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 1995 Annual Report to Shareholders and the 1995 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 1995 have been reclassified to conform to the
1996 presentation.
2. In the first quarter of 1996, the Company entered into two new long-term
revolving credit facilities totaling $350 million, which support the
Company's commercial paper borrowings. The Company is required to pay
minimal annual commitment fees to maintain these facilities. Consistent
with management's intent to maintain its commercial paper on a long-term
basis, and as supported by the long-term credit facilities, the Company
has included in long-term debt $339 million of commercial paper
outstanding as of March 31, 1996.
3. On April 1, 1996, the Company retired $30 million principal amount of
First Mortgage Bonds, 5.125% Series, which matured on that date and
redeemed $100 million principal amount of First Mortgage Bonds, 9% Series,
due April 1, 2022 at 105.89% of the principal amount of such bonds, plus
accrued interest to date.
4. 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. In accordance with the stock repurchase program, the Company has
purchased approximately 8.6 million shares through March 31, 1996.
5. Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1995, with
respect to the commitments discussed in Note 10 of the financial
statements included in the Company's 1995 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 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. 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 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. The primary
conclusions as they relate to nuclear decommissioning are: 1) the cost of
decommissioning should be accounted for as a liability and accrued as the
obligation is incurred; 2) recognition of a liability for decommissioning
results in recognition of an increase to the cost of the plant; 3) the
decommissioning liability should be measured based on discounted future
cash flows using a risk-free rate; and 4) decommissioning trust funds
should not be offset against the decommissioning liability. An exposure
draft was issued in February 1996, and it is uncertain what impact, if
any, the final statement may have on the Company's accounting for
decommissioning and other closure and removal 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 continues to investigate the identities of parties
connected to MGP sites in North Carolina, 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 expect costs associated with these sites to be
material to the results of operations of the Company.
The Company has recorded a liability for the estimated costs associated
with investigation and remediation activities for certain MGP sites and
for sites other than MGP sites. This liability is not material to the
financial position 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.