opinion of management, reflect all transactions necessary to fairly present the Company's financial position and results of operations for the interim periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations _______ _________________________________________________ Results of Operations For the Three, Six and Twelve Months Ended June 30, 1994, As Compared With the Corresponding Periods One Year Earlier ___________________________________________________________ Operating Revenues and Expense: Revenues increased for all periods reflecting higher energy sales due to slight increases in usage and number of customers. A portion of the decrease in the deferred fuel credit for the twelve months ended June 30, 1994, reflects settlement agreements reached with the Company's regulators in the North Carolina and South Carolina jurisdictions in July and September 1993, respectively. As part of these settlements, the Company agreed to forgo recovery of a total of $41.1 million of deferred fuel expense related to the Brunswick Plant outage. Excluding the effect of these settlements, the remaining $26.1 million decrease in the deferred fuel credit was primarily due to lower fuel costs associated with an increase in nuclear generation and due to the recovery of prior fuel costs as allowed in the Company's most recent annual fuel adjustment proceeding. Purchased power increased for the three months ended June 30, 1994, primarily due to increased purchases from Duke Power Company (Duke). Purchased power increased for the six and twelve months ended June 30, 1994, primarily due to increased purchases from Duke and North Carolina Eastern Municipal Power Agency (Power Agency). The increased purchases from Duke of $16.6 million, $33.0 million and $56.9 million for the three, six and twelve months ended June 30, 1994, respectively, are primarily due to an agreement under which the Company began purchasing 400 megawatts of generating capacity in July 1993. The increased purchases from Power Agency of $9.0 million and $18.3 million for the six and twelve months ended June 30, 1994, respectively, are primarily due to the increased buyback provisions of the Company's April 1993 agreement with Power Agency. Other operation expense increased $4.8 million and $7.4 million for the three and six months ended June 30, 1994, respectively, due to outage-related work at the Harris Plant in the current year. The balance of the increase in each period is made up of a number of items, none of which are individually significant. Other operation expense increased for the twelve months ended June 30, 1994, primarily due to adjustments made in 1992 that decreased expenses for the twelve months ended June 30, 1993. In addition, other operation expense increased for the twelve months ended June 30, 1994, due to outage-related work at the Harris Plant and the recognition of greater employee benefits expense due to new accounting requirements effective in 1993. Maintenance expense decreased in the six and twelve months ended June 30, 1994, primarily due to a decrease in costs associated with the Brunswick Plant. In the prior periods, significant costs were incurred at the Brunswick Plant as a result of the Plant's extended outage. The decrease in income tax expense for all periods includes a reduction in expense as the result of certain Internal Revenue Service (IRS) audit issues. The increase in Harris Plant deferred costs for the twelve months ended June 30, 1994, includes adjustments related to a September 1993 settlement between the Company and North Carolina Electric Membership Corporation (NCEMC). Other Income: The increase in Harris Plant carrying costs for the twelve months ended June 30, 1994, is primarily related to the 1993 settlement between the Company and NCEMC. The Harris Plant disallowance - Power Agency line item reflects a write-off recorded as a result of the 1993 settlement with Power Agency. The write-off represents a portion of the Company's Harris Plant costs that will not be recoverable through sales of supplemental power to Power Agency. Interest income increased for all periods as a result of the Company recording interest income in June 1994 related to certain IRS audit issues. In addition, for the twelve months ended June 30, 1994, interest income increased due to the Company's settlement agreement with Westinghouse Electric Corporation. As of January 1994, the Company is no longer recording interest income related to the qualified employee stock ownership plan (ESOP) loan (see New Accounting Standard). This reduction in interest income partially offsets the increases discussed above for the three and twelve months ended June 30, 1994, and more than offsets the increase for the six months ended June 30, 1994. Interest Charges: Interest charges on long-term debt decreased for all periods primarily due to long-term debt refinancings that allowed the Company to take advantage of lower interest rates. Material Changes in Capital Resources and Liquidity From December 31, 1993, to June 30, 1994 and From June 30, 1993, to June 30, 1994 ___________________________________________________ During the six and twelve months ended June 30, 1994, the Company issued long-term debt totaling $272.6 million and $609.9 million, respectively. These issuances of debt together with internally generated funds financed the retirement or redemption of long-term debt totaling $267.7 million and $762.7 million respectively. The Company uses short-term financing in the form of commercial paper backed by revolving credit agreements to provide flexibility in the timing and amounts of long-term financing. At June 30, 1994, these revolving credit agreements amounted to $185 million. Recently, the Company obtained additional credit facilities of $22.9 million which became effective in July 1994. These credit facilities replaced certain credit facilities that expired in April 1994. At June 30, 1994, the Company had $72.6 million in commercial paper outstanding. The Company's First Mortgage Bonds are currently rated "A2" by Moody's Investors Service, "A" by Standard & Poors and "A+" by Duff & Phelps. Standard & Poors and Moody's Investors Service have rated the Company's commercial paper "A-1" and "P-1", respectively. The Company's capital structure at June 30, 1994, was 49.9% common stock equity, 47.4% long-term debt and 2.7% preferred stock. In July 1994, the Board of Directors of the Company (Board) authorized the Executive Committee of the Board to repurchase up to 10 million shares of the Company's common stock on the open market. The Board indicated that at current stock price levels it was in the best interests of the Company's stockholders for management to have the flexibility to repurchase shares. The Board's action provides flexibility for management to undertake such a program at its discretion, but does not establish a target stock price or timetable for repurchases. On July 21, 1994, the Company began repurchasing shares of its common stock on the open market in accordance with the stock repurchase program. New Accounting Standard _______________________ In January 1994, the Company implemented Statement of Position (SOP) 93-6, "Employers' Accounting for Stock Ownership Plans," on a prospective basis. This SOP requires the following changes in accounting for the Company's leveraged employee stock ownership plan: 1) ESOP shares that have not been committed to be released to participants' accounts are no longer considered outstanding for the determination of earnings per common share; 2) dividends on unallocated ESOP shares are no longer recognized for financial statement purposes; 3) all tax benefits of ESOP dividends are now recorded directly to non-operating income tax expense, whereas previously a portion of the tax benefits was recorded directly to retained earnings; 4) interest income related to the qualified ESOP loan is no longer recognized; and 5) the difference between the acquisition and allocation prices of ESOP shares, which was previously recorded as other income, net, is now recorded directly to common stock. In addition, ESOP loan transactions between the Company and the Stock Purchase-Savings Plan Trustee are no longer reflected in the Statements of Cash Flows. The implementation of SOP 93-6 resulted in an increase in earnings per common share of approximately $.01 for the six months ended June 30, 1994. Legal Matters _____________ With regard to the April 1993 agreement entered into by the Company and Power Agency to restructure portions of their contracts covering power supplies and jointly-owned interests in several of the Company's generating units, on July 29, 1994, the Federal Energy Regulatory Commission (FERC) accepted the provisions of the agreement that are subject to the FERC's jurisdiction. On August 1, 1994, NCEMC filed a complaint with the FERC, alleging that the wholesale rates the Company charges NCEMC are excessive, and seeking a rate reduction of approximately $38.6 million per year. Although the Company cannot predict the outcome of this matter, it believes NCEMC's allegations are without merit. With regard to the remaining disputed issues relating to Power Agency's use of capacity and energy from the South Carolina Public Service Authority (Santee Cooper) and Power Agency's use of a combustion turbine electric generating project, the Company and Power Agency negotiated final Power Coordination Agreements relating to the Santee Cooper and turbine generator transactions, and filed them with the FERC on April 29, 1994. The parties are awaiting FERC action on these filings. The Company cannot predict the outcome of these matters. With regard to the North Carolina retail jurisdiction, the Company's 1994 North Carolina fuel case hearing was held on August 2, 1994. The parties to the fuel proceeding agreed to stipulations that resolved all issues between them in the proceeding. Pursuant to the stipulations, the parties agreed that a net fuel factor of 1.309 cents/kWh will be in effect for the Company for the period September 15, 1994 through September 14, 1995. As part of the stipulations, the Company agreed to forego recovering $5.8 million of the underrecovered fuel expense for the test year ended March 31, 1994. Of this amount, $3.5 million is associated with certain outage time experienced by the Company's Robinson Nuclear Plant, and the remaining $2.3 million relates to the recovery of certain cogeneration fuel costs. The Company cannot predict whether the stipulations will be approved by the North Carolina Utilities Commission. Competition In June 1994, the FERC approved a 30-year agreement between the Company and NCEMC, which represents seventeen wholesale electric membership corporations in the Company's service area. The agreement assures that the Company will continue to be NCEMC's primary source of electricity for the next several years. According to the agreement, NCEMC can assume responsibility for a portion of its load, subject to advance notice and agreed-upon limits, beginning in January 1996. Recently, NCEMC gave notice that it will award a power-supply contract to another supplier beginning on January 1, 1996. If approved by the FERC, the contract with the other supplier will displace 200 megawatts of baseload capacity that NCEMC currently purchases from the Company. On and after January 1, 1996, the Company will continue to supply not less than 1000 MW of electricity to NCEMC until at least December 31, 2000. Load reductions beyond the year 2000 are subject to specific limits and require five years advance notice. PART II. OTHER INFORMATION Item 1. Legal Proceedings ______ _________________ Legal aspects of certain matters are set forth in Item 5 below. ) Item 2. Changes in Securities ) _______ _____________________ ) ) Not applicable for ) the quarter ended Item 3. Defaults upon Senior Securities ) June 30, 1994. ______ _______________________________ ) ) ) ) Item 4. Submission of Matters to a Vote of Security Holders ______ _______________________________ (a) The Annual Meeting of the Shareholders was held on May 11, 1994. (b) The meeting involved the election of directors. Proxies for the meeting were solicited pursuant to Regulation 14, there was no solicitation in opposition to the management's nominees as listed below, and all such nominees were elected. (c) The total votes were as follows: Votes For Votes Withheld _________ ______________ Charles D. Barham, Jr. 136,206,920 2,314,918 Edwin B. Borden 136,195,139 2,326,699 Felton J. Capel 135,900,944 2,620,894 William Cavanaugh III 136,042,073 2,479,765 George H. V. Cecil 136,045,170 2,476,668 Charles W. Coker 136,881,936 1,639,902 Richard L. Daugherty 136,688,017 1,833,821 William E. Graham, Jr. 136,891,636 1,630,202 Gordon C. Hurlbert 136,814,572 1,707,266 J. R. Bryan Jackson 136,902,685 1,619,153 Robert L. Jones 136,837,106 1,684,732 Estell C. Lee 136,896,162 1,625,676 Sherwood H. Smith, Jr. 136,819,879 1,701,959 J. Tylee Wilson 136,772,255 1,749,583 Item 5. Other Information _______ _________________ 1. (Reference is made to the Company's 1993 Form 10-K, Generating Capability, paragraph 4, page 5 and Competition and Franchises, paragraph 1.b., page 7. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1994, Item 5, paragraph 1.) With regard to the Walters Hydroelectric Plant relicensing proceeding (Project Nos. 432-004 and 2748-000), by letter dated June 29, 1994, the Federal Energy Regulatory Commission (FERC) advised the Company and North Carolina Electric Membership Corporation (NCEMC) that the First Amendment to the Power Coordination Agreement (PCA), filed with the FERC on May 11, 1994, complied with the FERC's April 19,1994 order. That order conditionally approved the PCA, the Interchange Agreement, and the settlement agreements previously filed in this proceeding. The FERC's June 29, 1994 letter also stated that the revised PCA was accepted for filing. The PCA allows NCEMC to assume responsibility for up to 200 MW of its load from the Company's system between January 1, 1996 and December 31, 2000. On and after January 1, 1996, the Company expects to continue to supply not less than 1000 MW of electricity to NCEMC until at least December 31, 2000. NCEMC's board of directors has voted to award a power-supply contract for 200 MW to another supplier beginning on January 1, 1996. If approved by the FERC, the contract will displace 200 MW of baseload capacity that NCEMC currently purchases from the Company. Load reductions beyond the year 2000 are subject to specific limits and require five years advance notice. Issuance of the license for the Walters Plant by the FERC will conclude this matter. 2. (Reference is made to the Company's 1993 Form 10-K, Competition and Franchises, paragraph 1.b., page 7. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1994, Item 5, paragraph 2.) With regard to the petition filed with the North Carolina Utilities Commission (NCUC) by the North Carolina Public Staff (Public Staff), which represents the using and consuming public in matters before the NCUC, proposing interim guidelines to apply to requests for self-generation deferral rates, by order issued May 13, 1994, the NCUC established a docket (Docket No. E-100, Sub 73) to consider the proposed self-generation deferral rates guidelines, and dispersed energy facilities and economic development rates. Initial comments were filed by the Company and other interested parties on June 13, 1994, and reply comments were filed on June 27, 1994. In response to the parties' comments, on July 1, 1994, the Public Staff filed modifications to the proposed self-generation deferral rate guidelines. By order issued July 21, 1994, the NCUC, with limited exceptions, approved and adopted the modified self-generation deferral rate guidelines proposed by the Public Staff. In this order, the NCUC also requested that additional comments regarding economic development rates be filed by October 21, 1994, and stated that the issue of dispersed energy facilities would be addressed on a case by case basis. The guidelines allow the Company to adjust rates to retain certain loads for which self-generation is feasible. 3. (Reference is made to the Company's 1993 Form 10-K, Competition and Franchises, Paragraph 1.b., page 7.) On June 20, 1994, the Company filed with the NCUC an application for permission to change the rates it currently charges AlliedSignal Inc. (Allied) for approximately 16 MW of electricity provided to Allied's Moncure, North Carolina facility. The proposed rates provide value that is consistent with the value Allied would realize if it opted to obtain service by self-generating 11 MW of the electricity required at this facility. If the proposed rates are approved by the NCUC, the Company will continue to serve all of Allied's electrical requirements. The Company cannot predict the outcome of this matter. 4. (Reference is made to the Company's 1993 Form 10-K, Financing Program, paragraph 4, page 10. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1994, Item 5, paragraph 4.) On June 15, 1994, the Company redeemed $122.6 million principal amount of First Mortgage Bonds, Pollution Control Series G due June 15, 2014, at 100% of the principal amount of such bonds plus accrued interest to the date of redemption. 5. (Reference is made to the Company's 1993 Form 10-K, Retail Rate Matters, paragraph 5, page 12.) With regard to the North Carolina retail jurisdiction, the Company's 1994 North Carolina fuel case hearing was held on August 2, 1994. The parties to the fuel proceeding agreed to stipulations that resolved all issues between them in the proceeding. Pursuant to the stipulations, the parties agreed that a net fuel factor of 1.309 cents/kWh will be in effect for the Company for the period September 15, 1994 through September 14, 1995. As part of the stipulations, the Company agreed to forego recovering $5.8 million of the underrecovered fuel expense for the test year ended March 31, 1994. Of this amount, $3.5 million is associated with certain outage time experienced by the Company's Robinson Nuclear Plant, and the remaining $2.3 million relates to the recovery of certain cogeneration fuel costs. The Company cannot predict whether the stipulations will be approved by the NCUC. 6. (Reference is made to the Company's 1993 Form 10-K, Retail Rate Matters, paragraph 6, page 13. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1994, Item 5, paragraph 5.) With regard to the docket the South Carolina Public Service Commission (SCPSC) opened to consider whether the adoption of certain standards set forth in Section 111 of the Energy Policy Act of 1992 (Energy Act) would further the purposes of the Public Utility Regulatory Policies Act (PURPA), by order dated June 22, 1994, the SCPSC approved a stipulation entered into by the Company and the other parties to the proceeding. In that stipulation, the parties agreed that standards similar to those of Section 111 of the Energy Act have already been implemented to the degree necessary, and therefore, the specific standards of Section 111 do not need to be adopted by the SCPSC in order to implement the purposes of PURPA. 7. (Reference is made to the Company's 1993 Form 10-K, Wholesale Rate Matters, paragraph 2.a., page 14.) On August 1, 1994, NCEMC filed a Complaint with the FERC, Docket No. EL94-84, under Section 206 of the Federal Power Act. The Complaint alleges that the wholesale rates the Company charges NCEMC are excessive, and seeks a rate reduction of approximately $38.6 million per year. Although the Company cannot predict the outcome of this matter, it believes NCEMC's allegations are without merit. 8. (Reference is made to the Company's 1993 Form 10-K, Wholesale Rate Matters, paragraph 2.b., page 14.) With regard to the remaining disputed issues relating to North Carolina Eastern Municipal Power Agency's (Power Agency) use of capacity and energy from the South Carolina Public Service Authority (Santee Cooper) and Power Agency's use of a combustion turbine electric generating project, the Company and Power Agency negotiated final Power Coordination Agreements relating to the Santee Cooper and turbine generator transactions, and filed them with the FERC on April 29, 1994. The parties are awaiting FERC action on these filings. The Company cannot predict the outcome of these matters. 9. (Reference is made to the Company's 1993 Form 10-K, Wholesale Rate Matters, paragraph 2.c., page 15.) With regard to the agreement the Company and Power Agency entered into on April 7, 1993 to restructure portions of their contracts covering power supplies and jointly-owned interests in several of the Company's generating units, on July 29, 1994, the FERC accepted the provisions of the agreement that are subject to its jurisdiction. 10. (Reference is made to the Company's 1993 Form 10-K, Wholesale Rate Matters, paragraph 3.b., page 15.) With regard to the wholesale purchase power contract between the Company and the City of Camden, South Carolina, as a result of the contract amendment that was approved by the FERC, effective March 11, 1994, the parties sought a dismissal of the pending state court litigation relating to the proper termination date of the contract. On May 17, 1994, the South Carolina Supreme Court dismissed the litigation. 11. (Reference is made to the Company's 1993 Form 10-K, Wholesale Rate Matters, paragraph 3.c., page 16.) With regard to the new power supply and coordination agreement the Company and the City of Fayetteville's Public Works Commission (Fayetteville PWC) entered into on March 10, 1994, the FERC approved the agreement, subject to one change, on May 12, 1994. On June 13, 1994, the Company and the Fayetteville PWC made a compliance filing with the FERC to effectuate the change. That filing is subject to the FERC's review and acceptance; however, the rates provided for in the power supply and coordination agreement are currently in effect. The Company cannot predict the outcome of this matter. 12. (Reference is made to the Company's 1993 Form 10-K, Wholesale Rate Matters, paragraph 3, page 16.) On July 26, 1994, the Town of Waynesville and the Company entered into a new power supply agreement. The agreement provides that the Company will remain the Town's sole electricity provider for the next ten years. The Town, which serves about 2,800 customers, has a peak load of 15MW. The power supply agreement was filed with the FERC on August 2, 1994 for approval. The Company cannot predict the outcome of this matter. 13. (Reference is made to the Company's 1993 Form 10-K, Environmental Matters, paragraph 3.f., page 18. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1994, Item 5, paragraph 7.) With regard to the Macon-Dockery superfund site located near Cordova, North Carolina, on July 6, 1994, the United States District Court for the Middle District of North Carolina granted the motion Crown Cork & Seal Company and Clark Equipment filed seeking to name the Company as a defendant in an ongoing lawsuit (Civil Action No. 3: 92CV00744). The lawsuit seeks to recover costs incurred in undertaking the Remedial Investigation Feasibility Study and the Remedial Design for the site. Although the Company cannot predict the outcome of this matter, it does not anticipate that costs associated with this site will be material to the results of operations of the Company. 14. (Reference is made to the Company's 1993 Form 10-K, Nuclear Matters, paragraph 4.a., page 21.) With regard to the Company's recovery through rates of nuclear decommissioning costs, in the Company's retail jurisdictions, provisions for nuclear decommissioning costs are approved by the NCUC and the SCPSC, and are based on site-specific estimates that include the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning cost are based on amounts agreed upon in applicable rate settlements. Accumulated decommissioning cost provisions, which are included in accumulated depreciation, were $240.5 million at June 30, 1994, and $201.1 million at June 30, 1993, and include amounts funded internally and amounts funded in an external decommissioning trust. Based on an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate of 4%, provisions for nuclear decommissioning costs are currently adequate to provide for decommissioning of the Company's nuclear facilities. 15. (Reference is made to the Company's 1993 Form 10-K, Nuclear Matters, paragraph 7.d., page 23.) With regard to the Company's Brunswick Nuclear Plant, in a letter dated June 21, 1994, the Nuclear Regulatory Commission (NRC) notified the Company that it was removing the Brunswick Plant from the list of plants receiving increased regulatory scrutiny. In the letter, the NRC cited the "sustained improvement" at the Brunswick Plant and noted the trouble-free performance of Brunswick Unit No. 2 over a sustained period in parallel with the Brunswick Unit No. 1 recovery and restart. The NRC also stated that the "operation of both units have demonstrated the competency of management and the teamwork among staff." The scheduled spring 1994 refueling outage at Brunswick Unit No. 2 was recently completed. During that outage, shroud modifications similar to those performed on Unit No. 1 in 1993 were successfully completed, and Unit No. 2 resumed generating electricity on June 30, 1994. The costs associated with the shroud modifications are not material to the results of operations of the Company. With regard to the allegations concerning the Brunswick Plant shrouds made last fall by two private organizations and an individual, in early June 1994, the NRC issued a statement to the press reporting that the NRC had conducted a preliminary inquiry into the allegations. The NRC determined that there was not enough information available to conduct an investigation. Last fall, the Company conducted an internal technical review of those same allegations shortly after they were first raised and found no evidence to substantiate them. The Company cannot predict the outcome of this matter. 16. (Reference is made to the Company's 1993 Form 10-K, Nuclear Matters, paragraph 7.e., page 24. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1994, Item 5, paragraph 8.) With regard to the fuel assembly and power instrumentation issues the Company identified on November 17, 1993 at its H. B. Robinson Plant Unit No. 2, on May 9, 1994, the NRC issued a Severity Level IV Notice of Violation (the next to the lowest severity level) concluding that this situation involved noncompliance with certain NRC requirements. The NRC did not propose a civil penalty in connection with this matter. In a letter to the NRC dated June 8, 1994, the Company acknowledged that the violations had occurred, clarified the events surrounding the occurrences, and described the corrective actions that had been taken to address the situation. Although the Company cannot predict the outcome of these matters, it does not anticipate further enforcement action by the NRC in connection with these violations. On April 13, 1994, the Company submitted a written response to the Notice of Violation and Proposed Imposition of Civil Penalty that the NRC issued in connection with the degradation of the Robinson Unit No. 2 diesel generators, and paid the assessed $37,500 civil penalty. With regard to the apparent violation of NRC requirements related to inattention to licensed duties at the Robinson Plant, on May 16, 1994, an enforcement conference was held between the Company and the NRC to discuss this matter. On May 30, 1994, the NRC issued a Severity Level IV Notice of Violation to the Company in connection with this matter, but did not propose a civil penalty. In a letter to the NRC dated June 29, 1994, the Company acknowledged that the violation had occurred and described the corrective actions that had been taken to address the occurrence. Although the Company cannot predict the outcome of this matter, it does not anticipate further enforcement action by the NRC in connection with this violation. During the inspections conducted at the Robinson Plant during the period May 22 through June 24, 1994, the NRC identified certain activities that might have violated certain NRC requirements. The activities related to the failure to take adequate corrective action on issues identified by a contractor, inadequate testing of ventilation equipment, and inadequate corrective actions on a design concern involving an isolation valve. An enforcement conference between the Company and the NRC was held on July 26 to determine whether a violation had occurred and if so, to assess the significance of the violation. The NRC may issue a notice of violation and could impose a civil penalty upon the Company in connection with these activities. The Company cannot predict the outcome of this matter. 17. (Reference is made to the Company's 1993 Form 10-K, Part II, Item 5, Market for the Registrant's Common Equity and Related Shareholder Matters, page 32.) On July 13, 1994, the Board of Directors of the Company (Board) authorized the Executive Committee of the Board to repurchase up to 10 million shares of the Company's Common Stock on the open market. The Board indicated that at current stock price levels it was in the best interests of the Company's stockholders for management to have the flexibility to repurchase shares. The Board's action provides flexibility for management to undertake such a program at its discretion, but does not establish a target stock price or timetable for repurchases. On July 21, 1994, the Company began repurchasing shares of its Common Stock on the open market in accordance with the stock repurchase program. Item 6. Exhibits and Reports on Form 8-K ______ ________________________________ (a) Exhibits None. (b) Reports on Form 8-K filed during or with respect to the quarter None. SIGNATURES Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAROLINA POWER & LIGHT COMPANY (Registrant) By: Charles D. Barham, Jr. Executive Vice President By: Paul S. Bradshaw Vice President and Controller (and Principal Accounting Officer) Date: August 10, 1994 EX-99 2 INCOME STATEMENT
Carolina Power & Light Company (ORGANIZED UNDER THE LAWS OF NORTH CAROLINA) INTERIM FINANCIAL STATEMENTS (NOT AUDITED BY INDEPENDENT AUDITORS) JUNE 30, 1994 STATEMENTS OF INCOME (In thousands Three Months Ended Six Months Ended Twelve Months Ended except per share amounts) June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 Operating Revenues..........................................$687,310 $674,591 $1,431,771 $1,382,076 $2,945,077 $2,869,418 -------- -------- ---------- ---------- ---------- ---------- Operating Expenses Operation - fuel for generation........................... 121,505 122,210 251,417 248,829 526,954 541,531 deferred fuel cost (credit), net.............. (5,964) (1,917) (8,215) (3,174) 22,324 (44,849) purchased power............................... 105,814 82,372 217,355 160,074 425,372 345,054 other......................................... 139,266 124,794 270,070 240,382 528,021 454,416 Maintenance............................................... 63,777 65,022 110,736 128,556 217,628 279,925 Depreciation and amortization............................. 109,145 103,851 214,202 207,132 420,716 405,081 Taxes other than on income................................ 36,831 33,470 72,267 67,372 147,765 134,151 Income tax expense........................................ 23,812 35,598 81,310 87,384 183,243 206,936 Harris Plant deferred costs, net.......................... 6,694 4,084 13,172 10,291 30,457 17,930 -------- -------- ---------- ---------- ---------- ---------- Total Operating Expenses............................ 600,880 569,484 1,222,314 1,146,846 2,502,480 2,340,175 -------- -------- ---------- ---------- ---------- ---------- Operating Income............................................ 86,430 105,107 209,457 235,230 442,597 529,243 -------- -------- ---------- ---------- ---------- ---------- Other Income (Expense) Allowance for equity funds used during construction....... 1,838 2,246 4,101 3,911 9,190 8,511 Income tax credit (expense) (Note 2)...................... (1,094) 33 2,489 (869) 2,965 (2,785) Harris Plant carrying costs............................... 2,482 2,530 5,045 5,126 27,063 9,486 Harris Plant disallowance - Power Agency.................. - - - - (20,645) - Interest income (Note 2).................................. 10,108 4,923 11,402 12,659 34,939 25,604 Other income, net (Note 2)................................ 7,525 9,335 14,015 20,892 35,587 39,667 -------- -------- ---------- ---------- ---------- ---------- Total Other Income.................................. 20,859 19,067 37,052 41,719 89,099 80,483 -------- -------- ---------- ---------- ---------- ---------- Income Before Interest Charges.............................. 107,289 124,174 246,509 276,949 531,696 609,726 -------- -------- ---------- ---------- ---------- ---------- Interest Charges Long-term debt............................................ 46,589 52,497 93,965 106,719 192,428 216,140 Other interest charges.................................... 3,486 3,131 7,737 8,780 15,376 17,788 Allowance for borrowed funds used during construction..................................... (1,001) (1,438) (2,232) (2,532) (5,661) (4,437) -------- -------- ---------- ---------- ---------- ---------- Net Interest Charges............................... 49,074 54,190 99,470 112,967 202,143 229,491 -------- -------- ---------- ---------- ---------- ---------- Net Income.................................................. 58,215 69,984 147,039 163,982 329,553 380,235 Preferred Stock Dividend Requirements....................... (2,402) (2,402) (4,804) (4,804) (9,609) (9,609) Tax Benefit of ESOP Dividends............................... - - - - - 7,104 -------- -------- ---------- ---------- ---------- ---------- Earnings for Common Stock...................................$ 55,813 $ 67,582 $ 142,235 $ 159,178 $ 319,944 $ 377,730 ======== ======== ========== ========== ========== ========== Average Common Shares Outstanding (Note 2).................. 151,057 160,737 150,939 160,737 155,878 160,737 Earnings per Common Share (Note 2)..........................$ 0.37 $ 0.42 $ 0.94 $ 0.99 $ 2.05 $ 2.35 Dividends Declared per Common Share.........................$ 0.425 $ 0.410 $ 0.850 $ 0.820 $ 1.685 $ 1.625 _____________________ See Supplemental Data and Notes to Financial Statements.
EX-99 3 BALANCE SHEET
Carolina Power & Light Company BALANCE SHEETS June 30 December 31 (In thousands) 1994 1993 1993 ---- ---- ---- ASSETS Electric Utility Plant Electric utility plant in service......................$ 8,960,319 $ 8,707,382 $ 8,789,518 Accumulated depreciation............................... (3,054,933) (2,766,827) (2,897,832) ------------ ------------ ------------ Electric utility plant in service, net.......... 5,905,386 5,940,555 5,891,686 Held for future use.................................... 13,222 13,284 13,300 Construction work in progress.......................... 244,124 225,767 309,713 Nuclear fuel, net of amortization...................... 199,281 222,019 217,488 ------------ ------------ ------------ Total Electric Utility Plant, Net............... 6,362,013 6,401,625 6,432,187 ------------ ------------ ------------ Current Assets Cash and cash equivalents.............................. 19,254 32,646 23,607 Accounts receivable.................................... 332,829 336,708 321,309 Fuel................................................... 81,735 100,463 62,029 Materials and supplies................................. 118,891 114,334 111,052 Deferred fuel cost..................................... 18,042 40,365 9,827 Prepayments............................................ 44,589 44,223 46,869 Other current assets................................... 15,160 19,098 18,591 ------------ ------------ ------------ Total Current Assets............................ 630,500 687,837 593,284 ------------ ------------ ------------ Deferred Debits and Other Assets Income taxes recoverable through future rates.................................. 381,856 377,312 385,515 Abandonment costs...................................... 85,278 175,308 125,361 Harris Plant deferred costs............................ 136,272 138,528 144,399 Unamortized debt expense............................... 65,726 55,721 63,898 Miscellaneous other property and investments........... 314,163 191,418 264,165 Other assets and deferred debits....................... 190,801 159,258 185,209 ------------ ------------ ------------ Total Deferred Debits and Other Assets.......... 1,174,096 1,097,545 1,168,547 ------------ ------------ ------------ Total Assets.................................$ 8,166,609 $ 8,187,007 $ 8,194,018 ============ ============ ============ CAPITALIZATION AND LIABILITIES Capitalization Common stock equity....................................$ 2,659,859 $ 2,577,637 $ 2,632,116 Preferred stock - redemption not required.............. 143,801 143,801 143,801 Long-term debt, net.................................... 2,527,025 2,567,596 2,584,903 ------------ ------------ ------------ Total Capitalization............................ 5,330,685 5,289,034 5,360,820 ------------ ------------ ------------ Current Liabilities Current portion of long-term debt...................... 227,050 350,000 162,630 Notes payable (principally commercial paper)........... 72,600 30,900 76,000 Accounts payable....................................... 181,116 201,387 293,093 Taxes accrued.......................................... 77,681 82,598 20,913 Interest accrued....................................... 55,070 61,649 54,770 Dividends declared (Note 2)............................ 70,095 70,706 74,111 Other current liabilities.............................. 75,888 70,412 67,510 ------------ ------------ ------------ Total Current Liabilities....................... 759,500 867,652 749,027 ------------ ------------ ------------ Deferred Credits and Other Liabilities Accumulated deferred income taxes...................... 1,580,845 1,518,272 1,585,490 Accumulated deferred investment tax credits............ 257,819 270,607 263,588 Other liabilities and deferred credits................. 237,760 241,442 235,093 ------------ ------------ ------------ Total Deferred Credits and Other Liabilities.... 2,076,424 2,030,321 2,084,171 ------------ ------------ ------------ Commitments and Contingencies (Note 3) Total Capitalization and Liabilities.........$ 8,166,609 $ 8,187,007 $ 8,194,018 ============ ============ ============ SCHEDULES OF COMMON STOCK EQUITY (In thousands) Common stock...........................................$ 1,624,696 $ 1,622,277 $ 1,622,277 Unearned ESOP common stock............................. (211,285) (228,747) (220,725) Capital stock issuance expense......................... (790) (334) (790) Retained earnings...................................... 1,247,238 1,184,441 1,231,354 ------------ ------------ ------------ Total Common Stock Equity.......................$ 2,659,859 $ 2,577,637 $ 2,632,116 ============ ============ ============ _____________________ See Supplemental Data and Notes to Financial Statements.
EX-99 4 STATEMENT OF CASH FLOWS
Carolina Power & Light Company STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Operating Activities Net income............................................... $ 58,215 $ 69,984 $ 147,039 $ 163,982 $ 329,553 $ 380,235 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization.......................... 128,763 116,258 252,404 229,187 483,311 439,635 Harris Plant deferred costs............................ 4,212 1,554 8,127 5,165 3,394 8,444 Harris Plant disallowance - Power Agency .............. - - - - 20,645 - Deferred income taxes.................................. 9,628 4,154 807 13,979 58,181 83,544 Investment tax credit adjustments...................... (2,884) (2,893) (5,768) (5,787) (12,788) (11,088) Allowance for equity funds used during construction.... (1,838) (2,246) (4,101) (3,911) (9,190) (8,511) Deferred fuel cost (credit)............................ (5,964) (1,917) (8,215) (3,174) 22,324 (44,849) Net increase in receivables, inventories and prepaid expenses................................. (46,231) (35,654) (69,314) (69,492) (7,625) (127,892) Net increase (decrease) in payables and accrued expenses............................................. (33,956) 15,300 (26,799) (35,543) (53,269) 36,857 Miscellaneous.......................................... (4,177) 19,070 12,528 38,538 (15,128) (3,288) ------- ------- ------- ------- ------- ------- Net Cash Provided by Operating Activities............. 105,768 183,610 306,708 332,944 819,408 753,087 ------- ------- ------- ------- ------- ------- Investing Activities Gross property additions................................. (55,628) (61,857) (127,941) (143,468) (325,596) (295,845) Nuclear fuel additions................................... (5,815) (20,013) (21,206) (25,943) (43,264) (73,852) Contributions to external decommissioning trust.......... (7,387) (3,639) (13,715) (7,306) (27,287) (14,950) Contributions to retiree benefit trusts.................. - (1,250) (16,000) (1,250) (18,500) (7,917) Loan transactions with SPSP Trustee, net (Note 2)........ - 3,760 - 5,125 16,009 23,836 Allowance for equity funds used during construction...... 1,838 2,246 4,101 3,911 9,190 8,511 ------- ------- ------- ------- ------- ------- Net Cash Used in Investing Activities................. (66,992) (80,753) (174,761) (168,931) (389,448) (360,217) ------- ------- ------- ------- ------- ------- Financing Activities Proceeds from issuance of long-term debt................. 120,339 - 268,325 295,251 555,104 591,308 Net decrease in pollution control bond escrow............ - 1,800 - 2,127 - 3,062 Net increase (decrease) in short-term notes payable (maturity less than 90 days)................... 65,900 30,900 (3,400) (15,900) 41,700 9,500 Retirement of long-term debt............................. (172,616) (204,209) (268,239) (287,060) (771,555) (619,700) Retirement of preferred stock............................ - - - - - (95,950) Dividends paid on common stock (Note 2).................. (64,186) (65,902) (128,172) (131,804) (259,117) (258,786) Dividends paid on preferred stock........................ (2,403) (2,402) (4,814) (4,804) (9,484) (13,730) ------- ------- ------- ------- ------- ------- Net Cash Used in Financing Activities................. (52,966) (239,813) (136,300) (142,190) (443,352) (384,296) ------- ------- ------- ------- ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents....... (14,190) (136,956) (4,353) 21,823 (13,392) 8,574 Cash and Cash Equivalents at Beginning of the Period....... 33,444 169,602 23,607 10,823 32,646 24,072 ------- ------- ------- ------- ------- ------- Cash and Cash Equivalents at End of the Period............. $ 19,254 $ 32,646 $ 19,254 $ 32,646 $ 19,254 $ 32,646 ======= ======= ======= ======= ======= ======= Supplemental Disclosures of Cash Flow Information Cash paid during the period - interest................... $ 43,383 $ 54,745 $ 95,630 $ 110,642 $ 203,789 $ 221,817 income taxes.... 50,675 30,540 52,725 30,252 135,996 85,622 - -------------------- See Supplemental Data and Notes to Financial Statements.
EX-99 5 SUPPLEMENTAL DATA
Carolina Power & Light Company SUPPLEMENTAL DATA Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 Operating Revenues (in thousands) Residential............................. $ 190,017 $ 191,659 $ 452,390 $ 440,027 $ 956,060 $ 910,274 Commercial.............................. 149,520 146,178 293,317 282,820 603,469 581,949 Industrial.............................. 192,686 197,514 359,546 358,970 744,591 736,724 Government and municipal................ 19,582 19,692 39,098 38,361 79,354 78,511 Wholesale - standard rate schedules..... 81,465 76,841 182,663 168,191 368,393 363,397 Power Agency contract requirements...... 31,818 31,282 67,765 70,265 131,759 154,521 Other utilities......................... 11,571 1,788 15,641 4,522 22,350 5,450 Miscellaneous revenue................... 10,651 9,637 21,351 18,920 39,101 38,592 --------- ---------- ---------- ---------- ---------- ---------- Total Operating Revenues.......... $ 687,310 $ 674,591 $1,431,771 $1,382,076 $2,945,077 $2,869,418 ========= ========== ========== ========== ========== ========== Energy Sales (millions of kWh) Residential............................. 2,303 2,332 5,646 5,495 11,549 11,014 Commercial.............................. 2,167 2,155 4,218 4,063 8,703 8,371 Industrial.............................. 3,676 3,420 6,793 6,430 13,919 13,179 Government and municipal................ 304 301 610 598 1,260 1,239 Wholesale - standard rate schedules..... 1,627 1,449 3,327 3,173 7,076 6,627 Power Agency contract requirements...... 804 897 1,451 1,857 3,099 3,972 Other utilities......................... 216 50 334 155 507 184 --------- ---------- ---------- ---------- ---------- ---------- Total Energy Sales................ 11,097 10,604 22,379 21,771 46,113 44,586 ========= ========== ========== ========== ========== ========== Energy Supply (millions of kWh) Generated - coal........................ 5,753 5,852 11,849 12,325 25,330 27,521 nuclear..................... 3,668 3,610 7,051 6,748 13,995 10,687 hydro....................... 232 240 537 586 734 995 combustion turbines......... 28 26 66 31 119 81 Purchased............................... 1,859 1,409 3,816 3,048 7,879 7,237 --------- ---------- ---------- ---------- ---------- ---------- Total Energy Supply (Company Share)................. 11,540 11,137 23,319 22,738 48,057 46,521 ========= ========== ========== ========== ========== ========== Detail of Income Taxes (in thousands) Included in Operating Expenses Income tax expense - current............ $ 18,837 $ 36,099 $ 89,080 $ 83,084 $ 144,618 $ 144,799 Income tax expense - deferred........... 7,859 2,392 (2,002) 10,087 50,219 73,225 Income tax expense - investment tax credit adjustments................ (2,884) (2,893) (5,768) (5,787) (11,594) (11,088) --------- ---------- ---------- ---------- ---------- ---------- Subtotal.......................... 23,812 35,598 81,310 87,384 183,243 206,936 --------- ---------- ---------- ---------- ---------- ---------- Harris Plant deferred costs - deferred... - - - - - (930) Harris Plant deferred costs - investment tax credit adjustments...... (74) (44) (149) (89) 158 (125) --------- ---------- ---------- ---------- ---------- ---------- Subtotal.......................... (74) (44) (149) (89) 158 (1,055) --------- ---------- ---------- ---------- ---------- ---------- Total Included in Operating Expenses.... 23,738 35,554 81,161 87,295 183,401 205,881 --------- ---------- ---------- ---------- ---------- ---------- Included in Other Income Income tax expense (credit) - current... (675) (1,795) (5,298) (3,023) (9,733) (7,534) Income tax expense - deferred........... 1,769 1,762 2,809 3,892 7,962 10,319 Income tax expense - investment tax credit adjustments................. - - - - (1,194) - --------- ---------- ---------- ---------- ---------- ---------- Subtotal.......................... 1,094 (33) (2,489) 869 (2,965) 2,785 Harris Plant carrying costs - deferred.. - - - - - 797 Other income, net - deferred............ - - - - - 18 --------- ---------- ---------- ---------- ---------- ---------- Total Included in Other Income.... 1,094 (33) (2,489) 869 (2,965) 3,600 --------- ---------- ---------- ---------- ---------- ---------- Included in Interest Charges Allowance for borrowed funds used during construction - deferred....... - - - - - 1,205 --------- ---------- ---------- ---------- ---------- ---------- Total Income Tax Expense...... $ 24,832 $ 35,521 $ 78,672 $ 88,164 $ 180,436 $ 210,686 ========= ========== ========== ========== ========== ========== FINANCIAL STATISTICS JUNE 30, 1994 JUNE 30, 1993 ACTUAL PRO FORMA ACTUAL PRO FORMA (Note 2) (Note 2) Ratio of earnings to fixed charges........ 3.26 3.42 3.34 3.53 Return on average common stock equity..... 12.22% 11.28% 15.07% 13.76% Book value per common share (Note 2)...... $ 17.60 N/A $ 17.46 N/A Capitalization ratios Common stock equity................... 49.90% 53.87% 48.74% 53.10% Preferred stock - redemption 2.70 2.70 2.72 2.72 not required......................... 47.40 43.43 48.54 44.18 Long-term debt, net................... ------------ ----------- ----------- ----------- 100.00% 100.00% 100.00% 100.00% Total......................... ============ =========== =========== =========== __________________________ See Notes to Financial Statements.
EX-99 6 NOTES TO FINANCIAL STATEMENTS Carolina Power & Light Company NOTES TO FINANCIAL STATEMENTS 1. Except as described in Note 2 below, these interim financial statements are prepared in conformity with the accounting principles reflected in the financial statements included in the Company's 1993 Annual Report to Shareholders and the 1993 Annual Report on Form 10-K. These are interim financial statements, and because of temperature variations between seasons of the year and the timing of outages of electric generating units, especially nuclear-fueled units, the amounts reported in the Statements of Income for periods of less than twelve months are not necessarily indicative of amounts expected for the year. Certain amounts for 1993 have been reclassified to conform to the 1994 presentation. 2. In January 1994, the Company implemented Statement of Position (SOP) 93-6, "Employers' Accounting for Employee Stock Ownership Plans," on a prospective basis. This SOP requires the following changes in accounting for the Company's leveraged employee stock ownership plan (ESOP): 1) ESOP shares that have not been committed to be released to participants' accounts are no longer considered outstanding for the determination of earnings per common share; 2) dividends on unallocated ESOP shares are no longer recognized for financial statement purposes; 3) all tax benefits of ESOP dividends are now recorded to non-operating income tax expense, whereas previously a portion of the tax benefits was recorded directly to retained earnings; 4) interest income related to the qualified ESOP loan is no longer recognized; and 5) the difference between the acquisition and allocation prices of ESOP shares, which was previously recorded as other income, net, is now recorded directly to common stock. In addition, ESOP loan transactions between the Company and the Stock Purchase-Savings Plan (SPSP) Trustee are no longer reflected in the Statements of Cash Flows. The implementation of SOP 93-6 resulted in an increase in earnings per common share of approximately $.01 for the six months ended June 30, 1994. Selected pro forma statistics, which eliminate the significant capital structure-related impacts of the ESOP feature of the SPSP, are included in Financial Statistics. 3. Contingencies existing as of the date of these statements are described below. No significant changes have occurred since December 31, 1993, with respect to the commitments discussed in Note 9 of the financial statements included in the Company's 1993 Annual Report to Shareholders. a) In the Company's retail jurisdictions, provisions for nuclear decommissioning costs are approved by the North Carolina Utilities Commission and the South Carolina Public Service Commission and are based on site-specific estimates that included the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning cost are based on amounts agreed upon in applicable rate settlements. Accumulated decommissioning cost provisions, which are included in accumulated depreciation, were $240.5 million at June 30, 1994, and $201.1 million at June 30, 1993, and include amounts funded internally and amounts funded in an external decommissioning trust. Based on an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate of 4%, provisions for nuclear decommissioning costs are currently adequate to provide for decommissioning of the Company's nuclear facilities. The Company's most recent site-specific estimates of decommissioning costs were developed in 1993 and are based on prompt dismantlement decommissioning, which reflects the cost of removal of all radioactive and other structures currently at the site. These estimates, in 1993 dollars, are $257.7 million for Robinson Unit No. 2, $284.3 million for the Harris Plant, $235.4 million for Brunswick Unit No. 1 and $221.4 million for Brunswick Unit No. 2. These estimates are subject to change based on a variety of factors including, but not limited to, inflation, changes in technology applicable to nuclear decommissioning, and changes in federal, state or local regulations. The cost estimates exclude the portion attributable to North Carolina Eastern Municipal Power Agency, which holds an undivided ownership interest in certain of the Company's generating facilities. b) There are several manufactured gas plant (MGP) sites to which the Company and certain entities that were later merged into the Company may have had some connection. In this regard, the Company is participating in the North Carolina MGP Group (Group), a group of entities alleged to be former owners or operators of MGP sites. The Group was formed in response to an initiative launched by the North Carolina Department of Environment, Health and Natural Resources, Division of Solid Waste Management (DSWM), to encourage the voluntary assessment and, where necessary, the remediation of MGP sites. The Group and DSWM have entered into a Memorandum of Understanding relative to the establishment of a uniform program and framework for addressing MGP sites for which DSWM has contended that members of the Group have potential responsibility. It is anticipated that the investigation and remediation of specific MGP sites will be addressed pursuant to one or more Administrative Orders on Consent between DSWM and individual potentially responsible parties. In addition, a current owner of property that was the site of one MGP site owned by Tidewater Power Company, which merged into the Company in 1952, and the Company have entered into an agreement to share the cost of investigation and remediation of this site. Due to the lack of information with respect to the operation of MGP sites and the uncertainty concerning questions of liability and potential environmental harm, the extent and cost of required remedial action, if any, and the extent to which liability may be asserted against the Company or against others are not currently determinable. The Company cannot predict the outcome of these matters or the extent to which other former MGP sites may become the subject of inquiry. -----END PRIVACY-ENHANCED MESSAGE-----