UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Exact name of Registrant as specified in I.R.S. Employer
Commission its charter, state of incorporation, address Identification
File No. of principal executive offices, telephone Number
- ------------ -------------------------------------------- ---------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (813) 824-6400
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
3201 34th Street South
St. Petersburg, Florida 33711
Telephone (813) 866-5151
Indicate by check mark whether each 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.
Description of Shares Outstanding
Registrant Class at September 30, 1997
---------- -------------- ------------------
Florida Progress Corporation Common Stock,
without par value 97,063,224
Florida Power Corporation Common Stock,
without par value 100 (all of which were
held by Florida
Progress Corporation)
This combined Form 10-Q represents separate filings by Florida Progress
Corporation and Florida Power Corporation. Florida Power makes no
representations as to the information relating to Florida Progress' diversified
operations.
For an explanation concerning the revised approach to recording nuclear outage
costs that prompted the filing of this amended Form 10-Q, see the combined
Florida Progress and Florida Power Form 8-K dated June 2, 1998, that was filed
with the Securities and Exchange Commission on June 2, 1998.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- --------
(Unaudited) (Unaudited)
REVENUES:
Electric utility $706.9 $694.7 $1,857.9 $1,830.7
Diversified 215.6 184.3 609.4 552.3
-------- -------- --------- ---------
922.5 879.0 2,467.3 2,383.0
EXPENSES: -------- -------- --------- ---------
Electric utility:
Fuel 129.5 147.5 343.2 323.0
Purchased power 133.7 127.6 377.7 388.2
Energy conservation cost 21.7 14.3 49.3 51.1
Operations and maintenance 105.5 105.9 318.6 304.2
Extended nuclear outage - O&M
and replacement fuel costs 33.1 - 130.9 -
Depreciation and amortization 78.8 74.7 227.3 241.5
Taxes other than income taxes 53.2 50.7 149.9 143.1
-------- -------- --------- ---------
555.5 520.7 1,596.9 1,451.1
-------- -------- --------- ---------
Diversified:
Cost of sales 187.0 153.5 527.9 462.9
Other 14.1 15.5 43.8 47.5
-------- -------- --------- ---------
201.1 169.0 571.7 510.4
-------- -------- --------- ---------
INCOME FROM OPERATIONS 165.9 189.3 298.7 421.5
-------- -------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 42.3 34.6 112.4 103.4
Allowance for funds used during
construction (2.5) (1.9) (6.9) (5.5)
Preferred dividend requirements of
Florida Power 0.3 0.8 1.1 5.2
Other expense (income), net (1.6) (0.4) (1.9) (5.1)
-------- -------- --------- ---------
38.5 33.1 104.7 98.0
-------- -------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 127.4 156.1 194.0 323.5
Income Taxes 45.8 58.1 64.1 118.4
-------- -------- --------- ---------
NET INCOME FROM CONTINUING OPERATIONS 81.6 98.1 129.9 205.1
DISCONTINUED OPERATIONS, NET
OF INCOME TAXES - - - (25.0)
-------- -------- --------- ---------
NET INCOME $ 81.6 $98.1 $129.9 $180.1
======== ======== ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 97.1 97.0 97.1 96.8
======== ======== ========= =========
EARNINGS PER AVERAGE COMMON SHARE
CONTINUING OPERATIONS $ .84 $1.01 $1.34 $2.12
DISCONTINUED OPERATIONS - - - (0.26)
-------- -------- --------- ---------
EARNINGS PER AVERAGE COMMON SHARE $ .84 $1.01 $1.34 $1.86
======== ======== ========= =========
DIVIDENDS PER COMMON SHARE $0.525 $0.515 $1.575 $1.545
======== ======== ========= =========
Prior periods reflect the recapitalization of the spin-off company, Echelon
International, and its associated treatment as discontinued operations. The
accompanying notes are an integral part of these financial statements.
2
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
September 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held $6,148.0 $5,965.6
for future use
Less - Accumulated depreciation 2,494.1 2,335.8
Accumulated decommissioning for nuclear plant 215.8 193.3
Accumulated dismantlement for fossil plants 127.6 119.6
---------- ----------
3,310.5 3,316.9
Construction work in progress 224.9 140.3
Nuclear fuel, net of amortization of $356.7
in 1997 and $356.7 in 1996 65.4 59.9
---------- ----------
Net electric utility property 3,600.8 3,517.1
Other property, net of depreciation of $228.3
in 1997 and $173.8 in 1996 367.2 309.3
---------- ----------
3,968.0 3,826.4
---------- ----------
CURRENT ASSETS:
Cash and equivalents 15.2 5.2
Accounts receivable, net 361.7 265.0
Inventories at average cost:
Fuel 78.1 67.1
Materials and supplies 94.4 95.4
Diversified materials 133.0 125.5
Underrecovery of fuel cost 69.7 82.6
Deferred income taxes 13.4 35.6
Other 20.8 12.6
---------- ----------
786.3 689.0
---------- ----------
OTHER ASSETS:
Investments:
Loans receivable, net 35.1 68.1
Marketable securities 257.2 217.9
Nuclear plant decommissioning fund 248.1 207.8
Joint ventures and partnerships 49.1 41.9
Deferred insurance policy acquisition costs 123.7 120.9
Deferred purchased power contract termination costs 369.8 -
Other 224.7 176.4
---------- ----------
1,307.7 833.0
---------- ----------
$6,062.0 $5,348.4
========== ==========
The accompanying notes are an integral part of these financial statements.
3
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
September 30, December 31,
1997 1996
----------- -----------
CAPITAL AND LIABILITIES (Unaudited)
COMMON STOCK EQUITY:
Common stock $1,209.1 $1,208.3
Retained earnings 693.5 716.5
Unrealized gain (loss) on securities available for sale 1.7 (0.6)
---------- ----------
1,904.3 1,924.2
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 2,343.4 1,776.9
---------- ----------
TOTAL CAPITAL 4,281.2 3,734.6
---------- ----------
CURRENT LIABILITIES:
Accounts payable 221.8 193.2
Customers' deposits 96.0 81.8
Income taxes payable 38.4 27.8
Accrued other taxes 71.8 13.4
Accrued interest 47.7 48.3
Other 81.6 78.5
---------- ----------
557.3 443.0
Notes payable 23.6 4.1
Current portion of long-term debt 15.0 34.9
---------- ----------
595.9 482.0
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 450.6 475.4
Unamortized investment tax credits 87.5 93.5
Insurance policy benefit reserves 369.0 325.3
Other postretirement benefit costs 106.6 100.0
Other 171.2 137.6
---------- ----------
1,184.9 1,131.8
---------- ----------
$6,062.0 $5,348.4
========== ==========
The accompanying notes are an integral part of these financial statements.
4
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
(In millions)
Nine Months Ended
September 30,
1997 1996
----------- -----------
(Unaudited)
OPERATING ACTIVITIES:
Income from continuing operations $129.9 $205.1
Adjustments for noncash items:
Depreciation and amortization 254.9 275.1
Extended nuclear outage replacement fuel costs 70.2 -
Deferred income taxes and
investment tax credits, net (51.4) (37.2)
Increase in accrued other postretirement
benefit costs 6.6 11.9
Net change in deferred insurance policy
acquisition costs (2.8) (13.7)
Net change in insurance policy
benefit reserves 43.7 44.0
Changes in working capital, net of effects
from acquisition or sale of businesses:
Accounts receivable (91.7) (7.6)
Inventories (16.5) (17.9)
Underrecovery of fuel cost (61.3) (47.1)
Accounts payable 27.3 21.3
Income taxes payable 10.8 60.0
Accrued other taxes 58.3 52.9
Other 6.3 2.5
Other operating activities (25.0) 1.6
--------- ---------
Cash provided by continuing operations 389.7 550.9
--------- ---------
Loss from discontinued operations - (25.0)
Adjustments for non-cash items - 11.1
--------- ---------
Cash used by discontinued operations - (13.9)
--------- ---------
389.7 537.0
--------- ---------
INVESTING ACTIVITIES:
Property additions (including allowance for
borrowed funds used during construction) (288.7) (192.0)
Purchase of loans and securities, net (including
repayment of Echelon note) (2.4) (25.1)
Proceeds from sale of properties 8.6 7.0
Acquisition of businesses (23.2) (45.1)
Acquisition of cogeneration facility and
contract termination costs (445.0) -
Distributions from (investments in) joint ventures
and partnerships, net (23.5) (4.6)
Investing activities of discontinued operations - 35.2
Other investing activities (17.3) (24.5)
--------- ---------
(791.5) (249.1)
--------- ---------
FINANCING ACTIVITIES:
Issuance of long-term debt 447.7 118.0
Repayment of long-term debt (34.2) (189.8)
Increase (decrease) in commercial paper with
long-term support 130.6 (5.3)
Redemption of preferred stock - (80.9)
Sale of common stock - 18.6
Dividends paid on common stock (152.9) (149.5)
Increase in short-term debt 19.6 29.0
Financing activities of discontinued operations - (11.3)
Other financing activities 1.0 (3.2)
--------- ---------
411.8 (274.4)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 10.0 13.5
Beginning cash and equivalents 5.2 4.3
--------- ---------
ENDING CASH AND EQUIVALENTS $15.2 $17.8
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $108.0 $101.1
Income taxes (net of refunds) $74.5 $91.2
Prior periods reflect the recapitalization of the spin-off company, Echelon
International, and its associated treatment as discontinued operations. The
accompanying notes are an integral part of these financial statements.
5
FLORIDA POWER CORPORATION
FINANCIAL STATEMENTS
FLORIDA POWER CORPORATION
Statements of Income
(In millions) Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- -------- --------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Residential $397.0 $393.6 $994.0 $1,005.9
Commercial 156.7 155.4 426.3 402.2
Industrial 51.0 54.9 158.0 154.6
Sales for resale 47.7 46.5 105.1 126.6
Other 54.5 44.3 174.5 141.4
-------- -------- --------- ---------
706.9 694.7 1,857.9 1,830.7
-------- -------- --------- ---------
OPERATING EXPENSES:
Operation:
Fuel 129.5 147.5 343.2 323.0
Purchased power 133.7 127.6 377.7 388.2
Energy conservation cost 21.7 14.3 49.3 51.1
Operations and maintenance 105.5 105.9 318.6 304.2
Extended nuclear outage - O&M
and replacement fuel costs 33.1 - 130.9 -
Depreciation and amortization 78.8 74.7 227.3 241.5
Taxes other than income taxes 53.2 50.7 149.9 143.1
-------- -------- --------- ---------
555.5 520.7 1,596.9 1,451.1
-------- -------- --------- ---------
Income taxes:
Currently payable 41.2 64.9 77.2 138.9
Deferred, net 5.2 (6.8) ( 8.1) (19.7)
Investment tax credits, net (2.0) (1.9) (5.9) (5.9)
-------- -------- --------- ---------
44.4 56.2 63.2 113.3
-------- -------- --------- ---------
599.9 576.9 1,660.1 1,564.4
-------- -------- --------- ---------
OPERATING INCOME 107.0 117.8 197.8 266.3
-------- -------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 1.5 1.0 4.2 2.9
Miscellaneous other expense, net (0.8) (1.0) (1.7) (2.0)
-------- -------- --------- ---------
0.7 - 2.5 0.9
-------- -------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 28.2 22.0 72.9 65.9
Other interest expense 4.2 2.8 10.9 8.9
-------- -------- --------- ---------
32.4 24.8 83.8 74.8
Allowance for borrowed funds used
during construction (1.0) (0.9) (2.7) (2.6)
-------- -------- --------- ---------
31.4 23.9 81.1 72.2
-------- -------- --------- ---------
NET INCOME 76.3 93.9 119.2 195.0
DIVIDENDS ON PREFERRED STOCK 0.3 0.8 1.1 5.2
-------- -------- --------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $76.0 $93.1 $118.1 $189.8
======== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
6
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
September 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held $6,148.0 $5,965.6
for future use
Less - Accumulated depreciation 2,494.1 2,335.8
Accumulated decommissioning for nuclear plant 215.8 193.3
Accumulated dismantlement for fossil plants 127.6 119.6
---------- ----------
3,310.5 3,316.9
Construction work in progress 224.9 140.3
Nuclear fuel, net of amortization of $356.7
in 1997 and $356.7 in 1996 65.4 59.9
---------- ----------
3,600.8 3,517.1
Other property, net 11.8 13.3
---------- ----------
3,612.6 3,530.4
---------- ----------
CURRENT ASSETS:
Cash and equivalents 9.0 -
Accounts receivable, less reserve of $4.3
in 1997 and $4.1 in 1996 244.5 174.7
Inventories at average cost:
Fuel 38.9 47.2
Materials and supplies 94.4 95.4
Underrecovery of fuel cost 69.7 82.6
Deferred income taxes 13.4 35.6
Other 8.9 6.2
---------- ----------
478.8 441.7
---------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 248.1 207.8
Unamortized debt expense, being amortized
over term of debt 25.6 25.0
Deferred purchased power contract termination costs 369.8 -
Other 93.6 59.1
---------- ----------
737.1 291.9
---------- ----------
$4,828.5 $4,264.0
========== ==========
The accompanying notes are an integral part of these financial statements.
7
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
September 30, December 31,
1997 1996
----------- -----------
CAPITALIZATION AND LIABILITIES (Unaudited)
CAPITALIZATION:
Common stock $1,004.4 $1,004.4
Retained earnings 794.8 821.1
---------- ----------
1,799.2 1,825.5
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,746.0 1,296.4
---------- ----------
TOTAL CAPITAL 3,578.7 3,155.4
---------- ----------
CURRENT LIABILITIES:
Accounts payable 135.5 115.5
Accounts payable to associated companies 27.0 21.2
Customers' deposits 96.0 81.7
Income taxes payable 38.8 10.4
Accrued other taxes 68.2 10.0
Accrued interest 43.7 34.8
Other 51.4 47.3
---------- ----------
460.6 320.9
Notes payable 19.1 4.1
Current portion of long-term debt 1.4 21.3
---------- ----------
481.1 346.3
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 453.5 472.3
Unamortized investment tax credits 86.9 92.8
Other postretirement benefit costs 102.6 96.5
Other 125.7 100.7
---------- ----------
768.7 762.3
---------- ----------
$4,828.5 $4,264.0
========== ==========
The accompanying notes are an integral part of these financial statements.
8
FLORIDA POWER CORPORATION
Statements of Cash Flows
(In millions)
Nine Months Ended
September 30,
1997 1996
---------- ----------
(Unaudited)
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $118.1 $189.8
Adjustments for noncash items:
Depreciation and amortization 233.0 256.4
Extended nuclear outage replacement fuel costs 70.2 -
Deferred income taxes and investment
tax credits, net (14.0) (25.6)
Increase in accrued other postretirement
benefit costs 6.1 11.2
Allowance for equity funds used during construction (4.2) (2.9)
Changes in working capital:
Accounts receivable (69.8) (24.2)
Inventories 9.3 1.2
Underrecovery of fuel cost (61.3) (47.1)
Accounts payable 20.0 13.1
Accounts payable to associated companies 5.8 (1.0)
Income taxes payable 28.4 52.8
Accrued other taxes 58.2 52.5
Other 24.7 10.2
Other operating activities (20.4) 8.3
--------- ---------
404.1 494.7
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (230.2) (157.5)
Allowance for borrowed funds used during construction (2.7) (2.6)
Additions to nonutility property (2.3) (1.5)
Acquisition of cogeneration facility and
contract termination costs (445.0) -
Proceeds from sale of properties 4.7 4.5
Other investing activities (17.3) (24.5)
--------- ---------
(692.8) (181.6)
--------- ---------
FINANCING ACTIVITIES:
Issuance of long-term debt 447.7 -
Repayment of long-term debt (20.6) (46.8)
Decrease in commercial paper with
long term support - (65.7)
Redemption of preferred stock - (80.9)
Dividends paid on common stock (144.4) (116.1)
Equity contributions from parent - 12.5
Increase in short-term debt 15.0 -
--------- ---------
297.7 (297.0)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 9.0 16.1
Beginning cash and equivalents - 0.8
--------- ---------
ENDING CASH AND EQUIVALENTS $9.0 $16.9
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $69.9 $66.4
Income taxes (net of refunds) $47.7 $85.7
The accompanying notes are an integral part of these financial statements.
9
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) On November 21, 1996, the Board of Directors of Florida Progress
Corporation ("Florida Progress") declared a spin-off distribution to
common shareholders of record on December 5, 1996, of the common shares
of Echelon International Corporation ("Echelon"). Echelon comprised
Florida Progress' lending, leasing and real estate operations. As a
result of the spin-off, the former operations of Echelon are shown as
discontinued operations in the accompanying Consolidated Statements of
Income for the three and nine months ending September 30, 1996. Net
assets of Echelon as of December 18, 1996, the date of the spin-off,
were $194.5 million. This amount has been charged against Florida
Progress' retained earnings in the accompanying December 31, 1996
Consolidated Balance Sheet to reflect the distribution of Echelon
common shares. As used in this Form 10-Q, the term Florida Progress
includes its consolidated subsidiaries unless otherwise indicated.
2) As ordered by the Florida Public Service Commission ("FPSC"), Florida
Power Corporation ("Florida Power") is in the final year of conducting
a three-year test of residential revenue decoupling which began in
January 1995. The difference between target revenues and actual
revenues is included as a current asset or current liability on the
accompanying Balance Sheet. Revenue decoupling increased residential
revenues by $1.3 million and $13.5 million for the three months and
nine months ended September 30, 1997, respectively. For the three month
period ended September 30, 1996, revenue decoupling increased
residential revenues by $6.0 million and for the nine month period
ended September 30, 1996, revenue decoupling decreased residential
revenues $7.3 million.
3) The Tiger Bay cogeneration facility was purchased by Florida Power for
$445 million on July 15, 1997. Tiger Bay was Florida Power's largest
cogeneration power supplier, representing more than 20% of the capacity
received from qualifying facilities. In accordance with the FPSC
stipulation order approving the purchase, $75 million of the purchase
price has been included in rate base, which is classified as Electric
Plant in Service on the accompanying Balance Sheets. Florida Power will
absorb the non-fuel operating costs of the facility in existing base
rates. The remaining $370 million of the purchase price is considered a
regulatory asset, which is reported as Deferred Purchased Power
Contract Termination Costs in the Other Assets section of the
accompanying Balance Sheets. The regulatory asset will be amortized
using revenues collected under the fuel adjustment clause as if the
purchase power agreements related to the facility were still in effect,
less the actual fuel costs and the related debt interest expense. This
will continue until the regulatory asset is fully amortized. Florida
Power has the option to accelerate the amortization. Florida Power has
petitioned the Federal Energy Regulatory Commission ("FERC") for the
authority to amortize the wholesale portion of the regulatory asset
over a period consistent with that allowed by the FPSC. Management
believes its petition will be approved by FERC.
10
4) CONTINGENCIES
PURCHASED POWER COMMITMENTS
The purchased power contracts between Florida Power and qualifying
facilities employ separate pricing methodologies for capacity payments
and energy payments. Florida Power has interpreted the pricing
provision in these contracts to allow it to pay an as-available energy
price rather than a higher firm energy price when the avoided unit upon
which the applicable contract is based would not have been operated.
Four cogenerators, Pasco Cogen, Ltd. ("Pasco"), Lake Cogen, Ltd,
("Lake"), Orlando Cogen, Limited ("Orlando"), and Metropolitan Dade
County and Montenay Power Corp. ("Metro-Dade"), filed separate suits
against Florida Power in disputes over the contract payment terms.
Florida Power entered into settlement agreements with Pasco, Lake and
Orlando. The agreements with Pasco and Orlando have been approved by
the FPSC and the litigation has been dismissed. On September 23, 1997,
the FPSC reversed its original decision and voted to deny Florida
Power's request to approve the Lake settlement. Florida Power is
awaiting the FPSC's written order to determine the courses of action
available.
In July 1997, the FPSC decided to review its approval of several
cogeneration settlement agreements. The FPSC action was precipitated by
the disclosure by Florida Power to the FPSC that a Florida Power
employee who had been involved in cogeneration matters before the FPSC
had recently become engaged to be married to a former FPSC staff
attorney who had participated in the same matters on behalf of the
FPSC. The FPSC decided to review the Pasco settlement and the pending
buyout of the last ten years of a contract with Orlando in a docket
separate from the Orlando settlement agreement, to determine whether
there was any bias in the information that was presented by the staff
attorney to the FPSC. The FPSC also decided to reconsider the Lake
settlement agreement on a number of issues, including the conflict of
interest issue discussed above. On August 18, 1997, the FPSC determined
that the conflict did not bias its actions in any of these three
proceedings.
OFF-BALANCE SHEET RISK - Several of Florida Progress' subsidiaries are
general partners in unconsolidated partnerships and joint ventures.
Florida Progress or its subsidiaries have agreed to support certain
loan agreements of the partnerships and joint ventures. Those credit
risks are not material to the financial statements. Florida Progress
considers those credit risks to be minimal, based upon the asset values
supporting the liabilities of these entities.
INSURANCE - Florida Progress and its subsidiaries utilize various risk
management techniques to protect assets from risk of loss, including
the purchase of insurance. Risk avoidance, risk transfer and
self-insurance techniques are utilized depending on Florida Progress'
ability to assume risk, the relative cost and availability of methods
for transferring risk to third parties, and the requirements of
applicable regulatory bodies.
Florida Power self-insures its transmission and distribution lines
against loss due to storm damage and other natural disasters. Pursuant
to an FPSC order, Florida Power is accruing $6 million annually to a
storm damage reserve and may defer any losses in excess of the reserve.
11
Under the provisions of the Price Anderson Act, which limits liability
for accidents at nuclear power plants, Florida Power, as an owner of a
nuclear plant, can be assessed for a portion of any third-party
liability claims arising from an accident at any commercial nuclear
power plant in the United States. If total third-party claims relating
to a single nuclear incident exceed $200 million (the amount of
currently available commercial liability insurance), Florida Power
could be assessed up to $79.3 million per incident, with a maximum
assessment of $10 million per year.
Florida Power is a member of the Nuclear Electric Insurance, Ltd.
("NEIL"), an industry mutual insurer, which provides business
interruption and extra expense coverage in the event of a major
accidental outage at a covered nuclear power plant. Florida Power is
subject to a retroactive premium assessment by NEIL under this policy
in the event loss experience exceeds NEIL's available surplus. Florida
Power's present maximum share of any such retroactive assessment is
$2.5 million per policy year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance totaling $2.1
billion. The first layer of $500 million is purchased in the commercial
insurance market with the remaining excess coverage purchased from
NEIL. Florida Power is self-insured for any losses that are in excess
of this coverage. Under the terms of the NEIL policy, Florida Power
could be assessed up to a maximum of $10.3 million in any policy year
if losses in excess of NEIL's available surplus are incurred.
Florida Power has never been assessed under these nuclear indemnities
or insurance policies.
CONTAMINATED SITE CLEANUP - Florida Progress is subject to regulation
with respect to the environmental effects of its operations. Florida
Progress' disposal of hazardous waste through third-party vendors can
result in costs to clean up facilities found to be contaminated.
Federal and state statutes authorize governmental agencies to compel
responsible parties to pay for cleanup of these hazardous waste sites.
Florida Power and former subsidiaries of Florida Progress, whose
properties were sold in prior years, have been identified by the
Environmental Protection Agency ("EPA") as potentially responsible
parties ("PRPs") at certain sites, including a coal gasification plant
site in Sanford, Florida ("Sanford site") that Florida Power previously
owned and operated. Liability for the cleanup costs of those sites is
joint and several. In reference to the Sanford site, four other parties
have also been identified as PRPs. On July 11, 1997, the EPA sent a
general and special notice letter which advised Florida Power and
others that the EPA has documented the release or threatened release of
hazardous substances, pollutants, or contaminants from the Sanford
site. The EPA investigation concluded that such release or threatened
release includes the site itself and downgradient contamination in
sediment through an unnamed tributary for storm water drainage flowing
through Cloud Branch Creek into Lake Monroe at the confluence of the
Creek and Lake Monroe. Further, the EPA advised Florida Power of its
potential liability for cleanup under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The EPA
established a 60-day moratorium beginning July 18, 1997 on further
response activities, which was subsequently extended to 90 days,
pending the PRPs' submission of a good faith offer to conduct a
remedial investigation and feasibility study ("RI/FS"). The submission
was made to the EPA on October 20, 1997. If accepted by the EPA, this
12
study will be embodied in an administrative order on consent and allow
the PRPs to perform and finance cleanup activities at the site under
the guidance of the EPA. The PRPs have reached tentative agreement on
allocation shares and to fund the RI/FS up to $1.5 million. Florida
Progress' share represents 40% of the total. Additional contributions
for subsequent clean-up costs are being negotiated among the PRPs.
In addition to those designated sites, there are other sites where
affiliates may be responsible for additional environmental cleanup.
Florida Progress believes that its subsidiaries will not be required to
pay a disproportionate share of the costs for cleanup of any of these
sites. Florida Progress' best estimates indicate that its proportionate
share of liability for cleaning up all sites, including the Sanford
site, ranges from $3.7 million to $5.4 million. Florida Progress has
reserved $4.7 million against these potential costs.
AGE DISCRIMINATION SUIT - Florida Power and Florida Progress have been
named defendants in an age discrimination lawsuit involving 116 former
Florida Power employees and one current employee. While no dollar
amount was requested, each plaintiff seeks back pay, reinstatement or
front pay through their projected dates of normal retirement, costs and
attorneys' fees. In October 1996, the court approved an agreement to
provisionally certify this case as a class action suit under the Age
Discrimination in Employment Act. Estimates of the potential liability
associated with this lawsuit remain pending until the final decision on
whether to certify the case as a class action suit has been made. A
decision is not expected until 1998.
MID-CONTINENT LIFE INSURANCE COMPANY - On April 14, 1997, the Insurance
Commissioner of the State of Oklahoma (the "Insurance Commissioner")
received approval from the Oklahoma County District Court to
temporarily seize control of the operations of Mid-Continent Life
Insurance Company ("Mid-Continent"), a wholly owned subsidiary of
Florida Progress. On May 23, 1997, the Oklahoma County District Court
granted the application of the Insurance Commissioner to place
Mid-Continent into receivership. The Insurance Commissioner had alleged
that Mid-Continent's reserves were understated by more than $125
million, thus causing Mid-Continent to be statutorily impaired, and
further alleged that Mid-Continent had violated Oklahoma law relating
to deceptive trade practices in connection with the sale of its "Extra
Life" insurance policies. Mid-Continent believes it is not statutorily
impaired because the court ruled that it could raise premiums on the
insurance policies at issue. On June 18, 1997, Florida Progress filed
an appeal with the Oklahoma Supreme Court regarding the decision that
Mid-Continent remain in receivership. On June 30, 1997, the Insurance
Commissioner filed an appeal with the Oklahoma Supreme Court regarding
the district court's decision that Mid-Continent is entitled to raise
premiums. Florida Progress is awaiting a ruling from the Oklahoma
Supreme Court. On July 10, 1997, the Commissioner of Insurance of the
State of Texas entered a cease and desist order prohibiting
Mid-Continent from writing any new policies in Texas. The Texas
Commissioner cited the lack of permanent management at, and plan of
rehabilitation for, Mid-Continent and the alleged reserve deficiency as
reasons for the action. Other states, including Florida and California,
have also entered cease and desist orders. Texas currently has the
largest number of Mid-Continent policy holders.
13
Florida Progress believes that its investment in Mid-Continent has been
impaired by these proceedings and associated developments, but the
amount of impairment cannot currently be estimated. Given that the
receivership and the cease and desist order in Texas has resulted in
significant adverse publicity for Mid-Continent and has disrupted its
business plan for addressing its projected reserve deficiency on its
"Extra Life" policies, it is likely that Florida Progress will realize
a loss of some or all of its investment in Mid-Continent.
Mid-Continent's earnings were $1.9 million for the year ended December
31, 1996, and $.2 million for the nine months ended September 30, 1997.
As of September 30, 1997, Florida Progress' equity investment in
Mid-Continent was approximately $88.5 million, and its tax basis is
significantly less. The Consolidated Balance Sheet at September 30,
1997 includes $257.2 million of marketable securities, $123.7 million
of deferred policy acquisition costs and $369.0 million of insurance
policy benefit reserves attributable to Mid-Continent.
REPLACEMENT POWER COST SETTLEMENT - On June 26, 1997, the FPSC
unanimously approved a settlement agreement between Florida Power and
all parties who intervened in Florida Power's request to recover
replacement power costs resulting from the extended outage of CR3. This
settlement supersedes the February 1997 FPSC approved rate increase
described under the heading "Contingencies - Rate Increase
Investigation" in Note 4 to the Financial Statements, in the combined
Form 10-Q of Florida Progress and Florida Power for the quarter ended
March 31, 1997 (the "first quarter 1997 Form 10-Q").
In accordance with the settlement agreement, effective July 1997,
Florida Power ceased any further recovery through its fuel clause of
replacement power costs related to the nuclear outage, except as
described below. Florida Power has completed a refund of the $16.5
million of replacement power costs already collected through the fuel
clause for the period from April 1997 through June 1997, when rates
reflected higher replacement power costs.
Florida Power estimates that it will have incurred approximately $172
million in total system replacement power costs through the end of
1997. In the second quarter of 1997, Florida Power recorded a charge of
approximately $70 million for retail replacement power costs incurred
from December 1996 through June 1997 that will not be recovered through
its fuel adjustment clause. Of the remaining $102 million, Florida
Power will recover approximately $39 million through its fuel
adjustment clause, when the nuclear plant is returned to service. The
remaining $63 million of replacement power costs for the period July
through December 1997 will be recorded as a regulatory asset and
amortized for a period of up to four years beginning in July 1997. The
effect of the amortization on the results of operations is expected to
be offset by the suspension of fossil plant dismantlement accruals
during the amortization period. If the actual replacement fuel incurred
prior to the nuclear unit's return to service were to exceed Florida
Power's estimate of $172 million, Florida Power would be required to
recognize the additional costs incurred.
This accounting treatment is consistent with the terms of the above
mentioned settlement agreement. The parties to the settlement agreement
have agreed not to seek or support any increase or reduction in Florida
Power's base rates or the authorized range of its return on equity
during the four-year amortization period. The agreement resolves all
present and future disputed issues between the parties regarding the
extended outage of CR3.
14
As of the end of the third quarter of 1997, Florida Power recognized
$60.7 million of additional operation and maintenance costs related to
the extended outage at CR3. Florida Power expects to incur a total of
$100 million of operation and maintenance costs to return CR3 to
service by the end of 1997.
5) 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 Florida
Progress and Florida Power for the interim periods presented. Results
for these interim periods are not necessarily indicative of results for
the full year. It is suggested that these financial statements be read
in conjunction with the financial statements and notes thereto in the
combined Form 10-K of Florida Progress and Florida Power for the year
ended December 31, 1996 (the "1996 Form 10-K"), the first quarter 1997
Form 10-Q and in the combined Form 10-Q of Florida Progress and Florida
Power for the quarter ended June 30, 1997 (the "second quarter 1997
Form 10-Q").
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OPERATING RESULTS
Florida Progress' earnings from continuing operations for the three month period
ended September 30, 1997, were $.84 per share, compared to $1.01 per share for
the same period in 1996. Florida Power, Florida Progress' largest operating
unit, reported earnings of $.78 per share compared to $.96 per share for the
same period last year.
Earnings per share from continuing operations for the nine months ended
September 30, 1997 were $1.34 compared to $2.12 for the same period last year.
The decrease for both the three and nine month period is due to replacement
power and additional operation and maintenance charges recorded by Florida Power
equivalent to $.21 and $.83 per share, respectively, for the extended outage of
CR3.
Diversified earnings per share from continuing operations were $.06 for the
third quarter of 1997, $.01 higher than the same quarter last year. This was due
primarily to higher earnings at Electric Fuels Corporation ("Electric Fuels"),
resulting from the expansion of its rail services group and improved operations
in other energy-related businesses.
For the nine months ended September 30, 1997, diversified earnings per share
from continuing operations were $.12, $.04 lower than the same period in 1996,
primarily due to lower earnings from Mid-Continent and costs associated with its
receivership and related proceedings. Earnings in 1997 were also reduced as a
result of the sale by Florida Progress of its eighty percent interest in
Advanced Separation Technologies, Inc. ("AST") in the fourth quarter of 1996. In
the second quarter of 1996, Florida Progress recorded a loss from discontinued
operations of $.26 per share, attributable to the decision to spin-off to its
common shareholders the common shares of Echelon International Corporation.
Florida Power - Operating Revenues
Florida Power's operating revenues were $12.2 million (1.8%) and $27.2 million
(1.5%) higher for the three and nine month periods ended September 30, 1997,
compared to the same periods in 1996. Recoverable fuel revenues, including
deferred fuel revenue, were $4.5 million lower for the three month period ended
September 30, 1997. This was due to the $16.5 million refund of replacement
power costs which were collected from customers in April through June of 1997
15
and refunded in the third quarter of 1997 in accordance with the FPSC
replacement power cost settlement agreement (See Note 4 to the Financial
Statements under the heading "Replacement Power Cost Settlement"). Recoverable
fuel revenues for the nine month period ended September 30, 1997 were $21.7
million higher as a result of the corresponding increase in fuel and purchased
power expenses discussed below.
Since Florida Power does not anticipate any future base rate increases, any
future base revenue growth would be the result of growth in customers, usage or
both.
Florida Power - Operating Expenses
Fuel and purchased power costs were $11.9 million (4.3%) lower for the three
months ended September 30, 1997, compared to the same period in 1996. This
decrease was due primarily to the customer refund of replacement power costs
discussed above. For the nine months ended September 30, 1997, fuel and
purchased power costs were $9.7 million higher (1.4%) than the same period in
1996 due to increased capacity payments.
Generally, Florida Power recovers substantially all of its fuel and purchased
power costs through a FPSC ordered fuel adjustment clause, thereby eliminating
any significant impact on net income. However, in June 1997, Florida Power
recorded a $70 million charge for replacement power costs resulting from the
extended outage of CR3. These costs were incurred from December 1996 through
June 1997 and will not be recovered through its fuel adjustment clause. (See
Note 4 to the Financial Statements, under the heading "Replacement Power Cost
Settlement"). If the actual replacement fuel incurred prior to the nuclear
unit's return to service were to exceed Florida Power's estimate of $172
million, Florida Power would be required to recognize the additional costs
incurred.
Other operation and maintenance expenses, excluding the impact of the extended
outage, for the three months ended September 30, 1997, were $.4 million lower
than the same period in 1996, despite approximately $.8 million of additional
operating and maintenance costs related to the Tiger Bay facility. The purchase
of the cogeneration facility, which was approved by the FPSC on May 19, 1997,
was completed on July 15, 1997. (See Note 3 to the Financial Statements).
Operating and maintenance costs increased $14.4 million (4.7%) for the nine
months ended September 30, 1997 compared to the same period last year. The
increase was primarily due to planned fossil plant outages and additional
expenditures for service reliability programs.
For the three and nine months ended September 30, 1997, Florida Power incurred
$33.1 million and $60.7 million, respectively, of operation and maintenance
expenses associated with the extended outage at CR3. Total operating and
maintenance costs associated with returning CR3 to service in 1997 are
forecasted to be $100 million.
Depreciation and amortization expense was $4.1 million (5.5%) higher for the
three months ended September 30, 1997, compared to the same period last year.
This increase was due primarily to the amortization of the deferred contract
termination costs incurred with the purchase of the Tiger Bay cogeneration
facility. (See Note 3 to the Financial Statements). For the nine months ended
September 30, 1997, depreciation and amortization expense was $14.2 million
(5.9%) lower than the same period in 1996. This was due to the write-off of two
oil-fired plants (Higgins and Turner) and the amortization of a transmission
line project in 1996.
16
Florida Power - Purchased Power
Costs associated with purchased power contracts with qualifying facilities
raised Florida Power's system average cost for generation in 1996 and 1997. As
previously discussed, Florida Power has been seeking ways to mitigate the impact
of these escalating payments. Florida Power had negotiated settlements with
three cogenerators, Pasco, Lake, and Orlando. In July 1997, the FPSC decided to
review the Pasco, Lake and Orlando buyouts, a docket separate from the Orlando
settlement agreement, cogeneration proceedings regarding a conflict of interest
on the part of a former FPSC staff attorney involved with the cases. See Note 4
to the Financial Statements entitled "Contingencies - Purchased Power
Commitments" and Part II, Item 1 "Legal Proceedings".
In May 1997, the FPSC approved Florida Power's purchase of the 220-megawatt
Tiger Bay cogeneration facility located in Ft. Meade, Florida. This purchase
terminated the related purchase power contracts and allowed Florida Power to
record a regulatory asset of approximately $370 million and add $75 million to
its rate base.
Florida Power - Nuclear Operations
In September 1996, Florida Power shut down its CR3 nuclear plant to fix a broken
oil pipe in the main turbine. CR3 has remained offline to address certain design
issues related to the plant's back-up safety systems.
CR3 is on schedule to restart in December 1997. While CR3 remains on the NRC's
Watch List, the NRC staff has expressed satisfaction with the major
accomplishments that have been made on restart activities. These include
completing the discovery phase of the System Readiness Review for 105 systems,
with more than 90 turned over to operations as of mid-October, finding a small
number of plugged tubes in the steam generator tube inspection, and reducing the
corrective maintenance backlog below restart goal levels.
The NRC is planning to conduct an operational safety team inspection that is
scheduled to begin in early December, 1997. Florida Power expects this to be the
last major inspection before restart. The start up to full power will require
several weeks.
Florida Progress Diversified Operations
Florida Progress' diversified revenues were $31.3 million and $57.1 million
higher for the three and nine months ended September 30, 1997, compared to the
same period last year. The increases were due primarily to an acquisition in the
third quarter of 1996 by the rail services group of Electric Fuels. Revenues
from expanding operations at the inland marine transportation group also
contributed to the increases over last year for both periods. Higher diesel fuel
costs and increased operating expenses associated with flood conditions during
the first quarter of 1997 impacted year to date operating results at Electric
Fuels, when compared to 1996, despite improved second and third quarter results
in 1997.
On April 14, 1997, the Insurance Commissioner of the state of Oklahoma received
approval from the Oklahoma County District Court to temporarily seize control of
the operations of Mid-Continent. On May 23, 1997, the District Court of Oklahoma
granted the application of the Insurance Commissioner of the State of Oklahoma
to place Mid-Continent into receivership. Mid-Continent is appealing the
decision to the Supreme Court of Oklahoma. See Note 4 to the Financial
Statements under the heading "Mid-Continent Life Insurance Company".
17
LIQUIDITY AND CAPITAL RESOURCES
Florida Power budgeted $372 million, excluding allowance for funds used during
construction, for its 1997 construction program, of which $224.8 million was
spent during the first nine months of the year. Those expenditures were financed
primarily with funds from operations. Nuclear capital expenditures for 1997
could range between $30 to $45 million higher than the original budget because
of CR3 modifications. Florida Power anticipates using debt financing to fund
those additional capital expenditures.
Florida Power's ratio of earnings to fixed charges was 3.31 for the twelve
months ended September 30, 1997. (See Exhibit 12 filed herewith).
"SAFE HARBOR" STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward looking statements, including projections
regarding the date by which CR3 is expected to be returned to service; the total
operating and maintenance costs that will be attributable to the nuclear outage;
the future recovery of replacement power costs associated with the outage; the
offsetting of certain amortization effects by the suspension of fossil plant
dismantlement accruals; the use of debt financing to fund nuclear capital
expenditures; the proportionate liability for cleaning up certain environmental
sites; and the effect of certain legal proceedings on the operations of
Mid-Continent and Florida Progress' investment therein.
Risk Factors
These statements, and any other statements contained in this report that are not
historical facts, are forward-looking statements that are based on a series of
projections and estimates regarding the economy, the electric utility business
and Florida Progress' other businesses in general, and on factors which impact
Florida Progress directly. The projections and estimates relate to the pricing
of services, the actions of regulatory bodies, and the effects of competition.
Key factors that have a direct impact on the ability to attain these projections
include various factors that could impact the successful execution of Florida
Power's nuclear plant restart plan, such as regulatory approvals, timely
completion of scheduled work by Florida Power and outside contractors and the
timely delivery of parts and materials; the ability to offset the effect of the
amortization of the replacement power costs regulatory asset; the actions of the
FPSC and other regulatory bodies; the success of cost containment efforts; and
the efficient operation of Florida Power's existing and future generating units.
In addition, in developing certain forward-looking statements, Florida Progress
and Florida Power have made certain assumptions relating to productivity
improvements, the lack of unforeseen new nuclear plant modifications that could
extend the outage beyond 1997, and the lack of disruption to markets.
If Florida Progress' and Florida Power's projections and estimates regarding the
economy, the electric utility business and other factors differ materially from
what actually occurs, or if various proceedings have unfavorable outcomes, then
actual results could vary significantly from the performance projected in the
forward-looking statements.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. In re: Petition for Expedited Approval of Settlement with Pasco Cogen,
Ltd., Florida Public Service Commission, Docket No. 961407-EI.
In re: Petition for Expedited Approval of Settlement with Lake Cogen,
Ltd., Florida Public Service Commission, Docket No. 961477-EQ.
In re: Petition for approval of early termination amendment to
negotiated qualifying facility contract with Orlando Cogen, Limited,
Ltd., Florida Public Service Commission, Docket No. 961184-EQ.
See prior discussion of these matters in the second quarter 1997 Form
10-Q, Part II, Item 1, Paragraph 1, the first quarter 1997 Form 10-Q,
Part II, Item 1, paragraph 1, and in the 1996 Form 10-K, Item 3,
paragraphs 2, 3 and 4. On July 8, 1997, Florida Power filed a Notice of
Conflict of Interest in Docket No. 961477-EQ, notifying the FPSC of a
possible conflict of interest involving a Florida Power employee and a
former FPSC staff attorney ("staff attorney") who both worked on this
docket during a period in which they had a personal relationship. After
the notice was filed, the FPSC initiated a review of the various Florida
Power cases on which the staff attorney had worked. On July 15, 1997,
the FPSC decided to review the Pasco and Orlando buyout dockets to
determine if any bias had occurred. Also on July 15, the FPSC determined
to reconsider the Lake cogeneration matter on the merits, including a
review with respect to the conflict of interest issue. On August 18,
1997, the FPSC determined that the conflict did not bias its actions in
any of these proceedings. On September 23, 1997, the FPSC voted to deny
Florida Power's request to approve the Lake Settlement. See Note 4 to
the Financial Statements under "Contingencies - Purchased Power
Commitments" herein.
2. In re: Lake Interest Holdings, Inc. v. Lake Cogen, Ltd., NCP Lake Power,
Inc., Lake Investment, LP. and Florida Power Corporation. Circuit Court
of the Fifth Judicial Court for Lake County, Florida, Case No. 97-549-
CA-01.
See prior discussion of this matter in the 1996 Form 10-K, Item 3,
paragraph 3. In June 1997, voluntary dismissal was filed with the court
and the case was terminated. This concludes this matter for reporting
purposes.
3. In re: Standard Offer Contract for the purchase of firm capacity and
energy from a qualifying facility between Panda-Kathleen, L.P. and
Florida Power Corporation, FPSC Docket No. 950110-EI.
See prior discussion of this matter in the 1996 Form 10-K, Item 3,
paragraph 6. On September 18, 1997, the Florida Supreme Court issued an
opinion denying Panda-Kathleen L.P.'s appeal and upholding the FPSC's
decision in all respects. On October 3, 1997, Panda-Kathleen L.P. filed
with the Florida Supreme Court a motion for rehearing requesting the
court to reconsider its decision and a motion for abatement requesting
the court to relinquish jurisdiction to allow the FPSC to determine
whether a relationship between a Florida Power employee and a former
FPSC staff attorney (see discussion in the second quarter 1997 Form
10-Q, Part II, Item 1, paragraph 1)
19
improperly affected the FPSC's April 1996 decision that is the subject
of Panda L.P.'s appeal. The Supreme Court is expected to rule on these
motions in the first quarter of 1998.
4. Florida Power Corp. v. United States, United States Court of Federal
Claims, Case No. 96-702C.
See prior discussion in the second quarter 1997 Form 10-Q, Part II, Item
1, paragraph 10, and the 1996 Form 10-K, Item 3, paragraph 10. On May 6,
1997, the U.S. Court of Appeals for the Federal Circuit ruled against
Yankee Atomic and on August 15, 1997 denied Yankee Atomic's request for
rehearing "en banc" of the court's decision.
5. Metropolitan Dade County and Montenay Power Corp. v. Florida Power
Corporation, Circuit Court of the Eleventh Circuit for Dade County,
Florida, Case No 96-09598-CA-30.
Metropolitan Dade County and Montenay Power Corp. v. Florida
Progress Corporation, Florida Power Corporation and Electric
Fuels Corporation, U.S. District Court, Southern District,
Miami Division, Florida, Case No 96-594-CIV-LENARD.
See prior discussion of this matter in the 1996 Form 10-K, Item 3,
paragraph 5 and 6. In August 1997, the Dade County Court denied cross
motions for summary judgment filed by Metropolitan Dade County and
Montenay Power Corp. and Florida Power. No court schedule has as yet
been set in the State court case. The current schedule established by
the federal court contemplates a trial commencing in October 1998.
6. Sanford Gasification Plant Site, Sanford, Florida
See prior discussion in this matter in the second quarter 1997 Form
10-Q, Part II, Item 1, paragraph 11 and the 1996 Form 10-K, Item 3,
paragraph 13. The EPA granted a 30-day extension to the PRPs to file a
good faith offer to conduct a RI/FS. The submission was made to the EPA
on October 20, 1997. If accepted by the EPA, the RI/FS study will be
embodied in an administrative order on consent and allow the PRPs to
perform and finance cleanup activities at the site under the guidance of
the EPA. The PRPs have reached a tentative agreement on allocation of
costs and to fund the RI/FS and subsequent remedial work for up to $1.5
million. Additional contributions for subsequent clean-up costs are
being negotiated among the PRPs. See Note 4 to the Financial Statements
under the heading "Contaminated Site Cleanup" herein.
7. In re: Petition of IMC-Agrico Company for a Declaratory Statement
Confirming Non-Jurisdictional Nature of Planned Self-Generation, Florida
Public Service Commission, Docket No. 971313-EI.
In re: Petition of Duke Mulberry Energy, L.P., and IMC-Agrico Company
for a Declaratory Statement Concerning Eligibility To Obtain
Determination of Need Pursuant to Section 403.519, Florida Statutes,
Florida Public Service Commission, Docket No. 971337-EI.
IMC-Agrico Company and Duke Energy Power Services announced their
intention to construct, own and operate a natural gas-fired combined
cycle power plant with a capacity of between 240 and 750 megawatts. A
portion of the plant's capacity would be used in IMC-Agrico's
operations. The remainder of the plant's output would be sold to
20
wholesale customers by an affiliate of Duke Energy. IMC-Agrico is
currently a retail customer of Florida Power. IMC-Agrico has filed a
petition for a declaratory statement with the FPSC for an order that its
proposed ownership and operation of an interest in the plant will
constitute self-generation and not render it a public utility subject to
regulation by the FPSC. Duke Mulberry Energy, L.P. and IMC-Agrico have
also filed a petition for a declaratory statement with the FPSC for an
order that they are entitled to apply for a determination of need under
the Florida Electrical Power Plant Siting Act or that no determination
of need is required for their proposed combination of self-generation
and merchant plant project. Florida Power intends to intervene in these
proceedings.
Item 5. Other Information.
1. On September 8, 1997, Florida Progress, Cinergy Corporation of
Cincinnati, Ohio and New Century Energies of Denver, Colorado formed
a new joint venture, Cadence Network, LLC, which will be based in
Cincinnati, Ohio. Cadence will provide single-source energy
management services and products designed to lower energy costs for
national companies that operate in multiple locations across the
country. Each of the three owners have a one-third interest in the
venture. As of September 30, 1997, Florida Progress has made a $2.3
million equity investment in Cadence.
2. On September 24, 1997, Electric Fuels purchased its partner's 50%
interest of an underground coal mining complex in southeastern Kentucky
and southwestern Virginia. (See the 1996 Form 10-K, Part I, Item 2
Properties - Diversified Operations - Electric Fuels.)
3. On October 28, 1997, Florida Power announced the appointment of Roy
A. Anderson as head of the Energy Supply business unit. Mr. Anderson,
Florida Power's senior nuclear officer, will replace John Hancock who
will be retiring as Senior Vice President in charge of Energy Supply,
effective January 1, 1998, after 30 years of service with Florida
Power. Florida Power's Energy Supply group will then include all of
Florida Power's fossil and nuclear generation assets, Power Marketing
and Purchased Power Resources.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
12 Statement Regarding Computation of Ratio X
of Earnings to Fixed Charges for Florida
Power.
27.(a) Florida Progress Financial Data Schedule. X
27.(b) Florida Power Financial Data Schedule. X
X = Exhibit is filed for that respective company.
21
(b) Reports on Form 8-K:
During the third quarter 1997, Florida Progress and Florida
Power filed the following reports on Form 8-K:
Form 8-K dated July 15, 1997, reporting under Item 5 "Other
Events" the second quarter earnings for 1997.
In addition, Florida Progress and Florida Power filed the following
report on Form 8-K subsequent to the third quarter 1997:
Form 8-K dated October 16, 1997, reporting under Item 5 "Other
Events" the third quarter earnings for 1997.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, each registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. The signature of
each of the undersigned on behalf of each listed company shall be
deemed to relate only to matters having reference to such company.
FLORIDA PROGRESS CORPORATION
FLORIDA POWER CORPORATION
Date: June 2, 1998 /s/ John Scardino, Jr.
-----------------------------
John Scardino, Jr.
Vice President and Controller
Date: June 2, 1998 /s/ Jeffrey R. Heinicka
-----------------------------
Jeffrey R. Heinicka
Senior Vice President and
Chief Financial Officer
23
Exhibit Index
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
12 Statement Regarding Computation of Ratio X
of Earnings to Fixed Charges for Florida
Power.
27.(a) Florida Progress Financial Data Schedule. X
27.(b) Florida Power Financial Data Schedule. X
X = Exhibit is filed for that respective company.