Carolina Power & Light Company
NOTES TO FINANCIAL STATEMENTS
1. These interim financial statements are prepared in conformity with the
accounting principles reflected in the financial statements included in
the Company's 1994 Annual Report to Shareholders and the 1994 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 1994 have been
reclassified to conform to the 1995 presentation.
2. In 1994, the Company established a wholly-owned subsidiary, CaroNet,
Inc., which owns a ten percent interest in BellSouth Carolinas PCS, a
limited partnership, led by BellSouth Personal Communications, Inc.
(BellSouth). In March 1995, BellSouth won its bid for a Federal
Communications Commission license for the limited partnership to operate
a personal communications services (PCS) system covering most of North
Carolina and South Carolina, as well as a small portion of Georgia. PCS,
a wireless communications technology, is expected to provide
high-quality mobile communications. BellSouth will transfer the PCS
license to the limited partnership. BellSouth is the general partner
and handles day-to-day management of the business. In April 1995, the
Company invested $50 million in CaroNet, Inc. in anticipation of
infrastructure construction. Construction of the system infrastructure
began in the spring of 1995 and service start-up is expected by
mid-1996.
3. In 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 4.6 million
shares through June 30,1995. The decrease in average common shares
outstanding resulted in an increase in earnings per common share of
approximately $.01, $.03 and $.05 for the three, six and twelve month
periods ended June 30, 1995, respectively.
4. Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1994,
with respect to the commitments discussed in Note 10 of the financial
statements included in the Company's 1994 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. 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
decommissioningcosts 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 orlocal 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.
The Financial Accounting Standards Board has added a project to its
agenda regarding the electric industry's current accounting practices
related to decommissioning costs. Any changes to these practices could
affect such items as: 1) when the decommissioning obligation is
recognized, 2) where balances of accumulated decommissioning costs are
recorded, 3) where income earned on external decommissioning trust
balances is recorded, and 4) the levels of annual decommissioning cost
provisions. It is uncertain what impact, if any, this project may have
on the Company's accounting for decommissioning costs.
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 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 Tide Water Power Company (Tide Water Power), which merged into
the Company in 1952, and the Company have entered into an agreement to
share the cost of the 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 Tide Water 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.
The Company has 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.