-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UGx2cN9QQayCV9rVvx4ckSGpc9Cu++v+qEnaYtd4H9ugtWmpHqVnu3DG0BxaGDVP X3kaRpVeNY09tRpTYOuWLw== 0000017797-98-000004.txt : 19980327 0000017797-98-000004.hdr.sgml : 19980327 ACCESSION NUMBER: 0000017797-98-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAROLINA POWER & LIGHT CO CENTRAL INDEX KEY: 0000017797 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 560165465 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03382 FILM NUMBER: 98574163 BUSINESS ADDRESS: STREET 1: 411 FAYETTEVILLE ST CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9195466111 10-K405 1 FORM 10-K OF CAROLINA POWER & LIGHT COMPANY UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ---------- [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 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) 411 Fayetteville Street North Carolina 56-0165465 Raleigh, North Carolina 27601 - ---------------- ---------- ----------------------- ----- (State or other (I.R.S. Employer (Address of principal (Zip Code) jurisdiction of Identification No.) executive offices) incorporation or organization) 919-546-6111 ------------ (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ----------------------------------------------------------- Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock (Without Par Value) New York Stock Exchange Pacific Stock Exchange Quarterly Income Capital Securities New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: ----------------------------------------------------------- Preferred Stock (Without Par Value, Cumulative) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting common stock held by non-affiliates at February 27, 1998, was $6,318,461,450. Shares of Common Stock (Without Par Value) outstanding at February 27, 1998: 151,340,394. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Company's 1998 definitive proxy statement dated March 30, 1998, are incorporated into Part III, Items 10, 11, 12 and 13 hereof.
TABLE OF CONTENTS Page SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS 3 PART I ITEM 1. BUSINESS 4 General 4 Generating Capability 5 Interconnections with Other Systems 8 Competition 9 Capital Requirements 12 Financing Program 13 Retail Rate Matters 15 Wholesale Rate Matters 17 Environmental Matters 17 Nuclear Matters 20 Fuel 24 Diversified Businesses 26 Other Matters 27 Operating Statistics 29 ITEM 2. PROPERTIES 30 ITEM 3. LEGAL PROCEEDINGS 31 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 32 EXECUTIVE OFFICERS OF THE REGISTRANT 33 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 35 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 36 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 37 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 47 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 70 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 70 ITEM 11. EXECUTIVE COMPENSATION 70 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 70 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 70 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 70
2 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS - ------------------------------------------ The matters discussed throughout this Form 10-K that are not historical facts are forward-looking and, accordingly, involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Examples of forward-looking statements discussed in this Form 10-K, ITEM 1, "BUSINESS", include, but are not limited to, statements under the following headings: 1) "General" relating to forecasted capacity margins over anticipated system peak loads; 2) "Generating Capability" regarding the forecasted system sales growth and planned generation additions schedule; 3) "Interconnections with Other Systems" relating to future energy cost savings resulting from amendments to agreements with Cogentrix and relating to estimated minimum annual payments for long-term purchase contracts; 4) "Competition" regarding the effect on the Company of increased competition at the wholesale level and the likelihood of additional restructuring-related bills being introduced in Congress in 1998; 5) "Capital Requirements" relating to estimated capital requirements for 1998-2000; 6) "Financing Program" relating to expected external funding requirements; 7) "Environmental Matters" relating to future capital expenditures to meet nitrogen oxide emission requirements, emerging regulatory requirements and the materiality of future costs related to environmental matters; 8) "Nuclear Matters" relating to future capital expenditures for modifications at the Company's nuclear units, future increase in low-level radioactive waste disposal costs, materiality of various nuclear-related matters and the date of replacement of the Harris Plant steam generators; 9) "Fuel" regarding the percentages of future coal burn requirements from intermediate and long-term agreements, effect of amendments to the Clean Air Act on the price of low sulfur coal, sufficiency of existing uranium contracts and regarding total decontamination and decommissioning fund fees expected to be paid; and 10) "Diversified Businesses" relating to future services to be provided by Interpath Communications, Inc., future investments in affordable housing and Strategic Resource Solutions Corp.'s enhanced ability to deliver energy-management products. In addition, examples of forward-looking statements discussed in this Form 10-K, ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", include, but are not limited to, statements under the following headings: 1) "Liquidity and Capital Resources" about estimated capital requirements and 2) "Other Matters" about the effects of new environmental regulations, nuclear decommissioning costs, the effect of deregulation and the outcome of the Year 2000 compliance. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made. Examples of factors that should be considered with respect to any forward-looking statements made throughout this document include, but are not limited to, the following: Governmental policies and regulatory actions (including those of the Federal Energy Regulatory Commission, the Environmental Protection Agency, the Nuclear Regulatory Commission, the Department of Energy, the North Carolina Utilities Commission and the South Carolina Public Service Commission); general industry trends; operation of nuclear power facilities; nuclear storage facilities; nuclear decommissioning costs; general economic growth; weather conditions and catastrophic weather-related damage; deregulation; market demand for energy; inflation; capital market conditions; unanticipated changes in operating expenses and capital expenditures and legal and administrative proceedings. All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond the control of the Company. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the effect of each such factor on the Company. 3 PART I ITEM 1. BUSINESS - ------- -------- GENERAL - ------- 1. Company. Carolina Power & Light Company (the Company) is a public -------- service corporation formed under the laws of North Carolina in 1926, and is primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North and South Carolina. The Company had approximately 6,900 employees at December 31, 1997. The principal executive offices of the Company are located at 411 Fayetteville Street, Raleigh, North Carolina 27601, telephone number: 919-546-6111. 2. Franchises. The Company is a regulated public utility and holds ----------- franchises to the extent necessary to operate in the municipalities and other areas it serves. 3. Service. -------- a) The territory served, an area of approximately 30,000 square miles, includes a substantial portion of the coastal plain of North Carolina extending to the Atlantic coast between the Pamlico River and the South Carolina border, the lower Piedmont section of North Carolina, an area in northeastern South Carolina and an area in western North Carolina in and around the City of Asheville. The estimated total population of the territory served is approximately 3.8 million. b) The Company provides retail electricity in over 200 communities, each having an estimated population of 500 or more, and at wholesale to North Carolina Eastern Municiple Power Agency consisting of 32 members, 3 municipalities, French Broad Electric Membership Corporation and North Carolina Electric Membership Corporation consisting of 27 members (17 of which are served by the Company's system). At December 31, 1997, the Company was furnishing electric service to approximately 1,153,000 customers. 4. Sales. During 1997, 33% of operating revenues were derived from ------ residential sales, 21% from commercial sales, 24% from industrial sales, 13% from wholesale sales and 9% from other sources. Of such operating revenues, approximately 68% were derived from North Carolina retail customers, 13% from South Carolina retail customers, 13% from North Carolina wholesale customers, less than 1% from South Carolina wholesale customers and 6% from sales to other utilities and other sources. 5. Peak Demand. ------------ a) A 60-minute system peak demand record of 10,156 megawatts (MW) was reached on August 14, 1995. At the time of this peak demand, the Company's capacity margin, based on installed capacity (less unavailable capacity) and scheduled firm purchases and sales, was approximately 7.0%. b) Total system peak demand for 1995 increased by .12%, for 1996 decreased by 3.4%, and for 1997 increased by 2.2%, as compared with the preceding year. The Company currently projects that system peak demand will increase at an average annual growth rate of approximately 2.6% over the next ten years. The year-to-year change in actual peak demand is influenced by the specific weather conditions during those years and may not exhibit a consistent pattern. Total system load 4 factors, expressed as the ratio of the average load supplied to the peak load demand, for the years 1995-1997 were 59.2%, 60.8% and 60.6%, respectively. The Company forecasts capacity margins of 9.6% over anticipated system peak load for 1998 and 9.6% for 1999. This forecast assumes normal weather conditions in each year consistent with long-term experience, and is based upon the rated Maximum Dependable Capacity of generating units in commercial operation and scheduled firm purchases of power. See PART I, ITEM 1, "Generating Capability" and "Interconnections With Other Systems". However, some of the generating units included in arriving at these capacity margins may be unavailable as a result of scheduled outages, environmental modifications or unplanned outages. See PART I, ITEM 1, "Environmental Matters" and "Nuclear Matters". The data contained in this paragraph includes North Carolina Eastern Municipal Power Agency's (Power Agency) load requirements and capability from its ownership interests in certain of the Company's generating facilities. See PART I, ITEM 1, "Generating Capability", paragraph 1. GENERATING CAPABILITY - --------------------- 1. Facilities. At December 31, 1997, the Company had a total system ----------- installed generating capability (including Power Agency's share) of 9,853 MW, with generating capacity provided primarily from the installed generating facilities listed in the table below. The Maximum Dependable Capacity of the Company's Brunswick Nuclear Plant was increased by 110 MW effective January 1, 1998. The remainder of the Company's generating capacity is composed of 53 coal, hydro and combustion turbine units ranging in size from a 2.5 MW hydro unit to a 78 MW coal-fired unit. Pursuant to certain agreements with the Company, Power Agency, which is comprised of former North Carolina municipal wholesale customers of the Company and Virginia Electric and Power Company (Virginia Power), has acquired undivided ownership interests of 18.33% in Brunswick Unit Nos. 1 and 2, 12.94% in Roxboro Unit No. 4 and 16.17% in Harris Unit No. 1 and Mayo Unit No. 1 (collectively, the Joint Facilities). Of the total system installed generating capability of 9,853 MW, 54% is coal, 31% is nuclear, 2% is hydro and 13% is fired by other fuels including No. 2 oil, natural gas and propane. MAJOR INSTALLED GENERATING FACILITIES AT DECEMBER 31, 1997
Year Maximum Commercial Dependable Plant Location Unit No. Operation Primary Fuel Capacity - -------------- -------- ---------- ------------ ------------ Asheville 1 1964 Coal 198 MW (Skyland,N.C.) 2 1971 Coal 194 MW Cape Fear 5 1956 Coal 143MW (Moncure, N.C.) 6 1958 Coal 173MW Darlington County Plant 12 1997 Gas/Oil 120MW (Hartsville, S.C.) 13 1997 Gas/Oil 120MW H.F. Lee 1 1952 Coal 79MW (Goldsboro, N.C.) 2 1951 Coal 76MW 3 1962 Coal 252MW 5 H.B. Robinson 1 1960 Coal 174MW (Hartsville, S.C.) 2 1971 Nuclear 683MW Roxboro 1 1966 Coal 385MW (Roxboro, N.C.) 2 1968 Coal 670MW 3 1973 Coal 707MW 4 1980 Coal 700MW L.V. Sutton 1 1954 Coal 97MW (Wilmington, N.C.) 2 1955 Coal 106MW 3 1972 Coal 410MW Brunswick 1 1977 Nuclear 767MW (Southport, N.C.) 2 1975 Nuclear 754MW Mayo 1 1983 Coal 745MW (Roxboro N.C.) Harris 1 1987 Nuclear 860MW (New Hill, N.C.) Facilities are jointly owned by the Company and Power Agency, and the capacity shown includes Power Agency's share.
2. Maintenance of Properties. The Company maintains all of its properties -------------------------- in good operating condition in accordance with sound management practices. The average life expectancy for rate making and accounting purposes of the Company's generating facilities (excluding combustion turbine units and hydro units) is approximately 40 years from the date of commercial operation. 3. Generation Additions Schedule. The Company's energy and load forecasts ------------------------------ were revised in December 1997. Over the next ten years, system sales growth is forecasted to average approximately 2.6% per year and annual growth in system peak demand is projected to average approximately 2.6%. The Company's generation additions schedule, which is updated annually, provides for the addition of 2,887 megawatts of combustion turbine capacity and 3,600 megawatts of combined cycle capacity over the period 1998 to 2011. Additions planned through 2003 are discussed below. a) The Company received a Certificate of Public Convenience and Necessity from the North Carolina Utilities Commission (NCUC) on March 21, 1996 granting permission to construct approximately 500 MW of combustion turbine capacity adjacent to the Company's Lee Steam Electric Plant in Wayne County, North Carolina. The units will primarily be used during periods of summer and winter peak demands. Under the current schedule for the combustion turbine capacity, construction is to begin in August 1998. Commercial operation is anticipated to begin in June 2000, with the aggregate cost of these units expected to approximate $130 million. In the interim, peaking requirements will be met with power purchases. b) The Company issued a Notice of Inquiry (NOI) on March 12, 1996 concerning short-term power purchases for the peak winter months of 1998-1999 and the peak summer months of 1998. The 6 NOI was sent to a number of electric utilities, independent power producers and power marketers. The Company received a number of bids, which resulted in contract purchases for the summer of 1998. c) In June 1996, the Company issued Requests for Proposal (RFP) for purchased power of 700 to 1,000 MW of capacity to meet the Company's future generation needs in its service territory and to replace contract purchases terminating in 1998-1999. The Company projected a need of approximately 200 to 350 MW in its western service territory, and approximately 350 to 650 MW in its eastern service territory. The capacity was requested to be available for delivery by June 1, 1999. Proposals were invited from all potential suppliers who were capable of meeting the conditions of the RFP. In January 1997 the Company decided, based on the proposals received, to purchase approximately one-third of the necessary peaking capacity, and on July 14, 1997, the Company and PECO Power Team, a division of PECO Energy Co. (PECO), announced an agreement for the Company to purchase up to 300 megawatts of peaking power from PECO for the summer periods of 1999 to 2003. The other two-thirds of capacity for 1999 will be supplied by a combination of short-term purchases, and power from the Buncombe County combustion turbine, as described in paragraph 3.e. below. d) In April 1997, the Company issued a RFP for purchased power of 400 to 800 MW of capacity to meet the Company's future generation needs beginning in the years 2000 and 2001. Proposals were invited from all potential suppliers who were capable of meeting the conditions of the RFP. On July 30, 1997, 11 proposals were received from 9 bidders, offering approximately 2,300 MW of capacity. The Company is continuing to evaluate the proposals. e) Due to increased economic activity and load growth in its western service territory, on September 4, 1996, the Company filed with the NCUC its preliminary plans to construct approximately 320 MW of combustion turbine generating capacity in Buncombe County, North Carolina at the Company's existing Asheville Steam Electric Plant, with an in-service date of the summer of 1999. Pursuant to those plans, on January 31, 1997, the Company filed with the NCUC an Application for a Certificate of Public Convenience and Necessity for one combustion turbine unit of approximately 160 MW at the Asheville Plant. A Certificate of Public Convenience and Necessity was issued by the NCUC on August 1, 1997, to construct the combustion turbine unit. On August 15, 1997, the Company contracted with General Electric Company to manufacture and install this combustion turbine unit. The expected in-service date is June 1999. (This turbine, along with certain power purchases described in paragraph 3.c. above, will satisfy the Company's anticipated future generation needs in its western service territory. As a result, plans to construct the additional 160 MW of combustion turbines in Buncombe County have been indefinitely postponed.) The Company cannot predict the outcome of this matter. 7 INTERCONNECTIONS WITH OTHER SYSTEMS - ----------------------------------- 1. Interconnections. The Company's facilities in Asheville and vicinity ----------------- are integrated into the total system through the facilities of Duke Energy Corporation (Duke) via interconnection agreements that permit transfer of power to and from the Asheville area. The Company also has major interconnections with the Tennessee Valley Authority (TVA), Appalachian Power Company (APCO), Virginia Power, South Carolina Electric and Gas Company (SCE&G), South Carolina Public Service Authority (SCPSA) and Yadkin, Inc. (Yadkin). Major interconnections include 115 kV and 230 kV ties with SCE&G and SCPSA; 115 kV, 230 kV and 500 kV ties with Duke and Virginia Power; a 115 kV tie with Yadkin; a 161 kV tie with TVA; and three 138 kV ties and one 230 kV tie with APCO. See paragraph 3.b. below. 2. Interchange and Power Purchase/Sale Agreements. ----------------------------------------------- a) The Company has interchange agreements with APCO, Duke, SCE&G, SCPSA, TVA, Virginia Power and Yadkin which provide for the purchase and sale of power for hourly, daily, weekly, monthly or longer periods. In addition to the interchange agreements, the Company has executed individual purchase agreements and sales agreements with more than 100 companies beyond the Virginia-Carolinas Subregion described in paragraph 2.b. below. Purchases and sales under these agreements may be made due to economic or reliability considerations. By letter dated May 24, 1996, the Company provided Duke with written notice that effective June 1, 1999, it will terminate Schedule G to the Interchange Agreement between the Company and Duke. Schedule G provides for the wheeling of electricity between the Company's eastern area and its western area. By letter dated December 30, 1996, Duke provided the Company with written notice that effective December 31, 1999, it will terminate the Standby Concurrent Exchange Agreement (Standby Agreement) between the Company and Duke. The Standby Agreement provides for the simultaneous exchange of up to 70 MW of electricity during periods of scheduled maintenance or breakdown. On December 31, 1996, pursuant to the Federal Energy Regulatory Commission (FERC) Order 888, which directs that no bundled economy energy coordination transactions occur after December 31, 1996, the Company submitted to the FERC a compliance filing to unbundle transmission charges from rate schedules that are applicable to the power sales agreements between the Company and others. See PART I, ITEM 1, "Competition", paragraph 2, for further discussion of the FERC Order 888. b) The Virginia-Carolinas Subregion of the Southeastern Electric Reliability Council is made up of the Company, Duke, Nantahala Power & Light Company, SCE&G, SCPSA, Virginia Power, Southeastern Power Administration and Yadkin. Electric service reliability is promoted by arrangements among the members of electric reliability organizations at the subregional level. 3. Long-Term Purchase Power Contracts. ----------------------------------- a) In March 1987, the Company entered into an agreement with Duke, which has been accepted by the FERC, whereby Duke would provide 400 MW of firm capacity to the Company's system over the period January 1, 1992, through December 31, 1997. Pursuant to an amendment of the contract, 8 commencement of the purchase of power by the Company was delayed until July 1993 and termination was extended through June 1999. The estimated minimum annual payment for power purchases under the six-year agreement is approximately $48 million, representing capital-related capacity costs. Purchases under this agreement, including transmission use charges, totaled $69.5 million in 1997. b) The Company has entered into an agreement, which has been approved by the FERC, with APCO and Indiana Michigan Power Company (Indiana Michigan), operating subsidiaries of American Electric Power Company, to upgrade a transmission interconnection with APCO in the Company's western service area, establish a new interconnection in the Company's eastern service area and purchase 250 MW of generating capacity from Indiana Michigan's Rockport Unit No. 2 through 2009. The upgrade to the transmission interconnection in the Company's western service area was completed in 1992, and the Company recently announced plans to upgrade an existing 138 kV transmission line between Person County, North Carolina and Danville, Virginia, rather than establish a new interconnection in its eastern service area. The upgrade is currently expected to be completed by mid-1998. The estimated minimum annual payment for power purchases under the agreement is approximately $31 million, representing capital-related capacity costs. In 1997, purchases under this agreement, including transmission use charges, totaled $61.9 million. c) In 1996, the Company agreed with Cogentrix of North Carolina, Inc. and Cogentrix Eastern Carolina Corporation (collectively referred to as Cogentrix) to amend electric power purchase agreements related to five plants owned by Cogentrix. The amendments, which became effective on September 26, 1996, permit the Company to dispatch the output of the five plants. In return, the Company gave up its right to purchase two of the five plants in 1997. As a result of the amendments, energy cost savings are expected during each of the years 1997 through 2002. 4. Power Agency. Pursuant to the terms of a 1981 Power Coordination -------------- Agreement, as amended, between the Company and Power Agency, the Company is obligated to purchase a percentage of Power Agency's ownership capacity of, and energy from, the Mayo and Harris Plants through 1997 and 2007, respectively. The buyback period ended in 1997 for Mayo. The Harris Plant buyback will continue through 2007. The estimated minimum annual payments for these purchases, representing capital-related capacity costs, total approximately $26 million. Purchases under the agreement with Power Agency totaled $36.2 million in 1997. COMPETITION - ----------- 1. General ------- In recent years, the electric utility industry has experienced a substantial increase in competition at the wholesale level, caused by changes in federal law and regulatory policy. Several states have also decided to deregulate aspects of retail electric service. The issue of retail deregulation and competition is being reviewed by a number of states and bills have been introduced in Congress that seek to introduce retail deregulation in all states. Allowing increased competition in the generation and sale of electric power will require resolution of many complex issues. One of the major issues to be resolved is who will pay for stranded costs (those costs and investments made by utilities in order to meet their statutory obligation to provide electric service) if the market price of electricity following industry restructuring is not sufficient to cover those costs. The amount of such stranded costs the Company might experience would depend on the timing of, and the 9 extent to which, direct competition is introduced, and the then-existing market price of energy. If electric utilities were no longer subject to cost-based regulation and it were not possible to recover stranded costs, the results of operations and financial position of the Company would be adversely affected. 2. Wholesale Competition ---------------------- Since passage of the National Energy Act of 1992 (Energy Act), competition in the wholesale electric utility industry has significantly increased due to greater participation by traditional electricity suppliers, wholesale power marketers and brokers, and due to the trading of energy futures contracts on various commodities exchanges. This increased competition could affect the Company's load forecasts, plans for power supply and wholesale energy sales and related revenues. The impact could vary depending on the extent to which additional generation is built to compete in the wholesale market, new opportunities are created for the Company to expand its wholesale load, or current wholesale customers elect to purchase from other suppliers after existing contracts expire. To assist in the development of wholesale competition, the FERC, in 1996, issued standards for wholesale wheeling of electric power through its rules on open access transmission and stranded costs and on information systems and standards of conduct (Orders 888 and 889). The rules require all transmitting utilities to have on file an open access transmission tariff, which contains provisions for the recovery of stranded costs and numerous other provisions that could affect the sale of electric energy at the wholesale level. The Company filed its open access transmission tariff with the FERC in mid-1996. Shortly thereafter, Power Agency and other entities filed protests challenging numerous aspects of the Company's tariff and requesting that an evidentiary proceeding be held. The FERC set the matter for hearing and set a discovery and procedural schedule. In July 1997, the Company filed an offer of settlement in this matter. The administrative law judge certified the offer to the full FERC in September 1997. The offer is pending before the FERC. The Company cannot predict the outcome of this matter. In November 1997, the Company applied to the FERC for authority to sell power at market-based rates. In January 1998, the FERC issued an order accepting the Company's application and permitting the Company to sell power at market-based rates. 3. Retail Competition ------------------ The Energy Act prohibits the FERC from ordering retail wheeling - transmitting power on behalf of another producer to an individual retail customer. Several states, including California and Pennsylvania, have changed their laws and regulations to allow retail electric customers to buy power from suppliers other than the local utility. Other states are considering similar changes, and some have instituted experimental programs to allow a limited number of customers to select electric suppliers. These changes and proposals have taken differing forms and included disparate elements. The Company believes changes in existing laws in both North and South Carolina would be required to permit competition in the Company's retail jurisdictions. 10 4. North Carolina Activities ------------------------- Since 1995, the NCUC has been considering the impact of increased competition in the electric industry. In May 1996, the NCUC issued an order stating that the FERC Orders 888 and 889 would provide a new focus for NCUC proceedings with respect to competition in the electric industry. As a result, the NCUC held Docket No. E-100, Sub 77, which concerned retail competition, in abeyance pending further order and established a new docket (Docket No. E-100, Sub 78) to address the FERC Orders 888 and 889. The NCUC has received several rounds of comments in this docket; the Company filed its most recent comments and reply comments in November 1997 and December 1997, respectively. The Company cannot predict the outcome of this matter. In April 1997, the North Carolina General Assembly (General Assembly) approved legislation establishing a 23-member study commission to evaluate the future of electric service in the state. The commission is comprised of 12 state legislators, two residential customers, two industrial customers, a commercial customer, a power marketer, an environmentalist and representatives from each of the four major power suppliers in the state. The commission is examining a wide range of issues related to the cost and delivery of electric service. The commission will make an interim report to the 1998 General Assembly and a final report in 1999. The Company cannot predict the outcome of this matter. 5. South Carolina Activities ------------------------- In February 1997, representatives in the South Carolina General Assembly introduced a bill calling for a transition to full competition in the electric utility industry beginning in 1998. No action was taken on this bill. In addition, by letter dated May 6, 1997, the Speaker of the South Carolina House of Representatives requested that the South Carolina Public Service Commission (SCPSC) prepare a proposal for the deregulation and restructuring of electricity in South Carolina. On February 3, 1998, the SCPSC issued a report to the South Carolina General Assembly recommending caution and more study on the issue of deregulation. The report outlines a five-year transition plan that it recommends be followed if the South Carolina legislators decide to go forward with deregulation. The South Carolina General Assembly's Utility Subcommittee has completed six hearings around the state in order to receive citizen input on the deregulation issue. The subcommittee will continue to meet. The Company cannot predict the outcome of this matter. 6. Federal Activities ------------------ Numerous bills were introduced in the 105th Congress concerning the restructuring of the electric utility industry. Key provisions of the bills vary widely. Committee Chairs have held workshops and hearings to discuss various aspects of restructuring. No legislation was passed during the 1997 session of Congress, and more restructuring-related bills are expected to be introduced in Congress during 1998. The Company cannot predict the outcome of this matter. 7. Company Activities ------------------ The developments described above have created greater planning uncertainty and risks for the Company. The Company has been addressing these risks by securing long-term contracts with its wholesale customers and by continuing to work to meet the energy needs of its industrial customers. To position itself to better address these risks, the Company internally organized into separate business units in early 1998. The 11 business units include Energy Supply, Energy Delivery and Retail Sales and Services. The focus of these business units will be to further the development of a corporate culture that is necessary to compete in a deregulated environment. Other elements of the Company's strategy to respond to the changing market for electricity include promoting economic development, implementing new marketing strategies, improving customer satisfaction and increasing the focus on managing and reducing costs (and, consequently, avoiding future rate increases). In late 1996, the Company and North Carolina Electric Membership Corporation (NCEMC) entered into a revised Power Coordination Agreement (PCA) under which NCEMC will receive discounted capacity in exchange for long-term commitments to the Company for its supplemental power. As a result of this revised agreement, the Company provided 100 MW of baseload power to NCEMC in 1997, and will provide a block of 225 MW from 1998 to 2010, an additional block of 225 MW from 2000 to 2004 and a third block of 225 MW from 2001 to 2008. The remainder of the NCEMC capacity provided by the Company, not separately contracted for in the revised agreement, will be billed at fixed rates through the year 2003, rather than at the formula rates established in the original PCA. The FERC has accepted the revised PCA. When NCEMC seeks future supplies, the Company will respond and expects to remain competitive in the pursuit and retention of wholesale load. In August 1996, Power Agency notified the Company of its intention to discontinue certain contractual purchases of power from the Company effective September 1, 2001. Power Agency's notice indicated that it intends to replace these contractual obligations through purchases of capacity and energy and related services in the open market, and that the Company will be considered as a potential supplier for those purchases. Under the 1981 Power Coordination Agreement, as amended, between the Company and Power Agency, Power Agency can reduce its purchases from the Company with an appropriate five-year notice. The Company and Power Agency have agreed on a process for determining the sufficiency of the August 1996 notice. The Company cannot predict the outcome of this matter. As a regulated entity, the Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (SFAS-71). Accordingly, the Company records certain regulatory assets and liabilities resulting from the effects of the ratemaking process. These assets and liabilities would not be recorded under generally accepted accounting principles for unregulated entities. The Company's ability to continue to meet the criteria for application of SFAS-71 may be affected in the future by competitive forces, deregulation and restructuring in the electric utility industry. In the event that SFAS-71 no longer applied to a separable portion of the Company's operations, related regulatory assets and liabilities would be eliminated unless an appropriate regulatory recovery mechanism is provided. Additionally, these factors could result in an impairment of electric utility plant assets as determined pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." CAPITAL REQUIREMENTS - -------------------- Capital Requirements. During 1997 the Company expended approximately ---------------------- $549 million for capital requirements. Estimated capital requirements for 1998 through 2000 primarily reflect construction expenditures that will be made to meet customer growth by adding generating, transmission and distribution facilities, as well as upgrading existing facilities. The Company's capital requirements, excluding expenditures of diversified businesses, for those years are reflected in the following table (in millions). 12
1998 1999 2000 ----- ----- ----- Construction Expenditures $398 $494 $526 Nuclear Fuel Expenditures 93 83 96 AFUDC (6) (5) (7) ----- ----- ----- Net Expenditures 485 572 615 Mandatory Retirements of Long-Term Debt 208 53 197 TOTAL $693 $625 $812 - ----- ===== ===== ===== Reflects reductions of approximately $11 million, $18 million and $7 million for 1998, 1999 and 2000, respectively, in net capital requirements resulting from Power Agency's projected payment of its ownership share of capital expenditures related to the Joint Facilities.
This table includes Clean Air Act expenditures of approximately $32 million, and generating facility addition expenditures of approximately $405 million. The generating facility addition expenditures will primarily be used to construct new combustion turbine units, which are intended for use during periods of high demand. These units are scheduled to be placed in service during 1999 through 2002. See PART I, ITEM 1, "Environmental Matters", paragraph 2, and "Generating Capability," paragraph 3, for further discussion of the impact of the Clean Air Act on the Company and planned generation additions, respectively. In addition, total projected cash requirements of diversified businesses for the years 1998 through 2000 approximate $362 million. These expenditures include affordable housing investments, telecommunications infrastructure development, acquisitions and other capital requirements of the Company's diversified businesses. These projections are periodically reviewed and may change significantly. FINANCING PROGRAM - ----------------- 1. Financing Requirements. Based on the Company's most recent estimate of ----------------------- capital requirements, external funding requirements, which do not include early redemptions of long-term debt or redemptions of preferred stock, are expected to approximate $220 million in 1998. These funds will be required for construction, mandatory retirements of long-term debt and general corporate purposes, including the repayment of short-term debt. The Company expects to have external funding requirements of $100 million and $200 million in 1999 and 2000, respectively. The amount and timing of future sales of the Company's securities will depend upon market conditions and the specific needs of the Company. The Company may from time to time sell securities beyond the amount needed to meet capital requirements in order to allow for the early redemption of long-term debt, the redemption of preferred stock, the reduction of short-term debt or for other general corporate purposes. See PART II, ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", for further analysis and discussion of the Company's financing plans and capital resources and liquidity. 13 2. SEC Filings. ------------ a) The Company has on file with the Securities and Exchange Commission (SEC) a shelf registration statement (File No. 33-57835), under which $250 million principal amount of first mortgage bonds and $125 million principal amount of first mortgage bonds and/or unsecured debt securities of the Company remain available for issuance. b) The Company has on file with the SEC a shelf registration statement (File No. 33-5134) enabling the Company to issue up to $180 million of Serial Preferred Stock. 3. Issuances of Bonds, Preferred Stock and Debentures. --------------------------------------------------- External financings during 1997 included: The issuance on August 26, 1997, of $200 million principal amount of First Mortgage Bonds, 6.80% Series due on August 15, 2007. The net proceeds of approximately $199 million were used to reduce the outstanding balance of commercial paper and other short-term debt and for other general corporate purposes. 4. Redemptions/Retirements of Bonds, Preferred Stock and Debentures. ----------------------------------------------------------------- Redemptions and retirements during 1997 included: a) The retirement on January 24, 1997, of $60 million principal amount of First Mortgage Bonds, 7.75% Secured Medium-Term Notes, Series C, which matured on that date. b) The redemption on July 1, 1997, of all 500,000 shares of Serial Preferred Stock, $7.72 Series, at a redemption price of $101.00 per share. c) The redemption on July 1, 1997, of all 350,000 shares of Serial Preferred Stock, $7.95 Series, at a redemption price of $101.00 per share. d) The retirement on October 1, 1997, of $40 million principal amount of First Mortgage Bonds, 6-3/8% Series, which matured on that date. 5. Credit Facilities. As of December 31, 1997, the Company's revolving ------------------- credit facilities totaled $515 million, substantially all of which are long-term agreements supporting its commercial paper borrowings. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. Consistent with management's intent to maintain a portion of its commercial paper on a long-term basis, and as supported by its long-term revolving credit facilities, the Company has included in its long-term debt $245.9 million of commercial paper outstanding as of December 31, 1997. See PART II, ITEM 8, "CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", Note 3, for a more detailed discussion of the Company's revolving credit facilities. 14 RETAIL RATE MATTERS - ------------------- 1. General. The Company is subject to regulation in North Carolina by the -------- NCUC and in South Carolina by the SCPSC with respect to, among other things, rates and service for electric energy sold at retail, retail service territory and issuances of securities. 2. Current Retail Rates. The rates of return granted to the Company in its --------------------- most recent general rate cases are as follows: 1988 North Carolina Utilities Commission Order (test year ended March 31, 1987) - -------------------------------------------------------------------------------
Capital Weighted Weighted Capital Structure Ratio Cost Rate Cost - ----------------- ------- --------- -------- Long-Term Debt 48.57% 8.62% 4.19% Preferred Stock 7.43 8.75 .65 Common Equity 44.00 12.75 5.61 ----- Rate of Return 10.45% =====
1988 South Carolina Public Service Commission Order (test year ended September 30, 1987) - -------------------------------------------------------------------------------
Capital Weighted Weighted Capital Structure Ratio Cost Rate Cost - ----------------- ------- --------- -------- Long-Term Debt 47.82% 8.62% 4.12% Preferred Stock 7.46 8.75 .65 Common Equity 44.72 12.75 5.71 ----- Rate of Return 10.48% =====
A petition was filed on July 19, 1996 by the Carolina Industrial Group for Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an investigation of the Company's base rates or treat its petition as a complaint against the Company (Docket No. E-2, Sub. 699). The petition alleged that the Company's return on equity (which was authorized by the NCUC in the Company's last general rate proceeding in 1988), and earnings are too high. By order dated December 6, 1996, the NCUC approved the Company's proposal to accelerate amortization of certain regulatory assets over a three year period beginning January 1, 1997. The accelerated amortization of these regulatory assets reduced income by approximately $43 million, after tax, in each of the 3 years. The NCUC also authorized the Company to defer operation and maintenance expenses associated with Hurricane Fran. On December 27, 1996, the NCUC issued an order denying CIGFUR's petition and stating that it tentatively found no reasonable grounds to proceed with CIGFUR's petition as a complaint. On January 10, 1997, CIGFUR filed a motion for reconsideration with the NCUC, to which the Company responded on January 23, 1997. On February 6, 1997, the NCUC issued an order denying CIGFUR's motion for reconsideration. On February 25, 1997, CIGFUR filed a Notice of Appeal of the NCUC order with the North Carolina Court of Appeals. The Company filed its brief with the North Carolina Court of Appeals on July 18, 1997, and oral argument was held before the North Carolina Court of Appeals on November 19, 1997. The Company cannot predict the outcome of this matter. 15 3. Integrated Resource Planning. Integrated resource planning is a process ----------------------------- that systematically compares all reasonably available resources, both demand-side and supply-side, in order to develop that mix of resources that allows a utility to meet customer demand in a cost-effective manner, giving due regard to system reliability, safety and the environment. In the past, utilities were required to file their Integrated Resource Plans (IRP) with the NCUC and the SCPSC once every three years. The Company regularly reviews its IRP in light of changing conditions and evaluates the impact these changes have on its resource plans, including purchases and other resource options. By Order issued September 16, 1997, the NCUC initiated a rulemaking proceeding regarding its existing IRP process. By order issued January 27, 1998, the NCUC notified all interested parties that given the pending rulemaking the utilities should not anticipate an IRP filing in 1998 under the current IRP rules. The NCUC stated that an IRP filing may be required later in 1998, but if such a filing is required, the utilities will be given sufficient time to prepare such a filing. The utility companies operating in South Carolina have filed a petition with the SCPSC to revise and streamline the South Carolina IRP process. The Company cannot predict the outcome of these matters. 4. Fuel Cost Recovery. ------------------- a) In the North Carolina retail jurisdiction, the NCUC establishes base fuel costs in general rate cases and holds hearings annually to determine whether a rider should be added to base fuel rates to reflect increases or decreases in the cost of fuel and the fuel cost component of purchased power as well as changes in the fuel cost component of sales to other utilities. The NCUC considers the changes in the Company's cost of fuel during a historic test period ending March 31 of each year and corrects any past over- or under-recovery. On June 5, 1997, the Company filed its 1997 application proposing to lower the Company's billing fuel factor from 1.109 cents/kWh to 1.097 cents/kWh. The fuel factor hearing was held on August 5, 1997 and the NCUC issued a final order approving the billing fuel factor of 1.097 cents/kWh on September 8, 1997. This new factor became effective on September 15, 1997. b) In the South Carolina retail jurisdiction, fuel rates are set by the SCPSC. At the fuel hearings, any past over- or under-recovery of fuel costs is taken into account in establishing the new rate. On February 25, 1998, the Company filed a proposal with the SCPSC to continue the existing fuel factor of 1.122 cents/kWh. In accordance with the modified fuel cost recovery statute, the Company's South Carolina fuel proceeding was held on March 25, 1998. The approved fuel factor will be effective for the period April 1, 1998 through March 31, 1999. 5. Avoided Cost Proceedings. In 1996, the NCUC opened Docket No. E-100, -------------------------- Sub 79 for its biennial proceeding to establish the avoided cost rates for all electric utilities in North Carolina. Avoided cost rates are intended to reflect the costs that utilities are able to "avoid" by purchasing power from qualifying facilities. The Company's initial filing in this docket was made on November 4, 1996. Intervenor comments on the utilities' filings were made on January 10, 1997. By order issued June 19, 1997, the NCUC approved the updated avoided cost rates and provisions that were proposed by the Company. 16 WHOLESALE RATE MATTERS - ---------------------- 1. General. The Company is subject to regulation by the FERC with respect -------- to rates for transmission and sale of electric energy at wholesale, the interconnection of facilities in interstate commerce (other than interconnections for use in the event of certain emergency situations), the licensing and operation of hydroelectric projects and, to the extent the FERC determines, accounting policies and practices. The Company and its wholesale customers last agreed to a general increase in wholesale rates in 1988; however, wholesale rates have been adjusted since that time through contractual negotiations. 2. FERC Matters. ------------- a) On July 7, 1995, Smithfield Foods, Inc., doing business as Carolina Foods Processors, Inc. (Carolina Foods), filed a Complaint with the FERC (Docket No. EL95-60) alleging that certain charges imposed upon NCEMC under the PCA between the Company and NCEMC are unreasonable. These charges are related to generation installed by Carolina Foods, which receives electric service from Four County EMC (a customer of NCEMC). The Company filed its response to the Complaint on August 10, 1995. The Company cannot predict the outcome of this matter. b) On March 1, 1996, the Company and Power Agency entered into a contractual agreement which provides that Power Agency will delay construction and startup of its 183.7 MW combustion turbine generating project until 2004. (That project was scheduled to begin commercial operation in June 1998.) Pursuant to a 1981 Power Coordination Agreement, as amended, between Power Agency and the Company, Power Agency is obligated to purchase this electricity from the Company from 1995 through May 31, 1998. As a result of the new agreement, Power Agency will purchase peaking capacity from the Company as follows: 110 MW from June 1, 1998 through December 31, 1998, 116 MW in 1999 and 183.7 MW from 2000 through 2003. The Company filed the agreement with the FERC on June 6, 1997. The agreement was accepted by the FERC by order dated June 27, 1997. c) On November 13, 1997, the Company applied to the FERC for authority to sell power at market-based rates. On January 12, 1998, the FERC issued an order accepting the Company's application and permitting the Company to sell power at market-based rates. ENVIRONMENTAL MATTERS - --------------------- 1. General. In the areas of air quality, water quality, control of toxic -------- substances and hazardous and solid wastes and other environmental matters, the Company is subject to regulation by various federal, state and local authorities. The Company considers itself to be in substantial compliance with those environmental regulations currently applicable to its business and operations and believes it has all necessary permits to conduct such operations. Environmental laws and regulations, however, are constantly evolving and the character, scope and ultimate costs for compliance with such evolving laws and regulations cannot now be accurately estimated. The costs associated with compliance with pollution control laws and regulations at the Company's existing facilities that the Company expects to incur from 1998 through 2000 are included in the estimates of capital requirements under PART I, ITEM 1, "Capital Requirements". 2. Clean Air Legislation. The 1990 amendments to the Clean Air Act (Act) ----------------------- require substantial reductions in sulfur dioxide and nitrogen oxides emissions from fossil-fueled electric generating plants. The Act will 17 require the Company to meet more stringent provisions effective January 1, 2000. The Company plans to meet the sulfur dioxide emissions requirements by utilizing the most economical combination of fuel-switching and sulfur dioxide emission allowances. Installation of additional equipment will be necessary to reduce nitrogen oxide emissions. The Company estimates that future capital expenditures necessary to meet these nitrogen oxide emission requirements will approximate $32 million. Increased operation and maintenance costs, including emission allowance expenses, and increased fuel costs are not expected to be material to the results of operations of the Company. In addition, there are emerging regulatory requirements that may require utilities to install additional controls on nitrogen oxide emissions and controls on toxics and particulate matter. The Company cannot predict the outcome of these matters. With regard to revisions to existing air quality standards, the Environmental Protection Agency (EPA) issued final regulations revising the ozone standard and establishing a new fine-particulate standard in July, 1997. These regulations may require the installation of additional control equipment at some of the Company's fossil-fueled electric generating plants. The Company is evaluating the impact of the new regulations on its facilities and cannot determine, at this time, the estimated costs of additional controls that may be required for compliance with the new standards. The Company cannot predict the outcome of this matter. 3. Superfund. The provisions of the Comprehensive Environmental Response, ---------- Compensation and Liability Act of 1980, as amended (CERCLA), authorize the EPA to require clean up of hazardous waste sites. This statute imposes retroactive joint and several liability. States including North and South Carolina have similar types of legislation. There are presently several sites with respect to which the Company has been notified by the EPA or the State of North Carolina of its potential liability, as described below in greater detail. a) In 1986, the EPA notified the Company of its potential liability pursuant to CERCLA for the investigation and cleanup activities associated with the Maxey Flats Nuclear Disposal Site, a low-level nuclear waste disposal site located in Fleming County, Kentucky. The Company has signed a Consent Decree as part of the Maxey Flats Steering Committee, which together with several federal agencies will perform the Initial Remediation Phase. The State of Kentucky will thereafter perform the Balance of Remediation Phase. The Consent Decree has been approved by the U. S. District Court for Eastern District of Kentucky and the work it requires is in progress. Although the Company cannot predict the outcome of this matter, it does not anticipate that costs associated with this site will be material to the results of operations of the Company. b) By letter dated May 21, 1991, the EPA notified the Company that it is a Potentially Responsible Party (PRP) with respect to the disposal of hazardous substances at the Benton Salvage site in Little Rock, Arkansas. The Company has been unable to identify any records of shipments by the Company to that site. Until any such documentation can be produced, the Company does not intend to participate in cleanup activities at the site. The Company cannot predict the outcome of this matter. c) In 1991, the North Carolina Department of Environment and Natural Resources (DENR), formerly North Carolina Department of Environment, Health, and Natural Resources (DEHNR), notified the Company that it is a PRP with respect to the disposal of hazardous waste at the Seaboard Chemical Corporation (Seaboard) site in Jamestown, North Carolina. Seaboard is in bankruptcy. The wastes sent from the Company's facilities to the Seaboard site consisted primarily of cleaning and degreasing solvents, solvent contaminated oils and paint-related waste. 18 As part of the Seaboard Group (a group of PRPs with respect to the Seaboard Site), the Company has entered into two Administrative Orders of Consent (AOC) with DENR, Division of Waste Management, to investigate and remediate the site. Although the Company cannot predict the outcome of this matter, it does not anticipate that costs associated with this site would be material to the results of operations of the Company. d) In 1994, Crown Cork & Seal Company, Inc. and Clark Equipment Co. filed a motion to add the Company as a defendant in an ongoing lawsuit in the U. S. District Court for the Middle District of North Carolina concerning the Macon-Dockery site, located near Cordova, North Carolina. The lawsuit seeks to recover costs incurred in undertaking the Remedial Investigation Feasibility Study and the Remedial Design for the Macon-Dockery site. Wastes disposed of at the Macon-Dockery site include antifreeze, used oils, metals, paint, solvent wastes and waste acids and bases. The Company made arrangements in the past for the transportation and sale of some petroleum products to C & M Oil Distributors, a company that operated an oil reprocessing facility at the Macon-Dockery site. However, the information available to the Company indicates that no CERCLA hazardous wastes from Company facilities were sent to the site. The court has dismissed this action. The Company anticipates that this lawsuit will be refiled shortly. The Company cannot predict the outcome of this matter. e) Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under various federal and state laws. There are several manufactured gas plant (MGP) sites to which the Company and certain entities that were later merged into the Company had some connection. In this regard, the Company, along with others, is participating in a cooperative effort with the DENR, Division of Waste Management (DWM) to establish a uniform framework for addressing these MGP sites. The investigation and remediation of specific MGP sites will be addressed pursuant to one or more Administrative Orders on Consent between the DWM and the PRP. The Company continues to investigate the identities of parties connected to individual MGP sites, the relative relationships of the Company and other parties to those sites and the degree which the Company will undertake efforts with others at individual sites. The Company has been notified by regulators of its involvement or potential involvement in several sites, other than MGP sites, that require remedial action. Although the Company cannot predict the outcome of these matters, it does not expect costs associated with these sites to be material to the results of operations of the Company. f) In 1996, the EPA notified the Company that it is a PRP with respect to the disposal of hazardous substances at the Cherokee Oil Company (Cherokee) sites in Charlotte, North Carolina. The materials sent from the Company's facilities to the Cherokee sites were associated with tank cleanings at the Company's former Wilmington Oil Terminal. In 1997, a consent decree resolving the Company's and many other entities' liability at the site was entered with the United States District Court for the Western District of North Carolina. 4. Other Environmental Matters. In 1989, the DENR, Division of Water ------------------------------ Quality, formerly the Division of Environmental Management, requested that the Company address groundwater contamination at its Wilmington Oil Terminal in New Hanover County, North Carolina. DENR approved the Company's Corrective Action Plan modifications, which allowed the Company to demonstrate to DENR's satisfaction that natural attenuation will address this contamination. The Company has since sold the terminal, and does not anticipate that costs associated with this site will be material to the results of operations of the Company. 19 The Company has filed claims with its general liability insurance carriers to recover costs arising out of actual or potential environmental liabilities. The Company cannot predict the outcome of these matters. 5. Environmental Accrual. The Company carries a liability for the ------------------------ estimated costs associated with remedial activities, except for MGP site remediation costs. This liability is not material to the financial position of the Company. The MGP site remediation costs are not currently determinable; however, the Company does not expect those costs to be material to the financial position of the Company. NUCLEAR MATTERS - --------------- 1. General. Under the Atomic Energy Act of 1954 and the Energy -------- Reorganization Act of 1974, as amended, operation of nuclear plants is intensively regulated by the Nuclear Regulatory Commission (NRC), which has broad power to impose nuclear safety and security requirements. In the event of noncompliance, the NRC has the authority to impose fines, set license conditions, or shut down a nuclear unit, or some combination of these, depending upon its assessment of the severity of the situation, until compliance is achieved. The electric utility industry in general has experienced challenges in a number of areas relating to the operation of nuclear plants, including substantially increased capital outlays for modifications; the effects of inflation upon the cost of operations; increased costs related to compliance with changing regulatory requirements; renewed emphasis on achieving excellence in all phases of operations; unscheduled outages; outage durations; and uncertainties regarding both disposal facilities for low-level radioactive waste and storage facilities for spent nuclear fuel. See paragraphs 2 and 3 below. The Company experiences these challenges to varying degrees. Capital expenditures for modifications at the Company's nuclear units, excluding Power Agency's ownership interests, during 1998, 1999 and 2000 are expected to total approximately $50 million, $45 million, and $36 million, respectively (including AFUDC). 2. Spent Fuel and Other High-Level Radioactive Waste. The Nuclear Waste ----------------------------------------------------- Policy Act of 1982 (Nuclear Waste Act) provides the framework for development by the federal government of interim storage and permanent disposal facilities for high-level radioactive waste materials. The Nuclear Waste Act promotes increased usage of interim storage of spent nuclear fuel at existing nuclear plants. The Company will continue to maximize the use of spent fuel storage capability within its own facilities for as long as feasible. Pursuant to the Nuclear Waste Act, the Company, through a joint agreement with the U. S. Department of Energy (DOE) and the Electric Power Research Institute, has built a demonstration facility at the Robinson Plant that allows for the dry storage of 56 spent nuclear fuel assemblies. As of December 31, 1997, sufficient on-site spent nuclear fuel storage capability is available for the full-core discharge of Brunswick Unit No. 1 through 1999, Brunswick Unit No. 2 through 1998, and Robinson Unit No. 2 through 2000 assuming normal operating and refueling schedules. The Harris Plant spent fuel storage facilities, with certain modifications, together with the spent fuel storage facilities at the Brunswick and Robinson Units, are sufficient to provide storage space for spent fuel generated on the Company's system through the expiration of the current operating licenses for all of the Company's nuclear generating units. Subsequent to the expiration of the licenses, dry storage may be necessary in conjunction with the decommissioning of the units. The Company is maintaining full-core discharge capability for the Brunswick Units and Robinson Unit No. 2 by transferring spent nuclear fuel by rail to the Harris Plant. As a contingency to the shipment by rail of spent nuclear fuel, on April 27, 1989, the Company filed an application with the NRC for the issuance of a license to construct and operate an independent spent fuel storage facility for the dry storage of spent nuclear fuel at the Brunswick Plant. Due to the success of the Company's shipping efforts to date, however, at the Company's request, the NRC suspended review of the Company's license application pending notification by the Company of its desire to continue the application process. The Company cannot predict the outcome of this matter. 20 As required by the Nuclear Waste Act, the Company entered into a contract with the DOE in June 1983 under which the DOE agreed to dispose of the Company's spent nuclear fuel. In December 1996, the DOE notified the Company and other similarly situated utilities that the agency anticipated that it would be unable to begin acceptance of spent nuclear fuel by January 31, 1998. In January 1997, the Company, together with 35 other utilities, filed a Joint Petition for Review with the United States Court of Appeals (the Court) requesting the Court review the final decision of the DOE and the DOE's failure to meet its unconditional obligation under the Nuclear Waste Act. In November 1997, the Court found that the DOE had an unconditional obligation to begin disposal of spent nuclear fuel by January 31, 1998, and issued a writ of mandamus precluding the DOE from advancing any construction of the contract that would excuse the DOE's delinquency on the grounds that it has not yet established a permanent repository or an interim storage program. The DOE defaulted on its obligation to begin taking spent nuclear fuel by January 31, 1998, and a group of utilities, including the Company, is considering measures to force the DOE to take spent nuclear fuel or to pay damages from monies other than the Nuclear Waste Fund. As of December 31, 1997, the Company has paid $324 million (including Power Agency's share), to the DOE. The Company cannot predict the outcome of this matter. By order issued August 20, 1997, the NCUC requested comments from interested parties regarding the utilities' spent fuel storage and disposal activities and costs and the reasonableness of the utilities' continuing to pay a disposal fee to the DOE after January 31, 1998. Initial comments were filed by the Company and other interested parties on September 30, 1997. Reply comments were filed on October 21, 1997. The Company cannot predict the outcome of this matter. In October of 1997, the U.S. House of Representatives voted 307 to 120 in favor of legislation calling for the construction of an interim nuclear waste storage site in Nevada by 2002. A similar waste bill was approved by the U.S. Senate in April of 1997. The Company cannot predict the outcome of this matter. 3. Low-Level Radioactive Waste. Disposal costs for low-level radioactive ----------------------------- waste that result from normal operation of nuclear units have increased significantly in recent years and are expected to continue to rise. Pursuant to the Low-Level Radioactive Waste Policy Act of 1980, as amended in 1985, each state is responsible for disposal of low-level waste generated in that state. States that do not have existing sites may join in regional compacts. The States of North and South Carolina were participants in the Southeast regional compact and disposed of waste at a disposal site in South Carolina along with other members of the compact. Effective July 1, 1995, South Carolina withdrew from the Southeast regional compact and excluded North Carolina waste generators from the existing disposal site in South Carolina. As a result, the State of North Carolina does not have access to a low-level radioactive waste disposal facility. The North Carolina Low-Level Radioactive Waste Management Authority, which is responsible for siting and operating a new low-level radioactive waste disposal facility for the Southeast regional compact, has submitted a license application for the site it selected in Wake County, North Carolina to the North Carolina Division of Radiation Protection. In December 1997, the Southeast Regional Compact Commission suspended funding for the proposed low-level radioactive waste facility in Wake County. The future funding for this project remains uncertain. Although the Company does not control the future availability of low-level waste disposal facilities, the cost of waste disposal or the development process, it supports the development of new facilities and is committed to a timely and cost-effective solution to low-level waste disposal. The Company's nuclear plants in North Carolina are currently storing low-level waste on site and are developing additional storage capacity to accommodate future needs. The Company's nuclear plant in South Carolina has access to the existing disposal site in South Carolina. Although the Company cannot predict the outcome of this matter, it does not expect the cost of providing additional on-site storage capacity for low-level radioactive waste to be material to the results of operations or financial position of the Company. 21 4. Decommissioning. ---------------- a) Pursuant to an NRC rule, licensees of nuclear facilities are required to submit decommissioning funding plans to the NRC for approval to provide reasonable assurance that the licensee will have the financial ability to implement its decommissioning plan for each facility. The rule requires licensees to do one of the following: prepay at least an NRC-prescribed minimum amount immediately; set up an external sinking fund for accumulation of at least that minimum amount over the operating life of the facility; or provide a surety to guarantee financial performance in the event of the licensee's financial inability to perform actual decommissioning. On July 26, 1990, the Company submitted its decommissioning funding plans to the NRC. In this regard, the Company entered into a Master Decommissioning Trust Agreement dated July 19, 1990 (Trust), with Wachovia Bank of North Carolina, N.A., as Trustee, as a vehicle to achieve such decommissioning funding. In June 1991, the Company began depositing funds into the Trust. With regard to the Company's recovery through rates of nuclear decommissioning costs, in the Company's retail jurisdictions, provisions for nuclear decommissioning costs were approved by the NCUC and the SCPSC in the Company's 1988 general rate cases, and were based on site-specific estimates that included the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning costs are based on amounts agreed upon in applicable rate agreements. Decommissioning cost provisions, which are included in depreciation and amortization expense, were $33.2 million, $33.1 million and $31.2 million in 1997, 1996 and 1995, respectively. Accumulated decommissioning costs, which are included in accumulated depreciation, were $428.7 million and $326 million at December 31, 1997 and 1996, respectively. These costs include amounts retained internally and amounts funded in an external decommissioning trust. The balance of the nuclear decommissioning trust was $245.5 million and $145.3 million at December 31, 1997 and 1996, respectively. Trust earnings increase the trust balance with a corresponding increase in the accumulated decommissioning balance. These balances are adjusted for net unrealized gains and losses. Based on the site-specific estimates discussed below and using an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate of 4%, current levels of rate recovery for nuclear decommissioning costs are adequate to provide for decommissioning of the Company's nuclear facilities. b) The Company's most recent site-specific estimates of decommissioning costs were developed in 1993 using 1993 cost factors, and are based on prompt dismantlement decommissioning, which reflects the cost of removal of all radioactive and other structures currently at the site, with such removal occurring shortly after operating license expiration. See paragraph 5 below for expiration dates of operating licenses. These estimates, in 1993 dollars, are $257.7 million for Robinson Unit No. 2, $235.4 million for Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2, and $284.3 million for the Harris Plant. These estimates are subject to change based on a variety of factors, including, but not limited to, cost escalation, changes in technology applicable to nuclear decommissioning, and changes in federal, state or local regulations. The cost estimates exclude the portion attributable to Power Agency, which holds an undivided ownership interest in the Brunswick and Harris nuclear generating facilities. To the extent of its ownership interests, Power Agency is responsible for satisfying the NRC's financial assurance requirements for decommissioning costs. See PART I, ITEM 1, "Generating Capabilities", paragraph 1. c) The Financial Accounting Standards Board has reached several tentative conclusions with respect to its project regarding accounting practices related to closure and removal of long-lived assets. It 22 is uncertain when the final statement will be issued and what impacts it may ultimately have on the Company's accounting for nuclear decommissioning and other closure and removal costs. 5. Operating Licenses. Facility Operating Licenses, issued by the NRC, for ------------------- the Company's nuclear units allow for a full 40 years of operation. Expiration dates for these licenses are set forth in the following table. Facility Operating License
Facility Expiration Date -------- --------------- Robinson Unit No. 2 July 31, 2010 Brunswick Unit No. 1 September 8, 2016 Brunswick Unit No. 2 December 27, 2014 Harris Plant October 24, 2026
6. Other Nuclear Matters. ---------------------- a) In 1991, the NRC issued a final rule on nuclear plant maintenance that became effective on July 10, 1996. In general terms, the new maintenance rule prescribes the establishment of performance criteria for each safety system based on the significance of that system. The rule also requires monitoring of safety system performance against the established acceptance criteria, and provides that remedial action be taken when performance falls below the established criteria. The Company has been working closely with the Nuclear Energy Institute (formerly the Nuclear Management and Resources Council) and with other utilities to develop its compliance approach and to minimize the financial and operational impacts of the new rule. The Company anticipates its compliance will be on schedule and is evaluating the magnitude of the financial and operational impacts of this new rule. Although the Company cannot predict the outcome of this matter, it does not expect the impacts of the new rule to be material to the Company's results of operations. b) On November 23, 1988, the NRC requested in Generic Letter 88-20 that utilities perform Individual Plant Examinations (IPEs) to determine potential vulnerabilities to severe accidents beyond the design basis accidents for which the plants are designed. These are considered to be very low probability events. The Company submitted the results of the first phase (for internally initiated events) in August 1992 for the Brunswick and Robinson Plants. Based on those results, potential enhancements for the Robinson Plant were evaluated and several enhancements were made to the Robinson Plant. These changes had insignificant financial and operational impacts. For the Brunswick Plant, no modifications were required to meet the guidelines of the IPE. On August 20, 1993, the Company submitted the results of the Harris Plant IPE. While some Harris Plant procedural changes were made due to the IPE results, the IPE did not result in any significant financial or operational impacts or identify any need for plant modifications. In June 1995, the Company completed and submitted the results of the second phase of the IPEs (for externally initiated events) for the Company's three nuclear plants. The results of the IPEs indicated that some procedural changes may be required for the Harris and Brunswick Plants. Those results also indicated that both minor procedural changes and minor plant modifications will be required for the Robinson Plant. All IPE items and findings have been addressed, with implementation completed in all areas, except for those items which are being addressed through the Severe Accident Management Guideline programs at each of the Company's nuclear plants. The programs are targeted to be fully implemented by year-end 1998. Although the Company 23 cannot predict at this time the exact magnitude of the financial and operational impacts of the second phase of the IPEs, it does not expect those impacts to be material to the results of operations or financial position of the Company. c) Degradation of tubing internal to steam generators in pressurized water reactor power plants due to intergranular stress corrosion cracking has been an on-going industry phenomenon. The Company has determined that the steam generators at the Harris Plant are subject to steam generator degradation and the Company is closely monitoring the steam generator performance. Experience and testing conducted to date indicate that the Harris Plant steam generators will not require replacement before 2000. The steam generators at the H.B. Robinson plant were replaced in 1984 and are expected to perform until the plant's operating license expires. Although the Company cannot predict the outcome of this matter, it does not expect the cost of replacing the steam generators at the Harris Plant to be material to the results of operations or financial position of the Company. d) The Company is insured against public liability for a nuclear incident up to $8.9 billion per occurrence, which is the maximum limit on public liability claims pursuant to the Price-Anderson Act. In the event that public liability claims from an insured nuclear incident exceed $200 million, the Company would be subject to a pro rata assessment of up to $75.5 million, plus a 5% surcharge, for each reactor owned for each incident. Payment of such assessment would be made over time as necessary to limit the payment in any one year to no more than $10 million per reactor owned. Power Agency would be responsible for its ownership share of the assessment on jointly-owned nuclear units. For a more detailed discussion of nuclear liability insurance, see PART II, ITEM 8, "CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", Note 11 b. FUEL - ---- 1. Sources of Generation. Total system generation (including Power ------------------------ Agency's share) by primary energy source, along with purchased power, for the years 1994 through 1998 is set forth below:
1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (estimated) Fossil 43% 44% 45% 46% 51% Nuclear 42 42 41 43 39 Purchased Power 13 13 12 10 9 Hydro 2 1 2 1 1
2. Coal. a) The Company has intermediate and long-term agreements from ----- which it expects to receive approximately 73% of its coal burn requirements in 1998. During both 1996 and 1997, the Company obtained approximately 68% (7,181,257 tons and 7,398,850 tons in 1996 and 1997, respectively), of its coal burn requirements from intermediate and long-term agreements. Existing agreements have expiration dates ranging from 1998 to 2006. During 1997, the Company maintained from 25 to 62 system days' supply of coal, based on anticipated burn rate. All of the coal that the Company is currently purchasing under intermediate and long-term agreements is considered to be low sulfur coal by industry standards. Recent amendments to the Clean Air Act may result in increases in the price of low sulfur coal. See PART I, ITEM 1, "Environmental 24 Matters", paragraph 2. The Company purchased approximately 3,340,000 tons of coal in the spot market during 1996 and 3,125,000 tons in 1997. The Company's contract coal purchase prices during 1997 ranged from approximately $21.64 to $41.5 per ton (F.O.B. mine adjusted to 12,000 Btu/lb.). The average cost (including transportation costs) to the Company of coal delivered for the past five years is as follows:
Year Dollars/Ton Cents/Million BTU ---- ----------- ----------------- 1993 43.10 172 1994 43.36 174 1995 44.46 179 1996 42.21 170 1997 41.42 169
b) The Company and certain subsidiaries of Zeigler Coal Holding Company (Zeigler) have renegotiated their existing contract. Under the revised agreement, which expires in 2006, the Company will continue to purchase approximately 2.75 million tons of coal annually from Zeigler's Marrowbone mine, and will purchase approximately 6 million tons of additional, lower cost coal from Zeigler over a period of several years under a new contract. The coal will be required to meet the same technical specifications for sulfur and thermal content as the coal supplied from the Marrowbone mine, and is expected to save the Company more than $100 million over the life of the contract. 3. Oil. The Company uses No. 2 oil primarily for its combustion turbine ---- units, which are used for emergency backup and peaking purposes, and for boiler start-up and flame stabilization. The Company burned approximately 12.1 million gallons and 18.3 million gallons of No. 2 oil during 1996 and 1997, respectively. The Company has a No. 2 oil supply contract for its normal requirements. In the event base-load capacity is unavailable during periods of high demand, the Company may increase the use of its combustion turbine units, thereby increasing No. 2 oil consumption. The Company intends to meet any additional requirements for No. 2 oil through additional contract purchases or purchases in the spot market. There can be no assurance that adequate supplies of No. 2 oil will be available to meet the Company's requirements. To reduce the Company's vulnerability to dislocations in the oil market, seven combustion turbine units with a total generating capacity of 364 MW have been converted to burn either propane or No. 2 oil. In addition, fourteen combustion turbine units with a total generating capacity of 665 MW can burn natural gas when available. Over the last five years, No. 2 oil, natural gas and propane accounted for 2.4% of the Company's total burned fuel cost. In 1997, No. 2 oil, natural gas and propane accounted for 3.7% of the Company's total burned fuel cost. The availability and cost of fuel oil could be adversely affected by energy legislation enacted by Congress, disruption of oil or gas supplies, labor unrest and the production, pricing and embargo policies of foreign countries. 4. Nuclear. The nuclear fuel cycle requires the mining and milling of -------- uranium ore to provide uranium oxide concentrate (U3O8), the conversion of U3O8 to uranium hexafluoride (UF6), the enrichment of the UF6 and the fabrication of the enriched uranium into fuel assemblies. Existing uranium contracts are expected to supply the necessary nuclear fuel to operate Robinson Unit No. 2 through 1998, Brunswick Unit No. 1 through 1998, Brunswick Unit No. 2 through 1998 and the Harris Plant through 1999. The Company expects to meet its future U3O8 requirements from inventory on hand and amounts received under contract. Although the Company cannot predict the future availability of uranium and nuclear fuel services, the Company does not currently expect to have difficulty obtaining U3O8 and the services 25 necessary for its conversion, enrichment and fabrication into nuclear fuel. For a discussion of the Company's plans with respect to spent fuel storage, see PART I, ITEM 1, "Nuclear Matters", paragraph 2. 5. DOE Enrichment Facilities Decontamination and Decommissioning Fund. ----------------------------------------------------------------------- Under Title XI of the Energy Policy Act of 1992, Public Law 102-486, Congress established a decontamination and decommissioning (D&D) fund for the DOE's gaseous diffusion enrichment plants. Contributions to this fund are being made by U.S. domestic utilities which have purchased enrichment services from DOE since it began sales to non-Department of Defense customers. Each utility's share of the contributions will be based on that utility's past purchases of services as a percentage of all purchases of services by U.S. utilities, with total annual contributions capped at $150 million per year, indexed to inflation, and an overall cap of $2.25 billion over 15 years, also indexed to inflation. The Company has paid approximately $29 million in D&D fees through 1997, and expects to pay a cumulative total of approximately $83 million over the 15 year period ending September 30, 2007 (excluding Power Agency's ownership share). The Company is recovering these costs as a component of fuel cost. On or about March 4, 1997, the Company filed a claim with the DOE seeking a refund of part of the price paid by the Company for enrichment services purchased from the DOE in 1993. It is the Company's position that the contract price it paid to DOE in 1993 for uranium purchases included the cost of D&D, and that DOE's collection of additional D&D fees pursuant to the Energy Act resulted in an overpayment of fees by the Company totaling approximately $1.4 million. The Company cannot predict the outcome of this matter. Additionally, on or about March 21, 1997, the Company, along with other entities, filed an administrative claim with the DOE, and a Complaint against the DOE in the United States Court of Federal Claims, seeking the recovery of approximately $27 million (including Power Agency's ownership share) representing D&D assessments paid by the Company through 1996, and the elimination of future D&D fund assessments. It is the Company's position that the D&D assessments constitute a breach of contract, a taking of vested contract rights, a violation of property rights, illegal exaction and a violation of the Fifth Amendment of the United States Constitution. The Company's action has been stayed pending the outcome of a similar case, Yankee Atomic Electric Company v, United States (33 Fed.Cl. 580 (Cl.Ct. 1995) in which the United States Court of Claims found that a portion of the D&D assessments made against Yankee Atomic were unlawful. The government appealed that case to the District of Columbia Circuit Court of Appeals, which subsequently overturned the favorable Court of claims decision. After the Circuit Court of Appeals refused to rehear the matter, Yankee Atomic filed a petition for a certiorari to seek a review by the United States Supreme Court. The Company cannot predict the outcome of these matters. 6. Purchased Power. The Company purchased 5,886,722 MWh in 1997, 6,792,340 ---------------- MWh in 1996 and 6,974,597 MWh in 1995 or approximately 10%, 12% and 13%, respectively, of its system energy requirements (including Power Agency) and had available 1,839 MW in 1997, 1,536 MW in 1996 and 1,596 MW in 1995 of firm purchased capacity under contract at the time of peak load. The Company may acquire purchased power capacity in the future to accommodate a portion of its system load needs. DIVERSIFIED BUSINESSES - ---------------------- 1. Interpath Communications, Inc. (formerly CaroNet, LLC). In 1997, the ---------------------------------------------------------- Company created a new subsidiary, Interpath Communications, Inc. (Interpath). All of CaroNet, LLC's assets, liabilities and operating certificates are being transferred to Interpath. Interpath has acquired Capitol Information Services, Inc., a regional Internet service provider based in Raleigh, North Carolina. Interpath will provide 26 Internet retail telecommunications solutions and will expand services to include more telecommunications business solutions, including voice and data applications for small and medium-sized businesses. Interpath also owns a 10% limited partnership interest in BellSouth Carolinas PCS, L.P. BellSouth Personal Communications, Inc. manages the partnership as the general partner. PCS is a wireless communications technology that provides high-quality mobile communications. The partnership serves PCS subscribers in North and South Carolina and a small portion of Georgia pursuant to a license issued by the Federal Communications Commission. 2. CaroHome, LLC. In 1995, the Company established CaroHome, LLC, a --------------- limited liability company, to further the Company's investments in affordable housing. These investments are designed to earn tax credits while helping communities meet their needs for affordable housing. The Company, principally through CaroHome, LLC, has invested or committed to invest a total of $58 million in affordable housing and anticipates investing up to a total of $125 million in affordable housing by the year 2000. 3. Strategic Resource Solutions Corp. (formerly CaroCapital, Inc.). In -------------------------------------------------------------------- 1997, CaroCapital, Inc. (CaroCapital), a wholly owned subsidiary of the Company, acquired the remaining interest in Knowledge Builders, Inc. (KBI) and entered into a merger agreement under which KBI, was merged into CaroCapital. KBI was an energy-management software and control systems company in which CaroCapital purchased a 40% interest in 1996. Pursuant to the merger agreement the remaining KBI stock was exchanged for shares of common stock of the Company according to a market value formula. Initial payments under the merger agreement totaled approximately $22 million, payable primarily in unregistered restricted shares of the Company's common stock. The merger agreement also provides for other incentive payments that may be earned by the KBI founders based on CaroCapital's future results of operations. If earned, these additional payments will be made primarily in unregistered, restricted shares of the Company's common stock (valued according to a market value formula). Following the completion of the merger, CaroCapital's name was changed to Strategic Resource Solutions Corp. (SRS), a North Carolina Enterprise Corporation. SRS is a technology-based energy services company delivering facility-management and energy-management products and services to the educational, commercial, industrial and governmental markets nationwide. During 1997, SRS purchased Diversified Control Systems, a building automation systems company, and made a minority investment in Remote Source Lighting International, Inc., a fiber optic lighting company. Also, in January 1998, SRS acquired the assets of Parke Industries, Inc. (Parke) a lighting technology and management company. Parke was the fourth largest lighting company in the United States. These investments enhance SRS's ability to deliver energy-management solutions and value-added products into the marketplace. OTHER MATTERS - ------------- 1. Safety Inspection Reports. On April 3, 1990, the FERC sent a letter to --------------------------- the Company providing comments on its review of the Company's Fifth (1987) Independent Consultant's Safety Inspection Report, which is required every five years under the FERC Regulation 18 CFR Part 12, for the Walters Hydroelectric Project and requesting the Company to undertake certain supplemental analyses and investigations regarding the stability of the dam under extreme and improbable loading conditions. Similar letters were sent by the FERC on May 30, 1990, with respect to the Company's Blewett and Tillery Hydroelectric Plants. With the independent consultant, the Company has begun addressing the issues raised by the FERC and is working with the FERC to complete investigations and analyses with respect to each of these matters. On November 30, 1994, the Company submitted the independent consultant's report to the FERC regarding the stability of the dam at the Walters Project. The independent consultant concluded that the Walters dam has adequate structural stability and reserve capacity to resist both usual and unusual loading conditions without failure and that structural remediation is neither warranted nor recommended. While the Company does not believe that there are any stability concerns that would be cause for any imminent safety concerns, the FERC's review and analysis of the consultant's report are pending. The consultant's 27 final reports regarding the Blewett and Tillery Hydroelectric Plants are not yet completed. On February 27, 1997, the Company received a letter from the FERC pertaining to the Company's inspection report filed in November 1994. The FERC submitted comments on the inspection report and requested that further analysis be conducted. The Company filed a response on April 24, 1997, to the FERC's letter dated February 27, 1997. In its response, the Company agreed with some of the FERC's comments and took exception to others. The Company has not received a reply from the FERC as of this date. Depending on the outcome of these matters, the Company could be required to undertake efforts to enhance the stability of the dams. The cost and need for such efforts have not been determined. The Company cannot predict the outcome of these matters. 2. Marshall Hydroelectric Project. On November 21, 1991, the FERC notified ------------------------------- the Company that the 5 MW Marshall Hydroelectric Project is no longer exempt from 18 CFR Part 12, Subpart C and D, dam safety regulations and that the plant's regulatory jurisdiction was being transferred from the NCUC to the FERC. This change resulted from updated dambreak flood studies which identified the potential impact on new downstream development, thus indicating the need to reclassify the project from a low hazard to a high hazard classification. In accordance with the change in regulatory jurisdiction, the Company developed an emergency action plan which meets the FERC guidelines and engaged its independent consultant to perform a safety inspection. On April 6, 1992 the inspection report was submitted to the FERC for approval. In March 1995 the Company received comments on the inspection report from the FERC. As a result of these comments, and a meeting with the FERC officials, the Company was requested to perform further analyses and submit its findings to the FERC. The Company subsequently submitted the first phase of the requested analyses to the FERC by letter dated September 15, 1995. Depending on the outcome of the FERC's review, the Company could be required to undertake efforts to enhance the stability of the Marshall dam and/or powerhouse. The cost and need for such efforts have not been determined. The Company cannot predict the outcome of this matter. 3. Stone Container Dispute. On April 20, 1994, the Company filed a -------------------------- Complaint with the FERC (Docket No. EL-94-62-000 and QF85-102-005) and in the United States District Court for the Eastern District of North Carolina in Raleigh, North Carolina (Civil Action No. 5:94-CV-285-DI) claiming that the rate the Company pays for power it purchases from Stone Container Corporation (Stone Container) is invalid. The Company entered into a twenty-year purchase power agreement with Stone Container in 1984, and in 1987 began receiving power from a cogeneration facility operated by Stone Container in Florence, South Carolina. It is the Company's position that when Stone Container elected to sell the facility's gross output under a "buy all/sell all" option in 1991, the facility lost its status as a "qualified facility" under the Public Utilities Regulatory Policies Act and became a public utility. As a result, the contract rate the Company pays for power purchased from the facility is no longer valid, and a just and reasonable rate should be established by the FERC under the Federal Power Act. On February 12, 1998, the FERC issued an order denying the Company's claim that the rate it pays for power it purchases from Stone Container is invalid. As a result, the Company will file a motion to dismiss the District Court action. The Company will continue to purchase electricity from Stone Container at the current contract rate. 4. Tax Refund Dispute. On April 28, 1994, the Company filed a Complaint -------------------- against the U.S. Government in the United States District Court for the Eastern District of North Carolina in Raleigh, North Carolina (Civil Action No. 5:94-CV-313-BR3) seeking a refund of approximately $188 million representing tax and interest related to depreciation deductions the Internal Revenue Service (IRS) previously disallowed for the years 1986 and 1987 on the Company's Harris Plant. The Company maintains that under applicable laws and regulations the Harris Plant was ready and available for operation in 1986. The IRS has previously denied some of the depreciation deductions on the Company's tax returns for the years in question on the ground that in its view the plant was not placed in service until 1987. On December 19, 1995, the jury returned a verdict in favor of the U.S. Government. The Company has filed an appeal of the jury's verdict. The Company cannot predict the outcome of this matter. 28 OPERATING STATISTICS - --------------------
Years Ended December 31 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Energy supply (millions of kWh) Generated - coal 25,545 24,859 23,517 21,001 25,807 nuclear 21,690 20,284 19,949 18,511 13,691 hydro 799 882 824 884 784 combustion turbines 189 68 56 67 84 Purchased 6,318 7,292 7,433 7,039 7,110 ----------- ----------- ----------- ----------- ----------- Total energy supply (Company share) 54,541 53,385 51,779 47,502 47,476 Power Agency share 4,101 3,616 3,828 3,236 2,402 ----------- ----------- ----------- ----------- ----------- Total system energy supply 58,642 57,001 55,607 50,738 49,878 =========== =========== =========== =========== =========== Average fuel cost (per million BTU) Fossil $ 1.75 $ 1.75 $ 1.83 $ 1.78 $ 1.75 Nuclear fuel 0.46 0.45 0.46 0.47 0.46 All fuels 1.14 1.14 1.17 1.14 1.28 Energy sales (millions of kWh) Residential 12,488 12,611 12,074 11,147 11,398 Commercial 10,010 9,615 9,276 8,690 8,548 Industrial 15,073 14,456 14,312 14,030 13,557 Government and municipal 1,294 1,263 1,288 1,263 1,248 Power Agency contract requirements 2,072 2,523 2,338 2,589 3,505 NCEMC 4,174 3,947 5,454 4,885 4,778 Other wholesale 2,120 2,014 1,915 1,983 2,144 Other utilities 5,534 4,899 3,233 985 327 ----------- ----------- ----------- ----------- ----------- Total energy sales 52,765 51,328 49,890 45,572 45,505 Company uses and losses 1,776 2,057 1,889 1,930 1,971 ----------- ----------- ----------- ----------- ----------- Total energy requirements 54,541 53,385 51,779 47,502 47,476 =========== =========== =========== =========== =========== Customers billed Residential 972,385 945,703 920,495 894,616 873,377 Commercial 172,821 167,151 159,064 155,349 151,242 Industrial 5,072 5,066 4,863 4,845 4,825 Government and municipal 2,785 2,774 2,328 2,302 2,214 Resale 43 27 17 12 26 ----------- ----------- ----------- ----------- ----------- Total customers billed 1,153,106 1,120,721 1,086,767 1,057,124 1,031,684 =========== =========== =========== =========== ============= Operating revenues (in thousands) Residential $ 986,835 $ 992,152 $ 969,112 $ 915,986 $ 943,697 Commercial 648,440 627,880 618,394 595,573 592,973 Industrial 738,084 721,588 733,448 741,662 744,016 Government and municipal 77,150 75,391 78,400 78,317 78,616 Power Agency contract requirements 71,318 96,795 100,951 115,262 134,258 NCEMC 225,951 234,653 299,171 266,733 253,859 Other wholesale 92,084 87,463 82,407 84,775 100,062 Other utilities 129,085 105,077 78,147 33,789 11,232 Miscellaneous revenue 55,142 54,716 46,523 44,492 36,670 ----------- ----------- ----------- ----------- ----------- Total operating revenues $ 3,024,089 $ 2,995,715 $ 3,006,553 $ 2,876,589 $ 2,895,383 =========== =========== =========== =========== =========== Peak demand of firm load (thousands of kW) System 10,030 9,812 10,156 10,144 9,589 Company 9,344 9,264 9,500 9,642 9,107 Total capability at year-end (thousands of kW) Fossil plants 6,571 6,331 6,331 6,331 6,331 Nuclear plants 3,064 3,064 3,064 3,064 3,064 Hydro plants 218 218 218 218 218 Purchased 1,588 1,603 1,592 1,596 1,289 ----------- ----------- ----------- ----------- ----------- Total system capability 11,441 11,216 11,205 11,209 10,902 Less Power Agency-owned portion 690 686 682 654 627 ----------- ----------- ----------- ----------- ----------- Total Company capability 10,751 10,530 10,523 10,555 10,275 =========== =========== =========== =========== =========== Net of the Company's purchases from Power Agency. Represents peak generating capability, based on summer peak conditions Assuming all generating units are available for operation. Amounts include capacity under contract with cogenerators, small power producers and other utilities.
29 ITEM 2. PROPERTIES - ------- ---------- In addition to the major generating facilities listed in PART I, ITEM 1, "Generating Capability", the Company also operates the following plants: Plant Location ----- -------- 1. Walters North Carolina 2. Marshall North Carolina 3. Tillery North Carolina 4. Blewett North Carolina 5. Weatherspoon North Carolina 6. Morehead North Carolina The Company's sixteen power plants represent a flexible mix of fossil, nuclear and hydroelectric resources, with a total generating capacity (including Power Agency's share) of 9,853 MW. The Company's strategic geographic location facilitates purchases and sales of power with many other electric utilities, allowing the Company to serve its customers more economically and reliably. Major industries in the Company's service area include textiles, chemicals, metals, paper, automotive components and electronic machinery and equipment. At December 31, 1997, the Company had 5,586 pole miles of transmission lines including 292 miles of 500 kV lines and 2,916 miles of 230 kV lines, and distribution lines of approximately 43,764 pole miles of overhead lines and approximately 11,604 miles of underground lines. Distribution and transmission substations in service had a transformer capacity of approximately 36,253 kVA in 2,245 transformers. Distribution line transformers numbered 413,269 with an aggregate 17,204,000 kVA capacity. Power Agency has acquired undivided ownership interests of 18.33% in Brunswick Unit Nos. 1 and 2, 12.94% in Roxboro Unit No. 4 and 16.17% in Harris Unit No. 1 and Mayo Unit No. 1. Otherwise, the Company has good and marketable title to its principal plants and important units, subject to the lien of its Mortgage and Deed of Trust, with minor exceptions, restrictions, and reservations in conveyances, as well as minor defects of the nature ordinarily found in properties of similar character and magnitude. The Company also owns certain easements over private property on which transmission and distribution lines are located. The Company believes that its generating facilities are suitable, adequate, well-maintained and in good operating condition. Plant Accounts (including nuclear fuel) - During the period January 1, 1993 - ------------------------------------------- through December 31, 1997, there was $2,434,308,343 added to the Company's utility plant accounts, there was $689,400,439 of property retired and there were transfers and adjustments of $(51,673,030) resulting in net additions during the period of $1,693,234,874, an increase of approximately 15.55%. 30 ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- Legal and regulatory proceedings are included in the discussion of the Company's business in PART I, ITEM 1 and incorporated by reference herein. 31 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- No matters were submitted to a vote of security holders in the fourth quarter of 1997. 32 EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Recent Business Experience William Cavanaugh III 59 President and Chief Executive Officer, October 1996 to present; President and Chief Operating Officer, September 1992 to October 1996. Before joining the Company, Mr. Cavanaugh held various senior management and executive positions during a 23-year career with Entergy Corporation, an electric utility holding company with operations in Arkansas, Louisiana and Mississippi. Member of the Board of Directors of the Company since 1993. Glenn E. Harder 47 Executive Vice President and Chief Financial Officer, Financial Services, August 1995 to present; Senior Vice President, Group Executive - Financial Services, October 1994 to August 1995. Before joining the Company, Mr. Harder held various senior management and executive positions with Entergy Corporation, an electric utility holding company with operations in Arkansas, Louisiana and Mississippi, and related entities. William S. Orser 53 Executive Vice President and Chief Nuclear Officer, Energy Supply, December 1996 to present; Executive Vice President - Nuclear Generation, April 1993 to December 1996; Executive Vice President - Nuclear Generation, Detroit Edison Company, April 1993; Senior Vice President - Nuclear Generation, Detroit Edison Company. Prior to 1987, Mr. Orser held various other positions with Detroit Edison, and with Portland General Electric Company, Southern California Edison, and the U. S. Navy. James M. Davis, Jr. 61 Senior Vice President, Group Executive - Power Operations, June 1986 to present; Senior Vice President - Operations Support Group, August 1983. Fred N. Day, IV 54 Senior Vice President, Energy Delivery, July 1997 to present; Vice President, Western Region, 1995 to July 1997; Manager, Total Quality Performance, 1993 to 1995. Cecil L. Goodnight 54 Senior Vice President and Chief Administrative Officer, Administrative Services, December 1996 to present; Senior Vice President, Human Resources and Support Services, March 1995- December 1996; Vice President - Human Resources (formerly Employee Relations Department), May 1983 to March 1995. John E. Manczak 50 Senior Vice President, Retail Sales and Services, June 1997 to present; Vice President, Retail Marketing, Consumers Energy, an electric and gas utility, October 1994 to June 1997; President, Michigan Gas Utilities, a division of Utilicorp United, a natural gas utility, October 1991 to September 1994. 33 Robert B. McGehee 55 Senior Vice President and General Counsel, Public and Corporate Relations, May 1997 to present; From 1974 to May 1997, Mr. McGehee was a practicing attorney with Wise Carter Child & Caraway, a law firm in Jackson Mississippi. He primarily handled corporate contract, nuclear regulatory and employment matters. From 1987 to 1997 he managed the firm, serving as chairman of its Board from 1992 to May 1997. Bonnie V. Hancock 36 Vice President and Controller, February 1997 to present; Manager, Tax Department, September 1995 to February 1997; Director, Corporate Income Tax, Treasury Department, September 1993 to September 1995. Before joining the Company, Ms. Hancock held various management positions in the Tax Department at Potomac Electric Power Company.
34 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER - ------- MATTERS ----------------------------------------------------------------- The Company's Common Stock is listed on the New York and Pacific Stock Exchanges. The high and low sales prices per share, as reported as composite transactions in The Wall Street Journal, and dividends paid per share are as follows:
1996 High Low Dividends Paid - ----- ---- --- -------------- First Quarter $38 3/8 $34 1/2 $ .455 Second Quarter 38 34 7/8 .455 Third Quarter 38 1/4 34 1/8 .455 Fourth Quarter 37 34 1/4 .455
1997 High Low Dividends Paid - ----- ---- --- -------------- First Quarter $37 7/8 $36 1/8 $ .47 Second Quarter 36 1/4 33 .47 Third Quarter 36 5/8 33 3/4 .47 Fourth Quarter 42 1/2 34 5/16 .47
The December 31 closing price of the Company's Common Stock was $36 1/2 in 1996 and $42 3/8 in 1997. As of February 27, 1998, the Company had 71,017 holders of record of Common Stock. On July 13, 1994, the Board of Directors of the Company authorized the repurchase of up to 10 million shares of the Company's Common Stock on the open market. Under this stock repurchase program, the Company purchased approximately 0.7 million shares in 1997 and 1996, 4.2 million shares in 1995 and 4.4 million shares in 1994. The program was completed in 1997. 35 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - ------- ------------------------------------ The selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report. Years Ended December 31
1997 1996 1995 1994 1993 ----------- ----------- ------------ ----------- ------------ (dollars in thousands except per share data) Operating results - ----------------- Operating revenues $ 3,024,089 $ 2,995,715 $ 3,006,553 $ 2,876,589 $ 2,895,383 Net income $ 388,317 $ 391,277 $ 372,604 $ 313,167 $ 346,496 Earnings for common stock $ 382,265 $ 381,668 $ 362,995 $ 303,558 $ 336,887 Ratio of earnings to fixed charges 4.17 4.12 3.67 3.31 3.23 - ---------------------------------- Per share data - -------------- Basic and diluted earnings per common share $ 2.66 $ 2.66 $ 2.48 $ 2.03 $ 2.10 Dividends declared per common share $ 1.895 $ 1.835 $ 1.775 $ 1.715 $ 1.655 Assets $ 8,220,728 $ 8,364,862 $ 8,227,150 $ 8,211,163 $ 8,194,018 - ------ Capitalization - -------------- Common stock equity $ 2,818,807 $ 2,690,454 $ 2,574,743 $ 2,586,179 $ 2,632,116 Preferred stock - redemption not required 59,376 143,801 143,801 143,801 143,801 Long-term debt, net 2,415,656 2,525,607 2,610,343 2,530,773 2,584,903 ----------- ----------- ------------ ----------- ------------ Total capitalization $ 5,293,839 $ 5,359,862 $ 5,328,887 $ 5,260,753 $ 5,360,820 =========== =========== ============ =========== ============
36 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- RESULTS OF OPERATIONS --------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- Operating Revenues - ------------------ Operating revenue fluctuations as compared to the prior year are due to the following factors (in millions):
1997 1996 ---- ---- Customer growth/changes in usage patterns $ 124 $ 87 Sales to other utilities 24 34 Weather (55) 4 NCEMC load loss - (96) Price (39) (36) Sales to Power Agency (26) (4) ----- ----- $ 28 $ (11) ===== =====
The increase in the customer growth/changes in usage patterns component of revenue for both comparison periods is primarily a result of continued economic growth within the Company's service territory. Sales to other utilities increased in both comparison periods as a result of the Company's active pursuit of opportunities in the wholesale power market. The 1997 decrease in the weather component of revenue is the result of milder than normal temperatures in the current period. Both the customer growth/changes in usage patterns and weather components of revenue were affected by lost revenues caused by Hurricanes Fran and Bertha in 1996. Beginning in January 1996, the Company lost 200 megawatts of load from North Carolina Electric Membership Corporation (NCEMC), resulting in a $96 million decrease in revenues. For 1997, the price-related decrease is primarily attributable to a combination of decreases in the fuel cost component of revenue and changes to the Power Coordination Agreement, which were effective January 1, 1997, between the Company and NCEMC. The 1996 price-related decrease is primarily attributable to decreases in the fuel cost component of revenue. The 1997 decrease in revenue related to sales to North Carolina Eastern Municipal Power Agency (Power Agency) is primarily due to the impacts of milder weather, along with the increased availability in the current period of generating units owned jointly by the Company and Power Agency. Operating Expenses - ------------------ Fuel expense increased in 1997 primarily due to a 4.6% increase in generation. Fuel expense decreased in 1996 due to renegotiated coal contracts, spot market coal purchases at lower market prices and the refunding of over-recovered fuel costs. This decrease more than offset the increase in fuel expense related to a 3.9% increase in generation during 1996. The decrease in purchased power in 1997 is primarily a result of amendments to electric purchase power agreements between the Company and Cogentrix of North Carolina, Inc. and Cogentrix Eastern Carolina Corporation, which became effective in September 1996. This decrease is partially offset by increased purchases from other utilities due to the Company's more active participation in wholesale power marketing. Other operation and maintenance expense decreased for both comparison periods reflecting the Company's continued cost reduction efforts. Also contributing to the decrease in 1997 were lower expenses resulting from one less nuclear refueling outage and fewer fossil outages. Other operation and maintenance expense in 1996 includes storm-related expenses of approximately $6 million incurred as a result of severe ice storms experienced in early 1996 and the impact of Hurricane Bertha, which struck the Company's service territory in July 1996. Hurricane 37 Fran struck significant portions of the Company's service territory in September 1996. In December 1996, the North Carolina Utilities Commission (NCUC) authorized the Company to defer operation and maintenance expenses associated with Hurricane Fran. See further discussion of Hurricane Fran below. In December 1996, the NCUC authorized the Company to accelerate amortization of certain regulatory assets over a three-year period beginning January 1, 1997. In March 1997, the South Carolina Public Service Commission (SCPSC) approved a similar plan for the Company to accelerate the amortization of certain regulatory assets, including plant abandonment costs related to the Harris Plant, over a three-year period beginning January 1, 1997. Depreciation and amortization increased approximately $68 million in 1997 as a result of the accelerated amortization of these regulatory assets. Depreciation and amortization expense also includes amortization of deferred operation and maintenance expenses associated with Hurricane Fran of approximately $12 million and $4 million in 1997 and 1996, respectively. Income tax expense decreased in 1997 primarily due to the impact of current and prior period tax provision adjustments recorded for potential audit issues in open tax years. Other Income - ------------ Interest income increased in 1997 primarily as a result of interest income of $11 million related to an income tax refund. Other income, net, decreased in 1997 primarily due to losses incurred on certain diversified investments which are in start-up phases. In 1996, other income, net, increased primarily due to an adjustment of $22.9 million to the unamortized balance of abandonment costs related to the Harris Plant. In anticipation of approval by the SCPSC of the Company's December 1996 proposal to accelerate amortization of certain regulatory assets, the unamortized balance of plant abandonment costs related to the Harris Plant was adjusted in 1996 to reflect the present value impact of the shorter recovery period. In March 1997, the SCPSC approved the Company's accelerated amortization proposal. Interest Charges - ---------------- Interest charges on long-term debt have decreased since 1995 primarily due to reductions of long-term debt balances. Also contributing to the decrease in 1996 were refinancings of long-term debt with lower-interest commercial paper borrowings which are backed by the Company's long-term revolving credit facilities. See discussion of credit facilities in PART II, ITEM 7, "LIQUIDITY AND CAPITAL RESOURCES". LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash Flow and Financing - ----------------------- The net cash requirements of the Company arise primarily from operational needs and support for investing activities, including replacement or expansion of existing facilities, construction to comply with pollution control laws and regulations, and diversified investments. The Company has on file with the Securities and Exchange Commission (SEC) a shelf registration statement under which $250 million principal amount of first mortgage bonds and $125 million principal amount of first mortgage bonds and/or unsecured debt securities of the Company remain available for issuance. The Company can also issue up to $180 million of additional preferred stock under a shelf registration statement on file with the SEC. 38 The Company's ability to issue first mortgage bonds and preferred stock is subject to earnings and other tests as stated in certain provisions of its mortgage, as supplemented, and charter. The Company has the ability to issue an additional $4.3 billion in first mortgage bonds and an additional 32 million shares of preferred stock at an assumed price of $100 per share and a $6.05 annual dividend rate. The Company also has 10 million authorized preference stock shares available for issuance that are not subject to an earnings test. In July 1997, the Company redeemed all 500,000 shares of $7.72 Serial Preferred Stock and all 350,000 shares of $7.95 Serial Preferred Stock, at a redemption price of $101 per share. The redemptions were funded with additional commercial paper borrowings and/or internally generated funds. In August 1997, the Company issued $200 million of first mortgage bonds. The net proceeds from this issuance were used to reduce the outstanding balance of commercial paper and other short-term debt and for other general corporate purposes. As of December 31, 1997, the Company's revolving credit facilities totaled $515 million, substantially all of which are long-term agreements supporting its commercial paper borrowings. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. Consistent with management's intent to maintain a portion of its commercial paper on a long-term basis, and as supported by its long-term revolving credit facilities, the Company included in long-term debt $245.9 million and $350 million of commercial paper outstanding as of December 31, 1997 and 1996, respectively. The proceeds from the issuance of commercial paper related to the credit facilities mentioned above, net cash inflow from the company-owned life insurance program, and/or internally generated funds, financed the retirement of long-term debt totaling $103 million in 1997. External funding requirements, which do not include early redemptions of long-term debt or redemptions of preferred stock, are expected to approximate $220 million, $100 million and $200 million in 1998, 1999 and 2000, respectively. These funds will be required for construction, mandatory retirements of long-term debt and general corporate purposes, including the repayment of short-term debt. The Company's access to outside capital depends on its ability to maintain its credit ratings. The Company's first mortgage bonds are currently rated A2 by Moody's Investors Service, A by Standard & Poor's and A+ by Duff & Phelps. The Company's commercial paper is currently rated P-1, A-1 and D-1 by Moody's Investors Service, Standard & Poor's and Duff & Phelps, respectively. The amount and timing of future sales of Company securities will depend upon market conditions and the specific needs of the Company. The Company may from time to time sell securities beyond the amount needed to meet capital requirements in order to allow for the early redemption of long-term debt, the redemption of preferred stock, the reduction of short-term debt or for other general corporate purposes. In 1994, the Board of Directors of the Company authorized the repurchase of up to 10 million shares of the Company's common stock on the open market. Under this stock repurchase program, the Company purchased approximately 0.7 million shares in both 1997 and 1996, 4.2 million shares in 1995 and 4.4 million shares in 1994. The program was completed in 1997. Capital Requirements - -------------------- Estimated capital requirements for 1998 through 2000 primarily reflect construction expenditures that will be made to meet customer growth by adding generating, transmission and distribution facilities, as well as upgrading existing facilities. The Company's capital requirements, excluding expenditures of diversified businesses, for those years are 39 reflected in the following table (in millions).
1998 1999 2000 ---- ---- ---- Construction expenditures $ 398 $ 494 $ 526 Nuclear fuel expenditures 93 83 96 AFUDC (6) (5) (7) Mandatory retirements of long-term debt 208 53 197 ------ ------ ------ Total $ 693 $ 625 $ 812 ====== ====== ======
This table includes Clean Air Act expenditures of approximately $32 million and generating facility addition expenditures of approximately $405 million. The generating facility addition expenditures will primarily be used to construct new combustion turbine units, which are intended for use during periods of high demand. These units are scheduled to be placed in service during 1999 through 2002. In addition, total projected cash requirements of diversified businesses for the years 1998 through 2000 approximate $362 million. These expenditures include affordable housing investments, telecommunications infrastructure development, acquisitions and other capital requirements of the Company's diversified businesses. These projections are periodically reviewed and may change significantly. The Company has two long-term agreements for the purchase of power and related transmission services from other utilities. The first agreement provides for the purchase of 250 megawatts of capacity through 2009 from Indiana Michigan Power Company's Rockport Unit No. 2 (Rockport). The second agreement is with Duke Energy (Duke) for the purchase of 400 megawatts of firm capacity through mid-1999. The estimated minimum annual payments for power purchases under these agreements are approximately $31 million for Rockport and $48 million for Duke, representing capital-related capacity costs. In 1997, total purchases (including transmission use charges) under the Rockport and Duke agreements amounted to $61.9 million and $69.5 million, respectively. In addition, pursuant to the terms of the 1981 Power Coordination Agreement, as amended, between the Company and Power Agency, the Company is obligated to purchase a percentage of Power Agency's ownership capacity of, and energy from, the Mayo and Harris Plants. For Mayo, the buyback period ended in 1997. The Harris Plant buyback period will continue through 2007. The estimated minimum annual payments for these purchases, representing capital-related capacity costs, total approximately $26 million. Purchases under the agreement with Power Agency totaled $36.2 million in 1997. OTHER MATTERS - ------------- Retail Rate Matters - ------------------- A petition was filed in July 1996 by the Carolina Industrial Group for Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an investigation of the Company's base rates or treat its petition as a complaint against the Company. The petition alleged that the Company's return on equity (which was authorized by the NCUC in the Company's last general rate proceeding in 1988) and earnings are too high. In December 1996, the NCUC issued an order denying CIGFUR's petition and stating that it tentatively found no reasonable grounds to proceed with CIGFUR's petition as a complaint. In January 1997, CIGFUR filed its Comments and Motion for Reconsideration, to which the Company responded. In February 1997, the NCUC issued an order denying CIGFUR's Motion for Reconsideration. CIGFUR filed a Notice of Appeal of the NCUC Order with the North Carolina Court of Appeals. The Company filed its brief in this matter in July 1997, and oral argument was held before the North Carolina Court of Appeals in November 1997. The Company cannot predict the outcome of this matter. 40 Environmental - ------------- The Company is subject to federal, state and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under various federal and state laws. There are several manufactured gas plant (MGP) sites to which the Company and certain entities that were later merged into the Company had some connection. In this regard, the Company, along with others, is participating in a cooperative effort with the North Carolina Department of Environment and Natural Resources, Division of Waste Management (DWM), to establish a uniform framework for addressing these MGP sites. The investigation and remediation of specific MGP sites will be addressed pursuant to one or more Administrative Orders on Consent between the DWM and the potentially responsible party or parties. The Company continues to investigate the identities of parties connected to individual MGP sites, the relative relationships of the Company and other parties to those sites and the degree to which the Company will undertake efforts with others at individual sites. The Company has been notified by regulators of its involvement or potential involvement in several sites, other than MGP sites, that require remedial action. Although the Company cannot predict the outcome of these matters, it does not expect costs associated with these sites to be material to the results of operations of the Company. The Company carries a liability for the estimated costs associated with remedial activities, except for MGP site remediation costs. This liability is not material to the financial position of the Company. The MGP site remediation costs are not currently determinable; however, the Company does not expect those costs to be material to the financial position of the Company. The 1990 amendments to the Clean Air Act (Act) require substantial reductions in sulfur dioxide and nitrogen oxides emissions from fossil-fueled electric generating plants. The Act will require the Company to meet more stringent provisions effective January 1, 2000. The Company plans to meet the sulfur dioxide emissions requirements by utilizing the most economical combination of fuel-switching and sulfur dioxide emission allowances. Installation of additional equipment will be necessary to reduce nitrogen oxide emissions. The Company estimates that future capital expenditures necessary to meet the nitrogen oxide emission requirements will approximate $32 million. Increased operation and maintenance costs, including emission allowance expense, and increased fuel costs are not expected to be material to the results of operations of the Company. In addition, there are emerging regulatory requirements that may require utilities to install additional controls on nitrogen oxide emissions and controls on toxics and particulate matter. The Company cannot predict the outcome of these matters. With regard to revisions to existing air quality standards, the Environmental Protection Agency issued final regulations revising the ozone standard and establishing a new fine-particulate standard in July 1997. These regulations may require the installation of additional control equipment at some of the Company's fossil-fueled electric generating plants. The Company is evaluating the impact of the new regulations on its facilities and cannot determine, at this time, the estimated costs of additional controls that may be required for compliance with the new standards. The Company cannot predict the outcome of this matter. 41 Nuclear - ------- In the Company's retail jurisdictions, provisions for nuclear decommissioning costs are approved by the NCUC and the SCPSC and are based on site-specific estimates that include the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning costs are based on amounts agreed upon in applicable rate agreements. Based on the site-specific estimates discussed below, and using an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate of 4%, current levels of rate recovery for nuclear decommissioning costs are adequate to provide for decommissioning of the Company's nuclear facilities. The Company's most recent site-specific estimates of decommissioning costs were developed in 1993, using 1993 cost factors, and are based on prompt dismantlement decommissioning, which reflects the cost of removal of all radioactive and other structures currently at the site, with such removal occurring shortly after operating license expiration. These estimates, in 1993 dollars, are $257.7 million for Robinson Unit No. 2, $235.4 million for Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2 and $284.3 million for the Harris Plant. The estimates are subject to change based on a variety of factors including, but not limited to, cost escalation, changes in technology applicable to nuclear decommissioning and changes in federal, state or local regulations. The cost estimates exclude the portion attributable to Power Agency, which holds an undivided ownership interest in the Brunswick and Harris nuclear generating facilities. Operating licenses for the Company's nuclear units expire in the year 2010 for Robinson Unit No. 2, 2016 for Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the Harris Plant. The Financial Accounting Standards Board has reached several tentative conclusions with respect to its project regarding accounting practices related to closure and removal of long-lived assets. It is uncertain when the final statement will be issued and what impacts it may ultimately have on the Company's accounting for nuclear decommissioning and other closure and removal costs. As required under the Nuclear Waste Policy Act of 1982, the Company entered into a contract with the U.S. Department of Energy (DOE) under which the DOE agreed to dispose of the Company's spent nuclear fuel. In December 1996, the DOE notified the Company and other similarly situated utilities that the agency anticipated that it would be unable to begin acceptance of spent nuclear fuel by January 31, 1998. In January 1997, the Company, together with 35 other utilities, filed a Joint Petition for Review with the United States Court of Appeals (the Court) requesting that the Court review the final decision of the DOE and the DOE's failure to meet its unconditional obligation under the Nuclear Waste Act. In November 1997, the Court found that the DOE has an unconditional obligation to begin disposal of spent nuclear fuel by January 31, 1998, and issued a writ of mandamus precluding the DOE from advancing any construction of the contract that would excuse the DOE's delinquency on the grounds that it has not yet established a permanent repository or an interim storage program. The DOE defaulted on its obligation to begin taking spent nuclear fuel by January 31, 1998, and a group of utilities, including the Company, is considering additional measures to force the DOE to take spent nuclear fuel or to pay damages from monies other than the Nuclear Waste Fund. The Company cannot predict the outcome of this matter. With certain modifications, the Company's spent nuclear fuel storage facilities will be sufficient to provide storage space for spent nuclear fuel generated on the Company's system through the expiration of the current operating licenses for all of the Company's nuclear generating units. Subsequent to the expiration of these licenses, dry storage may be necessary. 42 Other Business - -------------- In 1997, CaroCapital, Inc. (CaroCapital), a wholly owned subsidiary of the Company, acquired the remaining interest in Knowledge Builders, Inc. (KBI) and entered into a merger agreement under which KBI was merged into CaroCapital. KBI was an energy-management software and control systems company in which CaroCapital purchased a 40% interest in 1996. Following the completion of the merger, CaroCapital's name was changed to Strategic Resource Solutions Corp. (SRS). SRS is a technology-based energy services company delivering facility-management and energy-management products and services to the educational, commercial, industrial and governmental markets nationwide. During the year, SRS purchased Diversified Control Systems, a building automation systems company, and made a minority investment in Remote Source Lighting International, Inc., a fiber optic lighting company. Also, in January 1998, SRS purchased Parke Industries, Inc., the fourth largest lighting company in the United States. These investments enhance SRS's ability to deliver energy-management solutions and value-added products to the marketplace. In 1997, the Company created a new subsidiary, Interpath Communications, Inc. (Interpath). All of CaroNet, LLC's assets, liabilities and operating certificates are being transferred to this new subsidiary. Interpath has acquired Capitol Information Services, Inc., a regional Internet service provider based in Raleigh, North Carolina. Interpath will provide Internet retail telecommunications solutions and will expand services to include more telecommunications business solutions, including voice and data applications for small and medium-sized businesses. Interpath also owns a 10% limited partnership interest in BellSouth Carolinas PCS, L.P. BellSouth Personal Communications, Inc. manages the partnership as the general partner. PCS is a wireless communications technology that provides high-quality mobile communications. The partnership serves PCS subscribers in North and South Carolina, and a small portion of Georgia, pursuant to a license issued by the Federal Communications Commission. In 1995, the Company established CaroHome, LLC, a limited liability company, to further the Company's investments in affordable housing. These investments are designed to earn tax credits while helping communities meet their needs for affordable housing. The Company, principally through CaroHome, LLC, has invested or committed to invest a total of $58 million in affordable housing and anticipates investing up to a total of $125 million in affordable housing by the year 2000. Competition - ----------- General - ------- In recent years, the electric utility industry has experienced a substantial increase in competition at the wholesale level, caused by changes in federal law and regulatory policy. Several states have also decided to deregulate aspects of retail electric service. The issue of retail deregulation and competition is being reviewed by a number of states and bills have been introduced in Congress that seek to introduce retail deregulation in all states. Allowing increased competition in the generation and sale of electric power will require resolution of many complex issues. One of the major issues to be resolved is who will pay for stranded costs (those costs and investments made by utilities in order to meet their statutory obligation to provide electric service) if the market price of electricity following industry restructuring is not sufficient to cover those costs. The amount of such stranded costs the Company might experience would depend on the timing of, and the extent to which, direct competition is introduced, and the then-existing market price of energy. If electric utilities were no longer subject to cost-based regulation and it were not possible to recover stranded costs, the results of operations and financial 43 position of the Company would be adversely affected. Wholesale Competition - --------------------- Since passage of the National Energy Act of 1992 (Energy Act), competition in the wholesale electric utility industry has significantly increased due to greater participation by traditional electricity suppliers, wholesale power marketers and brokers, and due to the trading of energy futures contracts on various commodities exchanges. This increased competition could affect the Company's load forecasts, plans for power supply and wholesale energy sales and related revenues. The impact could vary depending on the extent to which additional generation is built to compete in the wholesale market, new opportunities are created for the Company to expand its wholesale load, or current wholesale customers elect to purchase from other suppliers after existing contracts expire. To assist in the development of wholesale competition, the Federal Energy Regulatory Commission (FERC), in 1996, issued standards for wholesale wheeling of electric power through its rules on open access transmission and stranded costs and on information systems and standards of conduct (Orders 888 and 889). The rules require all transmitting utilities to have on file an open access transmission tariff, which contains provisions for the recovery of stranded costs and numerous other provisions that could affect the sale of electric energy at the wholesale level. The Company filed its open access transmission tariff with the FERC in mid-1996. Shortly thereafter, Power Agency and other entities filed protests challenging numerous aspects of the Company's tariff and requesting that an evidentiary proceeding be held. The FERC set the matter for hearing and set a discovery and procedural schedule. In July 1997, the Company filed an offer of settlement in this matter. The administrative law judge certified the offer to the full FERC in September 1997. The offer is pending before the FERC. The Company cannot predict the outcome of this matter. In November 1997, the Company applied to the FERC for authority to sell power at market-based rates. In January 1998, the FERC issued an order accepting the Company's application and permitting the Company to sell power at market-based rates. Retail Competition - ------------------ The Energy Act prohibits the FERC from ordering retail wheeling - transmitting power on behalf of another producer to an individual retail customer. Several states, including California and Pennsylvania, have changed their laws and regulations to allow retail electric customers to buy power from suppliers other than the local utility. Other states are considering similar changes, and some have instituted experimental programs to allow a limited number of customers to select electric suppliers. These changes and proposals have taken differing forms and included disparate elements. The Company believes changes in existing laws in both North and South Carolina would be required to permit competition in the Company's retail jurisdictions. North Carolina Activities - ------------------------- Since 1995, the NCUC has been considering the impact of increased competition in the electric industry. In May 1996, the NCUC issued an order stating that the FERC Orders 888 and 889 would provide a new focus for NCUC proceedings with respect to competition in the electric industry. As a result, the NCUC held Docket No. E-100, Sub 77, which concerned retail competition, in abeyance pending further order and established a new docket (Docket No. E-100, Sub 78) to address the FERC Orders 888 and 889. The NCUC has received several rounds of comments in this docket; the Company filed its most recent comments and reply comments in November 1997 and December 1997, respectively. The Company cannot predict the outcome of this matter. 44 In April 1997, the North Carolina General Assembly (General Assembly) approved legislation establishing a 23-member study commission to evaluate the future of electric service in the state. The commission is comprised of 12 state legislators, two residential customers, two industrial customers, a commercial customer, a power marketer, an environmentalist and representatives from each of the four major power suppliers in the state. The commission is examining a wide range of issues related to the cost and delivery of electric service. The commission will make an interim report to the 1998 General Assembly and a final report in 1999. The Company cannot predict the outcome of this matter. South Carolina Activities - ------------------------- In February 1997, representatives in the South Carolina General Assembly introduced a bill calling for a transition to full competition in the electric utility industry beginning in 1998. No action was taken on this bill. In addition, by letter dated May 6, 1997, the Speaker of the South Carolina House of Representatives requested that the SCPSC prepare a proposal for the deregulation and restructuring of electricity in South Carolina. On February 3, 1998, the SCPSC issued a report to the South Carolina General Assembly recommending caution and more study on the issue of deregulation. The report outlines a five-year transition plan that it recommends be followed if the South Carolina legislators decide to go forward with deregulation. The South Carolina General Assembly's Utility Subcommittee has completed six hearings around the state in order to receive citizen input on the deregulation issue. The subcommittee will continue to meet. The Company cannot predict the outcome of this matter. Federal Activities - ------------------ Numerous bills were introduced in the 105th Congress concerning the restructuring of the electric utility industry. Key provisions of the bills vary widely. Committee Chairs have held workshops and hearings to discuss various aspects of restructuring. No legislation was passed during the 1997 session of Congress, and more restructuring-related bills are expected to be introduced in Congress during 1998. The Company cannot predict the outcome of this matter. Company Activities - ------------------ The developments described above have created greater planning uncertainty and risks for the Company. The Company has been addressing these risks by securing long-term contracts with its wholesale customers and by continuing to work to meet the energy needs of its industrial customers. To position itself to better address these risks, the Company internally organized into separate business units in early 1998. The business units include Energy Supply, Energy Delivery and Retail Sales and Services. The focus of these business units will be to further the development of a corporate culture that is necessary to compete in a deregulated environment. Other elements of the Company's strategy to respond to the changing market for electricity include promoting economic development, implementing new marketing strategies, improving customer satisfaction, and increasing the focus on managing and reducing costs (and, consequently, avoiding future rate increases). In late 1996, the Company and NCEMC entered into a revised Power Coordination Agreement (PCA) under which NCEMC will receive discounted capacity in exchange for long-term commitments to the Company for its supplemental power. As a result of this revised agreement, the Company provided 100 MW of baseload power to NCEMC in 1997, and will provide a block of 225 MW from 1998 to 2010, an additional block of 225 MW from 2000 to 2004 and a third block of 225 MW from 2001 to 2008. The remainder of the NCEMC capacity provided by the Company, not separately contracted for in the revised agreement, will be billed at fixed rates through the year 2003, rather than at the formula rates established in the original PCA. The FERC has accepted the revised PCA. When NCEMC seeks future supplies, the Company will respond and expects to remain competitive in the pursuit and retention of wholesale load. 45 In August 1996, Power Agency notified the Company of its intention to discontinue certain contractual purchases of power from the Company effective September 1, 2001. Power Agency's notice indicated that it intends to replace these contractual obligations through purchases of capacity and energy and related services in the open market, and that the Company will be considered as a potential supplier for those purchases. Under the 1981 Power Coordination Agreement, as amended, between the Company and Power Agency, Power Agency can reduce its purchases from the Company with an appropriate five-year notice. The Company and Power Agency have agreed on a process for determining the sufficiency of the August 1996 notice. The Company cannot predict the outcome of this matter. As a regulated entity, the Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (SFAS-71). Accordingly, the Company records certain regulatory assets and liabilities resulting from the effects of the ratemaking process. These assets and liabilities would not be recorded under generally accepted accounting principles for unregulated entities. The Company's ability to continue to meet the criteria for application of SFAS-71 may be affected in the future by competitive forces, deregulation and restructuring in the electric utility industry. In the event that SFAS-71 no longer applied to a separable portion of the Company's operations, related regulatory assets and liabilities would be eliminated unless an appropriate regulatory recovery mechanism is provided. Additionally, these factors could result in an impairment of electric utility plant assets as determined pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Year 2000 Computer Issues - ------------------------- The Company initiated steps in 1994 to bring its computer systems into Year 2000 compliance. Only a few of the Company's core business applications remain to be brought into compliance. All remaining computer systems, including equipment and devices containing microprocessors, are being evaluated and will be brought into compliance or replaced if necessary. Estimated costs to be incurred will be determined as this evaluation is finalized. The Year 2000 issue may affect other entities with which the Company transacts business. The Company cannot estimate or predict the potential adverse consequences, if any, that could result from such entities' failure to address this issue. 46 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ---------------------------------------------------------- The Company is exposed to certain market risks that are inherent in the Company's financial instruments, which arise from transactions entered into in the normal course of business. The Company's primary exposures are to earnings, cash flow and fair value risks due to changes in interest rates with respect to its long-term debt. The Company manages its interest rate risks through use of a combination of fixed and variable rate debt. Variable rate debt has rates that adjust in periods ranging from daily to monthly. For the Company's long-term debt obligations at December 31, 1997, including current portions, the table below presents principal cash flows and related weighted-average interest rates, by expected maturity date.
1998 1999 2000 2001 2002 Thereafter Total Fair Value (Dollars in millions) ------- ------- ------- ------- ------- --------- ------- ------- Fixed rate long-term debt $ 208 $ 53 $ 197 - $ 100 $1,219 $1,777 $1,846 Average interest rate 5.57% 7.11% 5.92% - 6.75% 7.41% 6.98% Variable rate long-term debt - - - - - $ 620 $ 620 $ 622 Average interest rate - - - - - 3.75% 3.75%
The table above excludes commercial paper classified as long-term debt. Commercial paper does not have associated significant interest rate risk due to the short maturity of that instrument. 47 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------------------- The following consolidated financial statements, supplementary data and consolidated financial statement schedules are included herein:
Page Independent Auditors' Report 49 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 50 Consolidated Balance Sheets as of December 31, 1997 and 1996 51 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 52 Consolidated Schedules of Capitalization as of December 31, 1997 and 1996 53 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995 54 Consolidated Quarterly Financial Data (Unaudited) 54 Notes to Consolidated Financial Statements 55 Consolidated Financial Statement Schedules for the Years Ended December 31, 1997, 1996 and 1995: II- Valuation and Qualifying Accounts 67 All other schedules have been omitted as not applicable or not required or because the information required to be shown is included in the Consolidated Financial Statements or the accompanying Notes to Consolidated Financial Statements.
48 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CAROLINA POWER & LIGHT COMPANY: We have audited the accompanying consolidated balance sheets and schedules of capitalization of Carolina Power & Light Company and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the Index at Item 8. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Carolina Power & Light and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets and schedules of capitalization as of December 31, 1995, 1994, and 1993, and the related consolidated statements of income, retained earnings, and cash flows for the years ended December 31, 1994 and 1993 (none of which are presented herein); and we expressed unqualified opinions on those financial statements. In our opinion, the information set forth in the selected financial data for each of the five years in the period ended December 31, 1997, and appearing at Item 6, is fairly presented in all material respects in relation to the consolidated financial statements from which it has been derived. /s/ DELOITTE & TOUCHE LLP - --------------------------- Raleigh, North Carolina February 9, 1998 49 CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31 (In thousands except per share data) 1997 1996 1995 - --------------------------------------------------------------- ------------ ------------ ----------- Operating revenues $ 3,024,089 $ 2,995,715 $ 3,006,553 - --------------------------------------------------------------- ------------ ------------ ----------- Operating expenses - --------------------------------------------------------------- ------------ ------------ ----------- Fuel 534,268 515,050 529,812 Purchased power 387,296 412,554 409,940 Other operation and maintenance 661,466 730,140 738,031 Depreciation and amortization 481,650 386,927 364,527 Taxes other than on income 139,478 140,479 144,043 Income tax expense 253,048 269,763 259,224 Harris Plant deferred costs, net 24,296 26,715 28,128 - --------------------------------------------------------------- ------------ ------------ ----------- Total operating expenses 2,481,502 2,481,628 2,473,705 - --------------------------------------------------------------- ------------ ------------ ----------- Operating income 542,587 514,087 532,848 - --------------------------------------------------------------- ------------ ------------ ----------- Other income - --------------------------------------------------------------- ------------ ------------ ----------- Allowance for equity funds used during construction - 11 3,350 Income tax credit 19,332 13,847 18,541 Harris Plant carrying costs 4,626 7,299 8,297 Interest income 18,335 4,063 8,680 Other income, net (19,275) 37,340 9,063 - --------------------------------------------------------------- ------------ ------------ ----------- Total other income 23,018 62,560 47,931 - --------------------------------------------------------------- ------------ ------------ ----------- Income before interest charges 565,605 576,647 580,779 - --------------------------------------------------------------- ------------ ------------ ----------- Interest charges - --------------------------------------------------------------- ------------ ------------ ----------- Long-term debt 163,468 172,622 187,397 Other interest charges 18,743 19,155 25,896 Allowance for borrowed funds used during construction (4,923) (6,407) (5,118) - --------------------------------------------------------------- ------------ ------------ ----------- Total interest charges, net 177,288 185,370 208,175 - --------------------------------------------------------------- ------------ ------------ ----------- Net income $ 388,317 $ 391,277 $ 372,604 - --------------------------------------------------------------- ------------ ------------ ----------- Preferred stock dividend requirements (6,052) (9,609) (9,609) - --------------------------------------------------------------- ------------ ------------ ----------- Earnings for common stock $ 382,265 $ 381,668 $ 362,995 - --------------------------------------------------------------- ------------ ------------ ----------- Average common shares outstanding 143,645 143,621 146,232 - --------------------------------------------------------------- ------------ ------------ ----------- Basic and diluted earnings per common share $ 2.66 $ 2.66 $ 2.48 - --------------------------------------------------------------- ------------ ------------ ----------- Dividends declared per common share $ 1.895 $ 1.835 $ 1.775 - --------------------------------------------------------------- ------------ ------------ ----------- See notes to consolidated financial statements.
50 CONSOLIDATED BALANCE SHEETS
(In thousands) December 31 ASSETS 1997 1996 - ------------------------------------------------------------------------------------------------------- Electric utility plant - ------------------------------------------------------------------------------------------------------- Electric utility plant in service $ 10,113,334 $ 9,783,442 Accumulated depreciation (4,181,417) (3,796,645) - ------------------------------------------------------------------------------------------------------- Electric utility plant in service, net 5,931,917 5,986,797 Held for future use 12,255 12,127 Construction work in progress 158,347 196,623 Nuclear fuel, net of amortization 190,991 204,372 - ------------------------------------------------------------------------------------------------------- Total electric utility plant, net 6,293,510 6,399,919 - ------------------------------------------------------------------------------------------------------- Current assets - ------------------------------------------------------------------------------------------------------- Cash and cash equivalents 14,426 10,941 Accounts receivable 406,872 384,318 Fuel 47,551 60,369 Materials and supplies 136,253 122,809 Deferred fuel cost (credit) 20,630 (4,339) Prepayments 62,040 65,794 Other current assets 47,034 27,808 - ------------------------------------------------------------------------------------------------------- Total current assets 734,806 667,700 - ------------------------------------------------------------------------------------------------------- Deferred debits and other assets (Note 6) - ------------------------------------------------------------------------------------------------------- Income taxes recoverable through future rates 328,818 384,336 Abandonment costs 38,557 65,863 Harris Plant deferred costs 63,727 83,397 Unamortized debt expense 48,407 69,956 Nuclear decommissioning trust funds 245,523 145,316 Miscellaneous other property and investments 256,291 344,018 Other assets and deferred debits 211,089 204,357 - ------------------------------------------------------------------------------------------------------- Total deferred debits and other assets 1,192,412 1,297,243 - ------------------------------------------------------------------------------------------------------- Total assets $ 8,220,728 $ 8,364,862 - ------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES - ------------------------------------------------------------------------------------------------------- Capitalization (see consolidated schedules of capitalization) - ------------------------------------------------------------------------------------------------------- Common stock equity $ 2,818,807 $ 2,690,454 Preferred stock - redemption not required 59,376 143,801 Long-term debt, net 2,415,656 2,525,607 - ------------------------------------------------------------------------------------------------------- Total capitalization 5,293,839 5,359,862 - ------------------------------------------------------------------------------------------------------- Current liabilities - ------------------------------------------------------------------------------------------------------- Current portion of long-term debt 207,979 103,345 Short-term debt - 64,885 Accounts payable 290,352 375,216 Interest accrued 43,620 39,436 Dividends declared 72,266 73,469 Other current liabilities 116,609 74,668 - ------------------------------------------------------------------------------------------------------- Total current liabilities 730,826 731,019 - ------------------------------------------------------------------------------------------------------- Deferred credits and other liabilities - ------------------------------------------------------------------------------------------------------- Accumulated deferred income taxes 1,722,908 1,827,693 Accumulated deferred investment tax credits 222,028 232,262 Other liabilities and deferred credits 251,127 214,026 - ------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 2,196,063 2,273,981 - ------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) - ------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $ 8,220,728 $ 8,364,862 - ------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
51 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 (In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Operating activities - ------------------------------------------------------------------------------------------------------------------------- Net income $ 388,317 $ 391,277 $ 372,604 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 565,212 446,508 446,662 Harris Plant deferred costs 19,670 19,416 19,831 Deferred income taxes (66,546) 130,818 89,681 Investment tax credit (10,232) (10,445) (9,344) Allowance for equity funds used during construction - (11) (3,350) Deferred fuel credit (24,969) (23,156) (849) Net increase in receivables, inventories and prepaid expenses (111,216) (64,793) (77,849) Net increase (decrease) in payables and accrued expenses (6,414) 4,671 (39,592) Miscellaneous 64,223 17,922 75,308 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 818,045 912,207 873,102 - ------------------------------------------------------------------------------------------------------------------------- Investing activities - ------------------------------------------------------------------------------------------------------------------------- Gross property additions (388,676) (369,308) (266,400) Nuclear fuel additions (61,509) (87,265) (77,346) Contributions to nuclear decommissioning trust (30,726) (30,683) (38,075) Contributions to retiree benefit trusts (21,096) (24,700) (2,400) Net cash flow of company-owned life insurance program 138,508 46,930 (39,679) Allowance for equity funds used during construction - 11 3,350 Miscellaneous 6,706 (28,046) (28,515) - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (356,793) (493,061) (449,065) - ------------------------------------------------------------------------------------------------------------------------- Financing activities - ------------------------------------------------------------------------------------------------------------------------- Proceeds from issuance of long-term debt 199,075 - 180,713 Net increase (decrease) in short-term debt (maturity less than 90 (62,224) (8,858) 5,643 days) Net increase (decrease) in commercial paper classified as long-term (104,100) 350,000 - debt (Note 3) Retirement of long-term debt (103,410) (467,810) (276,144) Redemption of preferred stock (85,850) - - Purchase of Company common stock (23,418) (25,208) (132,439) Dividends paid on common and preferred stock (277,840) (270,818) (267,560) - ------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (457,767) (422,694) (489,787) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 3,485 (3,548) (65,750) Cash and cash equivalents at beginning of year 10,941 14,489 80,239 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 14,426 $ 10,941 $ 14,489 - ------------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information Cash paid during the year - interest $ 171,511 $ 194,391 $ 203,296 income taxes $ 289,693 $ 141,350 $ 177,163 Noncash Activities In June 1997, Strategic Resource Solutions Corp. (formerly CaroCapital, Inc.), a wholly-owned subsidiary, purchased all remaining shares of Knowledge Builders, Inc. (KBI). In connection with the purchase of KBI, the Company issued $20.5 million in common stock and paid $1.9 million in cash. See notes to consolidated financial statements.
52 CONSOLIDATED SCHEDULES OF CAPITALIZATION
December, 31 (Dollars in thousands except per share data) 1997 1996 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Common stock equity - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Common stock without par value, authorized 200,000,000 shares, issued and outstanding 151,340,394 and 151,415,722 shares, respectively (Note 7) $ 1,371,520 $ 1,366,100 Unearned ESOP common stock (165,804) (178,514) Capital stock issuance expense (790) (790) Retained earnings (Note 5) 1,613,881 1,503,658 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Total common stock equity $ 2,818,807 $ 2,690,454 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Cumulative preferred stock, without par value (entitled to $100 a share plus accumulated dividends in the event of liquidation; outstanding shares are as of December 31, 1997) - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Preferred stock - redemption not required: Authorized - 300,000 shares $5.00 Preferred Stock; 20,000,000 shares Serial Preferred Stock $5.00 Preferred - 237,259 shares outstanding (redemption price $110.00) $ 24,376 $ 24,376 4.20 Serial Preferred - 100,000 shares outstanding (redemption price $102.00) 10,000 10,000 5.44 Serial Preferred - 250,000 shares outstanding (redemption price $101.00) 25,000 25,000 7.95 Serial Preferred - 35,000 7.72 Serial Preferred - 49,425 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Total preferred stock - redemption not required $ 59,376 $ 143,801 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Long-term debt (interest rates are as of December 31, 1997) - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- First mortgage bonds: 6.375% due 1997 $ - $ 40,000 5.375% and 6.875% due 1998 140,000 140,000 6.125% due 2000 150,000 150,000 6.75% due 2002 100,000 100,000 5.875% and 7.875% due 2004 300,000 300,000 6.80% due 2007 200,000 - 6.875% to 8.625% due 2021-2023 500,000 500,000 First mortgage bonds - secured medium-term notes: 7.75% due 1997 - 60,000 5.00% to 5.06% due 1998 65,000 65,000 7.15% due 1999 50,000 50,000 First mortgage bonds - pollution control series: 6.30% to 6.90% due 2009-2014 93,530 93,530 3.80% and 4.00% due 2024 122,600 122,600 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Total first mortgage bonds 1,721,130 1,621,130 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Other long-term debt: Pollution control obligations backed by letter of credit, 3.70% to 5.40% due 2014-2017 442,000 442,000 Other pollution control obligations, 3.90% due 2019 55,640 55,640 Unsecured subordinated debentures, 8.55% due 2025 125,000 125,000 Commercial paper reclassified to long-term debt (Note 3) 245,900 350,000 Miscellaneous notes 53,486 56,858 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Total other long-term debt 922,026 1,029,498 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Unamortized premium and discount, net (19,521) (21,676) Current portion of long-term debt (207,979) (103,345) - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Total long-term debt, net $ 2,415,656 $ 2,525,607 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- Total capitalization $ 5,293,839 $ 5,359,862 - ------------------------------------------------------------------------------------------- --- -------------- --- ------------- See notes to consolidated financial statements.
53 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years ended December 31 (In thousands except per share data) 1997 1996 1995 - --------------------------------------------------------- ---- --------------- ---- --------------- ---- -------------- Retained earnings at beginning of year $ 1,503,658 $ 1,385,378 $ 1,280,960 - --------------------------------------------------------- ---- --------------- ---- --------------- ---- -------------- Net income 388,317 391,277 372,604 Preferred stock dividends at stated rates (4,627) (9,609) (9,609) Common stock dividends at annual per share rate of $1.895, $1.835 and $1.775, respectively (272,011) (263,388) (258,577) Other adjustments (1,456) - - - --------------------------------------------------------- ---- --------------- ---- --------------- ---- -------------- Retained earnings at end of year $ 1,613,881 $ 1,503,658 $ 1,385,378 - --------------------------------------------------------- ---- --------------- ---- --------------- ---- --------------
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth (In thousands except per share data) Quarter Quarter Quarter Quarter ------------------------------------------------------------------------------------------------------------ Year ended December 31, 1997 ------------------------------------------------------------------------------------------------------------ Operating revenues $ 716,084 $ 666,023 $ 906,841 $ 735,141 Operating income 122,762 86,988 211,281 121,556 Net income 82,262 54,289 167,829 83,937 Common stock data: Basic and diluted earnings per common share .56 .37 1.15 .58 Dividend paid per common share .470 .470 .470 .470 Price per share - high 37 7/8 36 1/4 36 5/8 42 1/2 low 36 1/8 33 33 3/4 34 5/16 ------------------------------------------------------------------------------------------------------------ Year ended December 31, 1996 ------------------------------------------------------------------------------------------------------------ Operating revenues $ 783,585 $ 685,968 $ 831,590 $ 694,572 Operating income 154,428 94,966 164,125 100,568 Net income 118,346 62,656 129,159 81,116 Common stock data: Basic and diluted earnings per common share .81 .42 .88 .55 Dividend paid per common share .455 .455 .455 .455 Price per share - high 38 3/8 38 38 1/4 37 low 34 1/2 34 7/8 34 1/8 34 1/4 See notes to consolidated financial statements.
54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation a. Organization Carolina Power & Light Company (the Company) is a public service corporation primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North and South Carolina. The Company has no other material segments of business. b. Basis of Presentation The consolidated financial statements are prepared in accordance with generally accepted accounting principles. The accounting records of the Company are maintained in accordance with uniform systems of accounts prescribed by the Federal Energy Regulatory Commission (FERC), the North Carolina Utilities Commission (NCUC) and the South Carolina Public Service Commission (SCPSC). Certain amounts for 1996 and 1995 have been reclassified to conform to the 1997 presentation, with no effect on previously reported net income or common stock equity. 2. Summary of Significant Accounting Policies a. Principles of Consolidation The consolidated financial statements include the activities of the Company and majority-owned subsidiaries. These subsidiaries have invested in areas such as communications technology, energy-management services and affordable housing. Significant intercompany balances and transactions have been eliminated. b. Use of Estimates and Assumptions In preparing financial statements that conform with generally accepted accounting principles, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses reflected during the reporting period. Actual results could differ from those estimates. c. Electric Utility Plant The cost of additions, including betterments and replacements of units of property, is charged to electric utility plant. Maintenance and repairs of property, and replacements and renewals of items determined to be less than units of property, are charged to maintenance expense. The cost of units of property replaced, renewed or retired, plus removal or disposal costs, less salvage, is charged to accumulated depreciation. Generally, electric utility plant other than nuclear fuel is subject to the lien of the Company's mortgage. The balances of electric utility plant in service at December 31 are listed below (in millions).
1997 1996 ------- ------- Production plant $ 6,297 $ 6,161 Transmission plant 952 940 Distribution plant 2,327 2,179 General plant and other 537 503 ------- ------- Electric utility plant in service $10,113 $ 9,783 ======= =======
55 As prescribed in regulatory uniform systems of accounts, an allowance for the cost of borrowed and equity funds used to finance electric utility plant construction (AFUDC) is charged to the cost of plant. Regulatory authorities consider AFUDC an appropriate charge for inclusion in the Company's utility rates to customers over the service life of the property. The equity funds portion of AFUDC is credited to other income and the borrowed funds portion is credited to interest charges. The composite AFUDC rate was 5.6% in 1997, 5.8% in 1996 and 8.0% in 1995. d. Depreciation and Amortization For financial reporting purposes, depreciation of electric utility plant other than nuclear fuel is computed on the straight-line method based on the estimated remaining useful life of the property, adjusted for estimated net salvage. Depreciation provisions, including decommissioning costs (see Note 2e), as a percent of average depreciable property other than nuclear fuel, were approximately 3.9% in 1997 and 1996 and 3.8% in 1995. Depreciation expense totaled $382.1 million, $363.2 million and $344.0 million in 1997, 1996 and 1995, respectively. Depreciation and amortization expense also includes amortization of deferred operation and maintenance expenses associated with Hurricane Fran, which struck significant portions of the Company's service territory in September 1996. In December 1996, the NCUC authorized the Company to defer these expenses (approximately $40 million) with amortization over a 40-month period. In December 1996, the NCUC authorized the Company to accelerate amortization of certain regulatory assets over a three-year period beginning January 1, 1997. In March 1997, the SCPSC approved a similar plan for the Company to accelerate the amortization of certain regulatory assets, including plant abandonment costs related to the Harris Plant, over a three-year period beginning January 1, 1997. The accelerated amortization of these regulatory assets results in additional depreciation and amortization expenses of approximately $68 million in each year of the three-year period. Depreciation and amortization expense also includes amortization of plant abandonment costs (see Note 6c). Amortization of nuclear fuel costs, including disposal costs associated with obligations to the U.S. Department of Energy (DOE), is computed primarily on the unit-of-production method and charged to fuel expense. Costs related to obligations to the DOE for the decommissioning and decontamination of enrichment facilities are also charged to fuel expense. e. Nuclear Decommissioning In the Company's retail jurisdictions, provisions for nuclear decommissioning costs are approved by the NCUC and the SCPSC and are based on site-specific estimates that include the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning costs are based on amounts agreed upon in applicable rate agreements. Decommissioning cost provisions, which are included in depreciation and amortization expense, were $33.2 million, $33.1 million and $31.2 million in 1997, 1996 and 1995, respectively. Accumulated decommissioning costs, which are included in accumulated depreciation, were $428.7 million and $326 million at December 31, 1997 and 1996, respectively. These costs include amounts retained internally and amounts funded in an external decommissioning trust. The balance of the nuclear decommissioning trust was $245.5 million and $145.3 million at December 31, 1997 and 1996, respectively. Trust earnings increase the trust balance with a corresponding increase in the accumulated decommissioning balance. These balances are adjusted for net unrealized gains and losses. Based on the site-specific estimates discussed below, and using an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate of 4%, current levels of rate recovery for nuclear decommissioning costs are adequate to provide for decommissioning of the Company's nuclear facilities. 56 The Company's most recent site-specific estimates of decommissioning costs were developed in 1993, using 1993 cost factors, and are based on prompt dismantlement decommissioning, which reflects the cost of removal of all radioactive and other structures currently at the site, with such removal occurring shortly after operating license expiration. These estimates, in 1993 dollars, are $257.7 million for Robinson Unit No. 2, $235.4 million for Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2 and $284.3 million for the Harris Plant. The estimates are subject to change based on a variety of factors including, but not limited to, cost escalation, changes in technology applicable to nuclear decommissioning and changes in federal, state or local regulations. The cost estimates exclude the portion attributable to North Carolina Eastern Municipal Power Agency (Power Agency), which holds an undivided ownership interest in the Brunswick and Harris nuclear generating facilities. Operating licenses for the Company's nuclear units expire in the year 2010 for Robinson Unit No. 2, 2016 for Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the Harris Plant. The Financial Accounting Standards Board has reached several tentative conclusions with respect to its project regarding accounting practices related to closure and removal of long-lived assets. It is uncertain when the final statement will be issued and what impacts it may ultimately have on the Company's accounting for nuclear decommissioning and other closure and removal costs. f. Other Policies Customers' meters are read and bills are rendered on a cycle basis. Revenues are accrued for services rendered but unbilled at the end of each accounting period. Fuel expense includes fuel costs or recoveries that are deferred through fuel clauses established by the Company's regulators. These clauses allow the Company to recover fuel costs and the fuel component of purchased power costs through the fuel component of customer rates. Other property and investments are stated principally at cost. The Company maintains an allowance for doubtful accounts receivable, which totaled $3.4 million and $3.7 million at December 31, 1997 and 1996, respectively. Fuel inventory and materials and supplies inventory are carried on a first-in, first-out or average cost basis. Long-term debt premiums, discounts and issuance expenses are amortized over the life of the related debt using the straight-line method. Any expenses or call premiums associated with the reacquisition of debt obligations are amortized over the remaining life of the original debt using the straight-line method, except that December 31, 1996 balances are being amortized on a three-year accelerated basis (see Note 6a). The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. 3. Short-Term Debt and Revolving Credit Facilities As of December 31, 1997, the Company's revolving credit facilities totaled $515 million, substantially all of which are long-term agreements supporting its commercial paper borrowings. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. Consistent with management's intent to maintain a portion of its commercial paper on a long-term basis, and as supported by its long-term revolving credit facilities, the Company included in long-term debt $245.9 million and $350 million of commercial paper outstanding as of December 31, 1997 and 1996, respectively. Also, at December 31, 1996, the Company had other short-term debt which totaled $64.9 million. The weighted-average interest rates of these borrowings were 5.85% and 5.41% at December 31, 1997 and 1996, respectively, including commercial paper reclassified as long-term debt. 4. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents and short-term debt approximate fair value due to the short maturities of these instruments. The carrying amount of the Company's long-term debt was $2.66 billion and $2.67 billion at December 31, 1997 and 1996, respectively. The estimated fair value of this debt, as obtained 57 from an independent pricing service, was $2.71 billion and $2.67 billion at December 31, 1997 and 1996, respectively. There are inherent limitations in any estimation technique, and these estimates are not necessarily indicative of the amount the Company could realize in current transactions. External funds have been established, as required by the Nuclear Regulatory Commission, as a mechanism to fund certain costs of nuclear decommissioning (see Note 2e). These nuclear decommissioning trust funds are invested in U.S. stocks, bonds and cash equivalents. "Nuclear decommissioning trust funds" are presented at amounts that approximate fair value. 5. Capitalization In 1994, the Board of Directors of the Company authorized the repurchase of up to 10 million shares of the Company's common stock on the open market. Under this stock repurchase program, the Company purchased approximately 0.7 million shares in both 1997 and 1996, 4.2 million shares in 1995 and 4.4 million shares in 1994. The program was completed in 1997. As of December 31, 1997, the Company had 20,163,180 shares of authorized but unissued common stock reserved and available for issuance, primarily to satisfy the requirements of the Company's stock plans. The Company intends, however, to meet the requirements of these stock plans with issued and outstanding shares presently held by the Trustee of the Stock Purchase-Savings Plan or with open market purchases of common stock shares, as appropriate. The Company's mortgage, as supplemented, and charter contain provisions limiting the use of retained earnings for the payment of dividends under certain circumstances. As of December 31, 1997, there were no significant restrictions on the use of retained earnings. As of December 31, 1997, long-term debt maturities for the years 1998, 1999, 2000 and 2002 are $208 million, $53 million, $197 million and $100 million, respectively. There are no long-term debt maturities in 2001. 6. Regulatory Matters a. Regulatory Assets As a regulated entity, the Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (SFAS-71). See Note 11c for additional discussion of SFAS-71. Accordingly, the Company records certain assets resulting from the effects of the ratemaking process, which would not be recorded under generally accepted accounting principles for unregulated entities. At December 31, 1997, the balances of the Company's regulatory assets were as follows (in millions): Income taxes recoverable through future rates* $ 329 Harris Plant deferred costs 64 Abandonment costs* 38 Loss on reacquired debt (included in unamortized debt expense)* 42 Deferred fuel 21 Items included in other assets and deferred debits: Deferred DOE enrichment facilities-related costs 49 Deferred hurricane-related costs 24 Emission allowance carrying costs* 8 ----- Total $ 575 ===== * Beginning in 1997, all or certain portions of these regulatory assets are subject to accelerated amortization (see Note 2d). 58 b. Retail Rate Matters A petition was filed in July 1996 by the Carolina Industrial Group for Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an investigation of the Company's base rates or treat its petition as a complaint against the Company. The petition alleged that the Company's return on equity (which was authorized by the NCUC in the Company's last general rate proceeding in 1988) and earnings are too high. In December 1996, the NCUC issued an order denying CIGFUR's petition and stating that it tentatively found no reasonable grounds to proceed with CIGFUR's petition as a complaint. In January 1997, CIGFUR filed its Comments and Motion for Reconsideration, to which the Company responded. In February 1997, the NCUC issued an order denying CIGFUR's Motion for Reconsideration. CIGFUR filed a Notice of Appeal of the NCUC Order with the North Carolina Court of Appeals. The Company filed its brief in this matter in July 1997, and oral argument was held before the North Carolina Court of Appeals in November 1997. The Company cannot predict the outcome of this matter. c. Plant-related Deferred Costs The Company abandoned efforts to complete Mayo Unit No. 2 in March 1987. The NCUC and SCPSC each allowed the Company to recover the cost of the abandoned unit over a ten-year period without a return on the unamortized balance. In the 1988 rate orders, the Company was ordered to remove from rate base and treat as abandoned plant certain costs related to the Harris Plant. Abandoned plant amortization related to the 1988 rate orders will be completed in 1998 for the North Carolina retail and wholesale jurisdictions and in 1999 for the South Carolina retail jurisdiction. Amortization of plant abandonment costs is included in depreciation and amortization expense and totaled $30.8 million, $17.6 million and $18.3 million in 1997, 1996 and 1995, respectively. The unamortized balances of plant abandonment costs are reported at the present value of future recoveries of these costs. The associated accretion of the present value was $3.5 million, $26.4 million and $4.3 million in 1997, 1996 and 1995, respectively, and is reported in other income, net. The accretion for 1996 includes a $22.9 million adjustment to the unamortized balance of plant abandonment costs related to the Harris Plant. This adjustment was made to reflect the present value impact of the shorter recovery period resulting from accelerated amortization of this asset (see Note 2d). 7. Employee Stock Ownership Plan The Company sponsors the Stock Purchase-Savings Plan (SPSP) for which substantially all full-time employees and certain part-time employees are eligible. The SPSP, which has Company matching and incentive goal features, encourages systematic savings by employees and provides a method of acquiring Company common stock and other diverse investments. The SPSP, as amended in 1989, is an employee stock ownership plan (ESOP) that can enter into acquisition loans to acquire Company common stock to satisfy SPSP common share needs. Qualification as an ESOP did not change the level of benefits received by employees under the SPSP. Common stock acquired with the proceeds of an ESOP loan is held by the SPSP Trustee in a suspense account. The common stock is released from the suspense account and made available for allocation to participants as the ESOP loan is repaid. Such allocations are used to partially meet common stock needs related to participant contributions, Company matching and incentive contributions and/or reinvested dividends. Dividends paid on ESOP suspense shares and on ESOP shares allocated to participants are used to repay ESOP acquisition loans. These dividends are deductible for income tax purposes. There were 7,536,600 ESOP suspense shares at December 31, 1997, with a fair value of $319.4 million. ESOP shares allocated to plan participants totaled 13,252,988 at December 31, 1997. The Company has a long-term note receivable from the SPSP Trustee related to the purchase of common stock from the Company in 1989. The balance of the note receivable from the SPSP Trustee is included in the determination of unearned ESOP common stock, which reduces common stock equity. ESOP shares that have not been committed to be released to participants' accounts are not considered outstanding for the determination of earnings per common share. 59 Interest income on the note receivable and dividends on unallocated ESOP shares are not recognized for financial statement purposes. 8. Postretirement Benefit Plans The Company has a noncontributory defined benefit retirement (pension) plan for substantially all full-time employees, and funds the pension plan in amounts that comply with contribution limits imposed by law. Pension plan benefits reflect an employee's compensation, years of service and age at retirement. The components of net periodic pension cost are (in thousands): 1997 1996 1995 ---- ---- ---- Actual return on plan assets $ (110,346) $ (76,347) $ (103,381) Variance from expected return, deferred 57,368 27,056 59,425 ----------- ---------- ---------- Expected return on plan assets (52,978) (49,291) (43,956) Service cost 18,643 19,257 16,344 Interest cost on projected benefit obligation 42,468 39,505 35,592 Net amortization 1,037 466 (3,580) ----------- ----------- ----------- Net periodic pension cost $ 9,170 $ 9,937 $ 4,400 =========== =========== =========== Reconciliations of the funded status of the pension plan at December 31 are (in thousands): 1997 1996 ---- ---- Actuarial present value of benefits for services rendered to date: Accumulated benefits based on salaries to date, including vested benefits of $463.1 million for 1997 and $415.1 million for 1996 $ 497,517 $ 452,552 Additional benefits based on estimated future salary levels 100,643 106,136 ---------- ---------- Projected benefit obligation 598,160 558,688 Fair market value of plan assets, invested primarily in equity and fixed-income securities 768,297 683,508 ---------- ---------- Funded status 170,137 124,820 Unrecognized prior service costs 10,916 8,023 Unrecognized actuarial gain (212,419) (155,145) Unrecognized transition obligation, amortized over 18.5 years beginning January 1, 1987 793 899 ---------- ---------- Accrued pension costs $ (30,573) $ (21,403) ========== ========== 60 The weighted-average discount rate used to measure the projected benefit obligation was 7.75% in both 1997 and 1996. The assumed rate of increase in future compensation used to measure the projected benefit obligation was 4.20% in both 1997 and 1996. The expected long-term rate of return on pension plan assets used in determining the net periodic pension cost was 9.25% in both 1997 and 1996 and 9% in 1995. In addition to pension benefits, the Company provides contributory postretirement benefits (OPEB), including certain health care and life insurance benefits, for substantially all retired employees. The components of net periodic OPEB cost are (in thousands): 1997 1996 1995 ---- ---- ---- Actual return on plan assets $ (4,628) $ (2,656) $ (2,514) Variance from expected return, deferred 2,186 726 1,420 ----------- ---------- ---------- Expected return on plan assets (2,442) (1,930) (1,094) Service cost 7,988 8,412 7,498 Interest cost on accumulated benefit obligation 11,065 10,629 10,595 Net amortization 5,889 5,889 5,530 ---------- ---------- ---------- Net periodic OPEB cost $ 22,500 $ 23,000 $ 22,529 ==================================== Reconciliations of the funded status of the OPEB plans at December 31 are (in thousands): 1997 1996 --------- --------- Actuarial present value of benefits for services rendered to date: Current retires $ 60,588 $ 60,534 Active employees eligible to retire 23,009 19,607 Active employees not eligible to retire 97,727 84,346 --------- --------- Accumulated postretirement benefit obligation 181,324 164,487 Fair market value of plan assets, invested primarily in equity and fixed-income securities 33,427 28,799 --------- --------- Funded status (147,897) (135,688) Unrecognized actuarial gain (10,506) (11,339) Unrecognized transition obligation, amortized over 20 years beginning January 1, 1993 88,336 94,225 ---------- ---------- Accrued OPEB costs $ (70,067) $ (52,802) ========== ========== 61 The assumptions used to measure the accumulated postretirement benefit obligation are: 1997 1996 ---- ---- Weighted-average discount rate 7.75% 7.75% Initial medical cost trend rate for pre-Medicare benefits 7.20% 7.70% Initial medical cost trend rate for post-Medicare benefits 7.00% 7.50% Ultimate medical cost trend rate 5.25% 5.25% Year ultimate medical cost trend rate is achieved 2005 2005 The expected long-term rate of return on plan assets used in determining the net periodic OPEB cost was 9.25% in both 1997 and 1996 and 9% in 1995. Assuming a 1% increase in the medical cost trend rates, the aggregate of the service and interest cost components of the net periodic OPEB cost for 1997 would increase by $3.3 million, and the accumulated postretirement benefit obligation at December 31, 1997, would increase by $20.8 million. In general, OPEB costs are paid as claims are incurred and premiums are paid; however, the Company is partially funding retiree health care benefits in a trust created pursuant to Section 401(h) of the Internal Revenue Code. 9. Income Taxes Deferred income taxes are provided for temporary differences between book and tax bases of assets and liabilities. Income taxes are allocated between operating income and other income based on the source of the income that generated the tax. Investment tax credits related to operating income are amortized over the service life of the related property. Net accumulated deferred income tax liabilities at December 31 are (in thousands): 1997 1996 ---- ---- Accelerated depreciation and property cost differences $ 1,676,505 $ 1,734,001 Deferred costs, net 87,829 122,580 Miscellaneous other temporary differences, net 300 23 ----------- ----------- Net accumulated deferred income tax liability $ 1,764,634 $ 1,856,604 =========== =========== Total deferred income tax liabilities were $2.24 billion and $2.30 billion at December 31, 1997, and 1996, respectively. Total deferred income tax assets were $472 million at December 31, 1997, and $439 million at December 31, 1996. A reconciliation of the Company's effective income tax rate to the statutory federal income tax rate is as follows: 62 1997 1996 1995 ---- ---- ---- Effective income tax rate 37.5% 39.5% 39.2% State income taxes, net of federal income tax benefit (4.9) (4.9) (5.0) Investment tax credit amortization 1.7 1.6 1.6 Other differences, net 0.7 (1.2) (0.8) Statutory federal income tax rate 35.0% 35.0% 35.0% The provisions for income tax expense are comprised of (in thousands): 1997 1996 1995 ---- ---- ---- Included in Operating Expenses Income tax expense (credit) Current - federal $ 272,570 $ 132,570 $ 143,440 state 59,308 29,380 41,826 Deferred - federal (59,618) 97,303 75,442 state (8,980) 20,955 7,860 Investment tax credit (10,232) (10,445) (9,344) ---------- ---------- --------- Subtotal 253,048 269,763 259,224 ---------- ---------- --------- Harris Plant deferred costs Investment tax credit (151) (286) (297) ---------- ---------- --------- Total included in operating expenses 252,897 269,477 258,927 ---------- ---------- --------- Included in Other Income Income tax expense (credit) Current - federal (14,520) (22,382) (20,669) state (2,561) (4,025) (4,251) Deferred - federal (1,766) 10,286 5,254 state (485) 2,274 1,125 ---------- ---------- --------- Total included in other income (19,332) (13,847) (18,541) ----------- -------- -------- Total income tax expense $ 233,565 $ 255,630 $ 240,386 =========== ========== ========== 10. Joint Ownership of Generating Facilities Power Agency holds undivided ownership interests in certain generating facilities of the Company. The Company and Power Agency are entitled to shares of the generating capability and output of each unit equal to their respective ownership interests. Each also pays its ownership share of additional construction costs, fuel inventory purchases and operating expenses. The Company's share of expenses for the jointly owned units is included in the appropriate expense category. The Company's share of the jointly owned generating facilities is listed below with related information as of December 31, 1997 (dollars in millions): 63 Company Megawatt Ownership Plant Accumulate Under Facility Capability Interest Investment Depreciation Construction - -------- ---------- --------- ---------- ------------ ------------ Mayo Plant 745 83.83% $ 450 $ 180 $ 1 Harris Plant 860 83.83% $ 3,014 $ 933 $ 16 Brunswick Plant 1,521 81.67% $ 1,420 $ 910 $ 4 Roxboro Unit No. 4 700 87.06% $ 231 $ 104 $ 4 In the table above, plant investment and accumulated depreciation, which includes accumulated nuclear decommissioning, are not reduced by the regulatory disallowances related to the Harris Plant. 11. Commitments and Contingencies a. Purchased Power Pursuant to the terms of the 1981 Power Coordination Agreement, as amended, between the Company and Power Agency, the Company is obligated to purchase a percentage of Power Agency's ownership capacity of, and energy from, the Mayo and Harris Plants. For Mayo, the buyback period ended in 1997. In 1993, the Company and Power Agency entered into an agreement to restructure portions of their contracts covering power supplies and interests in jointly owned units. Under the terms of the 1993 agreement, the Company increased the amount of capacity and energy purchased from Power Agency's ownership interest in the Harris Plant, and the buyback period was extended six years through 2007. The estimated minimum annual payments for these purchases, which reflect capital-related capacity costs, total approximately $26 million. Contractual purchases from the Mayo and Harris plants totaled $36.2 million, $36.7 million and $39.4 million for 1997, 1996 and 1995, respectively. In 1987, the NCUC ordered the Company to reflect the recovery of the capacity portion of these costs on a levelized basis over the original 15-year buyback period, thereby deferring for future recovery the difference between such costs and amounts collected through rates. In 1988, the SCPSC ordered similar treatment, but with a 10-year levelization period. At December 31, 1997, and 1996, the Company had deferred purchased capacity costs, including carrying costs accrued on the deferred balances, of $63.7 million and $69.7 million, respectively. Increased purchases (which are not being deferred for future recovery) resulting from the 1993 agreement with Power Agency were approximately $17 million, $13 million and $10 million for 1997, 1996 and 1995, respectively. The Company has two long-term agreements for the purchase of power and related transmission services from other utilities. The first agreement provides for the purchase of 250 megawatts of capacity through 2009 from Indiana Michigan Power Company's Rockport Unit No. 2 (Rockport). The second agreement is with Duke Energy (Duke) for the purchase of 400 megawatts of firm capacity through mid-1999. The estimated minimum annual payments for power purchases under these agreements are approximately $31 million for Rockport and $48 million for Duke, representing capital-related capacity costs. Total purchases (including transmission use charges) under the Rockport agreement amounted to $61.9 million, $60.9 million and $61.8 million for 1997, 1996 and 1995, respectively. Total purchases (including transmission use charges) under the agreement with Duke amounted to $69.5 million, $65.4 million and $63.8 million for 1997, 1996 and 1995, respectively. b. Insurance The Company is a member of Nuclear Electric Insurance Limited (NEIL), which provides primary and excess insurance coverage against property damage to members' nuclear generating facilities. Under the primary program, the Company is insured for $500 million at each of its nuclear plants. In addition to primary coverage, NEIL also provides decontamination, premature decommissioning and excess property insurance with limits of $1.4 billion on the Brunswick Plant, $2 billion on the Harris Plant and $800 million on the Robinson Plant. 64 Insurance coverage against incremental costs of replacement power resulting from prolonged accidental outages at nuclear generating units is also provided through membership in NEIL. The Company is insured thereunder for six weeks (beginning 17 weeks after the outage begins) in the amount of $3.5 million per week. For accidental outages extending beyond 23 weeks, the Company is covered for the next 52 weeks in weekly amounts of $1.5 million at Brunswick Unit No. 1, $1.45 million at Brunswick Unit No. 2, $1.59 million at the Harris Plant and $1.34 million at Robinson Unit No. 2. An additional 104 weeks of coverage is provided at 80% of the above weekly amounts. For the current policy period, the Company is subject to retrospective premium assessments of up to approximately $15.5 million with respect to the primary coverage, $20 million with respect to the decontamination, decommissioning and excess property coverage and $6.1 million for the incremental replacement power costs coverage, in the event covered expenses at insured facilities exceed premiums, reserves, reinsurance and other NEIL resources. These resources at present total more than $3.9 billion. Pursuant to regulations of the Nuclear Regulatory Commission, the Company's property damage insurance policies provide that all proceeds from such insurance be applied, first, to place the plant in a safe and stable condition after an accident and, second, to decontamination costs, before any proceeds can be used for decommissioning, plant repair or restoration. The Company is responsible to the extent losses may exceed limits of the coverage described above. Power Agency would be responsible for its ownership share of such losses and for certain retrospective premium assessments on jointly owned nuclear units. The Company is insured against public liability for a nuclear incident up to $8.9 billion per occurrence, which is the maximum limit on public liability claims pursuant to the Price-Anderson Act. In the event that public liability claims from an insured nuclear incident exceed $200 million, the Company would be subject to a pro rata assessment of up to $75.5 million, plus a 5% surcharge, for each reactor owned for each incident. Payment of such assessment would be made over time as necessary to limit the payment in any one year to no more than $10 million per reactor owned. Power Agency would be responsible for its ownership share of the assessment on jointly owned nuclear units. c. Applicability of SFAS-71 The Company's ability to continue to meet the criteria for application of SFAS-71 (see Note 6a) may be affected in the future by competitive forces, deregulation and restructuring in the electric utility industry. In the event that SFAS-71 no longer applied to a separable portion of the Company's operations, related regulatory assets and liabilities would be eliminated unless an appropriate regulatory recovery mechanism is provided. Additionally, these factors could result in an impairment of electric utility plant assets as determined pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." d. Claims and Uncertainties 1. The Company is subject to federal, state and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under various federal and state laws. There are several manufactured gas plant (MGP) sites to which the Company and certain entities that were later merged into the Company had some connection. In this regard, the Company, along with others, is participating in a cooperative effort with the North Carolina Department of Environment and Natural Resources, Division of Waste Management (DWM) to establish a uniform framework for addressing these MGP sites. The investigation and remediation of specific MGP sites will be addressed pursuant to one or more Administrative Orders on Consent between the DWM and the potentially responsible party or parties. The Company continues to investigate the identities of parties connected to individual MGP sites, the relative relationships of the Company and other parties to those sites and the degree to which the Company will undertake efforts with others at individual sites. 65 The Company has been notified by regulators of its involvement or potential involvement in several sites, other than MGP sites, that require remedial action. Although the Company cannot predict the outcome of these matters, it does not expect costs associated with these sites to be material to the results of operations of the Company. The Company carries a liability for the estimated costs associated with remedial activities, except for MGP site remediation costs. This liability is not material to the financial position of the Company. The MGP site remediation costs are not currently determinable; however, the Company does not expect those costs to be material to the financial position of the Company. 2. As required under the Nuclear Waste Policy Act of 1982, the Company entered into a contract with the U.S. Department of Energy (DOE) under which the DOE agreed to dispose of the Company's spent nuclear fuel by January 31, 1998. The DOE defaulted on its January 31, 1998 obligation to begin taking spent nuclear fuel, and a group of utilities, including the Company, is considering measures to force the DOE to take spent nuclear fuel or to pay damages from monies other than the Nuclear Waste Fund. The Company cannot predict the outcome of this matter. With certain modifications, the Company's spent nuclear fuel storage facilities will be sufficient to provide storage space for spent nuclear fuel generated on the Company's system through the expiration of the current operating licenses for all of the Company's nuclear generating units. Subsequent to the expiration of these licenses, dry storage may be necessary. 3. In the opinion of management, liabilities, if any, arising under other pending claims would not have a material effect on the financial position, results of operations or cash flows of the Company. 66 CAROLINA POWER & LIGHT COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1997 - ----------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------------------------------------------------------------------------------------- Additions ----------------------------------- Balance at (1) (2) Deductions Balance at Beginning Charged to Charged to from Close of Description of Period Income Other Accounts Reserves Period - ----------------------------------------------------------------------------------------------------------------------- Reserves deducted from related assets on the balance sheet: Uncollectible accounts $ 3,689,783 $ 6,296,392 $ -0- $ 6,619,814 $ 3,366,361 =============== =============== =============== =============== ================ Reserves other than those deducted from assets on the balance sheet: Injuries and damages $ 1,277,888 $ 714,353 $ -0- $ 672,577 $ 1,319,664 =============== =============== =============== =============== ================ Reserve for possible coal mine investment losses $ 7,625,008 $ -0- $ -0- $ 119,014 $ 7,505,994 =============== =============== =============== =============== ================ Reserve for employee retirement and compensation plans $ 107,569,407 $ 39,690,015 $ -0- $ 5,026,451 $ 142,232,971 =============== =============== =============== =============== ================ Reserve for environmental investigation and remediation costs $ 1,815,909 $ -0- $ -0- $ -0- $ 1,815,909 =============== =============== =============== =============== ================
67 CAROLINA POWER & LIGHT COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1996 - -------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------------------------------------------------------------------------------------------------------------------------- Additions ------------------------------------ Balance at (1) (2) Deductions Balance at Beginning Charged to Charged to from Close of Description of Period Income Other Accounts Reserves Period - -------------------------------------------------------------------------------------------------------------------------- Reserves deducted from related assets on the balance sheet: Uncollectible accounts $ 2,323,808 $ 8,525,513 $ -0- $ 7,159,538 $ 3,689,783 ================ ================ ================ ================ =============== Reserves other than those deducted from assets on the balance sheet: Injuries and damages $ 1,270,881 $ 1,033,504 $ -0- $ 1,026,497 $ 1,277,888 ================ ================ ================ ================ =============== Reserve for possible coal mine investment losses $ 7,797,250 $ -0- $ -0- $ 172,242 $ 7,625,008 ================ ================ ================ ================ =============== Reserve for employee retirement and compensation plans $ 91,779,866 $ 41,816,846 $ -0- $ 26,027,305 $ 107,569,407 ================ ================ ================ ================ =============== Reserve for environmental investigation and remediation costs $ 1,906,730 $ -0- $ -0- $ 90,821 $ 1,815,909 ================ ================ ================ ================ ===============
68 CAROLINA POWER & LIGHT COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1995 - --------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------------------------------------------------------------------------------------------------------------------------- Additions ------------------------------------ Balance at (1) (2) Deductions Balance at Beginning Charged to Charged to from Close of Description of Period Income Other Accounts Reserves Period - --------------------------------------------------------------------------------------------------------------------------- Reserves deducted from related assets on the balance sheet: Uncollectible accounts $ 2,520,785 $ 4,622,288 $ -0- $ 4,819,265 $ 2,323,808 =============== ================ =============== =============== ================ Reserves other than those deducted from assets on the balance sheet: Injuries and damages $ 2,212,161 $ 566,718 $ -0- $ 1,507,998 $ 1,270,881 =============== ================ =============== =============== ================ Reserve for possible coal mine investment losses $ 8,004,970 $ -0- $ -0- $ 207,720 $ 7,797,250 =============== ================ =============== =============== ================ Reserve for employee retirement and compensation plans $ 88,015,413 $ 36,288,787 $ -0- $ 32,524,334 $ 91,779,866 =============== ================ =============== =============== ================ Reserve for environmental investigation and remediation costs $ 1,976,716 $ -0- $ -0- $ 69,986 $ 1,906,730 =============== ================ =============== =============== =================
69 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- FINANCIAL DISCLOSURE --------------------------------------------------------------- NONE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- a) Information on the Company's directors is set forth in the Company's 1998 definitive proxy statement dated March 30, 1998, and incorporated by reference herein. b) Information on the Company's executive officers is set forth in Part I and incorporated by reference herein. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- Information on executive compensation is set forth in the Company's 1998 definitive proxy statement dated March 30, 1998, and incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- a) The Company knows of no person who is a beneficial owner of more than five (5%) percent of any class of the Company's voting securities except for Wachovia Bank of North Carolina, N.A., Post Office Box 3099, Winston-Salem, North Carolina 27102 which as of December 31, 1997, owned 8,098,921 shares of Common Stock (5.3% of Class) as Trustee of the Company's Stock Purchase-Savings Plan. b) Information on security ownership of the Company's management is set forth in the Company's 1998 definitive proxy statement dated March 30, 1998, and incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Information on certain relationships and related transactions is set forth in the Company's 1998 definitive proxy statement dated March 30, 1998, and incorporated by reference herein. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS - -------- ON FORM 8-K. ----------------------------------------------------------------- a) The following documents are filed as part of the report: 1. Consolidated Financial Statements Filed: See ITEM 8 - Consolidated Financial Statements and Supplementary Data. 2. Consolidated Financial Statement Schedules Filed: See ITEM 8 - Consolidated Financial Statements and Supplementary Data 70 3. Exhibits Filed: --------------- See EXHIBIT INDEX (page 74) b) Reports on Form 8-K filed during or with respect to the last quarter of 1997 and the portion of the first quarter of 1998 prior to the filing of this Form 10-K: NONE 71 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of March, 1998. CAROLINA POWER & LIGHT COMPANY ------------------------------ (Registrant) By: /s/ Glenn E. Harder ------------------------------ Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ William Cavanaugh III Principal Executive 3/18/98 - ------------------------------- (William Cavanaugh III, Officer and Director President and Chief Executive Officer) /s/ Glenn E. Harder Principal Financial 3/18/98 - ------------------------------- (Glenn E. Harder Officer Executive Vice President and Chief Financial Officer) /s/ Bonnie V. Hancock Principal Accounting 3/18/98 - ------------------------------- (Bonnie V. Hancock Officer Vice President and Controller) /s/ Sherwood H. Smith, Jr. Director 3/18/98 - ------------------------------- (Sherwood H. Smith, Jr., Chairman) /s/ Leslie M. Baker, Jr. Director 3/18/98 - ------------------------------- (Leslie M. Baker, Jr) /s/ Edwin B. Borden Director 3/18/98 - ------------------------------- (Edwin B. Borden) /s/ Felton J. Capel Director 3/18/98 - ------------------------------- (Felton J. Capel) 72 /s/ Charles W. Coker Director 3/18/98 - ------------------------------- (Charles W. Coker) /s/ Richard L. Daugherty Director 3/18/98 - ------------------------------- (Richard L. Daugherty) /s/ Walter Y. Elisha Director - ------------------------------- Walter Y. Elisha /s/ Robert L. Jones Director - ------------------------------- (Robert L. Jones) /s/ Estell C. Lee Director 3/18/98 - ------------------------------- (Estell C. Lee) /s/ William O. McCoy Director 3/18/98 - ------------------------------- (William O. McCoy) /s/ J. Tylee Wilson Director 3/18/98 - ------------------------------- (J. Tylee Wilson) 73 EXHIBIT INDEX
Exhibit Number Description *3a(1) Restated Charter of the Company, as amended May 10, 1996 (filed as Exhibit No. 3(i) to quarterly report on Form 10-Q for the quarterly period ended June 30, 1995, File No. 1-3382). *3a(2) Restated Charter of Carolina Power & Light Company as amended on May 10, 1996 (filed as Exhibit 3(i) to quarterly report on Form 10-Q for the quarterly period ended June 30, 1997, File No. 1-3382). *3b(1) By-laws of the Company, as amended May 10, 1996 (filed as Exhibit No. 3(ii) to quarterly report on Form 10-Q for the quarterly period ended June 30, 1995, File No. 1-3382). *3b(2) By-Laws of Carolina Power & Light Company as amended on September 18, 1996 (filed as Exhibit 3(ii) to quarterly report on Form 10-Q for the quarterly period ended June 30, 1997, File No.1-3382). *4a(1) Resolution of Board of Directors, dated December 8, 1954, authorizing the issuance of, and establishing the series designation, dividend rate and redemption prices for the Company's Serial Preferred Stock, $4.20 Series (filed as Exhibit 3(c), File No. 33-25560). *4a(2) Resolution of Board of Directors, dated January 17, 1967, authorizing the issuance of, and establishing the series designation, dividend rate and redemption prices for the Company's Serial Preferred Stock, $5.44 Series (filed as Exhibit 3(d), File No. 33-25560). *4a(3) Statement of Classification of Shares dated January 13, 1971, relating to the authorization of, and establishing the series designation, dividend rate and redemption prices for the Company's Serial Preferred Stock, $7.95 Series (filed as Exhibit 3(f), File No. 33-25560). *4a(4) Statement of Classification of Shares dated September 7, 1972, relating to the authorization of, and establishing the series designation, dividend rate and redemption prices for the Company's Serial Preferred Stock, $7.72 Series (filed as Exhibit 3(g), File No. 33-25560). *4b Mortgage and Deed of Trust dated as of May 1, 1940 between the Company and The Bank of New York (formerly, Irving Trust Company) and Frederick G. Herbst (W.T. Cunningham, Successor), Trustees and the First through Fifth Supplemental Indentures thereto (Exhibit 2(b), File No. 2-64189); and the Sixth through Sixty-fourth Supplemental Indentures (Exhibit 2(b)-5, File No. 2-16210; Exhibit 2(b)-6, File No. 2-16210; Exhibit 4(b)-8, File No. 2-19118; Exhibit 4(b)-2, File No. 2-22439; Exhibit 4(b)-2, File No. 2-24624; Exhibit 2(c), File No. 2-27297; Exhibit 2(c), File No. 2-30172; Exhibit 2(c), File No. 2-35694; 74 Exhibit 2(c), File No. 2-37505; Exhibit 2(c), File No. 2-39002; Exhibit 2(c), File No. 2-41738; Exhibit 2(c), File No. 2-43439; Exhibit 2(c), File No. 2-47751; Exhibit 2(c), File No. 2-49347; Exhibit 2(c), File No. 2-53113; Exhibit 2(d), File No. 2-53113; Exhibit 2(c), File No. 2-59511; Exhibit 2(c), File No. 2-61611; Exhibit 2(d), File No. 2-64189; Exhibit 2(c), File No. 2-65514; Exhibits 2(c) and 2(d), File No. 2-66851; Exhibits 4(b)-1, 4(b)-2, and 4(b)-3, File No. 2-81299; Exhibits 4(c)-1 through 4(c)-8, File No. 2-95505; Exhibits 4(b) through 4(h), File No. 33-25560; Exhibits 4(b) and 4(c), File No. 33-33431; Exhibits 4(b) and 4(c), File No. 33-38298; Exhibits 4(h) and 4(i), File No. 33-42869; Exhibits 4(e)-(g), File No. 33-48607; Exhibits 4(e) and 4(f), File No. 33-55060; Exhibits 4(e) and 4(f), File No. 33-60014; Exhibits 4(a) and 4(b), File No. 33-38349; Exhibit 4(e), File No. 33-50597; Exhibit 4(e) and 4(f), File No. 33-57835); and Exhibit to Current Report on Form 8-K dated August 28, 1997, File No. 1-3382.) *4c(1) Indenture, dated as of March 1, 1995, between the Company and Bankers Trust Company, as Trustee, with respect to Unsecured Subordinated Debt Securities (filed as Exhibit No. 4(c) to Current Report on Form 8-K dated April 13, 1995, File No. 1-3382). *4c(2) Resolutions adopted by the Executive Committee of the Board of Directors at a meeting held on April 13, 1995, establishing the terms of the 8.55% Quarterly Income Capital Securities (Series A Subordinated Deferrable Interest Debentures) (filed as Exhibit 4(b) to Current Report on Form 8-K dated April 13, 1995, File No. 1-3382). *10a(1) Purchase, Construction and Ownership Agreement dated July 30, 1981 between Carolina Power & Light Company and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution dated December 16, 1981 changing name to North Carolina Eastern Municipal Power Agency, amending letter dated February 18, 1982, and amendment dated February 24, 1982 (filed as Exhibit 10(a), File No. 33-25560). *10a(2) Operating and Fuel Agreement dated July 30, 1981 between Carolina Power & Light Company and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution dated December 16, 1981 changing name to North Carolina Eastern Municipal Power Agency, amending letters dated August 21, 1981 and December 15, 1981, and amendment dated February 24, 1982 (filed as Exhibit 10(b), File No. 33-25560). *10a(3) Power Coordination Agreement dated July 30, 1981 between Carolina Power & Light Company and North Carolina Municipal Power Agency Number 3 and Exhibits, together with resolution dated December 16, 1981 changing name to North Carolina Eastern Municipal Power Agency and amending letter dated January 29, 1982 (filed as Exhibit 10(c), File No. 33-25560). *10a(4) Amendment dated December 16, 1982 to Purchase, Construction and Ownership Agreement dated July 30, 1981 between Carolina Power & Light Company and North Carolina Eastern Municipal Power Agency (filed as Exhibit 10(d), File No. 33-25560). 75 *10a(5) Agreement Regarding New Resources and Interim Capacity between Carolina Power & Light Company and North Carolina Eastern Municipal Power Agency dated 13, 1987 (filed as Exhibit 10(e), File No. 33-25560). *10a(6) Power Coordination Agreement - 1987A between North Carolina Eastern Municipal Power Agency and Carolina Power & Light Company for Contract Power From New Resources Period 1987-1993 dated October 13, 1987 (filed as Exhibit 10(f), File No. 33-25560). +*10b(1) Directors Deferred Compensation Plan effective January 1, 1982 as amended (filed as Exhibit 10(g), File No. 33-25560). +*10b(2) Supplemental Executive Retirement Plan effective January 1, 1984 (filed as Exhibit 10(h), File No. 33-25560). +*10b(3) Retirement Plan for Outside Directors (filed as Exhibit 10) (I), File No. 33-25560). +*10b(4) Executive Deferred Compensation Plan effective May 1, 1982 as amended (filed as Exhibit 10(j), File No. 33-25560). +*10b(5) Key Management Deferred Compensation Plan (filed as Exhibit 10(k), File No. 33-25560). +*10b(6) Resolutions of the Board of Directors, dated March 15, 1989, amending the Key Management Deferred Compensation Plan (filed as Exhibit 10(a), File No. 33-48607). +*10b(7) Resolutions of the Board of Directors dated May 8, 1991, amending the Directors Deferred Compensation Plan (filed as Exhibit 10(b), File No. 33-48607). +*10b(8) Resolutions of the Board of Directors dated May 8, 1991, amending the Executive Deferred Compensation Plan (filed as Exhibit 10(c), File No. 33-48607). +*10b(9) 1997 Equity Incentive Plan, approved by the company's shareholders May 7, 1997, effective as of January 1, 1997 (filed as Appendix A to the Company's 1997 Proxy Statement, File No. 1-03382). +*10b(10) Performance Share Sub-Plan of the 1997 Equity Incentive Plan, adopted by the personnel, Executive Development and compensation committee of the Board of Directors, March 19, 1997, subject to shareholder approval of the 1997 Equity Incentive Plan, which was obtained on May 7, 1997, (filed as Exhibit 10(b), File No. 1-03382). +10b(11) Resolutions of Board of Directors dated July 9, 1997, amending the Deferred Compensation Plan for Key Management Employees of Carolina Power & Light Company. 76 +10b(12) Resolutions of Board of Directors dated July 9, 1997, amending the Supplemental Executive Retirement Plan of Carolina Power & Light Company. +10b(13) Amended Management Incentive Compensation Program of Carolina Power & Light Company, as amended December 10, 1997. +10b(14) Carolina Power & Light Company Restoration Retirement Plan, effective January 1, 1998. +10b(15) Carolina Power & Light Company Non-Employee Director Stock Unit Plan, effective January 1, 1998. +10b(16) Employment Agreement dated September 1, 1992, by and between the Company and William Cavanaugh III. +10b(17) Employment Agreement dated April 1, 1993, by and between the Company and William S. Orser. +10b(18) Employment Arrangement dated September 27, 1994 by and between the Company and Glenn E. Harder. +10b(19) Personal Services Agreement dated September 18, 1996, by and between the Company and Sherwood H. Smith, Jr. +10b(20) Employment Agreement dated June 2, 1997, by and between the Company and Robert B. McGehee. +10b(21) Employment Agreement dated September 24, 1997, by and between the Company and John E. Manczak. 12 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends Combined and Ratio of Earnings to Fixed Charges. 23(a) Consent of Deloitte & Touche LLP. 23(b) Consent of William D. Johnson. 27 Financial Data Schedule *Incorporated herein by reference as indicated. +Management contract or compensation plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14 (c) of Form 10-K.
77 EX-10 2 EXHIBIT NO. 10B(11) EXHIBIT NO. 10b(11) [Excerpts from Minutes of Meeting of Board of Directors - July 9, 1997] AMENDMENT TO DEFERRED COMPENSATION PLAN FOR KEY MANAGEMENT EMPLOYEES OF CAROLINA POWER & LIGHT COMPANY Mr. Smith referred to the Deferred Compensation Plan for Key Management Employees of Carolina Power & Light Company (Plan) and stated that, under ARTICLE XI AMENDMENT AND TERMINATION, the Company has the right to amend the Plan. He stated that deferrals under the Plan cannot exceed fifteen percent (15%) of the Participant's Total Compensation for the year in which such deferral election is made, and that additional flexibility was appropriate where justified in the discretion of the Company's Chief Executive Officer. An Amendment One to the Plan was presented to the Board. Amendment One was marked as Exhibit C to the minutes of the Board of Directors meeting and filed with and made a part of the minutes of the meeting. Amendment One will allow Participants to defer more than fifteen percent (15%) of the Participant's Total Compensation for the year in which such deferral election is made, but only when justified in the sole discretion of the Company's Chief Executive Officer. Mr. Smith recommended that the Board ratify Amendment One to the Plan. Whereupon, after discussion and upon motion duly made and seconded, it was unanimously: RESOLVED, that Amendment One to the Plan substantially in the form of Exhibit C to the minutes of this meeting, with such changes, if any, as the officers of the Company may deem advisable, be, and the same hereby is, ratified; and further RESOLVED, that the officers of the Company be, and hereby are, fully authorized and empowered to do any and all things and to take any and all actions in their judgment necessary or desirable in order to fully carry out, perform and make effective the matters and things covered by the foregoing resolution and the purposes and intent thereof. EXHIBIT C TO BOARD OF DIRECTORS MEETING MINUTES AMENDMENT ONE TO DEFERRED COMPENSATION PLAN FOR KEY MANAGEMENT EMPLOYEES OF CAROLINA POWER & LIGHT COMPANY Pursuant to ARTICLE XI AMENDMENT AND TERMINATION of Deferred Compensation Plan for Key Management Employees of Carolina Power & Light Company, as amended and restated November 1, 1991, (the "Plan"), the Board of Directors hereby amends the Plan. The following changes to the Plan shall become effective on July 9, 1997, and shall apply to all Deferred Compensation Agreements entered into by the Company and any Eligible Employee on or after November 1, 1991. A. Section 2.(a) of ARTICLE III ELIGIBILITY AND PARTICIPATION is hereby deleted and replaced with the following: "(a) An Eligible Employee participates in the Deferred Compensation feature of the Plan by irrevocably electing, in the manner specified herein, to defer future Salary in an annual amount for one (1) or four (4) consecutive calendar years (or for such fewer years as remain until the Employee's Normal or Early Retirement Date; or for such fewer years as approved by the Chief Executive Officer of the Company; or if the Chief Executive Officer is the affected Participant then for such fewer years as approved by the Committee). An Eligible Employee may defer a minimum of $1,000 per year under the four (4) year election and $3,000 per year under the one (1) year election. No deferral election shall be permitted which would have the result of causing to be deferred under this Plan in any calendar year (as a result of such deferral election and, where applicable, any previous deferral elections pursuant to this Plan or the predecessor Plan provisions) amounts of Salary which exceed fifteen percent (15%) of such Eligible Employee's Total Compensation for the year in which such deferral election is made; except when approved in advance on a case-by-case basis by the Company's Chief Executive Officer, or if the Chief Executive Officer is the affected Participant then when approved in advance on a case-by-case basis by the Committee. Should the amount of any deferral election made by any Eligible Employee exceed the fifteen percent (15%) limitation without the prior approval of the Company's Chief Executive Officer, the amount of such deferrals so elected shall be automatically reduced to the maximum level permitted by the Plan. B. In Section 5 of Exhibit A to the Plan, in the chart delete the references to Calendar Years 1992, 1993, 1994 and 1995. The references to specific Calendar Years are to be filled in on a case-by-case basis. Except as amended herein, the Deferred Compensation Plan for Key Management Employees of Carolina Power & Light Company shall continue in full force and effect. EX-10 3 EXHIBIT NO. 10B(12) EXHIBIT NO. 10b(12) [Excerpts from Minutes of Meeting of Board of Directors - July 9, 1997] AMENDMENT TO SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN OF CAROLINA POWER & LIGHT COMPANY Mr. Smith referred to the Supplemental Senior Executive Retirement Plan of Carolina Power & Light Company (Plan) and stated that, under ARTICLE VIII AMENDMENT AND TERMINATION, the Company has the right to amend the Plan. He stated that the Plan does not permit the Company to grant additional years of Service, and that it was important to be able to grant additional years of Service under the Plan as a means of attracting and hiring employees at the senior management level. Mr. Smith also stated that benefits payable to Participants who retire between ages 60 and 65 will receive payments that are actuarially reduced. This method of reducing payments is excessive, and is not consistent with CP&L's Supplemental Retirement Plan. Mr. Smith recommended that a fixed discount rate of 2.5% per be applied for every year before the Participant's Normal Retirement Date, instead of the current actuarial reduction. An Amendment One to the Plan was presented to the Board. Amendment One was marked as Exhibit D to the minutes of the Board of Directors meeting and filed with and made a part of the minutes of the meeting. Amendment One will allow the company to grant additional years of Service to new employees that are eligible to participate in the Plan, provided that those additional years of Service are granted under the terms of a written employment agreement entered into at the time of their employment with the Company. Amendment One will also replace the current actuarial reduction in early retirement benefits with a fixed discount rate of 2.5% per year. Whereupon, after discussion and upon motion duly made and seconded, it was unanimously: RESOLVED, that Amendment One to the Plan substantially in the form of Exhibit D to the minutes of this meeting, with such changes, if any, as the officers of the Company may deem advisable, be, and the same hereby is, ratified; and further RESOLVED, that the officers of the Company be, and hereby are, fully authorized and empowered to do any and all things and to take any and all actions in their judgment necessary or desirable in order to fully carry out, perform and make effective the matters and things covered by the foregoing resolution and the purposes and intent thereof. EXHIBIT D TO BOARD OF DIRECTORS MEETING MINUTES AMENDMENT ONE TO SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN OF CAROLINA POWER & LIGHT COMPANY Pursuant to ARTICLE VIII AMENDMENT AND TERMINATION of the Supplemental Senior Executive Retirement Plan of Carolina Power & Light Company, as amended and restated September 21, 1994, (the "Plan"), the Board of Directors hereby amends the Plan. The following changes to the Plan shall become effective on July 1, 1997. 1. Section 2.16 of ARTICLE II DEFINITIONS is hereby deleted and replaced with the following: "2.16. Service shall have the same meaning as "Eligibility Service," determined as provided in Sections 2.02 and 3.01 of the Retirement Plan, plus any additional years of service that may be granted to the Participant in connection with this Plan under the terms of a written employment agreement entered into at the time the Participant becomes employed with the Company." 2. Section 4.02 (b) of ARTICLE IV RETIREMENT BENEFITS is hereby deleted and replaced with the following: "(b) Amount. The eligible Participant's early retirement benefit shall be a monthly amount equal to his Target Early Retirement Benefit reduced by the sum of (1) his Assumed Early Retirement Pension Benefit and (2) his Social Security Benefit; provided, however, such benefit will be reduced, where applicable, by the following: (i) the amount of 2.5% of his early retirement benefit for each year that such benefit is received prior to his Normal Retirement Date; and (ii) If such eligible Participant's projected years of Service at his Normal Retirement Date are less than fifteen (15), his Target Early Retirement Benefit and his Assumed Early Retirement Pension Benefit shall be calculated based upon his years of Service at his Early Retirement Date rather than upon his projected years of Service at his Normal Retirement Date. Except as amended herein, the Supplemental Senior Executive Retirement Plan of Carolina Power & Light Company shall continue in full force and effect. EX-10 4 EXHIBIT NO. 10B(13) EXHIBIT NO. 10b(13) EXHIBIT ____ TO THE ORGANIZATION AND COMPENSATION COMMITTEE MEETING MINUTES AMENDED MANAGEMENT INCENTIVE COMPENSATION PROGRAM OF CAROLINA POWER & LIGHT COMPANY AS AMENDED DECEMBER 10, 1997 TABLE OF CONTENTS Page ARTICLE I PURPOSE.............................................1 ARTICLE II DEFINITIONS.........................................1 ARTICLE III ADMINISTRATION......................................4 ARTICLE IV PARTICIPATION.......................................5 ARTICLE V AWARDS..............................................5 ARTICLE VI DISTRIBUTION AND DEFERRAL OF AWARDS.................9 ARTICLE VII TERMINATION OF EMPLOYMENT...........................15 ARTICLE VIII MISCELLANEOUS.......................................16 ARTICLE I PURPOSE The purpose of the Management Incentive Compensation Program (the "Program") of Carolina Power & Light Company (the "Company") is to promote the financial interest of the Company, including its growth, by (i) attracting and retaining executive officers and other management-level employees who can have a significant positive impact on the success of the Company; (ii) motivating such personnel to help the Company achieve annual incentive, performance and safety goals; (iii) motivating such personnel to improve their own as well as their business unit/work group's performance through the effective implementation of human resource strategic initiatives; and (iv) providing annual cash incentive compensation opportunities that are competitive with those of other major corporations. ARTICLE II DEFINITIONS The following definitions are applicable to the Program: 1. "Award": The benefit payable to a Participant hereunder, consisting of a Corporate Component and a Noncorporate Component. 2. "Company": Carolina Power & Light Company, a North Carolina corporation, and its corporate successors. 3. "Compensation Committee": The Organization and Compensation Committee of the Board of Directors of the Company. 4. "Corporate Factor": The factor determined by the Compensation Committee to be utilized in calculating the Corporate Component of an Award pursuant to Article V, Section 3.a. hereof, which can range from 0 to 1.5. 5. "Corporate Component": That portion of an Award based upon the overall performance of the Company, as determined in Article V, Section 3.a. hereof. 6. "Date of Retirement": The first day of the calendar month immediately following the Participant's Retirement. 7. "Noncorporate Component": That portion of an Award based upon the level of attainment of business unit/group, departmental, and individual Performance Measures, as provided in Article V, Section 3 .b. hereof, which can range from 0 to 1.5. 8. "Participant": An employee of the Company who is selected pursuant to Article IV hereof to be eligible to receive an Award under the Program. 9. "Performance Measure": A goal or goals established for measuring the performance of a business unit/group, department, or individual used for the purpose of computing the Noncorporate Component of an Award for a Participant. 10. "Performance Unit": A unit or credit, linked to the value of the Company's Common Stock under the terms set forth in Article VI hereof. 11. "Program": The Management Incentive Compensation Program of Carolina Power & Light Company as contained herein, and as it may be amended from time to time. 12. "Retirement": A Participant's termination of employment with the Company after having met the requirements for early, normal or postponed retirement under the Supplemental Retirement Plan of Carolina Power & Light Company. 13. "Salary": The compensation paid by the Company to a Participant in a relevant Year, consisting of regular or base compensation, such compensation being understood not to include bonuses, if any, or incentive compensation, if any. Provided, that such compensation shall not be reduced by any cash deferrals of said compensation made under any other plans or programs maintained by the Company. 14. "Section 16 Participants": Those Participants who are subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Individuals who are subject to Section 16 of the 1934 Act include, without limitation, directors and certain officers of the Company, and any individual who beneficially owns more than ten percent of a class of the Company's equity securities registered under Section 12 of the 1934 Act. 15. "Senior Management Committee": The Senior Management Committee of the Company. 16. "Target Award Opportunity": The target for an Award under this Program as set forth in Section 2 of Article V hereof. 17. "Year": A calendar year. ARTICLE III ADMINISTRATION The Program shall be administered by the Chief Executive Officer of the Company. Except as otherwise provided herein, the Chief Executive Officer shall have sole and complete authority to (i) select the Participants; (ii) establish and adjust (either before or during the relevant Year) a Participant's Performance Measures, their relative percentage weight, and the performance criteria necessary for attainment of various performance levels; (iii) approve Awards; (iv) establish from time to time regulations for the administration of the Program; and (v) interpret the Program and make all determinations deemed necessary or advisable for the administration of the Program, all subject to its express provisions. Notwithstanding the foregoing, with respect to Participants who are at or above the Department Head level in the Company, the performance criteria and Awards shall be subject to the specific approval of the Compensation Committee. In addition, the Compensation Committee shall have the sole authority to determine the total payout under the Program up to a maximum of two percent (2%) of the Company's after-tax income for a relevant Year. A majority of the Compensation Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Committee without a meeting, shall be the acts of such Committee. ARTICLE IV PARTICIPATION The Chief Executive Officer shall select from time to time the Participants in the Program for each Year from those employees of the Company who, in his opinion, have the capacity for contributing in a substantial measure to the successful performance of the Company that Year. No employee shall at any time have a right to be selected as a Participant in the Program for any Year nor, having been selected as a Participant for one Year, have the right to be selected as a Participant in any other Year. ARTICLE V AWARDS 1. Eligibility. In order for any Participant to be eligible to receive an Award, two conditions must be met. First, a contribution must be earned by one or more groups of employees under the corporate incentive feature of the Company's Stock Purchase-Savings Plan. Second, the Company must also meet minimum threshold performance levels for return on common equity, revenue per kilowatt hour, and other measures for the relevant Year as may be established by the Compensation Committee. Threshold performance for return on common equity and revenue per kilowatt hour is the weighted average of a peer group of utilities, consisting of all major utilities with nuclear and fossil generation in the eastern portion of the United States, averaged over the most recent three-year period. To satisfy threshold performance, the Company must be above the three-year average with respect to return on common equity and below the three-year average with respect to cost per kilowatt hour. 2. Target Award Opportunities. The following table sets forth Target Award Opportunities, expressed as a percentage of Salary, for various levels of participation in the Program: --------------------------------------------------- --------------- Participation Target Award 0pportunities --------------------------------------------------- --------------- Chief Executive Officer 40% --------------------------------------------------- --------------- Chief Operating Officer 40% --------------------------------------------------- --------------- Executive Vice Presidents 30% --------------------------------------------------- --------------- Senior Vice Presidents 25% --------------------------------------------------- --------------- Department Heads 20% --------------------------------------------------- --------------- Other Participants: Key Managers 15% Other Managers 10% --------------------------------------------------- --------------- The Target Award Opportunity for the Chief Executive Officer shall be 40%; however, the Compensation Committee of the Board shall be authorized to change that amount from year to year, or to award an amount of compensation based on other considerations, in its complete discretion. 3. Award Components. Awards under the Program to which Participants are eligible consist of the sum of a Corporate Component and a Noncorporate Component. The portion of the Target Award Opportunities attributable to the Corporate Component and Noncorporate Component, respectively, for various levels of participation, is set forth in the following table: - ---------------------------------------- ------------- -------------- Participants Corporate Noncorporate Component Component - ---------------------------------------- ------------- -------------- Chief Executive Officer 100% - - ---------------------------------------- ------------- -------------- Chief Operating Officer 100% - - ---------------------------------------- ------------- -------------- Executive Vice Presidents 75% 25% - ---------------------------------------- ------------- -------------- Senior Vice Presidents 75% 25% - ---------------------------------------- ------------- -------------- Department Heads 50% 50% - ---------------------------------------- ------------- -------------- Other Participants 50% 50% - ---------------------------------------- ------------- -------------- a. Corporate Component. The Corporate Component of an Award is based upon the overall performance of the Company. In the event the conditions set forth in Section 1 of Article V are met and the Compensation Committee, in its discretion, determines an appropriate Corporate Factor, that Corporate Factor shall be multiplied by the portion of a Participant's Target Award Opportunity attributable to the Corporate Component in order to determine the percentage of such Participant's Salary which will comprise the Corporate Component of his or her Award. Notwithstanding the foregoing, if the second condition set forth in Section 1 of Article V is not fully met, the Compensation Committee may nevertheless in its discretion determine an appropriate Corporate Factor and grant a Corporate Component of an Award to the Participants. b. Noncorporate Component. The Noncorporate Component of an Award for a Participant is based upon the level of attainment of business unit/group, departmental and individual Performance Measures. Performance Measures for each Participant and their relative weight are determined pursuant to authority granted in Article III hereof. (i) Performance Levels. There are levels of performance related to each of a Participant's Performance Measures: outstanding, target, and threshold. The specific performance criteria for each level of a Participant's Performance Measures shall be set forth in writing prior to the beginning of an applicable Year, or within thirty (30) days after a Participant first becomes eligible to participate in the Program, and shall be determined pursuant to authority granted in Article III hereof. The payout percentages to be applied to each Participant's Target Award Opportunity are as follows: Performance Level Payout Percentage Outstanding 150% Target 100% Threshold 50% Payout percentages shall be adjusted for performance between the designated performance levels, provided, however, that performance which falls below the "Threshold" performance level results in a payout percentage of zero unless the Chief Executive Officer directs otherwise. (ii) Determination of Noncorporate Component. In order to determine a Participant's Noncorporate Component, if any, for a particular Year, the Chief Executive Officer initially shall determine the appropriate payout percentage for each of such Participant's Performance Measures. Thereafter, each payout percentage is multiplied by the percentage weight assigned to each such Performance Measure and the results added together. That aggregate amount is multiplied by the Participant's Target Award Opportunity for the Noncorporate Award Component for the respective Year and the result is multiplied by the Participant's Salary. (iii) Change of Job Status. Participants who change organizations during a Year will have their Noncorporate Component prorated based upon the Performance Measures achieved in each organization and the length of time served in each organization. In the discretion of the Chief Executive Officer employees may become Participants during a Year based on promotions and may receive an Award prorated based on the length of time served in the qualifying job and the Performance Measures achieved while in the qualifying job. 4. New Participants. For Participants selected after May 1, any Award that is earned during the Year of selection shall be pro rated based on the length of time served in the qualifying job. 5. Reduction of Award Amount. In the event of documented performance deficiencies of a Participant during a Year, the Chief Executive Officer, in his discretion, may reduce the Award payable to such Participant for such Year. 6. Example. Attached as Exhibit A and incorporated by reference is an example of the process by which an Award is granted hereunder. Said exhibit is intended solely as an example and in no way modifies the provisions of this Article V. ARTICLE VI DISTRIBUTION AND DEFERRAL OF AWARDS 1. Distribution of Awards. Unless a Participant elects to defer an award pursuant to the remaining provisions of this Article VI, awards under the Program earned during any Year shall be paid in cash in the succeeding Year, normally no later than March 15 of such succeeding Year. 2. Deferral Election. A Participant may elect to defer the Program Award he or she has earned for any Year by completing and submitting to the Vice President, Human Resources, a deferral election form by the later of (1) November 30 of the Year in which the Award is earned or (2) the thirtieth (30th) day after first becoming eligible to participate in the deferral election provisions of the Program; provided, however, that for the 1995 Plan Year, deferral elections shall be made by no later than November 30, 1995. Such election shall apply to the Participant's Award, if any, otherwise to be paid as soon as practicable after the Year during which it was earned. A Participant's deferral election may apply to 100%, 75%, 50%, or 25% of the Program Award; provided, however, that in no event shall the amount deferred be less than $1,000. The election to defer shall be irrevocable as to the Award earned during the particular Year. 3. Period of Deferral. At the time of a Participant's deferral election, a Participant must also select a distribution date. Subject to Section 6, the distribution date may be: (a) any date that is at least five (5) years subsequent to the date the Program Award would otherwise be payable, but not later than the second anniversary of the Participant's Date of Retirement; or (b) any date that is within two years following the Participant's Date of Retirement. Subject to Section 6, a Participant may extend the distribution date for one or more additional Year(s) by making a new deferral election at least one (1) year before the previously selected distribution date occurs; provided, however, that in no event shall the subsequent distribution date be a date that is more than two years beyond the Participant's Date of Retirement. 4. Performance Units. All Awards which are deferred under the Program shall be recorded in the form of Performance Units. Each Performance Unit is generally equivalent to a share of the Company's Common Stock. In converting the cash award to Performance Units, the number of Performance Units granted shall be determined by dividing the amount of the Award by 85% of the average value of the opening and closing price of a share of the Company's Common Stock on the last trading day of the month preceding the date of the Award. The Performance Units attributable to the 15% discount from the average value of the Company's Common Stock shall be referred to as the "Incentive Performance Units." The Incentive Performance Units and any adjustments or earnings attributable to those Performance Units shall be forfeited by the Participant if he or she terminates employment either voluntarily or involuntarily other than for death or retirement prior to five years from March 15 of the Year in which payment would have been made if the Award had not been deferred. 5. Program Accounts. A Program Deferral Account will be established on behalf of each Participant, and the number of Performance Units awarded to a Participant shall be recorded in each Participant's Program Deferral Account as of the first of the month coincident with or next following the month in which a deferral becomes effective. The number of Performance Units recorded in a Participant's Program Deferral Account shall be adjusted to reflect any splits or other adjustments in the Company's Common Stock, the payment of any cash dividends paid on the Company's Common Stock and the payment of Awards under this Program to the Participant. To the extent that any cash dividends have been paid on the Company's Common Stock, the number of Performance Units shall be adjusted to reflect the number of Performance Units that would have been acquired if the same dividend had been paid on the number of Performance Units recorded in the Participant's Program Deferral Account on the dividend record date. For purposes of determining the number of Performance Units acquired with such dividend, the average of the opening and closing price of the Company's Common Stock on the payment date of the Company's Common Stock dividend shall be used. Each Participant shall receive an annual statement of the balance of his Program Deferral Account, which shall include the Incentive Performance Units and associated earnings and adjustments that are subject to being forfeited as provided above. 6. Payment of Deferred Program Awards. Subject to Section 4 related to forfeiture of Incentive Performance Units, Deferred Program Awards shall be paid in cash beginning no later than the next April 1 following the distribution date or the deferred distribution date specified by the Participant in accordance with Section 3. To convert the Performance Units in a Participant's Program Deferral Account to a cash payment amount, Performance Units shall be multiplied by the average of the opening and closing price of the Company's Common Stock on the last trading day preceding the payment of the Deferred Program Award. Except as otherwise provided below, deferred amounts will be paid either in a single lump-sum payment or in up to five (5) annual payments. In the event that a Participant elects to receive the deferred Program Award in equal annual payments, the amount of the Award to be received in each year shall be determined as follows: (a) To determine the amount of the initial annual payment, the number of Performance Units in the Participant's Program Deferral Account will be divided by the total number of annual payments to be received, and the result will be multiplied by the average of the opening and closing price of the Company's Common Stock on the last trading day preceding the due date of the initial payment. (b) To determine the amount of each successive annual payment, the Program Deferral Account balance will be divided by the number of annual payments remaining, and the result will be multiplied by the average of the opening and closing price of the Company's Common Stock on the last trading day preceding the due date of the annual payment. 7. Termination of Employment/Effect on Deferral Election. If the employment of a Participant terminates prior to the last day of a Year for which a Program Award is determined, then any deferral election made with respect to such Program Award for such Year shall not become effective and any Program Award to which the Participant is otherwise entitled shall be paid as soon as practicable after the end of the Year during which it was earned, in accordance with paragraph 1 of this Article VI. 8. Termination of Employment/Acceleration of Deferral. Notwithstanding the foregoing, if a Participant terminates employment by reason other than death or Retirement, full payment of all amounts due to the Participant shall be accelerated and paid on the first day of the month following the date of termination. Incentive Performance Units shall be subject to forfeiture as provided in Section 4. 9. Financial Hardship Payments. In the event of a severe financial hardship occasioned by an emergency, including, but not limited to, illness, disability or personal injury sustained by the Participant or a member of the Participant's immediate family, a Participant may apply to receive a distribution earlier than initially elected. The Chief Executive Officer or his designee may, in his sole discretion, either approve or deny the request. The determination made by the Chief Executive Officer will be final and binding on all parties. If the request is granted, the payments will be accelerated only to the extent reasonably necessary to alleviate the financial hardship. Incentive Performance Units shall not be subject to early distribution under this Section 9 until five years from March 15 of the Year in which payment would have been made if the Award had not been deferred. 10. Death of a Participant. If the death of a Participant occurs before a full distribution of the Participant's Program Deferral Account is made, payment shall be made to the beneficiary designated by the Participant to receive such amounts in accordance with the schedule specified in the Participant's Deferral Election form. Said payment shall be made as soon as practical following notification that death has occurred. In the absence of any such designation, payment shall be made to the personal representative, executor or administrator of the Participant's estate. 11. Non-Assignability of Interests. The interests herein and the right to receive distributions under this Article VI may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a Participant becomes bankrupt, the interests of the Participant under this Article VI may be terminated by the Chief Executive Officer, which, in his sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such Participant or make any other disposition of such interests that he deems appropriate. 12. Unfunded Deferrals. Nothing in this Program, including this Article VI, shall be interpreted or construed to require the Company in any manner to fund any obligation to the Participants, terminated Participants or beneficiaries hereunder. Nothing contained in this Program nor any action taken hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Company and the Participants, terminated Participants, beneficiaries, or any other persons. Any funds which may be accumulated in order to meet any obligation under this Program shall for all purposes continue to be a part of the general assets of the Company; provided, however, that the Company may establish a trust to hold funds intended to provide benefits hereunder to the extent the assets of such trust become subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency of the Company. To the extent that any Participant, terminated Participant, or beneficiary acquires a right to receive payments from the Company under this Program, such rights shall be no greater than the rights of any unsecured general creditor of the Company. ARTICLE VII TERMINATION OF EMPLOYMENT A Participant must be actively employed by the Company on the next January 1 immediately following the Year for which a Program Award is earned in order to be entitled to payment of the full amount of any Award for that Year. In the event the active employment of a Participant shall terminate or be terminated for any reason before the next January 1 immediately following the Year for which a Program Award is earned, such Participant shall receive his or her Award for the year, if any, in an amount that the Chief Executive Officer deems appropriate. ARTICLE VIII MISCELLANEOUS 1. Assignments and Transfers. The rights and interests of a Participant under the Program may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution. 2. Employee Rights Under the Program. No Company employee or other person shall have any claim or right to be granted an Award under the Program or any other incentive bonus or similar Plan of the Company. Neither the Program, participation in the Program nor any action taken thereunder shall be construed as giving any employee any right to be retained in the employ of the Company. 3. Withholding. The Company shall have the right to deduct from all amounts paid in cash any taxes required by law to be withheld with respect to such cash payments. 4. Amendment or Termination. The Compensation Committee may in its sole discretion amend suspend or terminate the Program or any portion thereof at any time. 5. Governing Law. This Program shall be construed and governed in accordance with the laws of the state of North Carolina. 6. Effective Date. This Program, as amended, shall be effective as of December 10, 1997. 7. Entire Agreement. This document (including the exhibit attached hereto and any future amendments to said exhibit that may be made by the Chief Executive Officer) sets forth the entire Program. EXHIBIT A (to be supplied) DESIGNATION OF BENEFICIARY MANAGEMENT INCENTIVE COMPENSATION PROGRAM OF CAROLINA POWER & LIGHT COMPANY As provided in the Management Incentive Compensation Program of Carolina Power & Light Company, I hereby designate the following person as my beneficiary in the event of my death before a full distribution of my Deferral Account is made. PRIMARY BENEFICIARY: ------------------------------- ------------------------------- ------------------------------- CONTINGENT BENEFICIARY: ------------------------------- ------------------------------- ------------------------------- Any and all prior designations of one or more beneficiaries by me under the Management Incentive Compensation Program of Carolina Power & Light Company are hereby revoked and superseded by this designation. I understand that the primary and contingent beneficiaries named above may be changed or revoked by me at any time by filing a new designation in writing with the Company's Human Resources Department. DATE: ---------------------------------------- SIGNATURE OF PARTICIPANT: ----------------------------------------- The Participant named above executed this document in our presence on the date set forth above WITNESS: WITNESS: -------------------------- ------------------------------ EX-10 5 EXHIBIT NO. 10B(14) EXHIBIT NO. 10b(14) Carolina Power & Light Company Restoration Retirement Plan Carolina Power & Light Company (the "Company") hereby establishes the Carolina Power & Light Company Restoration Retirement Plan (the "Plan"), effective as of January 1, 1998 (the "Effective Date"). ARTICLE I. PURPOSE The purpose of the Plan is to provide a means by which certain employees may be provided benefits which otherwise would be provided under the Carolina Power & Light Company Supplemental Retirement Plan, as amended (the "Retirement Plan"), in the absence of certain restrictions imposed by applicable law on benefits which may be provided under the Retirement Plan. The Plan is intended to constitute an unfunded retirement plan for a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II DEFINITIONS Capitalized terms which are not defined herein shall have the meaning ascribed to them in the Retirement Plan. 2.1 "Board" shall mean the Board of Directors of the Company. 2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.3 "Committee" shall mean a committee selected by the Plan Administrator to hear claim disputes under Article IV of the Plan. 2.4 "Company" shall mean Carolina Power & Light Company and any successor in interest. 2.5 "Compensation and Benefit Limitations" shall mean (a) the limitation on compensation under the Retirement Plan in accordance with Section 401(a)(17) of the Code and (b) any limits on benefits paid under the Retirement Plan that are necessary for compliance with Section 415 of the Code. 2.6 "Continuing Directors" shall mean the members of the Board as of the Effective Date; provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was supported by 75 percent or more of the directors who then comprised Continuing Directors shall be considered to be a Continuing Director. 2.7 "Eligible Employee" shall mean any member of the Retirement Plan who is not immediately eligible for a Target Early, Target Normal, or Target Severance Benefit under the provisions of the Company's Supplemental Senior Executive Retirement Plan and who has not retired or terminated his or her employment with the Company prior to the Effective Date. 2.8 "Participant" shall mean an Eligible Employee who participates in the Plan pursuant to Article III. An Eligible Employee shall remain a Participant under the Plan until the earlier of (a) all amounts payable on his or her behalf under the Plan have been paid, (b) the Eligible Employee no longer has a Restoration Accrued Benefit, (c) the Eligible Employee has a Termination without a Vested Restoration Accrued Benefit, or (d) the Eligible Employee becomes immediately eligible for a Target Early, Target Normal, or Target Severance Benefit under the Company's Supplemental Senior Executive Retirement Plan. 2.9 "Restoration Accrued Benefit" shall mean, as of any determination date, the excess of (a) a Participant's Accrued Benefit calculated under the Retirement Plan without regard to the Compensation and Benefit Limitations, over (b) a Participant's Accrued Benefit calculated under the Retirement Plan. 2.10 "Retirement Plan" shall mean the Carolina Power & Light Company Supplemental Retirement Plan, as it may be amended from time to time, or any successor plan. 2.11 "Spouse" shall mean, (i) for purposes of Section 3.2 of the Plan, the spouse of a Participant at the Participant's Annuity Starting Date, and (ii) for purposes of Section 3.3 of the Plan, the spouse of a participant within the meaning of Section 4.04 of the Retirement Plan (or any successor provisions). 2.12 "Termination" shall mean a termination of employment with the Company and all Affiliated Companies. 2.13 "Vested Restoration Accrued Benefit" shall mean a Participant's Restoration Accrued Benefit when the Participant becomes fully vested under the provisions of Section 4.02 of the Retirement Plan (or any successor provisions) or as provided in Article VI of the Plan. Unless the context clearly indicates to the contrary in interpreting the Plan, any references to the masculine alone shall include the feminine and the singular shall include the plural. ARTICLE III PARTICIPATION AND BENEFITS 3.1 Participation. An Eligible Employee will participate in the Plan when he or she has a Restoration Accrued Benefit. 3.2 Amount of Benefit Payable. Subject to the Restoration Accrued Benefit forfeiture contained in Section 3.4 of the Plan, a Participant who becomes eligible for a Pension under Article 4 of the Retirement Plan, shall be entitled (together with the Participant's Spouse or Beneficiary when entitled to benefits under the Retirement Plan) to a monthly benefit payment in the same form as elected under the Retirement Plan, equal to the Participant's Restoration Accrued Benefit calculated immediately prior to the Benefit Commencement Date (except as otherwise provided in Section 3.4). The Restoration Accrued Benefit shall be adjusted to take into account any alternative form of retirement benefit received under the Retirement Plan. The amount of any such adjustments shall be determined under the applicable provisions of the Retirement Plan. 3.3 Pre-Retirement Death Benefit. If a surviving Spouse of a deceased Participant would have been eligible for a pre-retirement death benefit under the Retirement Plan, then upon such Participant's death, such Spouse shall be entitled to a monthly benefit payment under the Plan commencing on the first day of the month in which he or she commences to receive a monthly benefit under the Retirement Plan, equal to the amount, if any, by which (a) exceeds (b) each month, where (a) is the Spouse's monthly benefit that would be payable in accordance with the provisions of the Retirement Plan determined as if the Compensation and Benefit Limitations did not apply, and (b) is the actual monthly benefit paid under the Retirement Plan. 3.4 Other Termination of Employment; Forfeitures. Neither Eligible Employees, Participants nor their Spouses or Beneficiaries are entitled to any benefits under the Plan except as otherwise provided in this Article III and under Article VI of the Plan. Any Participant who terminates employment with the Company and any of its Affiliated Companies prior to a Change in Control (as defined in Article VI) and without being 100% vested under the Retirement Plan shall not be eligible to receive any benefits under the Plan and shall forfeit his or her Restoration Accrued Benefit. Any Participant ceasing to be an Eligible Employee because he or she becomes immediately eligible for a Target Early, Target Normal or Target Severance Benefit under the provisions of the Supplemental Senior Executive Retirement Plan shall forfeit his or her Restoration Accrued Benefit. Notwithstanding any other provision of the Plan, no benefit shall be payable under the Plan with respect to an Eligible Employee whose employment with the Company is terminated for Cause. As used herein, the term "Cause" shall be limited to (a) action by the Eligible Employee involving willful malfeasance having a material adverse effect on the Company (b) substantial and continuing willful refusal by the Eligible Employee to perform the duties ordinarily performed by an employee in the same position and having similar duties as the Eligible Employee, (c) the Eligible Employee being convicted of a felony, or (d) willful failure to comply with the Company's Code of Conduct or other Company Policy or Procedure. ARTICLE IV PLAN ADMINISTRATION 4.1 Administration. The Plan shall be administered by the Company's Vice President, Human Resources (the "Plan Administrator"). The Plan Administrator and the Committee shall have full authority to administer and interpret the Plan, determine eligibility for benefits, make benefit payments and maintain records hereunder, all in their sole and absolute discretion, subject to the allocation of responsibilities set forth below. 4.2 Delegated Responsibilities. The Plan Administrator shall have the authority to delegate any of his or her responsibilities to such persons as he or she deems proper. 4.3 Claims. (a) Claims Procedure. If any Participant, Spouse or Beneficiary has a claim for benefits which is not being paid, such claimant may file with the Plan Administrator a written claim setting forth the amount and nature of the claim, supporting facts, and the claimant's address. The Plan Administrator shall notify each claimant of its decision in writing by registered or certified mail within sixty (60) days after its receipt of a claim or, under special circumstances, within ninety (90) days after its receipt of a claim. If a claim is denied, the written notice of denial shall set forth the reasons for such denial, refer to pertinent Plan provisions on which the denial is based, describe any additional material or information necessary for the claimant to realize the claim, and explain the claim review procedure under the Plan. (b) Claims Review Procedure. A claimant whose claim has been denied or such claimant's duly authorized representative may file, within sixty (60) days after notice of such denial is received by the claimant, a written request for review of such claim by the Committee. If a request is so filed, the Committee shall review the claim and notify the claimant in writing of its decision within sixty (60) days after receipt of such request. In special circumstances, the Committee may extend for up to sixty (60) additional days the deadline for its decision. The notice of the final decision of the Committee shall include the reasons for its decision and specific references to the Plan provisions on which the decision is based. The decision of the Committee shall be final and binding on all parties. ARTICLE V MISCELLANEOUS 5.1 Amendment and Termination. The Board may amend, modify or terminate the Plan at any time, provided, however, that no such amendment or termination shall reduce any Participant's Vested Restoration Accrued Benefit under the Plan as of the date of such amendment or termination, unless at the time of such amendment or termination, affected Participants and spouses become entitled to an amount equal to the equivalent actuarial value, to be determined in the sole discretion of the Committee, of such Vested Restoration Accrued Benefit under another plan, program or practice adopted by the Company. In the event the Plan is terminated, the Company shall determine whether to pay Vested Restoration Accrued Benefits in the form of an actuarial equivalent lump sum payment or defer the payment of Vested Restoration Accrued Benefits until the payment of Early Retirement Pensions or Normal Retirement Pensions under the Retirement Plan. 5.2 Source of Payments. The Company will pay all benefits arising under the Plan and all costs, charges and expenses relating thereto out of its general assets. 5.3 Non-Assignability of Benefits. Except as otherwise required by law, neither any benefit payable hereunder nor the right to receive any future benefit under the Plan may be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a person eligible for any benefits under the Plan becomes bankrupt, the interest under the Plan of the person affected may be terminated by the Plan Administrator which, in his or her sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such person or make any other disposition of such benefits that it deems appropriate. 5.4 Plan Unfunded. Nothing in the Plan shall be interpreted or construed to require the Company in any manner to fund any obligation to the Participants, terminated Participants, or beneficiaries hereunder. Nothing contained in the Plan nor any action taken hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Company and the Participants, terminated Participants, beneficiaries, or any other persons. Any funds which may be accumulated in order to meet any obligations under the Plan shall for all purposes continue to be a part of the general assets of the Company; provided, however, that the Company may establish a trust to hold funds intended to provide benefits hereunder to the extent the assets of such trust become subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency of the Company. To the extent that any Participant, terminated Participant, or beneficiary acquires a right to receive payments from the Company under the Plan, such rights shall be no greater than the rights of any unsecured general creditor of the Company. 5.5 Applicable Law. All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the State of North Carolina to the extent not preempted by Federal law. 5.6 Limitation of Rights. The Plan is a voluntary undertaking on the part of the Company. Neither the establishment of the Plan nor the payment of any benefits hereunder, nor any action of the Company or the Plan Administrator shall be held or construed to be a contract of employment between the Company and any Eligible Employee or to confer upon any person any legal right to be continued in the employ of the Company. The Company expressly reserves the right to discharge, discipline or otherwise terminate the employment of any Eligible Employee at any time. Participation in the Plan gives no right or claim to any benefits beyond those which are expressly provided herein and all rights and claims hereunder are limited as set forth in the Plan. 5.7 Severability. In the event any provision of the Plan shall be held illegal or invalid, or the inclusion of any Participant would serve to invalidate the Plan as an unfunded plan for a select group of management or highly compensated employees under ERISA, then the illegal or invalid provision shall be deemed to be null and void, and the Plan shall be construed as if it did not contain that provision and in the case of the inclusion of any such Participant, a separate plan, with the same provisions as the Plan, shall be deemed to have been established for the Participant or Participants ultimately determined not to constitute a select group of management or highly compensated employees. 5.8 Headings. The headings to the Articles and Sections of the Plan are inserted for reference only, and are not to be taken as limiting or extending the provisions hereof. 5.9 Incapacity. If the Plan Administrator shall determine that a Participant, or any other person entitled to a benefit under the Plan (the "Recipient") is unable to care for his or her affairs because of illness, accident, or mental or physical incapacity, or because the Recipient is a minor, the Plan Administrator may direct that any benefit payment due the Recipient be paid to his or her duly appointed legal representative, or, if no such representative is appointed, to the Recipient's spouse, child, parent, or other blood relative, or to a person with whom the Recipient resides or who has incurred expense on behalf of the Recipient. Any such payment so made shall be a complete discharge of the liabilities of the Plan with respect to the Recipient. 5.10 Binding Effect and Release. All persons accepting benefits under the Plan shall be deemed to have consented to the terms of the Plan. Any payment or distribution to any person entitled to benefits under the Plan shall be in full satisfaction of all claims against the Plan, the Committee, and the Company arising by virtue of the Plan. ARTICLE VI CHANGE IN CONTROL The provisions of this Article VI shall become effective immediately upon occurrence of a Change in Control (as defined in Section 6.1). 6.1 Definition. For the purposes of the Plan, a Change in Control of the Company shall be deemed to have occurred in the following circumstances: (a) the acquisition by any person (including a group, within the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934) of beneficial ownership of 15% or more of the Company's then outstanding voting securities; (b) a tender offer is made and consummated for the ownership of 51% or more of the Company's then outstanding voting securities; (c) the first day on which less than 66 2/3 percent of the total membership of the Board are Continuing Directors; or (d) approval by stockholders of the Company of a merger, consolidation, liquidation or dissolution of the Company, or of the sale of all or substantially all of the assets of the Company. A Change in Control shall not be deemed to have occurred until the Plan Administrator receives written certification from the President and Chief Executive Officer or, in the event of his or her inability to act, the Chief Financial Officer, or any Executive or Senior Vice President of the Company that one of the events set forth above in (a) through (d) of this Section 6.1 has occurred. The officers referred to in the previous sentence shall be those officers in office immediately prior to the occurrence of one of the events set forth above in (a) through (d) of this Section 6.1. Any determination that an event described above in (a) through (d) of this Section 6.1 has occurred shall, if made in good faith on the basis of information available at that time, be conclusive and binding on the Plan Administrator, the Committee, the Company and the Eligible Employees and their beneficiaries for all purposes of the Plan. 6.2 Effect of Change in Control. Notwithstanding any other provisions of the Plan to the contrary, if a Change in Control occurs (i) there shall be full Vesting of each Participant's Restoration Accrued Benefit, regardless of any termination of employment prior to eligibility for an Early Retirement Pension under the Retirement Plan, if he or she is otherwise vested under the Retirement Plan, and (ii) no amendment or termination of the Plan may reduce any Participant's Restoration Accrued Benefit as of the date of such amendment or termination. EX-10 6 EXHIBIT NO. 10B(15) EXHIBIT NO. 10b(15) CAROLINA POWER & LIGHT COMPANY NON-EMPLOYEE DIRECTOR STOCK UNIT PLAN 1.0 RECITALS 1.1 Whereas, Carolina Power & Light Company (the "Company") adopted the Carolina Power & Light Company Retirement Plan for Outside Directors (the "Directors Retirement Plan") in 1986, which provided for a fixed-dollar retirement benefit for non-employee directors of the Company following their termination of service as a member of the Company's Board of Directors. 1.2 Whereas, the Company has determined to freeze the Directors Retirement Plan so that no further benefits under such plan will accrue. 1.3 Whereas, the Company desires to adopt the Carolina Power & Light Company Non-Employee Director Stock Unit Plan, the purpose of which is to provide deferred compensation to the Company's non-employee directors based on the value of the Company's common stock. 1.4 Whereas, the Company desires to allow participants in the frozen Directors Retirement Plan to roll over their accrued benefit under the Directors Retirement Plan into the Non-Employee Director Stock Unit Plan 1.5 Now, therefore, effective January 1, 1998, the Company adopts the Non-Employee Director Stock Unit Plan. 2.0 PURPOSE 2.1 Purpose. The purpose of the Plan is to attract and retain highly qualified individuals as non-employee directors of the Company, and to provide deferred compensation to the Company's non-employee directors based on the value of the Company's stock. 3.0 DEFINITIONS The following terms shall have the following meanings unless the context indicates otherwise: 3.1 "Annual Stock Unit Grant" shall mean a grant of Stock Units as described in Section 5.2 below. 3.2 "Board" shall mean the Board of Directors of the Company. 3.3 "Change-in-Control" shall mean the first to occur of the following circumstances: (1) the acquisition by any person (including a group, within the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as amended of beneficial ownership of 15 percent or more of the Company's then outstanding voting securities; (2) a tender offer is made and consummated for the ownership of 51 percent or more of the Company's then outstanding voting securities; (3) the first day on which less than 66 2/3 percent of the total membership of the Board are Continuing Directors; or (4) approval by the stockholders of the Company of a merger, consolidation, liquidation or dissolution of the Company, or of the sale of all or substantially all of the assets of the Company. A Change-in-Control shall not be deemed to have occurred until the Committee receives written certification from the Company's President and Chief Executive Officer or, in the event of his or her inability to act, the Company's Chief Financial Officer, or any Executive or Senior Vice President of the Company that one of the events set forth in Sections 2.5(1) through 2.5(4) above has occurred. The officers referred to in the previous sentence shall be those officers in office immediately prior to the occurrence of one of the events set forth above in Sections 2.5(1) through 2.5(4) above. Any determination that an event described in Sections 2.5(1) through 2.5(4) above has occurred shall, if made in good faith on the basis of information available at that time, be conclusive and binding on the Committee, the Company and the Participant and their Beneficiaries for all purposes of the Plan. 3.4 "Committee" shall mean the Board's Committee on Organization and Compensation. 3.5 "Common Stock" shall mean the common stock of the Company. 3.6 "Company" shall mean Carolina Power & Light Company, a North Carolina corporation, including any successor entity. 3.7 "Continuing Directors" shall mean the members of the Board as of the Effective Date; provided, however, that any person becoming a director subsequent to such date whose election or nomination for election was supported by 75 percent or more of the directors who then comprised Continuing Directors shall be considered to be a Continuing Director. 3.8 "Distribution Date" shall mean the later of (i) the date a Participant is no longer a member of the Board or (ii) the date such Participant attains age 65. 3.9 "Effective Date" shall mean January 1, 1998. 3.11 "Common Stock Value" shall mean: (1) the average of the highest and lowest selling prices of Common Stock on the relevant date (or on the last preceding trading date if Common Stock was not traded on the relevant date) if Common Stock is readily tradable on a national securities exchange or other market system; or (2) an amount determined in good faith by the Board as the fair market value of Common Stock on the date of determination if Common Stock is not readily tradable on a national securities exchange or other market system. 3.12 "Initial Stock Unit Grant" shall mean a grant of Stock Units us described in Section 5.1 below. 3.13 "Matching Stock Unit Grant" shall mean a grant of Stock Units as described in Section 5.3 below. 3.14 "Participant" shall mean a member of the Board who is not an employee of the Company or any of its Subsidiaries. 3.15 "Stock Unit" shall mean a unit maintained by the Company for bookkeeping purposes, equal in value to one (1) share of Common Stock. 3.16 "Stock Unit Account" shall mean a bookkeeping account established and maintained (or caused to be established and maintained) by the Company for the Participant which shall record the number of Stock Units granted to the Participant under Section 5 below. This account shall be established (or caused to be established) by the Company for bookkeeping purposes only, and no separate funds shall be segregated by the Company for the benefit of the Participant. 3.17 "Plan shall mean the Carolina Power & Light Company Non-Employee Director Stock Unit Plan. 3.18 "Subsidiary" shall mean a corporation of which the Company directly or indirectly owns more than 50 percent of the Voting Stock (meaning the capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation) or any other business entity in which the Company directly or indirectly has an ownership interest of more than 50 percent. 4.0 ADMINISTRATION 4.1 Responsibility. The Committee shall have the responsibility, in its sole discretion, to control, operate, manage and administer the Plan in accordance with its terms. 4.2 Authority of the Committee. The Committee shall have all the discretionary authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan, including but not limited to the following: (a) to determine eligibility for participation in the Plan; (b) to correct any defect, supply any omission, or reconcile any inconsistency in the Plan in such manner and to such extent as it shall deem appropriate in its sole discretion to carry the same into effect; (c) to issue administrative guidelines as an aid to administer the Plan and make changes in such guidelines as it from time to time deems proper; (d) to make rules for carrying out and administering the Plan and make changes in such rules as it from time to time deems proper; (e) to the extent permitted under the Plan, grant waivers of Plan terms, conditions restrictions, and limitations; (f) to make reasonable determinations as to a Participant's eligibility for benefits under the Plan, including determinations as to vesting; and (g) to take any and all other actions it deems necessary or advisable for the proper operation or administration of the Plan. 4.3 Action by the Committee. The Committee may act only by a majority of its members. Any determination of the Committee may be made, without a meeting, by a writing or writings signed by all of the members of the Committee. In addition, the Committee may authorize any one or more of its members to execute and deliver documents on behalf of the Committee. 4.4 Delegation of Authority. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable; provided, however, that any such delegation shall be in writing. In addition, the Committee, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the Subsidiary whose employees have benefited from the Plan, as determined by the Committee. 4.5 Determinations and Interpretations by the Committee. All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants and their heirs, successors, and legal representatives. 4.6 Information. The Company shall furnish to the Committee in writing all information the Committee may deem appropriate for the exercise of its powers and duties in the administration of the Plan. Such information may include, but shall not be limited to, the full names of all Participants, their earnings and their dates of birth, employment, retirement or death. Such information shall be conclusive for all purposes of the Plan, and the Committee shall be entitled to rely thereon without any investigation thereof. 4.7 Self-Interest. No member of the Committee may act, vote or otherwise influence a decision of the Committee specifically relating to his or her benefits, if any, under the Plan. 5.0 STOCK UNIT GRANTS 5.1 Rollover. The Company shall grant an Initial Stock Unit Grant to the Participants listed on Schedule A (who are participants in the Company's Retirement Plan for Outside Directors) who elect by December 31, 1997 pursuant to an election made in writing to the Company's Vice President-Human Resources to rollover their accrued benefit under such plan (the "Accrued Benefit") into the Plan. The number of shares underlying each Initial Stock Unit Grant shall be equal to the present value of the Participant's Accrued Benefit as of December 31, 1997 divided by the Common Stock Value on the last trading day of 1997. Any fractional Stock Unit which is greater than 50 percent shall be rounded up to one Stock Unit, and any fractional Stock Unit equal to or less than 50 percent shall be disregarded. The Company shall enter and record (or shall cause to be entered and recorded) in the Participant's Stock Unit Account such number of Stock Units underlying the Initial Stock Unit Grant. 5.2 Annual Grant. The Company shall grant to each Participant who has been a member of the Board for a least 1 year an Annual Stock Unit Grant equal to 150 Stock Units. The Annual Stock Unit Grant shall be made on or about the date of the Company's annual meeting of shareholders. The Company shall enter and record (or shall cause to be entered and recorded) in the Participant's Stock Unit Account such number of Stock Units underlying the Annual Stock Unit Grant. 5.3 Matching Grant. With respect to any specific year, if the corporate incentive goals established by the Board are met for purposes of determining the Company matching contributions under the Company's Stock Purchase-Savings Plan, the Company shall grant to each Participant on or about the date of the Company's annual meeting of shareholders following such year a Matching Stock Unit Grant equal to up to 150 Stock Units in accordance with the terms of such program. The Company shall enter and record (or shall cause to be entered and recorded) in the Participant's Stock Unit Account such number of Stock Units underlying the Annual Stock Unit Grant. 5.4 Dividend Stock Units. On the date that any holder of Common Stock receives a dividend with respect to Common Stock, the Company shall grant to each Participant, and shall enter and record (or shall cause to be entered and recorded) in each such Participant's Stock Unit Account a number of Stock Units equal to the result of (x) the dollar amount of such dividend paid with respect to one share of Common Stock multiplied by (y) the number of Stock Units in the Stock Unit Account as of the date such dividend is paid divided by (z) the Common Stock Value as of the date such dividend is paid. Any fractional Stock Unit greater than 50 percent shall be rounded up to one Stock Unit, and any fractional Stock Unit equal to or less than 50 percent shall be disregarded. 6.0 BENEFIT 6.1 Vesting. A Participant shall be entitled to a Benefit described in this Section 6 only after such Participant has been a member of the Board for 5 years. If there is a Change in Control, the Participant shall be entitled to a Benefit described in this Section 6 as of the date of the Change in Control, regardless of the number of years such Participant has been a member of the Board. 6.2 Timing of Benefit. In accordance with Section 6.4 below, the Company shall pay or begin paying a Benefit to a vested Participant during the 60-day period following the Distribution Date. If the Participant has selected annual payments in accordance with Section 6.4(b) below, all payments other than the first payment shall be made on the applicable anniversary of the Distribution Date. 6.3 Valuation. The value of a Participant's Stock Unit Account for purposes of the Benefit shall be equal to the product of (x) the number of Stock Units in the Participant's Stock Unit Account as of the Distribution Date or the applicable anniversary of the Distribution Date multiplied by (y) the Common Stock Value on the Distribution Date or the applicable anniversary of the Distribution Date, in accordance with Section 6.4 below. 6.4 Form of Benefit. The Company shall pay a Benefit to a vested Participant in one of the following four (4) forms, as selected by the Participant within 60 days after becoming a Participant: (a) a lump sum payment, with such payment equal to the value of the Participant's Stock Unit Account as of the Distribution Date: or (b) annual payments over 5, 10 or 15 years, with each annual payment equal to (x) the value of the Participant's Stock Unit Account as of the Distribution Date or the applicable anniversary of the Distribution Date divided by (y) the number of payments yet to be made. 6.5 Change of Form of Benefit. The Participant may change the form of Benefit, provided, however, that such change is made at least six (6) months prior to the Distribution Date. 6.6 Death of Participant Prior to the Distribution Date. If the Participant's death occurs prior to the Distribution Date, the Company shall pay or begin paying a Benefit to a vested Participant's beneficiary (as designated by the Participant under Section 6.8 below) on the first day of the sixth month following the date of the Participant's death, and if the Participant has selected a form of Benefit under Section 6.4(b) above, the Company shall pay the remaining annual payments on the anniversary of the first payment date as determined under this Section 6.6. 6.7 Death of Participant Following the Distribution Date. If the Participant's death occurs following the Distribution Date, the Company shall continue to pay the Benefit to the Participant's beneficiary (as designated by the Participant under Section 6.8 below) following the date of the Participant's death in the form of Benefit selected by the Participant in accordance with Section 6.4 above. 6.8 Designation of Beneficiary. Within 60 days after becoming a Participant, a Participant shall designate a beneficiary to receive the Benefit in the event of the Participant's death. If the Participant does not designate a beneficiary, the beneficiary shall be deemed to be the Participant's spouse on the date of the Participant's death, and if the Participant does not have a spouse on the date of his or her death, then the Participant's estate shall be deemed to be the beneficiary under this Section 6. 7.0 TAXES 7.1 Withholding Taxes. The Company shall be entitled to withhold from any and all payments made to a Participant under the Plan all federal, state, local and/or other taxes or imposts which the Company determines are required to be so withheld from such payments or by reason of any other payments made to or on behalf of the Participant or for his or her benefit hereunder. 7.2 No Guarantee of Tax Consequences. No person connected with the Plan in any capacity, including, but not limited to, the Company and any Subsidiary and their directors, officers, agents and employees makes any representation, Commitment, or guarantee that any tax treatment, including, but not limited to, federal, state and local income, estate and gift tax treatment, will be applicable with respect to amounts deferred under the Plan, or paid to or for the benefit of a Participant under the Plan, or that such tax treatment will apply to or be available to a Participant on account of participation in the Plan. 8.0 TERM OF PLAN; AMENDMENT AND TERMINATlON 8.1 Term. The Plan shall be effective as of the Effective Date. The Plan shall remain in effect until the Board terminates the Plan. 8.2 Termination or Amendment of Plan. The Board may suspend or terminate the Plan at any time with or without prior notice and the Board may amend the Plan at any time with or without prior notice; provided, however, that no action authorized by this Section 8.2 shall reduce the balance of the Stock Unit Account credited to a Participant or adversely affect the vesting of such account. 9.0 MISCELLANEOUS 9.1 Adjustments. If there shall be any change in Common Stock through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to holders of Common Stock, the number of Stock Units and the Participant's Stock Unit Account shall be adjusted to equitably reflect such change or distribution. 9.2 Governing Law. The Plan and all actions taken in connection herewith shall be governed by and construed in accordance with the laws of the State of North Carolina without reference to principles of conflict of laws, except as superseded by applicable federal law. 9.3 No Right Title. or Interest in Company Assets. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained In the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. 9.4 No Right to Continued Service. The Participant's rights, if any, to continue to serve the Company as a member of the Board shall not be enlarged or otherwise affected by his or her participation in the Plan. 9.5 Other Rights. The Plan shall not affect or impair the rights or obligations of the Company or a Participant under any other written plan, contract, arrangement, or pension, profit sharing or other compensation plan. 9.6 Severability. If any term or condition of the Plan shall be invalid or unenforceable to any extent or in any application, then the remainder of the Plan, with the exception of such invalid or unenforceable provision, shall not be affected thereby and shall continue in effect and application to its fullest extent. If, however, the Committee determines in its sole discretion that any term or condition of the Plan which is invalid or unenforceable is material to the interests of the Company, the Committee may declare the Plan null and void in its entirety. 9.7 Incapacity. If the Committee determines that a Participant or a designated beneficiary is unable to care for his or her affairs because of illness or accident or because he or she is a minor, any benefit due the Participant or designated beneficiary may be paid to the Participant's spouse or to any other person deemed by the Committee to have incurred expense for such Participant (including a duly appointed guardian, committee or other legal representative), and any such payment shall be a complete discharge of the Company's obligation hereunder. 9.8 Transferability of Rights. No Participant or spouse of a Participant shall have any right to encumber, transfer or otherwise dispose of or alienate any present or future right or expectancy which the Participant or such spouse may have at any time to receive payments of benefits hereunder, which benefits and the right thereto are expressly declared to be non-assignable and nontransferable, except to the extent required by law. Any attempt to transfer or assign a benefit, or any rights granted hereunder, by a Participant or the spouse of a Participant shall be null and void and without effect. 9.9 Entire Document. The Plan, as set forth herein, supersedes any and all prior practices, understandings, agreements, descriptions or other non-written arrangements respecting severance, and written employment or severance contracts signed by the Company. SCHEDULE A Participants who Are Eligible To Receive Initial Stock Unit Grants 1. Edwin B. Borden 2. Richard L. Daugherty 3. Robert L. Jones 4. Felton J. Capel 5. Charles W. Coker 6. Estell C. Lee 7. Leslie M. Baker, Jr. 8. William O. McCoy 9. J. Tylee Wilson EX-10 7 EXHIBIT NO. 10B(16) EXHIBIT NO. 10b(16) EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of September 1, 1992, by and between Carolina Power & Light Company ("Employer") and William Cavanaugh, III ("Employee"). WHEREAS, Employer desires to retain Employee and Employee desires to be retained by Employer as President and Chief Operating Officer of Employer, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties agree as follows: SECTION 1 - EMPLOYMENT Employee shall be employed as President and Chief Operating Officer by Employer, shall devote his full business time and best efforts to the performance of the duties that are necessary and appropriate as such. Employee will also perform all duties and obligations as the Chief Executive Officer of the Company and the Board of Directors may from time to time specifically require, including without limitation, those duties and obligations in this Agreement. Employee shall be responsible and report directly to the Chief Executive Officer of the Company. Employee agrees to such employment upon the terms and conditions in this Agreement. SECTION 2 - TERM OF EMPLOYMENT This employment is similar to the employment of other senior executives of Employer and is at the continued will of both parties. If it should be terminated by either party, then the provisions of Section 7 herein shall apply. SECTION 3 - COMPENSATION In consideration of all the services to be rendered by Employee to Employer under this Agreement, Employer shall compensate Employee as follows: (a) Employee shall be paid an aggregate annual salary, exclusive of fringe benefits and benefits provided under employee benefit plans, of $400,000, payable at such intervals, but not less frequently than monthly, as Employer may determine. Such salary shall be subject to periodic review and adjustment by Employer commencing in calendar year 1993 and thereafter, at the same time and in the same manner as other executive officer salaries are reviewed and adjusted by Employer; (b) Employee shall receive 2,000 shares of Employer common stock, plus such additional amounts as are necessary to pay the amount of federal, state and local taxes due on the value of such stock; (c) Employee shall receive short-term incentive compensation payments of: (i) $150,000, to be paid on or before March 15, 1993 with respect to Employee's services in calendar year 1992; and (ii) $150,000, to be paid on or before March 15, 1994 with respect to Employee's services in calendar year 1993. Such cash payments shall be in lieu of amounts that might otherwise be payable to Employee with respect to calendar years 1992 and 1993 under Employer's Management Incentive Compensation Program or any similar program adopted in lieu thereof. With respect to calendar years after 1993, Employee shall be eligible to participate in Employer's Management Incentive Compensation Program or any similar program adopted in lieu thereof and Employee's entitlement to any such short-term incentive compensation shall be determined under such program; (d) Employee shall be entitled to such long-term incentive compensation payments or awards under plans or programs adopted from time to time by the Board of Directors of the Employer which covers eligible executive officers, including Employee; (e) Employee shall be eligible to participate in certain employee pension benefit programs (including certain deferred compensation plans or agreements) as described in Section 4 of this Agreement; (f) Employee shall be eligible to participate in certain employee welfare benefit plans or programs and shall be entitled to certain fringe benefits as described in Section 5 of this Agreement. Such fringe benefits shall be taxable to the extent required by law, and Employee shall not receive any additional amounts to pay the taxes due on any taxable fringe benefits except as otherwise provided in Section 5. SECTION 4 - PENSION AND DEFERRED COMPENSATION BENEFITS (a) Employee shall be entitled to participate in and be eligible for such pension and deferred compensation benefit plans or programs available generally to senior executives of Employer, including by way of illustration, but not by way of limitation, the Stock Purchase-Savings Plan, the Supplemental Retirement Plan for Employees, the Supplemental Executive Retirement Plan ("SERP"), the Executive Deferred Compensation Plan, and the Deferred Compensation Plan for Key Management Employees. Employee shall be entitled to participate in such plans and programs on the same terms and conditions as other executive employees, except as follows: (i) Employee shall be entitled to a payment of $150,000 which shall be deferred and paid to Employee as if it were deferred under the Deferred Compensation Plan for Key Management Employees as a one-year deferral for calendar year 1992. This amount shall be utilized to provide retirement income to Employee of $121,368 per year for 15 years, payable monthly, commencing upon Employee's attainment of age 65. In addition, reduced payments shall be made pursuant to an agreed-upon schedule if Employee dies before reaching age 65. (ii) With respect to the SERP, Employee shall become immediately eligible to participate and shall be fully vested in benefits thereunder as of his date of employment. As of his date of employment, Employee shall also be credited with 14 years of service and an average annual compensation for the three (3) years ending September 1, 1992 of $400,000 for purposes of determining his benefits thereunder. SECTION 5 - WELFARE AND FRINGE BENEFITS (a) Employee shall be entitled to participate in all such welfare benefit programs and plans that exist or may hereafter be instituted by Employer, and shall receive all other fringe benefits available generally to senior executives of Employer. These welfare benefit plans and programs and other fringe benefits include, by way of illustration, but not by way of limitation, group health insurance benefits, life insurance benefits, long-term and short-term disability benefits, vacation days, and annual Employer holidays. (b) Employee shall be entitled to receive the following additional welfare benefits and fringe benefits on the same terms and conditions as other executive employees, except as follows: (i) Employee shall be provided with split-dollar life insurance coverage in an amount equal to $1,200,000. The cost of such coverage shall be included in Employee's taxable income in accordance with applicable regulations. This split-dollar life insurance coverage shall be in addition to $50,000 in group-term life insurance provided to all senior executives with split-dollar life insurance coverage and shall be in lieu of any other insurance coverage available to Company employees under the Company's group-term life insurance program. (ii) Employee shall be provided with split-dollar life insurance coverage in the amount of $3,000,000, insuring the joint lives of Employee and his spouse, with the Employee's portion of such premium to be paid by Employee or the trustee of an irrevocable life insurance trust established by the Employee if the trust is the owner of the policy; (iii) Employee shall have the opportunity to obtain estate planning counseling provided through the trust department of Wachovia Bank of North Carolina, N.A.; (iv) Employee shall be entitled to four (4) weeks of annual vacation and additional vacation days as approved on a discretionary basis by the Chief Executive Officer of the Company; (v) Employer shall pay initiation fees and dues for the Employee at the Capital City Club. At the option of Employee, Employer also will pay the initiation fee to the country club of Employee's choosing. All monthly country club dues will be paid by Employee; (vi) Employee shall be entitled to membership in the Rex Hospital Wellness Center, with the initiation fee and monthly dues to be paid by Employer; (vii) Employer shall pay for one annual physical, to be provided by a physician of Employee's choice; (viii) Employer will provide Employee with a home security system which shall include a central burglar alarm system; (ix) Employee shall be provided an automobile of the class available to senior executives of Employer, with a cellular telephone. Insurance and maintenance for the vehicle will be provided by Employer, and all base monthly telephone charges and the incremental charges for all business calls on the cellular telephone will be paid by Employer; (x) Employee shall be entitled to utilize chartered aircraft service pursuant to the Employer's policies as needed, and, pursuant to Employee's discretion, first class commercial air travel; (xi) Employee shall be provided with a personal computer at his home for business use; (xii) Employee shall be reimbursed for relocation expenses as described in Attachment A hereto; and (xiii) Upon retirement from employment with the Employer, Employee shall be entitled to the same medical and dental coverage provided other future retirees of the Employer, such as the Chairman/Chief Executive Officer; provided, however, that to the extent that any such benefits may not be provided to Employee due to statutory or regulatory limitations, Employer shall obtain substantially equivalent coverage on an insured basis. SECTION 6 - REIMBURSEMENT OF BUSINESS EXPENSES Employer shall reimburse Employee for all reasonable business expenditures incurred by Employee in the ordinary and necessary performance of his duties hereunder in accordance with reasonable practices established from time to time by Employer, upon timely presentation by Employee of an itemized account of such expenditures. In addition, Employee shall be entitled to reimbursement for travel expenses of Employee's spouse when she accompanies him to business meetings when spousal attendance is customary. SECTION 7 - TERMINATION (a) Employee's employment may be terminated at any time by either Employee for Employer and for any reason. No advance notice of such termination shall be required to be provided by either party. Upon termination of Employee's employment, Employee shall be entitled to such benefits under Employer's established benefit programs as determined under such programs and this Section 7 of this Agreement. (b) If Employee's employment is terminated, or constructively terminated, by the Employer for any reason other than good cause, then to the extent vested, Employee will retain all benefit rights under all established benefit programs as well as all benefits described herein. Employee shall also be entitled to salary continuation of his full base monthly salary for 24 months following such termination. During such 24-month period, Employee shall be entitled to continued coverage under the medical, dental, life insurance, and disability programs, provided, however, that to the extent any such employee benefits may not be provided to Employee due to statutory or regulatory nondiscrimination rules, Employer shall obtain for Employee substantially equivalent coverage on an insured basis. The cost of any such medical, dental, life insurance, or disability coverage shall be included in Employee's taxable income, if required by and in accordance with applicable regulations. (c) At the option of the Employee, to be exercised within one year of the occurrence of the event, Employee may deem any of the following events to be a constructive termination of Employee's employment by Employer: (i) Change in form of ownership of Employer (e.g., Employer is acquired, enters into a business combination with another company or otherwise changes form of ownership). (ii) Change in the present Chairman of the Board/Chief Executive Officer of the Employer or a material change in his responsibilities. (d) If Employee's employment is terminated by Employee for any reason other than death or disability, Employee shall retain all vested benefits, calculated as of the date of termination, but shall not be entitled to any form of salary or benefit continuance. SECTION 8 - COOPERATION AFTER TERMINATION Following any termination of employment by Employee, Employee shall fully cooperate with Employer in all matters relating to the completion of Employee's pending work on behalf of Employer and the orderly transfer of any such pending work to other employees of Employer as may be designated by Employer. Employer shall be entitled to such full-time or part-time services of Employee as Employer may reasonably require during all or any part of the 90-day period following any notice of termination by the Employee. In such event, Employee shall be compensated at a per diem rate equivalent to his previous base salary with Employer. SECTION 9 - CONFIDENTIALITY All confidential information acquired by Employee during his employment with Employer shall be regarded as confidential and solely for the benefit of Employer. SECTION 10 - ARBITRATION In case of any dispute or disagreement arising out of or connected with this Agreement, the parties hereto hereby agree to submit said dispute or disagreement to the American Arbitration Association in Raleigh, North Carolina for a resolution within 120 days after submission thereof by three arbitrators to be designated by said American Arbitration Association. Any decision or award by said arbitrators shall be binding, and except in cases of gross fraud or misconduct by one or more of the arbitrators, the decision or award rendered with respect to such dispute or disagreement shall not be appealable. In addition, the prevailing party in such an arbitration proceeding shall be entitled to recover his attorney's fees, all reasonable out-of-pocket costs and disbursements, as well as any and all charges which may be made for the cost of the arbitration and fees of the arbitrators. SECTION 11 - SEVERABILITY If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provisions of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. SECTION 12 - ASSIGNMENT Rights and duties of the parties hereunder shall not be assignable by either party except that this Agreement and all the rights hereunder may be assigned by Employer to any corporation or other business entity which succeeds to all or substantially all of the business of Employer through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of Employer and which assumes Employer's obligations under this Agreement. SECTION 13 - ENTIRE AGREEMENT This Agreement supersedes all prior agreements between the parties concerning the subject matter hereof and this Agreement constitutes the entire agreement between the parties with respect thereto. This Agreement may be modified only with a written instrument duly executed by each of the parties. No person has any authority to make any representation or promise on behalf of any of the parties not set forth herein and this Agreement has not been executed in reliance upon any representation or promise except those contained herein. No waiver by any party of any breach of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach. SECTION 14 - GOVERNING LAW This Agreement is made and entered into in the State of North Carolina, and the laws of North Carolina shall govern its validity and interpretation and the performance by the parties hereto of their respective duties and obligations hereunder. This Agreement shall be binding upon the Employer and the Employee as approved by the Board of Directors of the Employer at its regular meeting on September 16, 1992. SECTION 15 - HEADINGS Section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. WITNESS: EMPLOYER: /S/ Charles D. Barham, Jr. - ----------------------------- By: /S/ Sherwood H. Smith, Jr. Charles D. Barham, Jr. --------------------------------- Sherwood H. Smith, Jr. Title: /S/ ---------------------------- Chairman EMPLOYEE: /S/ William Cavanaugh --------------------------------- William Cavanaugh EX-10 8 EXHIBIT NO.10B(17) EXHIBIT NO.10b(17) EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into as of April 1, 1993, by and between Carolina Power & Light Company ("Employer") and William S. Orser ("Employee"). WHEREAS, Employer desires to retain Employee and Employee desires to be retained by Employer as Executive Vice President - Nuclear of Employer, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties agree as follows: SECTION 1 - EMPLOYMENT Employee shall be employed as Executive Vice President Nuclear by Employer, and shall devote his full business time and best efforts to the performance of the duties that are necessary and appropriate as such. Employee will also perform all duties and obligations as President/Chief Operating Officer of the Company and the Board of Directors may from time to time specifically require, including without limitation, those duties and obligations in this Agreement. Employee shall be responsible and report directly to the President/Chief Operating Officer of the Company. Employee agrees to such employment upon the terms and conditions in this Agreement. SECTION 2 - TERM OF EMPLOYMENT This employment is similar to the employment of other senior executives of Employer and is at the continued will of both parties. If it should be terminated by either party, then the provisions of Section 7 herein shall apply. SECTION 3 - COMPENSATION In consideration of all the services to be rendered by Employee to Employer under this Agreement, Employer shall compensate Employee as follows: (a) Employee shall be paid an aggregate annual salary, exclusive of fringe benefits and benefits provided under employee benefit plans, of $280,000, payable at such intervals, but not less frequently than monthly, as Employer may determine. Such salary shall be subject to periodic review and adjustment by Employer commencing in calendar year 1993 and thereafter, at the same time and in the same manner as other executive officer salaries are reviewed and adjusted by Employer; (b) Employee shall receive 2,000 shares of Employer common stock, plus such additional amounts as are necessary to pay the amount of federal, state and local taxes due on the value of such stock; (c) Employee shall receive short-term incentive compensation payments of: (i) $50,000, to be paid on or before August 31, 1993, with respect to Employee's services in 1993; and (ii) $50,000, to be paid on or before March 15, 1994, with respect to Employee's services in calendar year 1993. Such cash payments shall be in lieu of amounts that might otherwise be payable to Employee with respect to calendar year 1993 under Employer's Management Incentive Compensation Program or any similar program adopted in lieu thereof. With respect to calendar years after 1993, Employee shall be eligible to participate in Employer's Management Incentive Compensation Program with a present maximum payout of 30 percent of base salary or any similar program adopted in lieu thereof and Employee's entitlement to any such short-term incentive compensation shall be determined under such program; (d) Employee shall be entitled to such long-term incentive compensation payments or awards under plans or programs adopted from time to time by the Board of Directors of the Employer which covers eligible executive officers, including Employee; (e) Employee shall be eligible to participate in certain employee pension benefit programs (including certain deferred compensation plans or agreements) as described in Section 4 of this agreement; (f) Employee shall be eligible to participate in certain employee welfare benefit plans or programs and shall be entitled to certain fringe benefits as described in Section 5 of this Agreement. Such fringe benefits shall be taxable to the extent required by law, and Employee shall not receive any additional amounts to pay the taxes due on any taxable fringe benefits except as otherwise provided in Section 5. SECTION 4 - PENSION AND DEFERRED COMPENSATION BENEFITS (a) Employee shall be entitled to participate in and be eligible for such pension and deferred compensation benefit plans or programs available generally to senior executives of Employer, including by way of illustration, but not by way of limitation, the Stock Purchase-Savings Plan, the Supplemental Retirement Plan for Employees, the Supplemental Executive Retirement Plan ("SERP"), the Executive Deferred Compensation Plan, and the Deferred Compensation Plan for Key Management Employees. Employee shall be entitled to participate in such plans and programs on the same terms and conditions as other executive employees, except as follows: (i) Employee shall be entitled to three annual payments of $50,000 each for calendar years 1993, 1994, and 1995, which shall be deferred and paid to Employee as if they were deferred under the Deferred Compensation Plan for Key Management Employees as a one-year deferral for calendar year 1993. This amount shall be utilized to provide retirement income to Employee of $151,100 per year for 15 years payable monthly, commencing upon Employee's attainment of age 65 (or $112,911 per year for 15 years at age 60). As of his date of employment, Employee shall also be credited with 9 years of service for purposes of determining his benefits thereunder. In addition, reduced payments shall be made pursuant to an agreed-upon schedule if Employee dies before reaching age 65. (ii) If Employee's employment is terminated at age 55, employee shall be entitled, under the severance provisions of the Deferred Compensation Plan for Key Management Employees, to a one-time option of a lump-sum payment of $225,000. If Employee elects this option, payment of said lump sum shall terminate Employee's participation and any future benefits thereunder. (iii) With respect to the SERP, Employee shall become immediately eligible to participate and shall be fully vested in benefits thereunder as of his date of employment. SECTION 5 - WELFARE AND FRINGE BENEFITS (a) Employee shall be entitled to participate in all such welfare benefit programs and plans that exist or may hereafter be instituted by Employer, and shall receive all other fringe benefits available generally to senior executives of Employer. These welfare benefit plans and programs and other fringe benefits include, by way of illustration, but not by way of limitation, group health insurance benefits, life insurance benefits, long-term and short-term disability benefits, vacation days, and annual Employer holidays. (b) Employee shall be entitled to receive the following additional welfare benefits and fringe benefits on the same terms and conditions as other executive employees, except as follows: (i) Employee shall be provided with split-dollar life insurance coverage in an amount equal to $790,000, plus such additional amounts as necessary to pay the amount of federal, state and local taxes due on the value of such life insurance. The cost of such coverage shall be included in Employee's taxable income in accordance with applicable regulations. This split-dollar insurance coverage shall be in addition to $50,000 in group-term life insurance provided to all senior executives with split-dollar life insurance coverage and shall be in lieu of any other insurance coverage available to Company employees under the Company's group-term life insurance program. (ii) Employee shall have the opportunity to obtain estate planning counseling provided through the trust department of Wachovia Bank of North Carolina, N.A.; (iii) Employee shall be entitled to four (4) weeks of annual vacation and additional vacation days as approved on a discretionary basis by the President/Chief Operating Officer of the Company; (iv) Employer shall pay initiation fees and dues for the Employee at the Capital City Club; (v) Employee shall be entitled to membership in the Rex Hospital Wellness Center, with the initiation fee and monthly dues to be paid by Employer; (vi) Employer shall pay for one annual physical, to be provided by a physician of Employee's choice; (vii) Employee shall be provided an automobile of the class available to senior executives of Employer, with a cellular telephone. Insurance and maintenance for the vehicle will be provided by Employer, and all base monthly telephone charges and the incremental charges for all business calls on the cellular telephone will be paid by Employer. (viii) Employee shall be entitled to utilize chartered aircraft service pursuant to the Employer's policies as needed, and, pursuant to Employee's discretion, first class commercial air travel; (ix) Employee shall be provided with a personal computer at his home for business use; (x) Employee shall be reimbursed for relocation expenses as described in Attachment A hereto; (xi) Employee shall be reimbursed for temporary living expenses, in addition to the 30 days provided by the Relocation Program, and for travel expenses to and from Detroit, Michigan through September 9, 1993, or until family relocation, whichever occurs first; and (xii) Upon retirement from employment anytime after age 55 with the Employer, Employee shall be entitled to the same medical and dental coverage provided other future retirees of the Employer, such as the Chairman/Chief Executive Officer; provided, however, that to the extent that any such benefits may not be provided to Employee due to statutory or regulatory limitations, Employer shall obtain substantially equivalent coverage on an insured basis. SECTION 6 - REIMBURSEMENT OF BUSINESS EXPENSES Employer shall reimburse Employee for all reasonable business expenditures incurred by Employee in the ordinary and necessary performance of his duties hereunder in accordance with reasonable practices established from time to time by Employer, upon timely presentation by Employee of an itemized account of such expenditures. In addition, Employee shall be entitled to reimbursement for travel expenses of Employee's spouse when she accompanies him to business meetings when spousal attendance is customary. SECTION 7 - TERMINATION (a) Employee's employment may be terminated at any time by either Employee or Employer and for any reason. No advance notice of such termination shall be required to be provided by either party. Upon termination of Employee's employment, Employee shall be entitled to such benefits under Employer's established benefit programs as determined under such programs and this Section 7 of this Agreement. (b) If Employee's employment is terminated, or constructively terminated, by the Employer for any reason other than good cause, then to the extent vested, Employee will retain all benefit rights under all established benefit programs as well as all benefits described herein. Employee shall also be entitled to receive the following benefits: (i) if there is termination of employment by the Company for any reason other than good cause within the first two years of employment, the Employee shall be entitled to salary continuation of 50 percent of his full base monthly salary for 24 months following such termination. During such 24-month period, Employee shall be entitled to continued coverage under the medical, dental, life insurance, and disability programs provided, however, that to the extent any such employee benefits may not be provided to Employee due to statutory or regulatory nondiscrimination rules, Employer shall obtain for Employee substantially equivalent coverage on an insured basis. The cost of any such medical, dental, life insurance, or disability coverage shall be included in Employee's taxable income, if required by and in accordance with applicable regulations: (ii) if termination occurs after the employee has attained age 55 but before attaining age 60, Employer agrees to pay the employee a severance benefit of $153,912 per year (less any benefits payable under the SERP), for the remainder of the Employee's life. Such severance benefit shall terminate at the employee's death. (c) At the option of the Employee, to be exercised within one year of the occurrence of the event, Employee may deem any of the following events to be a constructive termination of Employee's employment by Employer: (i) Change in form of ownership of Employer (e.g., Employer is acquired, enters into a business combination with another company or otherwise changes form of ownership). (ii) Change in the present Chairman of the Board/Chief Executive Officer of the Employer or a material change in his responsibilities. (d) If Employee's employment is terminated by Employee for any reason other than death or disability, Employee shall retain all vested benefits, calculated as of the date of termination, but shall not be entitled to any form of salary or benefit continuance. SECTION 8 - COOPERATION AFTER TERMINATION Following any termination of employment by Employee, Employee shall fully cooperate with Employer in all matters relating to the completion of Employee's pending work on behalf of Employer and the orderly transfer of any such pending work to other employees of Employer as may be designated by Employer. Employer shall be entitled to such full-time or part-time services of Employee as Employer may reasonably require during all or any part of the 90-day period following any notice of termination by the Employee. In such event, Employee shall be compensated at a per diem rate equivalent to his previous base salary with Employer. SECTION 9 - CONFIDENTIALITY All confidential information acquired by Employee during his employment with Employer shall be regarded as confidential and solely for the benefit of Employer. SECTION 10 - ARBITRATION In case of any dispute or disagreement arising out of or connected with this Agreement, the parties hereto hereby agree to submit said dispute or disagreement to the American Arbitration Association in Raleigh, North Carolina, for a resolution within 120 days after submission thereof by three arbitrators to be designated by said American Arbitration Association. Any decision or award by said arbitrators shall be binding, and except in cases of gross fraud or misconduct by one or more of the arbitrators, the decision or award rendered with respect to such dispute or disagreement shall not be appealable. In addition, the prevailing party in such an arbitration proceeding shall be entitled to recover his attorney's fees, all reasonable out-of-pocket costs and disbursements, as well as any and all charges which may be made for the cost of the arbitration and fees of the arbitrators. SECTION 11 - SEVERABILITY If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provisions of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. SECTION 12 - ASSIGNMENT Rights and duties of the parties hereunder shall not be assignable by either party except that this Agreement and all the rights hereunder may be assigned by Employer to any corporation or other business entity which succeeds to all or substantially all of the business of Employer through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of Employer and which assumes Employer's obligations under this Agreement. SECTION 13 - ENTIRE AGREEMENT This Agreement supersedes all prior agreements between the parties concerning the subject matter hereof and this Agreement constitutes the entire agreement between the parties with respect thereto. This Agreement may be modified only with a written instrument duly executed by each of the parties. No person has any authority to make any representation or promise on behalf of any of the parties not set forth herein and this Agreement has not been executed in reliance upon any representation or promise except those contained herein. No waiver by any party of any breach of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach. SECTION 14 - GOVERNING LAW This Agreement is made and entered into in the State of North Carolina, and the laws of North Carolina shall govern its validity and interpretation and the performance by the parties hereto of their respective duties and obligations hereunder. This Agreement shall be binding upon the Employer and the Employee as approved by the Board of Directors of the Employer. SECTION 15 - HEADINGS Section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. WITNESS: EMPLOYER: /S/Fred N. Day - -------------------- By: /S/ Charles D. Barham Fred N. Day ----------------------- Charles D. Barham Title: Executive Vice President EMPLOYEE: /S/ William S. Orser ----------------------- William S. Orser EX-10 9 EXHIBIT NO. 10B(18) EXHIBIT NO.10b(18) September 27, 1994 Mr. Glenn E. Harder 106 West Ruelle Mandeville, Louisiana 70448 Dear Glenn: It is a pleasure to offer you employment as Senior Vice President, Financial Services, effective October 17, 1994 (or as soon thereafter as you may arrange), upon the terms and conditions set forth in the attachments to this letter. As discussed, it is expected that you will be promoted to Executive Vice President and assume full duties of the Chief Financial Officer no later than August 1, 1995. Of course this promotion will be subject to approval by the Board of Directors as are the elections of all corporate officers. It is my hope that you will accept, and I look forward with anticipation and pleasure to working closely with you in the leadership of Carolina Power & Light Company. Sincerely, /S/ Charles D. Barham, Jr. --------------------------- Charles D. Barham, Jr. CDBjr:kd Attachments ACCEPTED: /S/ 9-27-94 - -------------------- EMPLOYMENT OFFER Attachment 1 GLENN E. HARDER POSITION: Senior Vice President, Financial Services SALARY: $200,000 annually - subject to review and adjustment on an annual basis. MANAGEMENT INCENTIVE Annual target award of 30% of annual base salary. COMPENSATION The award for plan year 1995 will be paid on or PROGRAM: before March 15, 1996. CASH PAYMENT $60,000 out of base payment (less taxes) in WITH DEFERRAL October 1994 with the option to defer $20,000 of OPTION: the $60,000 under the Key Management Deferred Compensation Plan. This plan will provide retirement income of $47,800 per year for 15 years, age 65-80, with reduced guaranteed payments pursuant to schedule if death occurs before age 65. If certain age and length of service provisions are not met, the plan contribution will be paid out over a 60 month period following termination at a reduced interest rate. LONG-TERM INCENTIVE PLAN: Performance award, as determined by the Board of Directors, up to a maximum of 40% of base salary, as described on attached summary. Your award under this plan for the year 1994 will be prorated based on employment date. SUPPLEMENTAL EXECUTIVE An accrued retirement benefit program designed to RETIREMENT PLAN: yield 62% of a participant's highest three years annual salary at age 65, as described on attached summary. Upon employment, you shall be credited with 3 years service so that you will become fully vested in the plan after two years. EXECUTIVE PERMANENT LIFE A permanent life insurance plan with a target INSURANCE PROGRAM: benefit of three (3) times projected salary as described on attached summary. RELOCATION: To be provided as described on the attached Relocation Program Summary which includes 1 1/2 months salary for miscellaneous expenses. TEMPORARY LIVING EXPENSES: In addition to the 30 days provided by the Relocation Program, you will be reimbursed through 01/31/95, or until family relocation, whichever occurs first. STOCK PURCHASE SAVINGS PLAN: Provides for $0.50 match per dollar up to six percent (6%) of base salary. Additional contributions are possible of another $0.50 based upon meeting company performance goals. DISABILITY INCOME: Coverage under plan provides for 60% of salary, (or 70% of base salary including Family Social Security benefits). AUTOMOBILE: Full-size company car with cellular phone. HOLIDAYS: Current company policy is 10 days. BENEFITS: Coverage under the company's existing benefits programs through December 1994. Choice Benefits program to be implemented in January 1995 including increased options for medical, dental, dependent life, and disability insurance. VACATION: Four weeks per year. LUNCHEON AND Capital City Club initiation fee and dues paid by SUPPER CLUB: Company. ANNUAL PHYSICAL: Provided by physician of employee's choice. FINANCIAL PLANNING: Provides financial planning and tax preparation. These services are provided by Deloitte & Touche, however, you may select other approved providers for all or part of these services. CAROLINA POWER & LIGHT COMPANY SUMMARY Executive Benefit Programs LONG-TERM COMPENSATION PLAN: This plan provides for the annual award of performance shares equal in value to the market price of the Company's common stock at the time f the granting of the award, earned over a three-year period. It has two possible types of awards: (1) a discretionary award for a pool based upon a fraction of Company net earnings-which can recognize individual contributions and need not be dependent on overall corporate performance; and, (2) an annual award opportunity (maximum 40% of base salary) which may consider both individual achievement and overall corporate performance. Both of these awards are determined by the Board Committee on Personnel, Executive Development and Compensation. EXECUTIVE PERMANENT LIFE INSURANCE PROGRAM: This program allows the eligible executive to participate in a split-dollar arrangement designed to replace the Company's current group term life insurance coverage in excess of $50,000 with permanent life insurance. The target benefit under this program is based on three (3) times projected salary assuming a salary growth of 6% (not to exceed $1,200,000). SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP): Executives eligible to participate in the SERP accrue retirement benefits, when taken in conjunction with benefits payable under the Company's Supplemental Retirement Plan and Social Security entitlement, designed to provided income at age 65 equal to 4% a year subject to a maximum of 62% of the three (3) highest years of annual salary. Salary includes cash awards made under the annual Management Incentive Compensation Program and amounts of compensation deferred under any deferred compensation plan, but excludes any non-cash items required to be included in IRS Form W-2. ==================================================================================================================================== RELOCATION PROGRAM SUMMARY EFFECTIVE OCTOBER 1, 1992
DESCRIPTION PAYMENT HOMEOWNERS NON-HOMEOWNERS - ------------------------------------------------------------------------------------------------------------------------------------ Lump sum for unreimbursed miscellaneous 1 1/2 months salary X X expenses such as duplicate housing, ($3,000 minimum) lease-breaking penalties, utility connections, licensing fees, drapes, child care, etc. - ------------------------------------------------------------------------------------------------------------------------------------ 2 advance visits (total 4 nights); Reimbursed on expense account X X transportation, lodging and meals for family move to new location. - ------------------------------------------------------------------------------------------------------------------------------------ Temporary living expenses for employee at new Reimbursed on expense account X X location before family move for up to 30 consecutive calendar days - ------------------------------------------------------------------------------------------------------------------------------------ Living expenses for family for up to 5 days Reimbursed on expense account X X while goods are in transit - ------------------------------------------------------------------------------------------------------------------------------------ Marketing assistance in selling old home Billed to CP&L by Contractor X - ------------------------------------------------------------------------------------------------------------------------------------ SELLING OLD HOME Relocation service to purchase old X home at appraised value (Certain properties are not eligible for this Billed to CP&L by contractor OR service.) OR OR X Sale of home by employee, independent of the relocation service. Reimbursed to 10% of sales price - ------------------------------------------------------------------------------------------------------------------------------------ Bonus for selling old home including assigned 2% of sales price X sales to relocation service that are within 98% of appraised value - ------------------------------------------------------------------------------------------------------------------------------------ Loss on Sale Protection 90% of loss to $20,000 X - ------------------------------------------------------------------------------------------------------------------------------------ Closing costs on new home Reimbursed to 4% of purchase price X - ------------------------------------------------------------------------------------------------------------------------------------ Loan for purchase of a new home for employees up to 90% of equity in old home X who have initiated relocation service homebuying. (Relocation service funded) - ------------------------------------------------------------------------------------------------------------------------------------ Loan for purchase of a new home for new up to 50% of annual salary X employees who are not eligible or have not initiated relocation service homebuying (CP&L funded) - ------------------------------------------------------------------------------------------------------------------------------------ Mortgage rate differential Based on old & new mtg. rates X - ------------------------------------------------------------------------------------------------------------------------------------ Moving mobile home including reimbursement for Reimbursed on expense account X towing, unblocking and reblocking, permits and escorts, etc. - ------------------------------------------------------------------------------------------------------------------------------------ Help in finding home in new location Homefinding service from contractor X X - ------------------------------------------------------------------------------------------------------------------------------------ MOVING HOUSEHOLD GOODS Professional packing, transportation and delivery of household goods Billed to CP&L by contractor X X OR OR OR OR Self-move of household goods including Reimbursed on expense account X X trailer or truck rental, boxes, packing material, etc. - ------------------------------------------------------------------------------------------------------------------------------------ Spouse job-hunting assistance Up to $300 in expenses reimbursed X X - ------------------------------------------------------------------------------------------------------------------------------------
EX-10 10 EXHIBIT NO. 10B(19) Attachment 2 EXHIBIT NO. 10b(19) AGREEMENT confidential THIS AGREEMENT, is made and entered into this the 18th day of September, 1996, by and between Carolina Power & Light Company ["CP&L"] and Sherwood H. Smith, Jr. ["Smith"]. RECITALS Sherwood H. Smith, Jr., presently serves as the Chief Executive Officer of Carolina Power & Light Company, a position he has held since September, 1979. He also has served as Chairman of the Board and Chairman of the Executive Committee since May of 1980. Smith will cease serving as Chief Executive Officer effective October 1, 1996, but will remain active as Chairman of the Board of Directors and Chairman of the Executive Committee. As of December 31, 1996, Smith plans to retire from CP&L, and he will then no longer be an employee of CP&L or any of its subsidiary companies, but he will then render various services to the Company pursuant to this Agreement. Smith has been an active employee of CP&L since 1965, during which time he has acquired special competence in, and intimate knowledge of, the business of CP&L and of the electric utility industry and related businesses, as well as government bodies and their impact upon CP&L. He has held many executive positions within the CP&L organization, including 17 years' service as Chief Executive Officer. He is one of the most experienced and respected Chief Executive Officers in the utility industry, and has received national recognition on many occasions for his management and professional skills. Because of his knowledge of the CP&L organization, his skills in business, his record of leadership and knowledge of the industry, and the significant contributions which he has made and can continue to make to CP&L and to its Board of Directors, the Board has requested that he continue to serve as Chairman of the Board of Directors of CP&L and as Chairman of the Executive Committee, in addition to providing certain services pursuant to this Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth, CP&L, through the action of its Board of Directors, and Smith mutually agree as follows: 1. TERM OF AGREEMENT. Subject to the provisions for termination as herein set forth, the term of this Agreement shall be for a period beginning October 1, 1996, and ending September 30, 1999, when Smith will reach the age of 65. It is anticipated that Smith will not serve as Chairman after the May, 1999, meeting but will continue to provide other services through September 30, 1999, as set out in this Agreement. 2. DUTIES AND RESPONSIBILITIES. Smith shall perform the duties of the Chairman of the Board of Directors and Chairman of the Executive Committee, as set forth in the CP&L By-Laws and as directed by the Board. In addition to such service for the Board of Directors, it is acknowledged that Smith has unique skills, knowledge, and contacts in areas and activities in which CP&L and its subsidiaries operate, which qualify him to represent CP&L and its subsidiaries in industry, governmental, public relations and civic matters and to assist CP&L and its subsidiaries in furthering CP&L's business purposes. To that end, Smith as Chairman will also be available to perform the following services, as requested, subject to the request and general direction of CP&L's Chief Executive Officer: [1] he will assist management in maintaining relations and communications with the investing public, shareholders, and financial analysts; [2] he will assist in representing CP&L in general industry, trade association, charitable, educational, and public interest organizations and projects; [3] he will assist in studying, evaluating, and advising management and the Board on general economic and regulatory conditions and the implications of such as a basis for determining the strategic, operational and financial plans and policies of CP&L; [4] he will assist management in establishing and maintaining favorable relationships and communications with federal, state and local agencies involved in the regulation of CP&L and its subsidiary companies; [5] he will keep abreast of legislative matters which affect the Company's operations, and represent CP&L if called upon to present CP&L's views on legislative issues to federal, state, and local governments; [6] he will assist management in representing CP&L's views and interests to trade associations and other industry-related organizations; [7] he will be available to participate and assist in the contact, maintenance, and development of existing and prospective customer relationships for CP&L and its subsidiary companies; [8] he will be available for speaking engagements and other presentations; [9] he will advise with respect to contributions, investments, and pension plan matters; and [10] any other reasonable specific service as may be requested by the Chief Executive Officer and/or the Board of Directors of CP&L. 3. INDEPENDENT CONTRACTOR. Smith shall not be involved in the day-to-day management or operations of CP&L, and his services shall be as directed by the Chief Executive Officer. Smith shall carry out his duties and responsibilities as an independent contractor, and not as an employee of CP&L. Smith shall endeavor to make himself available at such times as CP&L shall reasonably request for meetings, public appearances, governmental hearings, and similar events. Consistent with the foregoing, Smith shall devote such time to carrying out his duties and responsibilities herein as he and the Chief Executive Officer shall deem necessary, and he shall render the services herein at such time or times as he and the Chief Executive Officer shall determine. Smith shall not be required to work full time or to work any set schedule or number of hours during any specific period, nor shall he be required to submit time reports or schedules to CP&L, except as otherwise provided for reimbursement of expenses. 4. COMPENSATION. Smith's compensation for the year 1996 shall be as set by the Board to include approved base salary and incentive plan payments to be made in 1997. For the services rendered by Smith as Chairman of the Board of Directors and Chairman of the Executive Committee and for other services, pursuant to this Agreement, CP&L shall pay to Smith the sum of $33,100 per month, beginning January 1, 1997, through December 31, 1997, and $27,583 per month beginning January 1, 1998, through December 31, 1998; and $16,550 per month beginning January 1, 1999, through September 30, 1999. Such payments are to be made at the end of each calendar month. 5. OFFICE AND EXPENSES. CP&L will make available for Smith office space, secretarial and other support services appropriate to the performance of these duties and responsibilities. These shall be as approved by the Chief Executive Officer. CP&L shall pay the bills of or reimburse Smith in accordance with CP&L policies for all reasonable travel and other expenses incurred by Smith [including, when appropriate, travel expenses for his wife] in performing services under this Agreement upon presentation by him of the required accounting and documentation in such form as is satisfactory to the Chief Financial Officer of CP&L. Smith may use corporate air travel in the performance of these duties, with approval of the Chief Executive Officer, and he will be provided a company automobile allowance in accordance with CP&L policy. The company will continue to maintain for him a home alarm and security service, a company network telephone and facsimile equipment at his residence, and a car telephone. [It is anticipated that a reduced level of office and secretarial support will also be supplied to Smith after September 30, 1999, in his capacity as retired Chairman and Chief Executive Officer. Such arrangements will be by mutual agreement as approved by the Chief Executive Officer.] 6. BENEFITS. After January 1, 1997, Smith shall not be entitled to participate in any retirement plans or other benefit plans provided by CP&L for its employees as a consequence of his service as Chairman of the Board of Directors, except to the extent that such participation results from Smith's prior services as an employee or officer of the Company. 7. INCOME TAX WITHHOLDING. CP&L shall not withhold federal or state income taxes or employment taxes from payments made to Smith hereunder, unless otherwise required so to do by law. 8. FINANCIAL PLANNING SERVICES. CP&L shall provide Smith with financial planning services, and shall reimburse Smith for the costs of financial and legal advisors, to the same extent as if Smith were a senior executive entitled to participate in CP&L's executive financial planning program. Such services and reimbursement shall be available to Smith for one year following the end of the term of the Agreement and to his spouse for one year following his death. 9. NON-COMPETITION. During the term of this Agreement and for three years thereafter, Smith shall not engage in any business in competition with, or in anyway in conflict with, the business of CP&L as an officer, employee, advisor, consultant, partner, principal shareholder, or otherwise in which he shall have an active role in consulting or advising with respect to such other business or activity. Smith shall be deemed to be a principal shareholder of any corporation if he owns or controls, directly or indirectly, twenty-five percent [25%] or more of the voting stock of the corporation. Further, Smith shall not engage in any activity involving any other electric utility without the advance written approval of the CP&L Chief Executive Officer. 10. TERMINATION. This Agreement shall terminate at the close of business on September 30, 1999. Additionally, this Agreement shall terminate upon the occurrence of the following events: [a] Death or Incapacity. This Agreement shall terminate upon the death of Smith. In the event of Smith's incapacity for a period in excess of three months, the Board of Directors of CP&L may terminate this Agreement. In the event of the death of Smith, CP&L shall pay to any party that has been designated by Smith in writing to CP&L, or if no such party has been designated, to his executor(s) or administrator(s), or in the event of such incapacity, to Smith or his designee, guardian, or representative, an amount equal to his unpaid compensation hereunder as of the end of the month in which he dies or has been incapacitated for the previous consecutive three months, and thereafter CP&L shall have no further liability to Smith or his executors or administrators for compensation for additional services arising pursuant to this Agreement. [b] Failure to Perform. In the event of Smith's failure to observe or perform the provisions of this Agreement required to be observed or performed by him following written notice of such nonperformance, or if Smith shall accept full-time employment with any other organization, then in either event, CP&L may terminate this Agreement, such termination to be effective thirty [30] days after CP&L gives written notice of such termination to Smith. It is understood and agreed by Smith and CP&L that nothing contained in this Agreement shall obligate the Board, any member of the Board, or CP&L in any way to vote for, elect, or continue Smith in office as Chairman of the Board of Directors or Chairman of the Executive Committee if at any time a majority of the Board determines that it is in CP&L's best interests not to so do. 11. NOTICES. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and sent by registered mail to Smith at 408 Drummond Drive, Raleigh, North Carolina, 27609, or to such other address as either party shall designate by written notice to the other. 12. ASSIGNMENT. The rights and obligations of CP&L under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of CP&L. The rights and obligations of Smith hereunder are personal, and may not be assigned or delegated by Smith. 13. MODIFICATION, WAIVER AND ATTACHMENT. [a] Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. This Agreement may be modified, amended, or extended by an instrument in writing signed by the parties hereto. [b] Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. [c] No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void, and of no effect. 14. SEVERABILITY. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. 15. EFFECT ON OTHER AGREEMENTS. Nothing contained in this Agreement is intended to alter in any way or to affect the provisions of any other agreement or contract which previously may have been entered into by and between Smith and CP&L. 16. GOVERNING LAW. This Agreement has been executed and delivered in North Carolina, and its interpretation, performance and enforcement shall be governed by such laws. IN WITNESS WHEREOF, CP&L, through its Board of Directors, has caused this Agreement to be executed and its seal to be affixed hereunto by its officers duly authorized, and Smith has signed and sealed this Agreement, all on the day and year first above written. By: /S/ Charles W. Coker ------------------------ Charles W. Coker /S/ William Cavanaugh ------------------------ William Cavanaugh CAROLINA POWER & LIGHT COMPANY /S/ Sherwood H. Smith, Jr. - --------------------------- Sherwood H. Smith, Jr. EX-10 11 EXHIBIT NO. 10B(20) EXHIBIT NO. 10b(20) Employment Agreement Between Robert B. McGehee and Carolina Power & Light Company This Employment Agreement ("Agreement") is made and entered into by Robert B. McGehee ("McGehee") and Carolina Power & Light Company ("CP&L"). Throughout the remainder of the Agreement, McGehee and CP&L may be collectively referred to as "the parties." CP&L and McGehee wish to enter into an employment relationship whereby McGehee will be employed as Senior Vice President - General Counsel beginning on May 20, 1997. The parties desire to enter into this Agreement in connection with that employment relationship. In consideration of the above and the mutual promises set forth below, McGehee and CP&L agree as follows: 1. POSITION. McGehee will be employed as Senior Vice President - General Counsel beginning on May 20, 1997. 2. SALARY. CP&L will pay McGehee an annual salary at the rate of $245,000 (Two Hundred Forty-Five Thousand Dollars) (less applicable withholdings) per year, subject to periodic review on or around January 1 of each year or at the time other executive officers' salaries are reviewed. 3. RELOCATION EXPENSES. In order to assist McGehee in his relocation to Raleigh, North Carolina, CP&L will provide the following benefits: a) Cash Payment. CP&L will pay McGehee $100,000 (One Hundred Thousand Dollars) (less applicable withholdings) to compensate McGehee for relocation expenses and to assist in the purchase of housing in Raleigh, North Carolina. Such payment shall be made by CP&L by July 1, 1997. b) Relocation Program. McGehee will be eligible to participate in CP&L's relocation program in accordance with its terms. However, CP&L will pay to McGehee an additional amount to compensate him for the income taxes McGehee will incur on these benefits. c) Temporary Living Expenses. In addition to the 30 days provided by the CP&L Relocation Program, McGehee will be reimbursed for any reasonable temporary living expenses until his family relocates to Raleigh. McGehee acknowledges that these reimbursements will be subject to taxation to him; however, CP&L will pay to McGehee an additional amount to compensate him for the income taxes McGehee will incur on these benefits. 4. PURCHASE OF CP&L STOCK. CP&L will purchase in McGehee's name, 1000 shares of CP&L common stock. Such purchase shall be made by July 1, 1997. CP&L will pay to McGehee an additional amount to compensate him for the income taxes McGehee will incur as a result of this purchase. 5. MANAGEMENT INCENTIVE COMPENSATION PROGRAM. McGehee will be eligible to participate in the Management Incentive Compensation Program (MICP) beginning in 1997, for which a payment will be made on or before March 31, 1998. Pursuant to the terms of the MICP, McGehee's target payout will be 25 percent of annual base earnings. McGehee will be paid a minimum of $61,250 (Sixty-One Thousand Two Hundred Fifty Dollars) in March of 1998 for the 1997 performance year. 6. LONG-TERM INCENTIVES. McGehee will be eligible to participate in the 1997 Performance Share Sub-Plan under the Equity Incentive Plan, as a group executive in accordance with its terms. 7. SUPPLEMENTAL RETIREMENT PLAN. McGehee will be eligible to participate in CP&L's Supplemental Retirement Plan subject to the terms of the plan. 8. SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN. McGehee will be eligible to participate in CP&L's Supplemental Senior Executive Retirement Plan ("SERP"). In connection with McGehee's participation in SERP, McGehee will be awarded ten (10) years of additional service credit, three (3) years of which will be deemed to have been in service on the Senior Executive Committee; such credit will allow McGehee to be eligible to immediately participate in the SERP and to receive full benefits no later than at age 61. 9. DEFERRED COMPENSATION PLAN FOR KEY MANAGEMENT EMPLOYEES. McGehee will be eligible to participate in the Deferred Compensation Plan for Key Management Employees (the "Deferred Compensation Plan"), subject to its terms. During 1997, CP&L will contribute $40,500 (Forty-Thousand Five-Hundred Dollars) on McGehee's behalf into the Deferred Compensation Plan with the understanding that the Deferred Compensation Plan will be amended to allow for such contributions. 10. EXECUTIVE PERMANENT LIFE INSURANCE PLAN. Pursuant to its terms, McGehee will be eligible to participate in the Executive Permanent Life Insurance program with a target benefit of three times projected salary assuming a salary growth of six percent, but not to exceed $1,200,000 (One Million Two Hundred Thousand Dollars). 11. EXECUTIVE AD&D LIFE INSURANCE. McGehee will be eligible to participate in CP&L's AD&D insurance program, subject to the terms of the program, up to a maximum amount of $500,000 (Five Hundred Thousand Dollars). 12. STOCK PURCHASE SAVINGS PLAN. McGehee will be eligible to participate in CP&L's Stock Purchase Savings Plan, pursuant to its terms. 13. FINANCIAL AND ESTATE PLANNING. Consistent with CP&L's practice with respect to other senior executives, McGehee will be allowed to obtain Company reimbursed financial planning and tax preparation services. 14. DISABILITY INCOME. McGehee will be eligible to participate in CP&L's Long-Term Disability Program subject to the terms of the plan. 15. VACATION. McGehee will be eligible for up to four weeks' paid vacation per year. 16. HOLIDAYS. McGehee will be eligible for ten (10) CP&L paid holidays, as provided in the CP&L Handbook. 17. AUTOMOBILE. McGehee will be paid a car allowance of $1,350 (One Thousand Three Hundred Fifty Dollars) (less applicable withholdings) per month. He will also be provided a cellular telephone for his automobile and provided reserved parking at CP&L's expense. 18. ANNUAL PHYSICAL. CP&L will pay for an annual physical examination by a physician of McGehee's choice. 19. OTHER BENEFITS. McGehee will be eligible to participate in other CP&L benefits, subject to the terms of the respective plans, as described in more detail in the Employee Handbook. Additionally, upon retirement from CP&L, McGehee will be eligible to participate in the medical and dental insurance programs provided other retirees at retiree rates, subject to the terms of those plans; provided, however, that to the extent any such benefits may not be provided to McGehee because of statutory or regulatory limitations, CP&L will use its best efforts to obtain substantially equivalent coverage on an insured basis. 20. CAPITAL CITY CLUB. CP&L will pay an initiation fee and monthly dues for a membership in the Capital City Club for McGehee. 21. AIRLINE CLUB MEMBERSHIP. CP&L will pay the fee for airline club membership for McGehee. 22. COUNTRY CLUB MEMBERSHIP. At McGehee's option, if joined, CP&L will pay the initiation fees for country club membership for McGehee. McGehee will be responsible for all monthly dues. 23. HEALTH CLUB. CP&L will pay initiation and dues for a family membership in the Rex Hospital Wellness Center. 24. PERSONAL COMPUTER. CP&L will provide a personal computer to McGehee to be used at his personal residence. 25. TERMINATION OF EMPLOYMENT. The employment relationship between McGehee and CP&L is "at will" and may be terminated by either CP&L or McGehee with or without advance notice and may be terminated with or without cause as defined below. a) Termination Without Cause. Within two (2) years of the date of this Agreement, if McGehee's employment is terminated without cause or if McGehee's employment is constructively terminated, then McGehee will be provided with severance benefits of two (2) years of annual base salary. In addition, McGehee will be eligible to retain all benefits under existing benefit programs to the extent vested within the terms of those programs. 1) Termination for Cause - For purposes of this paragraph 25, cause for the termination of employment shall be defined as: (a) any act of McGehee's including, but not limited to, misconduct, negligence, unlawfulness, dishonesty or inattention to the business, which is detrimental to CP&L's interests or (b) McGehee's unsatisfactory job performance or failure to comply with CP&L's directions, policies, rules or regulations. 2) Constructive Termination - For purposes of this paragraph 25, a constructive termination will be deemed to occur if: (a) there is a change in the form of ownership of CP&L (e.g., CP&L is acquired, enters into a business combination with another company or otherwise changes form of ownership) or (b) there is a change in the present CEO of the Company or a material change in his or McGehee's responsibilities. b) Voluntary Termination - If McGehee terminates his employment voluntarily for any reason other than a constructive termination, then he shall be eligible to retain all benefits under existing benefit programs which have vested pursuant to the terms of those programs, but he shall not be entitled to any form of salary continuance or any form of severance benefit. c) Termination for Cause - If McGehee's employment is terminated for cause, then he shall be eligible to retain all benefits under existing benefit programs which have vested pursuant to the terms of those programs, but he shall not be entitled to any form of salary continuance or any form of severance benefit. 29. WAIVER OF BREACH. McGehee's or CP&L's waiver of any breach of any provision of this agreement shall not waive any subsequent breach by the other party. 30. ENTIRE AGREEMENT. The Agreement: (i) supersedes all other understandings and agreements, oral or written, between the parties with respect to its subject matter; (ii) constitutes the sole agreement between the parties with respect to its subject matter. Each party acknowledges that: (i) no representations, inducements, promises, oral or written, made by any party or anyone acting on behalf of the party, which are not embodied in the Agreement; and (ii) no agreement, statement, or promise not contained in the Agreement shall be valid or binding on the parties unless such change or modification is in writing and is signed by the parties. 31. SEVERABILITY. If a court of competent jurisdiction holds that any provision or subpart thereof contained in the Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any of the other provisions in the Agreement. 32. PARTIES BOUND. The Agreement shall apply to, be binding upon an inure to the benefit of the parties' successors, assigns, heirs, and other representatives. 33. GOVERNING LAW. The Agreement will be governed by North Carolina law. In witness whereof, the parties have entered into the Agreement on the day and year written below. By: /S/ Robert B. McGehee Date: June 2, 1997 -------------------------------------- -------------- Robert B. McGehee By: /S/ Date: June 2, 1997 --------------------------------------- -------------- Carolina Power & Light Company Title: /S/ ---------------------------------- EX-10 12 EXHIBIT NO. 10B(21) EXHIBIT NO. 10b(21) Employment Agreement Between John E. Manczak and Carolina Power & Light Company This Employment Agreement ("Agreement") is made and entered into by John E. Manczak ("Manczak") and Carolina Power & Light Company ("CP&L"). Throughout the remainder of the Agreement, Manczak and CP&L may be collectively referred to as "the parties." CP&L and Manczak wish to enter into an employment relationship whereby Manczak will be employed as Senior Vice President - Retail Sales & Service beginning on June 16, 1997. The parties desire to enter into this Agreement in connection with that employment relationship. In consideration of the above and the mutual promises set forth below, Manczak and CP&L agree as follows: 1. POSITION. Manczak will be employed as Senior Vice President - Retail Sales & Service beginning on June 16, 1997. 2. SALARY. CP&L will pay Manczak an annual salary at the rate of $220,000 (Two Hundred Twenty Thousand Dollars) (less applicable withholdings) per year, subject to periodic review on or around January 1 of each year or at the time other executive officers' salaries are reviewed. 3. RELOCATION EXPENSES. In order to assist Manczak in his relocation to Raleigh, North Carolina, CP&L will provide the following benefits: a) Cash Payment. CP&L will pay Manczak $100,000 (One Hundred Thousand Dollars) (less applicable withholdings) to compensate Manczak for relocation expenses and to assist in the purchase of housing in Raleigh, North Carolina. Such payment shall be made by CP&L by August 1, 1997. b) Relocation Program. Manczak will be eligible to participate in CP&L's relocation program in accordance with its terms. However, CP&L will pay to Manczak an additional amount to compensate him for the income taxes Manczak will incur on these benefits. c) Temporary Living Expenses. In addition to the 30 days provided by the CP&L Relocation Program, Manczak will be reimbursed for any reasonable temporary living expenses associated with the rental of a two-bedroom furnished apartment, including furniture storage as appropriate, through September 1, 1997, or until family relocation, whichever comes first. CP&L will also reimburse Manczak for the reasonable expenses associated with up to six (6) trips for his return to Michigan, or his immediate family's (including Manczak's father's) trips to North Carolina, during the period of temporary living prior to September 1, 1997. Manczak acknowledges that these reimbursements will be subject to taxation to him; however, CP&L will pay to Manczak an additional amount to compensate him for the income taxes Manczak will incur on these benefits. Following September 1, 1997, CP&L will also reimburse Manczak for additional temporary living expenses until April 30, 1998, or until he closes on his personal residence located at 431 Marlowe Road, Raleigh, North Carolina, whichever occurs first. Manczak acknowledges that these additional reimbursements will be subject to taxation to him; however, CP&L will pay Manczak an additional amount to compensate him for the income taxes Manczak will incur on those additional reimbursements made by CP&L for living expenses through December 31, 1997. 4. PURCHASE OF CP&L STOCK. CP&L will purchase in Manczak's name, 1000 shares of CP&L common stock. Such purchase shall be made by August 1, 1997. CP&L will pay to Manczak an additional amount to compensate him for the income taxes Manczak will incur as a result of this purchase. 5. MANAGEMENT INCENTIVE COMPENSATION PROGRAM. Manczak will be eligible to participate in the Management Incentive Compensation Program ("MICP") beginning in 1997, for which a payment will be made on or before March 31, 1998. Pursuant to the terms of the MICP, Manczak's target payout will be 25 percent of annual base earnings. Manczak will be paid a minimum of $55,000 (Fifty Five Thousand Dollars) in March of 1998 for the 1997 performance year. 6. LONG-TERM INCENTIVES. Manczak will be eligible to participate in the 1997 Performance Share Sub-Plan under the Equity Incentive Plan, as a group executive in accordance with its terms. 7. SUPPLEMENTAL RETIREMENT PLAN. Manczak will be eligible to participate in CP&L's Supplemental Retirement Plan subject to the terms of the plan. 8. SUPPLEMENTAL SENIOR EXECUTIVE RETIREMENT PLAN. Manczak will be eligible to participate in CP&L's Supplemental Senior Executive Retirement Plan ("SERP"). In connection with Manczak's participation in SERP, Manczak will be awarded ten (10) years of additional service credit for purposes of participation, vesting and benefit calculations. Three (3) years of such service credit will be deemed to have been in service on the Senior Management Committee. 9. DEFERRED COMPENSATION PLAN FOR KEY MANAGEMENT EMPLOYEES. Manczak will be eligible to participate in the Deferred Compensation Plan for Key Management Employees (the "Deferred Compensation Plan"), subject to its terms. 10. EXECUTIVE PERMANENT LIFE INSURANCE PLAN. Pursuant to its terms, Manczak will be eligible to participate in the Executive Permanent Life Insurance program with a target benefit of three times projected salary assuming a salary growth of six percent, but not to exceed $1,200,000 (One Million Two Hundred Thousand Dollars). 11. EXECUTIVE AD&D LIFE INSURANCE. Manczak will be eligible to participate in CP&L's AD&D insurance program, subject to the terms of the program, up to a maximum amount of $500,000 (Five Hundred Thousand Dollars). 12. STOCK PURCHASE SAVINGS PLAN. Manczak will be eligible to participate in CP&L's Stock Purchase Savings Plan, pursuant to its terms. 13. FINANCIAL AND ESTATE PLANNING. Consistent with CP&L's practice with respect to other senior executives, Manczak will be allowed to obtain Company reimbursed financial planning and tax preparation services. 14. DISABILITY INCOME. Manczak will be eligible to participate in CP&L's Long-Term Disability Program subject to the terms of the plan. 15. VACATION. Manczak will be eligible for up to four weeks' paid vacation per year. 16. HOLIDAYS. Manczak will be eligible for ten (10) CP&L paid holidays, as provided in the CP&L Handbook. 17. AUTOMOBILE. Manczak will be paid a car allowance of $1,350 (One Thousand Three Hundred Fifty Dollars) (less applicable withholdings) per month. He will also be provided a cellular telephone for his automobile and provided reserved parking at CP&L's expense. 18. ANNUAL PHYSICAL. CP&L will pay for an annual physical examination by a physician of Manczak's choice. 19. OTHER BENEFITS. Manczak will be eligible to participate in other CP&L benefits, subject to the terms of the respective plans, as described in more detail in the Employee Handbook. Additionally, upon retirement from CP&L, Manczak will be eligible to participate in the medical and dental insurance programs provided other retirees, such as the President/CEO, at retiree rates subject to the terms of those plans; provided, however, that to the extent any such benefits may not be provided to Manczak because of statutory or regulatory limitations, CP&L will use its best efforts to obtain substantially equivalent coverage on an insured basis. 20. CAPITAL CITY CLUB. CP&L will pay an initiation fee and monthly dues for a membership in the Capital City Club for Manczak. 21. AIRLINE CLUB MEMBERSHIP. CP&L will pay the fee for airline club membership for Manczak. 22. COUNTRY CLUB MEMBERSHIP. At Manczak's option, if joined, CP&L will pay the initiation fees and monthly dues for country club membership for Manczak at a club approved by CP&L. Business-related expenses will be reimbursed consistent with CP&L's expense account guidelines. 23. HEALTH CLUB. CP&L will pay initiation and dues for a family membership in the Rex Hospital Wellness Center or equivalent facility, with equivalent rates, of Manczak's choice. 24. PERSONAL COMPUTER. CP&L will provide a personal computer to Manczak to be used at his personal residence. 25. TERMINATION OF EMPLOYMENT. The employment relationship between Manczak and CP&L is "at will" and may be terminated by either CP&L or Manczak with or without advance notice and may be terminated with or without cause as defined below. a) Termination Without Cause. Within two (2) years of the date Manczak began employment with CP&L, if Manczak's employment is terminated without cause then Manczak will be provided with severance benefits of two (2) years of annual base salary. In addition, Manczak will be eligible to retain all benefits under existing benefit programs to the extent vested within the terms of those programs. If Manczak's employment is terminated without cause after the expiration of a two (2) year period following the date on which Manczak began his employment with CP&L, then Manczak shall be entitled to those severance benefits, if any, that are customary for group executives at CP&L. b) Constructive Termination - Within two (2) years of the date of this Agreement, if Manczak's employment is Constructively Terminated, then Manczak will be entitled to the greater of either two (2) years salary or those benefits provided for in a plan or program adopted by CP&L for such Constructive Terminations. For purposes of this paragraph 25, a Constructive Termination will be deemed to occur if there is a change in the form of ownership of CP&L (e.g., CP&L is acquired, enters into a business combination with another company or otherwise changes form of ownership). c) Voluntary Termination - If Manczak terminates his employment voluntarily for any reason other than a Constructive Termination, then he shall be eligible to retain all benefits under existing benefit programs which have vested pursuant to the terms of those programs, but he shall not be entitled to any form of salary continuance or any form of severance benefit. d) Termination for Cause - If Manczak's employment is Terminated for Cause, then he shall be eligible to retain all benefits under existing benefit programs which have vested pursuant to the terms of those programs, but he shall not be entitled to any form of salary continuance or any form of severance benefit. For purposes of this paragraph 25, Termination for Cause shall be defined as the termination of employment for: (a) dishonest statements or acts of Manczak; (b) the commission by or indictment of Manczak for (i) a felony; or (ii) any misdemeanor involving moral turpitude, deceit, dishonesty, or fraud ("indictment" for these purposes means an indictment, probable cause proceeding or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made); and (c) gross negligence, willful misconduct or insubordination by Manczak with respect to CP&L or any other affiliate of CP&L. 26. WAIVER OF BREACH. Manczak's or CP&L's waiver of any breach of any provision of this agreement shall not waive any subsequent breach by the other party. 27. ENTIRE AGREEMENT. The Agreement: (i) supersedes all other understandings and agreements, oral or written, between the parties with respect to its subject matter; (ii) constitutes the sole agreement between the parties with respect to its subject matter. Each party acknowledges that: (i) no representations, inducements, promises, oral or written, made by any party or anyone acting on behalf of the party, which are not embodied in the Agreement; and (ii) no agreement, statement, or promise not contained in the Agreement shall be valid or binding on the parties unless such change or modification is in writing and is signed by the parties. 28. SEVERABILITY. If a court of competent jurisdiction holds that any provision or subpart thereof contained in the Agreement is invalid, illegal, or unenforceable, that invalidity, illegality, or unenforceability shall not affect any of the other provisions in the Agreement. 29. PARTIES BOUND. The Agreement shall apply to, be binding upon an inure to the benefit of the parties' successors, assigns, heirs, and other representatives. 30. GOVERNING LAW. The Agreement will be governed by North Carolina law. In witness whereof, the parties have entered into the Agreement on the day and year written below. By: /S/ John E. Manczak Date: September 24, 1997 ------------------------ John E. Manczak By: /S/ Date: September 24, 1997 ---------------------------------- Carolina Power & Light Company Title: /S/ --------------------------------- EX-12 13 STATEMENT REGARDING COMPUTATION OF RATIOS EXHIBIT NO. 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS COMBINED AND RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------------------------ Years Ended December 31, ------------------------------------------------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (Thousands of Dollars) Earnings, as defined: Net income $ 388,317 $ 391,277 $ 372,604 $ 313,167 $ 346,496 Fixed charges, as below 193,632 204,593 226,833 213,821 237,098 Income taxes, as below 225,340 247,405 232,046 180,518 181,653 ============= ============ ============ ============ ============= Total earnings, as defined $ 807,289 $ 843,275 $ 831,483 $ 707,506 $ 765,247 ============= ============ ============ ============ ============= ============= ============ ============ ============ ============= Fixed Charges, as defined: Interest on long-term debt $ 163,468 $ 172,622 $ 187,397 $ 183,891 $ 205,182 Other interest 18,743 19,155 25,896 16,119 16,419 Imputed interest factor in rentals-charged principally to operating expenses 11,421 12,816 13,540 13,811 15,497 ============= ============ ============ ============ ============= Total fixed charges, as defined $ 193,632 $ 204,593 $ 226,833 $ 213,821 $ 237,098 ============= ============ ============ ============ ============= ============= ============ ============ ============ ============= Earnings Before Income Taxes $ 613,657 $ 638,682 $ 604,650 $ 493,685 $ 528,149 ============= ============ ============ ============ ============= Ratio of Earnings Before Income Taxes to Net Income 1.58 1.63 1.62 1.58 1.52 Income Taxes: Included in operating expenses $ 252,897 $ 269,477 $ 258,927 $ 198,238 $ 189,535 Included in other income: Income tax expense (credit) (19,332) (13,847) (18,541) (9,425) 392 Included in AFUDC - deferred taxes in nuclear fuel amortization and book depreciation (8,225) (8,225) (8,340) (8,295) (8,274) ============= ============ ============ ============ ============= Total income taxes $ 225,340 $ 247,405 $ 232,046 $ 180,518 $ 181,653 ============= ============ ============ ============ ============= Fixed Charges and Preferred Dividends Combined: Preferred dividend requirements $ 6,052 $ 9,609 $ 9,609 $ 9,609 $ 9,609 Portion deductible for income tax purposes (312) (312) (312) (312) (312) ------------- ------------ ------------ ------------ ------------- Preferred dividend requirements not deductible $ 5,740 $ 9,297 $ 9,297 $ 9,297 $ 9,297 ============= ============ ============ ============ ============= Preferred dividend factor: Preferred dividends not deductible times ratio of earnings before income taxes to net income $ 9,069 $ 15,154 $ 15,061 $ 14,689 $ 14,131 Preferred dividends deductible for income taxes 312 312 312 312 312 Fixed charges, as above 193,632 204,593 226,833 213,821 237,098 ------------- ------------ ------------ ------------ ------------- Total fixed charges and preferred dividends combined $ 203,013 $ 220,059 $ 242,206 $ 228,822 $ 251,541 ============= ============ ============ ============ ============= Ratio of Earnings to Fixed Charges and Preferred Dividends Combined 3.98 3.83 3.43 3.09 3.04 Ratio of Earnings to Fixed Charges 4.17 4.12 3.67 3.31 3.23
EX-23 14 EXHIBIT NO. 23(A) EXHIBIT NO. 23(a) CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-33520 on Form S-8, Registration Statement No. 33-5134 on Form S-3, Post-Effective Amendment No. 1 to Registration Statement No. 33-38349 on Form S-3, Registration Statement No. 33-50597 on Form S-3 and Registration Statement No. 33-57835 on Form S-3 of Carolina Power & Light Company, of our report dated February 9, 1998, appearing in this Annual Report on Form 10-K of Carolina Power & Light Company for the year ended December 31, 1997. /s/ DELOITTE & TOUCHE LLP - --------------------------- Raleigh, North Carolina March 26, 1998 EX-23 15 EXHIBIT NO. 23(B) EXHIBIT NO. 23(b) CONSENT OF EXPERT AND COUNSEL Carolina Power & Light Company: The statements of law and legal conclusions under Item 1. Business and Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 have been reviewed by me and are set forth therein in reliance upon my opinion as an expert. I hereby consent to the incorporation by reference of such statements of law and legal conclusions in Registration Statement No. 33-33520 on Form S-8, Registration Statement No. 33-5134 on Form S-3, Post-Effective Amendment No. 1 to Registration Statement No. 33-38349 on Form S-3, Registration Statement No. 33-50597 on Form S-3 and Registration Statement No. 33-57835 on Form S-3 and the related Prospectuses, which are a part of such Registration Statements. /s/ William D. Johnson, - --------------------------------- Vice President - Legal Department March 26, 1998 EX-27 16 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000017797 CAROLINA POWER & LIGHT COMPANY 1,000 U.S. Dollars YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 PER-BOOK $6,293,510 $256,291 $734,806 $479,509 $211,089 $8,220,728 $1,205,716 ($790) $1,613,881 $2,818,807 $0 $59,376 $2,415,656 $0 $0 $0 $207,979 $0 $0 $0 $2,718,910 $8,220,728 $3,024,089 $253,048 $2,228,454 $2,481,502 $542,587 $23,018 $565,605 $177,288 $388,317 $6,052 $382,265 $272,011 $163,468 $818,045 2.66 2.66
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