FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
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 No. 1-3274
FLORIDA POWER CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-0247770
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3201 34th Street South
St. Petersburg, FL 33711
(Address of principal executive offices)
(Zip Code)
(813) 866-5151
(Registrant's telephone number, including area code)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of March 31, 1994, there were issued and outstanding
100 shares of the registrant's common stock, without par
value, all of which were held, beneficially and of
record, by Florida Progress Corporation.
FLORIDA POWER CORPORATION
Statements of Income
- - ------------------------------------------------------------
(In millions)
Three Months
Ended March 31,
(Unaudited)
---------------------
1994 1993
--------- ---------
OPERATING REVENUES:
Residential $267.5 $216.3
Commercial 102.5 91.9
Industrial 39.7 35.3
Sales for resale 30.9 23.6
Other 42.9 39.9
--------- ---------
483.5 407.0
--------- ---------
OPERATING EXPENSES:
Operation:
Fuel used in generation 90.7 106.4
Purchased power 56.3 29.8
Deferred fuel 15.2 (14.6)
Other 108.1 84.4
--------- ---------
270.3 206.0
--------- ---------
Maintenance 30.2 33.1
Depreciation 64.5 57.6
Taxes, other than income 40.2 35.6
Income taxes:
Currently payable 33.5 13.4
Deferred, net (13.2) 5.3
Investment tax credits, net (2.1) (2.0)
--------- ---------
Total income taxes 18.2 16.7
--------- ---------
423.4 349.0
--------- ---------
OPERATING INCOME 60.1 58.0
--------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 1.5 2.6
Miscellaneous other expense, net (0.8) (0.6)
--------- ---------
0.7 2.0
--------- ---------
INTEREST CHARGES:
Interest on long-term debt 23.9 22.9
Other interest expense 3.7 3.8
--------- ---------
27.6 26.7
--------- ---------
Allowance for borrowed funds used
during construction (1.1) (2.1)
--------- ---------
26.5 24.6
--------- ---------
NET INCOME 34.3 35.4
DIVIDENDS ON PREFERRED STOCK 2.5 3.9
--------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $31.8 $31.5
========= =========
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Balance Sheets
- - --------------------------------------------------------------------------
(In millions)
March 31, December 31,
1994 1993
------------- -------------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
In Service and held for future use $5,411.1 $5,320.3
Less - Accumulated depreciation 1,898.6 1,846.2
Accumulated decommissioning
for nuclear plant 120.6 118.3
Accumulated dismantlement
for fossil plants 74.5 68.5
------------- -------------
3,317.4 3,287.3
Construction work in progress 249.6 285.7
Nuclear fuel, net of amortization
of $307.7 in 1994 and $299.9 in 1993 59.6 68.4
------------- -------------
3,626.6 3,641.4
Other property, net 26.5 27.7
------------- -------------
3,653.1 3,669.1
------------- -------------
CURRENT ASSETS:
Accounts receivable, less reserve
of $2.4 in 1994 and 1993 146.0 168.2
Inventories at average cost
Fuel 61.2 58.9
Materials and supplies 115.7 112.2
Underrecovery of fuel costs 0.0 7.1
Deferred income taxes 29.7 29.2
Other 5.0 5.8
------------- -------------
357.6 381.4
------------- -------------
OTHER ASSETS:
Nuclear plant decommissioning fund 114.0 107.7
Unamortized debt expense, being amortized
over term of debt 31.1 31.6
Other 68.6 69.7
------------- -------------
213.7 209.0
------------- -------------
$4,224.4 $4,259.5
============= =============
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Balance Sheets
- - --------------------------------------------------------------------------
(In millions)
March 31, December 31,
1994 1993
------------- -------------
(Unaudited)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock and paid in capital $820.4 $812.9
Retained earnings 699.3 709.5
------------- -------------
1,519.7 1,522.4
Cumulative preferred stock:
Without sinking funds 113.5 113.5
With sinking funds 35.0 35.0
Long-term debt 1,398.8 1,398.6
------------- -------------
3,067.0 3,069.5
------------- -------------
CURRENT LIABILITIES:
Accounts payable 59.9 106.2
Accounts payable to associated companies 19.9 17.1
Customer deposits 72.8 71.5
Income taxes, currently payable 39.0 24.6
Accrued other taxes 23.9 8.4
Accrued interest 37.8 33.2
Other 37.4 34.2
------------- -------------
290.7 295.2
Notes payable 84.6 125.0
Current portion of long-term debt 45.9 45.9
------------- -------------
421.2 466.1
------------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 463.4 472.7
Unamortized investment tax credits 115.7 117.8
Other 157.1 133.4
------------- -------------
736.2 723.9
------------- -------------
$4,224.4 $4,259.5
============= =============
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Statement of Cash Flows
- - --------------------------------------------------------------------------
(In millions) Three Months
Ended March 31,
(Unaudited)
------------------
1994 1993
------- --------
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $31.8 $31.5
Adjustments for noncash items:
Depreciation & amortization 75.1 65.2
Deferred income taxes and investment
tax credits, net (15.4) 3.5
Allowance for equity funds used during construction (1.5) (2.6)
Changes in working capital:
Accounts receivable 22.2 9.7
Inventories (5.8) 13.7
Overrecovery (underrecovery) of fuel cost 7.9 (15.6)
Accounts payable (46.3) (2.4)
Accounts payable to associated companies 2.8 (2.7)
Income taxes currently payable 14.4 3.5
Accrued other taxes 15.5 13.9
Other 9.7 11.2
Other operating activities 24.1 (4.9)
------- --------
134.5 124.0
------- --------
INVESTING ACTIVITIES:
Construction expenditures (56.8) (77.6)
Allowance for borrowed funds used during construction (1.1) (2.1)
Additions to nonutility property (0.8) (2.5)
Proceeds from sale of properties 2.0 1.0
Other investing activities (2.9) (2.8)
------- --------
(59.6) (84.0)
------- --------
FINANCING ACTIVITIES:
Issuance of long-term debt - 147.4
Repayment of long-term debt - (175.9)
Increase/(decrease) in commercial paper
with long-term support - 34.0
Redemption of preferred stock - (45.2)
Dividends paid on common stock (42.0) (40.3)
Equity contributions from parent 7.5 15.0
Increase (decrease) in short-term debt (40.4) 25.0
------- --------
(74.9) (40.0)
------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS - -
Beginning cash and equivalents - -
------- --------
ENDING CASH AND EQUIVALENTS $ - $ -
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $21.2 $18.1
Income taxes (net of refunds) $19.0 $9.8
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Notes to Financial Statements
1) In September 1992, the Florida Public Service Commission ("FPSC") granted
Florida Power Corporation (the "Company") a retail rate increase designed
to produce additional annual revenues of $85.8 million, to be phased in as
follows: approximately $58 million in November 1992, $9.7 million in
April 1993, and $18.1 million in November 1993. The new rates provide the
Company the opportunity to earn a regulatory return on equity of 12
percent with a new allowed range between 11 and 13 percent. For the three
months ended March 31, 1994, revenues increased by $6.7 million and
earnings increased by $4.1 million, compared to the same period last year
due to the rate increase.
2) In March 1994, the Federal Energy Regulatory Commission ("FERC") approved
the Company's settlement agreement with its wholesale customers in its
1993 base rate proceeding. The agreement provides for rate increases
designed to produce additional annual revenues of approximately $5.7
million, effective February 1993. Refunds of approximately $3 million,
which were fully accrued as of March 1994, were made to the Company's
wholesale customers in April 1994. In April 1994, the FERC approved the
Company's 1994 settlement agreement which provides for rates designed to
increase annual revenues by approximately $9.8 million. The rate increase
is effective in March and May 1994, and allows the Company to recover the
costs of new generating facilities and higher purchased power costs.
Neither agreement resulted in a material impact on revenues or net income
for the quarter.
3) In late 1993, the Company offered an early retirement option to more than
200 eligible employees, which was accepted by 175 of them in January 1994.
The effective retirement date was February 1, 1994. In January 1994, the
Company recorded a $7.9 million after tax charge, based on preliminary
estimates of the "special termination benefit" portion of the costs
associated with the option. The Company recognized "curtailment" expenses
related to this option in the fourth quarter of 1993, which lowered net
earnings by $3.4 million.
4) Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standard ("FAS") No. 112, "Employers' Accounting for
Postemployment Benefits," and FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The adoption of these
standards resulted in no material impact on the financial statements.
The Financial Accounting Standards Board ("FASB") has issued
Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts." Based in part on the issuance of this interpretation, in the
third quarter of 1993 the Securities and Exchange Commission ("SEC") staff
announced it intended to require, beginning in 1994, that total estimated
nuclear decommissioning costs be shown as a liability, and any items
available for offset be shown as assets in the financial statements.
However, based in part on a recommendation by the electric utility
industry, the SEC staff agreed not to require compliance with this
position if the FASB placed the issue on its agenda for further study.
Currently, the FASB is determining if the issue warrants further
consideration. The Company currently has recorded the accumulated
provisions for nuclear decommissioning costs as a contra asset on the
balance sheet.
5) INSURANCE COVERAGE - The Company is subject to retroactive premium
assessments in connection with its nuclear liability insurance. In
addition, the Company currently carries approximately $2.1 billion in
nuclear property insurance provided through several different policies.
One of these policies, which also is underwritten by Nuclear Electric
Insurance, Ltd. ("NEIL"), provides $1.4 billion of excess coverage. Under
this policy, the Company is subject to a retroactive premium assessment of
up to $6.5 million for the first loss in any policy year in which losses
exceed funds available to NEIL. In the event of multiple losses in any
policy year, the Company's aggregate retroactive premium could total up to
$13.9 million.
Effective November 1993, the FPSC authorized the Company to self-insure
the Company's transmission and distribution lines against loss due to
storm damage and other natural disasters. The Company is accruing $3
million annually to the storm damage reserve and may defer any losses in
excess of the reserve.
CONTAMINATED SITE CLEANUP - The Company has received notices from the
United States Environmental Protection Agency ("EPA") that it is or could
be a "potentially responsible party" under the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") and the Superfund
Amendment and Reauthorization Act and may be liable, together with others,
for the costs of cleaning up several contaminated sites identified by the
EPA. In addition, the Company has been named as a defendant in one suit
brought against four prior owners of a coal gasification plant site,
seeking contributions pursuant to CERCLA and Florida law toward the cost
of cleaning up that site and nearby property that may have become
contaminated. The best estimates currently available to the Company
indicate that its proportionate share of liability for cleaning up the
sites range from $.7 million to $1.5 million, and it has reserved $1
million against these potential costs. Liability for such cleanup costs
is technically joint and several. However, the Company presently has no
reason to believe that it will ultimately have to pay a significantly
disproportionate share of the cleanup costs of any of the sites. Although
it does not currently contemplate a need to do so, the Company believes
that it would have a sound basis for seeking recovery through the
ratemaking process in the event it ultimately has to pay a significantly
disproportionate share of the costs of cleaning up any contaminated site.
It is recognized, however, that no such recovery would be assured.
UNION CARBIDE LAWSUIT - The Company and Florida Power & Light Company
("FP&L") are co-defendants in an antitrust action brought by Union Carbide
Corporation, a customer of FP&L, seeking injunctive relief and damages.
The suit challenges a long-standing territorial agreement between the two
unaffiliated, neighboring utilities, notwithstanding the defendants'
contention that the agreement was clearly authorized by state law and
approved by the FPSC. The Company believes that the state action
exemption from the antitrust laws is applicable to the agreement and its
consequent refusal to provide electricity to Union Carbide Corporation.
Management believes it has a strong defense and intends to vigorously
defend against this action.
6) In the opinion of management, the accompanying financial statements
include all adjustments deemed necessary to summarize fairly and reflect
the financial position and results of operations of the Company for the
interim periods presented. However, it is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto in the Company's Form 10-K for the year ended December 31, 1993
(the "1993 Form 10-K").
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OPERATING RESULTS
Operating Revenues
Operating revenues were $76.5 million higher for the three month period ended
March 31, 1994, compared to the same period in 1993. Increased retail kilowatt
hour sales due to colder than normal temperatures and the continued impact of a
phased-in rate increase were the primary factors contributing to the increase.
Energy conservation revenues increased $10.1 million compared to the same
period last year, but are offset by recoverable energy conservation program
costs, as discussed below.
Operating Expenses
Fuel and purchased power costs were $10.8 million higher for the quarter ended
March 31, 1994 compared to the same period in 1993 due primarily to higher
purchased power costs resulting from the increase in system requirements. The
Company recovers substantially all of its fuel and purchased power costs
through a FPSC ordered fuel adjustment clause, thereby eliminating any impact
on net income.
Other operation and maintenance expenses for the three months ended March 31,
1994, were $20.8 million higher than the same period last year. The increase
was due primarily to estimated costs associated with the early retirement
option of approximately $13 million which lowered the Company's earnings by
$7.9 million (see Note 3 of the Notes to the Financial Statements) and
increased recoverable energy conservation program costs. Similar to the
recovery of fuel costs mentioned above, the Company recovers substantially all
of its energy conservation program costs, thereby eliminating any impact on net
income.
Other
In 1993, the Company filed a new depreciation study with the FPSC. The
filing includes the results of a site specific dismantlement study of Florida
Power's fossil generating facilities. If the FPSC approves Florida Power's
recommended change in depreciation rates, annual depreciation expense will
decrease by approximately $9.7 million beginning in January 1995.
In April 1994, FERC approved the Company's 1994 settlement agreement which
provides for rates designed to increase revenues by approximately $9.8 million.
Without taking any specific action, FERC's letter accepting the settlement
states that acceptance of the settlement does not preclude FERC from ordering
refunds at a later date with respect to the Company's prior recovery of
cogeneration purchased power costs through the fuel adjustment clause. (See
Note 2 of the Notes to the Financial Statements and Part II, Item 1, paragraph
2, herein).
The Nuclear Regulatory Commission's ("NRC") most recent Systematic Assessment
of License Performance ("SALP") report was issued in April 1994. This current
SALP report grades performance in four categories, a change from previous SALP
reports that divided the evaluation into seven categories. The current ratings
of the Company's nuclear plant, which cover the period from August 1992 to
February 1994, are as follows:
Plant performance 2 or "good"
Plant operation 2 or "good"
Engineering support 1 or "superior" (the highest rating)
Plant support 1 or "superior"
Florida Power's nuclear plant and most other nuclear plants in the United
States have installed a fire retardant material named Thermolag as a fire
barrier around electrical conduit and cables. Following tests by the NRC it
has been determined that Thermolag does not provide the full fire protection
originally claimed by the manufacturer.
Florida Power is conducting a detailed study of the plant to evaluate the
actual fire risk and to determine what actions will be necessary. In addition,
Florida Power is working with the Nuclear Energy Institute, a nuclear industry
trade group, and is in communication with the NRC regarding this matter.
Florida Power believes that the most costly option for addressing this problem
would be to remove and replace all Thermolag at its nuclear plant at an
estimated cost of $42 million. However, Florida Power believes that there are
far more effective and less expensive options available, such as rerouting
cables and/or installing additional fire detection and suppression equipment.
Florida Power does not expect to have to replace all of the Thermolag at its
nuclear plant. At this time, Florida Power has not completed its analysis of
the feasibility and cost of the various alternatives.
The Company reported in its Form 10-K for the year ended December 31, 1993
("1993 Form 10-K") that the Florida legislature was considering a bill that, in
general, would certify the retail electric service areas served by Florida's
electric utilities. In late March 1994, the bill was defeated at the committee
level. Consequently, the Company expects that competition for electric service
areas in the state will continue.
FPSC Commissioner Luis Lauredo has announced his plans to resign from the five-
member FPSC in May 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company budgeted $344 million, excluding allowance for funds used during
construction, for its 1994 construction program. The Company spent $56.8
million for its construction program during the first three months of 1994
compared to $77.6 million for the same period in 1993. The decrease was due
primarily to large first quarter 1993 expenditures related to 364 MW of new
peaking generation capability completed in November 1993 and the new 40 MW
cogeneration unit located at the University of Florida completed in January
1994.
The Company's parent, Florida Progress Corporation ("Florida Progress"),
contributed $7.5 million in equity capital to the Company in March 1994 from
the proceeds of the sale of common stock through Florida Progress' dividend
reinvestment and stock purchase plan. The Company used these funds to repay
commercial paper.
The Company's ratio of earnings to fixed charges was 3.81 at March 31, 1994.
(See Exhibit 12 filed herewith).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. FERC Docket No. ER93-299.
See prior discussion of this matter in the 1993 Form 10-K, Part I, Item 3,
paragraph 1. On March 30, 1994, FERC approved the unopposed settlement in
this case, terminating this docket except for the filing of compliance
data related to the refund of rates collected in excess of the settlement
rates.
2. FERC Docket No. ER94-961-000.
See prior discussion of this matter in the 1993 Form 10-K, Part I, Item 3,
paragraph 2. On April 8, 1994, FERC accepted the Company's settlement
agreement allowing the settlement rates to become effective as of March 2,
1994. Under the settlement agreement, customers waived their rights to
refunds associated with the Company's prior recovery of certain
cogeneration purchased power costs through the Company's fuel adjustment
clause. Without taking any specific action, FERC's letter accepting the
settlement states that its acceptance of this provision of the settlement
does not preclude FERC from ordering refunds at a later date. The Company
does not believe that FERC has the authority to force a customer to accept
refunds in violation of the settlement agreement waiver on the part of the
customers. In a related matter, FERC has ordered the Company to provide
explanation and support, on or before May 9, 1994, as to how certain fuel
adjustment clause fossil fuel costs will be imputed if actual cogeneration
fossil fuel costs are not available.
3. Florida Gas Transmission Company v. Florida Public Service Commission,
Florida Supreme Court, Case No. 82,171.
See prior discussion of this matter in the 1993 Form 10-K, Part I, Item 3,
paragraph 3. In July 1992, the FPSC issued a certificate of need to
SunShine Pipeline Partners for an intrastate natural gas pipeline from
northwest Florida to central Florida. Florida Gas Transmission Company
appealed this decision to the Florida Supreme Court in August of 1993,
claiming that (i) the statute under which the certificate was granted is
unconstitutionally vague in its delegation of authority to the FPSC, and
(ii) the FPSC's order failed to address matters the FPSC is statutorily
bound to consider. The Company intervened in defense of the FPSC. On
April 21, 1994, the Florida Supreme Court issued its opinion denying the
appeal on both counts. Petitions for rehearing, if any, must be filed on
or before May 6, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
In lieu of taking action at an annual meeting of shareholders, Florida
Progress, the holder of all 100 outstanding shares of common stock of the
Company, by means of written consent dated April 28, 1994, elected the
following persons as directors of the Company:
R. Mark Bostick Clarence V. McKee
Jack B. Critchfield Joan D. Ruffier
Allen J. Keesler Jean Giles Wittner
Richard Korpan
On April 28, 1994, Stanley A. Brandimore and Lee H. Scott retired from the
Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description
12 Statement Regarding Computation of Ratio of
Earnings to Fixed Charges
(b) Reports on Form 8-K:
During the first quarter of 1994 the Company filed the
following reports on Form 8-K:
Form 8-K dated January 17, 1994, reporting under Item 5
"Other Events" various press releases and related Investor
Information reports, which disclose certain workforce
reductions at the Company and Florida Progress' 1993
earnings.
In addition, the Company filed the following report on Form 8-K
subsequent to the first quarter of 1994:
Form 8-K dated April 21, 1994, reporting under Item 5
"Other Events" the Company's and Florida Progress' first
quarter 1994 earnings and Florida Progress' plans to issue
up to 3,795,000 new shares of common stock.
SIGNATURES
Pursuant to the 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.
FLORIDA POWER CORPORATION
Date: May 9, 1994 /s/ John Scardino, Jr.
--------------------------
John Scardino, Jr.
Vice President and Controller
Date: May 9, 1994 /s/ David R. Kuzma
------------------------
David R. Kuzma
Vice President and Treasurer
EXHIBIT INDEX
Exhibit Number Description
- - -------------- ------------------------------------------
12 Statement Regarding Computation of Ratio
of Earnings to Fixed Charges.