Carolina Power & Light Company
NOTES TO FINANCIAL STATEMENTS
1. Except as described in Note 2 below, these interim financial statements
are prepared in conformity with the accounting principles reflected in
the financial statements included in the Company's 1993 Annual Report to
Shareholders and the 1993 Annual Report on Form 10-K. These are interim
financial statements, and because of temperature variations between
seasons of the year and the timing of outages of electric generating
units, especially nuclear-fueled units, the amounts reported in the
Statements of Income for periods of less than twelve months are not
necessarily indicative of amounts expected for the year.
Certain amounts for 1993 have been reclassified to conform to the 1994
presentation.
2. In January 1994, the Company implemented Statement of Position (SOP)
93-6, "Employers' Accounting for Employee Stock Ownership Plans," on a
prospective basis. This SOP requires the following changes in accounting
for the Company's leveraged employee stock ownership plan (ESOP): 1)
ESOP shares that have not been committed to be released to participants'
accounts are no longer considered outstanding for the determination of
earnings per common share; 2) dividends on unallocated ESOP shares are
no longer recognized for financial statement purposes; 3) all tax
benefits of ESOP dividends are now recorded to non-operating income tax
expense, whereas previously a portion of the tax benefits was recorded
directly to retained earnings; 4) interest income related to the
qualified ESOP loan is no longer recognized; and 5) the difference
between the acquisition and allocation prices of ESOP shares, which was
previously recorded as other income, net, is now recorded directly to
common stock. In addition, ESOP loan transactions between the Company
and the Stock Purchase-Savings Plan (SPSP) Trustee are no longer
reflected in the Statements of Cash Flows.
The implementation of SOP 93-6 resulted in an increase in earnings per
common share of approximately $.03 and $.04 for the three and nine
months ended September 30, 1994, respectively.
Selected pro forma statistics, which eliminate the significant capital
structure-related impacts of the ESOP feature of the SPSP, are included
in Financial Statistics.
3. In July 1994, the Board of Directors of the Company authorized the
Executive Committee of the Board to repurchase up to 10 million shares
of the Company's common stock on the open market. In accordance with the
stock repurchase program, the Company has purchased approximately 3.5
million shares through September 30, 1994. The decrease in average
common shares outstanding resulted in an increase in earnings per common
share of approximately $.01 in each of the three, nine and twelve month
periods ended September 30, 1994.
4. Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1993,
with respect to the commitments discussed in Note 9 of the financial
statements included in the Company's 1993 Annual Report to Shareholders.
a) In the Company's retail jurisdictions, provisions for nuclear
decommissioning costs are approved by the North Carolina Utilities
Commission and the South Carolina Public Service Commission and are
based on site-specific estimates that included the costs for removal of
all radioactive and other structures at the site. In the wholesale
jurisdiction, the provisions for nuclear decommissioning costs are based
on amounts agreed upon in applicable rate settlements. Accumulated
decommissioning cost provisions, which are included in accumulated
depreciation, were $249.5 million at September 30, 1994, and $209.5
million at September 30, 1993, and include amounts funded internally and
amounts funded in an external decommissioning trust. 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 currently
adequate to provide for decommissioning of the Company's nuclear
facilities.
The Company's most recent site-specific estimates of decommissioning
costs were developed in 1993, 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. These
estimates, in 1993 dollars, are $257.7 million for Robinson Unit No. 2,
$284.3 million for the Harris Plant, $235.4 million for Brunswick Unit
No. 1 and $221.4 million for Brunswick Unit No. 2. These estimates are
subject to change based on a variety of factors including, but not
limited to, 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, which holds an undivided ownership
interest in certain of the Company's generating facilities.
b) Various organic materials associated with the production of
manufactured gas, generally referred to as coal tar, are regulated under
various federal and state laws, and a contingent liability may exist for
their remediation. There are several manufactured gas plant (MGP) sites
to which the Company and certain entities that were later merged into
the Company may have had some connection. In this regard, the Company is
participating in the North Carolina MGP Group (Group), which is a group
of entities alleged to be former owners or operators of MGP sites in
North Carolina. The Group was formed in response to an initiative
launched by the North Carolina Department of Environment, Health and
Natural Resources, Division of Solid Waste Management (DSWM), to
encourage the voluntary assessment and, where necessary, the remediation
of MGP sites. The Group and DSWM have entered into a Memorandum of
Understanding relative to the establishment of a uniform program and
framework for addressing MGP sites for which DSWM has contended that
members of the Group have potential responsibility. It is anticipated
that the investigation and remediation of specific MGP sites will be
addressed pursuant to one or more Administrative Orders on Consent
between DSWM and individual potentially responsible parties. To date,
the Company has not entered into any such orders.
The Company has recently been approached by another North Carolina
public utility concerning a possible cost-sharing arrangement with
respect to the investigation and, if necessary, remediation of four MGP
sites. The Company is currently engaged in discussions with the other
utility regarding this matter. Based on current cost estimates provided
by that utility, the Company does not believe its portion of costs
associated with the investigation and remediation of these sites, if any,
would be material to the financial position or results of operations
of the Company.
In addition, a current owner of property that was the site of one MGP
owned by Tidewater Power Company (Tidewater Power), which merged into
the Company in 1952, has been party to a separate administrative
proceeding regarding that site. That owner and the Company have entered
into an agreement to share the cost of investigation and remediation of
this site. The Company has also been approached by a North Carolina
municipality that is the current owner of another MGP site that was
formerly owned by Tidewater Power. The Company is engaged in discussions
with that municipality concerning a possible cost-sharing arrangement
with respect to the investigation, and if necessary, the remediation of
that site. Due to the uncertainty concerning potential environmental
harm and the full extent to which remedial action will be required at
the two sites formerly owned by Tidewater Power, the total cost of
investigating and remediating these sites is not determinable at this
time. The Company cannot predict the outcome of these matters.
The Company is continuing its investigation regarding the identities of
parties connected to individual MGP sites, the relative relationships of
the Company and other parties to those sites, and the degree, if any, to
which the Company should undertake shared voluntary efforts with others
at individual sites. Except as noted above, due to the lack of
information with respect to the operation of MGP sites and the
uncertainty concerning questions of liability and potential
environmental harm, the extent and cost of required remedial action, if
any, and the extent to which liability may be asserted against the
Company or against others are not currently determinable. The Company
cannot predict the outcome of these matters or the extent to which other
former MGP sites may become the subject of inquiry.