Carolina Power & Light Company
NOTES TO FINANCIAL STATEMENTS
1. Except as described in Note 4 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 December 1994, the Company established a wholly-owned subsidiary,
CaroNet, Inc., and the subsidiary joined a regional partnership led by
BellSouth Personal Communications, Inc. (BellSouth). BellSouth is bidding
for a Federal Communications Commission license to operate a personal
communications services (PCS) system covering most of North Carolina and
South Carolina and a small portion of Georgia. PCS, a wireless
communications technology, is expected to provide high-quality mobile
communications. Wireless technology could also support automated meter
reading, automated service connection and disconnection, and control and
monitoring of certain aspects of the Company's electric transmission and
distribution systems. The results of the license auction may be known by
the end of the first quarter of 1995.
3. On January 1, 1995, the Company retired $125 million principal amount of
First Mortgage Bonds, 5.20% Series, which matured on that date.
4. 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 required 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 $.04 for the twelve months ended December
31, 1994.
5. 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 4.4
million shares through December 31, 1994. The decrease in average common
shares outstanding resulted in an increase in earnings per common share of
approximately $.01 and $.02 for the three and twelve month periods ended
December 31, 1994, respectively.
6. 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. Decommissioning
cost provisions, which are included in depreciation and amortization, were
$29.5 million in 1994 and $34.0 million in 1993. Accumulated
decommissioning costs, which are included in accumulated depreciation,
were $252.7 million at December 31, 1994, and $221.6 million at December
31, 1993, and include amounts funded internally and amounts funded in an
external decommissioning trust. The balance of the external
decommissioning trust, which is included in miscellaneous other property
and investments, was $67.6 million at December 31, 1994, and $44.5 million
at December 31, 1993. Trust earnings, which increase the trust balance
with a corresponding increase in accumulated decommissioning, were $1.5
million in 1994 and $1.2 million in 1993. 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. 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. 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.
b) As required under the Nuclear Waste Policy Act of 1982, the Company
entered into a contract with the U. S. Department of Energy (DOE) under
which the DOE agreed to dispose of the Company's spent nuclear fuel. The
Company cannot predict whether the DOE will be able to perform its
contractual obligations and provide interim storage or permanent disposal
repositories for spent nuclear fuel and/or high-level radioactive waste
materials on a timely basis.
With certain modifications, the Company's spent fuel storage facilities
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.
c) 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, and a 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, along with other entities
alleged to be former owners and operators of MGP sites in North Carolina,
is participating in a cooperative effort with the North Carolina
Department of Environment, Health and Natural Resources, Division of Solid
Waste Management (DSWM) to establish a uniform framework for addressing
those sites. 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.
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, and the Company have entered into an agreement to share
the cost of investigation and, if necessary, the 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.
The Company is continuing its investigation regarding the identities of
parties connected to several additional 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.
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 anticipate significant costs associated with these
sites.
In December 1994, the Company accrued a liability for the estimated costs
associated with investigation and remediation activities for certain MGP
sites and for sites other than MGP sites. This accrual was not material to
the results of operations of the Company. Due to the lack of information
with respect to the operation of MGP sites for which a liability has not
been accrued and due to the uncertainty concerning questions of liability
and potential environmental harm, the extent and cost of required remedial
action, if any, are not currently determinable. The Company cannot
predict the outcome of these matters or the extent to which other MGP
sites may become the subject of inquiry.
PAUL S. BRADSHAW
Vice President and Controller
Raleigh, NC 27602
January 23, 1995