UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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)
North Carolina 56-0165465
________________________________________________________________________
(State or other jurisdiction of incorporation (I.R.S. Employer Identifica-
or organization tion No.)
411 Fayetteville Street, Raleigh, North Carolina 27601-1748
______________________________________________________________________
(Address of principal executive offices)
(Zip Code)
919-546-6111
____________
(Registrant's telephone number, including area code)
________________________________________________________________________
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (Without Par
Value) shares outstanding at October 31, 1996: 151,415,722.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
______ ____________________
Reference is made to the attached Appendix containing the
Consolidated Interim Financial Statements for the periods ended
September 30, 1996. The amounts are unaudited but, in the opinion of
management, reflect all adjustments necessary to fairly present the
Company's financial position and results of operations for the
interim periods.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
_______ _________________________________________________
Results of Operations
For the Three, Nine and Twelve Months Ended September 30, 1996,
As Compared With the Corresponding Periods One Year Earlier
____________________________________________________________
Operating Revenues: For the three, nine and twelve months ended
September 30, 1996, operating revenues were affected by the following
factors (in millions):
Three Months Nine Months Twelve Months
____________ ___________ _____________
Weather $ (26) $ 26 $ 83
Customer Growth/
Changes In Usage
Patterns 11 66 75
NCEMC Load Loss (23) (73) (73)
Price (5) (33) (41)
Sales to Other Utilities 2 25 41
Other (3) 4 12
_____ ____ ____
Total $ (44) $ 15 $ 97
====== ===== ====
The weather-related decrease in revenue for the three months
ended September 30, 1996, is the result of milder than normal
temperatures in the current period. The nine- and twelve-month
weather-related increases reflect extreme weather patterns in the
current periods as compared to more normal weather in the prior
periods. The loss of 200 megawatts of load from North Carolina
Electric Membership Corporation (NCEMC) began in January 1996. For
all periods, the price-related decrease in revenue is primarily
attributable to a decrease in the fuel cost component of revenue. The
increase in sales to other utilities for the nine and twelve months
is primarily due to increased bulk power sales, which is a result of
weather impacts and the Company's active participation in the bulk
power market. Sales to other utilities for the three-month period
were negatively impacted by milder than normal temperatures and lower
total generation in the current period.
Operating Expenses: Fuel expense decreased $14 million for
the three-month period due to lower total generation. For the nine-
and twelve-month periods, fuel expense decreased by $17 million and
$8 million, respectively, primarily due to the refunding of prior
overrecovered fuel costs to customers in the North Carolina retail
jurisdiction in the current periods. The decreases in the nine- and
twelve-month periods more than offset the increases in fuel expense
related to increased generation during these periods.
Purchased power increased for the nine and twelve months ended
September 30, 1996, due to increased purchases from cogenerators and
purchases from other utilities. The increase in purchases from
cogenerators was the result of certain cogenerators being shut down
in the prior periods. Partially offsetting the increase in the
twelve-month period was a decrease in purchases from Power Agency,
primarily due to the provisions of the Company's 1993 agreement with
Power Agency. Pursuant to this agreement, the Company's buyback
percentage of capacity and energy from the Harris Plant decreased
from 50% in 1994 to 33% in 1995 and 1996.
Included in operation and maintenance expense for each of the
current periods is $29.8 million of expense incurred as a result of
Hurricane Fran striking the Company's service territory on September
5, 1996. Excluding the impact of Hurricane Fran and the impact of an
insurance reserve adjustment of $23 million recorded in the fourth
quarter of 1994, operation and maintenance expense decreased $13
million, $34 million and $60 million for the three, nine and twelve
months ending September 30, 1996, respectively. The decreases are
due to cost reduction efforts and the timing of plant outages. In
the prior periods there were several major fossil and nuclear plant
outages that resulted in higher expense for those periods as compared
to the current periods.
Current estimates indicate that restoring the Company's system
from Hurricane Fran's damage could result in total operation and
maintenance expense of approximately $36 million and capital
expenditures of approximately $47 million, for a total estimated cost
of approximately $83 million. On September 13, 1996, the Company
proposed to the North Carolina Utilities Commission (NCUC) a plan
that would allow deferral of hurricane-related maintenance expenses,
with amortization over the next three years. See additional
discussion in Retail Rate Matters.
The increase in income tax expense for the nine- and twelve-
month periods is due to an increase in operating income and a reserve
recorded for potential audit issues in open tax years. The decrease
in income tax expense for the three-month period is due to a decrease
in operating income.
Other Income: The increase in the income tax credit for all
periods is primarily attributable to lower non-operating income in
the current periods.
The decrease in interest income for all periods is due to the
recording of interest income in the prior periods that related to
certain IRS audit issues.
Other income, net, decreased for the twelve-month period due to
an increase in charitable contributions of approximately $3 million,
and decreases in certain income items, none of which is individually
significant.
Interest Charges: Interest charges on long-term debt decreased
for all periods primarily due to reductions of long-term debt in the
current periods. Also contributing to the decrease were refinancings
of long-term debt with lower interest cost short-term borrowings
which are backed by the Company's long-term revolving credit
facilities, as discussed in the capital resources and liquidity
section below.
Other interest charges decreased for all reported periods
primarily due to a $6 million interest accrual recorded in the prior
periods that related to the 1995 NCUC Fuel Order.
Material Changes in Capital Resources and Liquidity
From December 31, 1995, to September 30, 1996
and From September 30, 1995, to September 30, 1996
__________________________________________________
During 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 its long-term credit
facilities, the Company has included in long-term debt $244.7 million
of commercial paper outstanding as of September 30, 1996. In addition
to these new facilities, the Company has other long-term credit
agreements totaling $235 million and a $100 million short-term credit
agreement.
The Company did not issue long-term debt in the twelve-month
period ended September 30, 1996. The proceeds of the issuance of
short-term debt resulting from the aforementioned credit facilities,
and/or internally generated funds, financed the redemption or
retirement of long-term debt totaling $378 million and $401 million
during the nine and twelve months ended September 30, 1996,
respectively.
The Company's capital structure as of September 30 was as
follows:
1996 1995
____ ____
Common Stock Equity 50.75% 48.22%
Long-term Debt 46.53% 49.15%
Preferred Stock 2.72% 2.63%
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. Moody's Investors Service, Standard & Poor's and Duff &
Phelps have rated the Company's commercial paper "P-1," "A-1" and "D-
1," respectively.
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 9.2 million shares through
September 30, 1996.
Retail Rate Matters
___________________
With regard to the Company's current retail rates, 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. The petition alleges
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. The Company filed a response to the petition and
motion to dismiss on July 29, 1996, in which it argued that the
petition was without merit. On August 2, 1996, the Company notified
the NCUC that the Company would submit to the NCUC a list of proposed
accounting adjustments related to regulatory assets. On September
13, 1996, the Company filed its proposed accelerated amortizations of
certain regulatory assets and its proposed deferral and amortization
of hurricane-related damage expenses. See additional discussion of
hurricane-related damage expenses in Operating Expenses. The Company
requested that the NCUC approve implementation of these adjustments,
and renewed its motion to dismiss CIGFUR's petition. The proposed
accelerated amortizations (excluding the amortization of deferred
hurricane-related damage expenses) will reduce net income by
approximately $43 million in each of the next three years. On
October 28, 1996, the Public Staff of the NCUC, which represents the
using and consuming public in matters before the NCUC, filed its
comments on the Company's proposal. Those comments included
recommendations that the NCUC issue an order allowing the adjustments
proposed by the Company, subject to certain minor modifications. The
NCUC has not yet ruled on the Company's proposal.
With regard to the South Carolina retail jurisdiction,
the Company anticipates filing a similar proposal to accelerate
amortization of certain regulatory assets with the South Carolina
Public Service Commission. These adjustments, if approved, would
reduce net income by approximately an additional $13 million in each
of the next three years. The Company cannot predict the outcome of
this matter.
Competition
___________
In 1994, NCEMC issued two requests for proposals (RFPs) to provide
blocks of up to 225 MW (for a minimum of ten years) of baseload power
NCEMC would otherwise purchase from the Company beginning in each of
the three years 2001, 2002 and 2003. The Company responded to the RFPs
and negotiations between the parties concerning power supply options
continued for several months. As a result of those negotiations, on
October 31, 1996, the Company and NCEMC entered into a revised power
coordination agreement 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 new agreement, the Company will provide 225 MW of
baseload power to NCEMC from 1997 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 load provided by the Company, not
separately contracted for in the revised agreement, will be billed at
a fixed price through the year 2004, rather than at the formula rates
established in the 1994 Power Coordination Agreement. The revised
agreement is subject to Federal Energy Regulatory Commission
approval. The Company cannot predict the outcome of this matter.
On August 6, 1996, North Carolina Eastern Municipal Power
Agency (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 are currently discussing the sufficiency of the notice. The
Company cannot predict the outcome of this matter.
Other Matters
_____________
Amendments to five electric power purchase agreements between
the Company and Cogentrix of North Carolina, Inc. and Cogentrix
Eastern North Carolina Corporation (collectively referred to as
"Cogentrix") became effective on September 26, 1996. The agreements
involve five Cogentrix generating plants located throughout the
Company's service area. Under the amendments to the agreements,
Cogentrix will retain ownership of its facilities and will continue
to provide process steam to industrial companies under contract. As
a result of these contract amendments, the Company will save
approximately $30 million per year in energy costs during the years
1997 through 2002.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
_________________________
Legal aspects of certain matters are set forth in Item 5 below.
Item 2. Changes in Securities )
)
)
)
Item 3. Defaults upon Senior Securities ) Not applicable
) for the quarter
) ended September 30, 1996.
)
)
Item 4. Submission of Matters to a Vote )
of Security Holders )
)
Item 5. Other Information
_________________________
1. (Reference is made to the Company's 1995 Form 10-K,
Generating Capability, paragraph 3, page 6. Reference
is also made to the Company's Form 10-Q for the quarter
ended March 31, 1996, Item 5, paragraph 1 and to the
Company's Form 10-Q for the quarter ended June 30, 1996,
Item 5, paragraph 1.) With regard to the Company's
generation additions schedule, on September 4, 1996, the
Company filed with the North Carolina Utilities
Commission (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. The Company
cannot predict the outcome of this matter.
2. (Reference is made to the Company's 1995 Form 10-K,
Interconnections with Other Systems, paragraph 3, page
7. Reference is also made to the Company's Form 10-Q
for the quarter ended June 30, 1996, Item 5, paragraph
2.) With regard to the five electric power purchase
agreements between the Company and Cogentrix of North
Carolina, Inc. and Cogentrix Eastern North Carolina
Corporation, the amendments to the contracts became
effective on September 26, 1996. As a result of the
contract amendments, the Company will save approximately
$30 million per year in energy costs during the years
1997 through 2002.
3. (Reference is made to the Company's 1995 Form 10-K,
Competition and Franchises, paragraph 1.d., page 9.)
With regard to the negotiations between the Company and
North Carolina Electric Membership Corporation (NCEMC)
concerning power supply options, on October 31, 1996,
the Company and NCEMC entered into a revised power coordination
agreement under which the Company will continue to serve a
majority of NCEMC's power needs well past the year 2000.
Under the terms of the agreement NCEMC will receive
discounted capacity in exchange for long-term
commitments to the Company for its supplemental power.
As a result of this new agreement, the Company will
provide 225 MW of baseload power to NCEMC from 1997 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 load provided by the Company, not
separately contracted for in the revised agreement, will
be billed at a fixed price through the year 2004, rather
than at the formula rates established in the prior power
coordination agreement (the 1994 PCA). The revised
agreement, which represents an amendment to the 1994
PCA, will be submitted to the Federal Energy Regulatory
Commission for approval. The Company cannot predict the
outcome of this matter.
4. (Reference is made to the Company's 1995 Form 10-K,
Competition and Franchises, paragraph 1.h., page 10.
Reference is also made to the Company's Form 10-Q for
the quarter ended June 30, 1996, Item 5, paragraph 4.)
With regard to the request made by one of the Company's
industrial customers to the City of Darlington, South
Carolina ("City") that the City become a municipal
electric utility, on September 3, 1996, the Darlington
City Council voted against the proposal that the City
become a municipal electric utility and will take no
further action on the request at this time.
5. (Reference is made to the Company's 1995 Form 10-K,
Retail Rate Matters, paragraph 2, page 13. Reference is
also made to the Company's Form 10-Q for the quarter
ended June 30, 1996, Item 5, paragraph 6, and to the
Company's Form 8-K dated September 13, 1996, Item 5.)
With regard to the petition filed on July 19, 1996 by
the Carolina Industrial Group for Fair Utility Rates
(CIGFUR) with the NCUC (Docket No. E-2, Sub 699)
requesting the NCUC conduct an investigation of the
Company's base rates, by letter dated August 2, 1996,
the Company notified the NCUC that the Company intended
to seek NCUC approval of certain accounting adjustments
that would impact the Company's earnings. On August 6,
1996, the NCUC issued an order allowing the Company
until September 16, 1996, to submit these adjustments,
and stating that it would take no further action in this
docket until the filing was made by the Company. On
September 13, 1996, the Company (i) filed its proposed
accelerated amortizations of certain regulatory assets,
and its proposed deferral and amortization of hurricane
damage expenses, (ii) requested NCUC approval to
implement these adjustments, and (iii) renewed its
motion to dismiss CIGFUR's petition. The proposed
accelerated amortizations (excluding the amortization of
deferred hurricane damage expenses) will reduce net
income by approximately $43 million during each of the
next three years. Current estimates indicate that
restoring the Company's system from Hurricane Fran's
damage could result in total operation and maintenance
expense of approximately $36 million and capital
expenditures of approximately $47 million, for a total
estimated cost of approximately $83 million. On October
28, 1996, the Public Staff of the NCUC, which represents
the using and consuming public in matters before the
NCUC, filed its comments on the Company's proposal.
Those comments included recommendations that the NCUC
issue an order allowing the adjustments proposed by the
Company, subject to certain minor modifications. The
NCUC has not yet ruled on the Company's proposal.
With regard to the South Carolina retail jurisdiction,
the Company anticipates filing a similar proposal to
accelerate amortization of certain regulatory assets
with the South Carolina Public Service Commission
(SCPSC). These adjustments, if approved, would reduce
net income by approximately $13 million in each of the
next three years. The Company cannot predict the
outcome of this matter.
6. (Reference is made to the Company's 1995 Form 10-K,
Retail Rate Matters, paragraph 5, page 14. Reference is
also made to the Company's Form 10-Q for the quarter
ended March 31, 1996, Item 5, paragraph 6 and to the
Company's Form 10-Q for the quarter ended June 30, 1996,
Item 5, paragraph 7.) With regard to the Company's 1996
North Carolina fuel case hearing held on August 14,
1996, by order issued September 10, 1996, the NCUC
approved the Company's request for no change in its net
fuel factor.
7. (Reference is made to the Company's 1995 Form 10-K,
Retail Rate Matters, paragraph 6, page 15. Reference is
also made to the Company's Form 10-Q for the quarter
ended March 31, 1996, Item 5, paragraph 7.) With regard
to the Company's South Carolina avoided cost proceeding,
on August 28, 1996 the SCPSC issued an order approving
the Company's proposed avoided cost rates.
On July 30, 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.
The Company's initial filing in this docket was made on
November 4, 1996. Comments on the filing are due on
January 10, 1997, and non-expert public testimony is
scheduled for February 4, 1997. The Company cannot
predict the outcome of this matter.
Item 6. Exhibits and Reports on Form 8-K
________________________________________
(a) Exhibits
None.
(b) Reports on Form 8-K filed during or with respect
to the quarter:
Date of Report
(Earliest Event Reported) Date of Signature Items Reported
_________________________ _________________ ______________
September 13, 1996 September 13, 1996 Item 5. Other Events
SIGNATURES
__________
Pursuant to requirements 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.
CAROLINA POWER & LIGHT COMPANY
(Registrant)
By /s/ Glenn E. Harder
Executive Vice President and
Chief Financial Officer
Date: November 6, 1996