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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
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 its I.R.S. Employer
Commission File No. charter, state of incorporation, address of Identification Number
principal executive offices, telephone
- -------------------- --------------------------------------------- -----------------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
410 South Wilmington Street
Raleigh, North Carolina 27601
Telephone (919) 546-6111
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (727) 820-5151
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 registrants'
classes of common stock, as of the latest practicable date.
Shares Outstanding
Registrant Description of Class at April 30, 2001
- ----------------------------- -------------------------------- ----------------------------------
Florida Progress Corporation Common Stock, without par value 98,616,658 (all of which were
held by Progress Energy, Inc.)
Florida Power Corporation Common Stock, without par value 100 (all of which were held by
Florida Progress Corporation)
This combined Form 10-Q is filed separately by two registrants: Florida Progress
Corporation and Florida Power Corporation. Information contained herein relating
to either individual registrant is filed by such registrant solely on its own
behalf. Each registrant makes no representation as to information relating
exclusively to the other registrant.
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FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
FORM 10-Q - For the Quarter Ended March 31, 2001
Glossary of Terms
Safe Harbor For Forward-Looking Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Florida Progress Corporation
----------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Florida Power Corporation
-------------------------
Statements of Income
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
Florida Progress Corporation and Florida Power Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
AST.......................................Advanced Separation Technologies
Btu.......................................British thermal units
CVO.......................................Contingent Value Obligation
Company or Florida Progress...............Florida Progress Corporation
CP&L......................................Carolina Power and Light Company
CP&L Energy...............................CP&L Energy, Inc.
CR3.......................................Florida Power's nuclear generating plant, Crystal River Unit No. 3
DOE.......................................United States Department of Energy
Electric Fuels............................Electric Fuels Corporation
EPA.......................................United States Environmental Protection Agency
Energy Ventures...........................Progress Energy Ventures
FASB......................................Financial Accounting Standards Board
FDEP......................................Florida Department of Environmental Protection
FERC......................................Federal Energy Regulatory Commission
Florida Power or the utility..............Florida Power Corporation
Florida Progress or the Company...........Florida Progress Corporation
FPSC......................................Florida Public Service Commission
Funding Corp..............................Florida Progress Funding Corporation
IRS.......................................Internal Revenue Service
MEMCO.....................................MEMCO Barge Line, Inc.
MGP.......................................Manufactured Gas Plant
MW........................................megawatts
NEIL......................................Nuclear Electric Insurance Limited
NRC.......................................United States Nuclear Regulatory Commission
PLR.......................................Private Letter Ruling
Preferred Securities......................7.10% Cumulative Quarterly Income Preferred Securities, Series A, of
FPC Capital I, fully and unconditionally guaranteed by Florida
Progress
Preferred Stock...........................Florida Power Cumulative Preferred Stock, $100 par value
Progress Capital..........................Progress Capital Holdings, Inc.
Progress Energy...........................Progress Energy, Inc.
Progress Rail.............................Progress Rail Services Corporation
Progress Telecom..........................Progress Telecommunications Corporation
PRP.......................................potentially responsible party, as defined in CERCLA
PUHCA.....................................Public Utility Holding Company Act of 1935, as amended
QFs.......................................Qualifying facilities
RTO.......................................Regional Transmission Organization
SEC.......................................United States Securities and Exchange Commission
Section 29................................Section 29 of the Internal Revenue Service Code
SFAS......................................Statements of Financial Accounting Standards
the Trust.................................FPC Capital I
2
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The matters discussed throughout this Form 10-Q that are not historical facts
are forward-looking and, accordingly, involve estimates, projections, goals,
forecasts, assumptions, risks and uncertainties that could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements.
In addition, forward-looking statements are discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including, but not limited to, statements under the sub-heading "Other Matters"
concerning synthetic fuel tax credits and regulatory developments.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made.
Examples of factors that you should consider with respect to any forward-looking
statements made throughout this document include, but are not limited to, the
following: governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission, the Environmental Protection Agency, the
Nuclear Regulatory Commission, the Department of Energy, the Florida Public
Service Commission), particularly legislative and regulatory initiatives that
may impact the speed and degree of the restructuring of the electricity industry
and the results of negotiations related to the expiration of Florida Power's
rate stipulation; the outcome of legal and administrative proceedings before our
courts and principal regulators; risks associated with operating nuclear power
facilities, availability of nuclear waste storage facilities, and nuclear
decommissioning costs; changes in the economy of areas served by Florida Power;
the extent to which we are able to obtain adequate and timely rate recovery of
costs, including potential stranded costs arising from the restructuring of the
electricity industry; weather conditions and catastrophic weather-related
damage; general industry trends, realization of cost savings related to
synergies resulting from the acquisition by Progress Energy, increased
competition from energy and gas suppliers, and market demand for energy;
inflation and capital market conditions; the success of our direct and indirect
subsidiaries; the extent to which we are able to use tax credits associated with
the operations of the synthetic fuel facilities; and unanticipated changes in
operating expenses and capital expenditures.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results, and may be beyond the control of the Company.
New factors emerge from time to time, and it is not possible for management to
predict all such factors, nor can it assess the effect of each such factor on
the Company.
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS of INCOME
- ---------------------------------
Florida Progress Corporation Three Months Ended
March 31,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues
Electric $ 810,474 $ 625,309
Diversified businesses 368,706 331,539
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,179,180 956,848
- ---------------------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 216,386 138,211
Purchased power 125,619 103,125
Operations and maintenance 110,866 113,203
Depreciation and amortization 152,069 85,663
Taxes other than on income 60,109 53,133
Diversified businesses 384,715 324,398
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1,049,764 817,733
- ---------------------------------------------------------------------------------------------------------------------
Operating Income 129,416 139,115
- ---------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 38 167
Other, net (4,461) (3,452)
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (4,423) (3,285)
- ---------------------------------------------------------------------------------------------------------------------
Income before Interest Charges and Income Taxes 124,993 135,830
- ---------------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 40,660 38,698
Other interest charges 9,861 11,628
Allowance for borrowed funds used during
construction (93) (401)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Charges, Net 50,428 49,925
- ---------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 74,565 85,905
Income Taxes (Benefit) (1,423) 9,451
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 75,988 $ 76,454
=====================================================================================================================
See Notes to financial statements.
4
CONSOLIDATED BALANCE SHEETS
Florida Progress Corporation (In thousands) March 31, December 31,
Assets 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Utility Plant
Electric utility plant in service $7,007,354 $6,998,135
Accumulated depreciation (3,776,476) (3,701,975)
- ----------------------------------------------------------------------------------------------------------------------
Utility plant in service, net 3,230,878 3,296,160
Held for future use 8,274 8,274
Construction work in progress 159,503 124,988
Nuclear fuel, net of amortization 70,208 39,879
- ----------------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 3,468,863 3,469,301
- ----------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 15,701 24,200
Accounts receivable 458,255 506,220
Accounts receivable-affiliates 6,554 507
Taxes receivable 23,441 16,363
Deferred income taxes - 39,576
Inventory 415,691 373,626
Deferred fuel cost 66,321 90,434
Prepayments 19,779 26,254
Other current assets 26,467 25,251
- ----------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,032,209 1,102,431
- ----------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Deferred purchased power contract termination costs 158,518 226,656
Unamortized debt expense 18,803 19,128
Nuclear decommissioning trust funds 398,878 400,719
Non-utility property, net 758,819 746,392
Miscellaneous other property and investments 62,528 55,115
Goodwill, net 115,314 117,331
Other assets and deferred debits 371,708 370,016
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,884,568 1,935,357
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $6,385,640 $6,507,089
======================================================================================================================
Capitalization and Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Capitalization
- ----------------------------------------------------------------------------------------------------------------------
Common stock $1,318,879 $1,318,309
Retained earnings 692,055 670,679
Accumulated other comprehensive loss (1,739) (1,407)
Preferred stock of subsidiaries-not subject to mandatory redemption 33,497 33,497
Long-term debt, net 2,222,142 2,276,416
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization 4,264,834 4,297,494
- ----------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 213,206 190,466
Accounts payable 297,841 366,076
Accounts payable-affiliates 21,254 -
Interest accrued 47,528 64,118
Short-term obligations 389,057 467,292
Advances from parent 176,678 45,180
Other current liabilities 267,009 272,945
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,412,573 1,406,077
- ----------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 307,379 341,605
Accumulated deferred investment tax credits 60,217 62,160
Other liabilities and deferred credits 340,637 399,753
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 708,233 803,518
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $6,385,640 $6,507,089
======================================================================================================================
See Notes to financial statements.
5
CONSOLIDATED STATEMENTS of CASH FLOWS
Florida Progress Corporation Three Months Ended
March 31,
(In thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $75,988 $76,454
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 150,466 94,476
Deferred income taxes and investment tax credits, net 24,399 6,267
Deferred fuel cost (credit) 24,113 (10,658)
Changes in working capital, net of effects from sale or acquisition of
business
Net decrease in accounts receivable 45,838 11,422
Net increase in inventories (58,324) (39,814)
Net (increase) decrease in prepaids and other current assets 5,259 (16,260)
Net decrease in accounts payable (46,176) (56,870)
Net increase (decrease) in other current liabilities 73,765 (38,965)
Other (28,132) 16,208
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 267,196 42,260
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Property additions (43,956) (46,809)
Nuclear fuel additions (36,019) -
Other investing activities (30,068) (28,348)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (110,043) (75,157)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of long-term debt 87 -
Net increase (decrease) in short-term obligations (78,235) 81,846
Retirement of long-term debt (31,703) (211)
Dividends paid on common stock (54,611) (54,730)
Other financing activities (1,190) (680)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (165,652) 26,225
- -----------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (8,499) (6,672)
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period 24,200 9,589
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 15,701 $ 2,917
=======================================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period - interest (net of amount capitalized) $ 67,980 $ 61,400
Income taxes (netof refunds) $ (22,544) $ 17,400
See Notes to financial statements.
6
STATEMENTS of INCOME
Florida Power Corporation Three Months Ended
March 31,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues
Electric $ 810,474 $ 625,309
Operating Expenses
Fuel used in electric generation 216,386 138,211
Purchased power 125,619 103,125
Operation and maintenance 110,866 113,203
Depreciation and amortization 152,069 85,663
Taxes other than on income 60,109 53,133
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 665,049 493,335
- ---------------------------------------------------------------------------------------------------------------------
Operating Income 145,425 131,974
- ---------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 38 167
Other, net (1,755) 97
- ---------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (1,717) 264
- ---------------------------------------------------------------------------------------------------------------------
Income before Interest Charges and Income Taxes 143,708 132,238
- ---------------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 24,552 25,892
Other interest charges 4,536 6,303
Allowance for borrowed funds used during
construction (93) (401)
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Charges, Net 28,995 31,794
- ---------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 114,713 100,444
Income Taxes 42,729 36,664
- ---------------------------------------------------------------------------------------------------------------------
Net Income 71,984 63,780
Dividends on Preferred Stock 378 378
- ---------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock $ 71,606 $ 63,402
=====================================================================================================================
See Notes to financial statements.
7
BALANCE SHEETS
Florida Power Corporation (In thousands) March 31, December 31,
Assets 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Utility Plant
Electric utility plant in service $7,007,354 $6,998,135
Accumulated depreciation (3,776,476) (3,701,975)
- ----------------------------------------------------------------------------------------------------------------------
Utility plant in service, net 3,230,878 3,296,160
Held for future use 8,274 8,274
Construction work in progress 159,503 124,988
Nuclear fuel, net of amortization 70,208 39,879
- ----------------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 3,468,863 3,469,301
- ----------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents - 3,380
Accounts receivable 246,968 289,237
Accounts receivable-affiliates 67,619 38,729
Deferred income taxes - 39,576
Inventory 156,927 139,116
Deferred fuel cost 66,321 90,434
Prepayments 2,283 9,097
Other current assets 133 -
- ----------------------------------------------------------------------------------------------------------------------
Total Current Assets 540,251 609,569
- ----------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Deferred purchased power contract termination costs 158,518 226,656
Unamortized debt expense 9,321 9,526
Nuclear decommissioning trust funds 398,878 400,719
Non-utility property, net 8,900 9,431
Other assets and deferred debits 244,437 233,148
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 820,054 879,480
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $4,829,168 $4,958,350
======================================================================================================================
Capitalization and Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Capitalization
- ----------------------------------------------------------------------------------------------------------------------
Common stock equity $1,982,022 $1,965,028
Preferred stock of subsidiaries-not subject to mandatory redemption 33,497 33,497
Long-term debt, net 1,397,197 1,397,116
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization 3,412,716 3,395,641
- ----------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 82,000 82,000
Accounts payable 115,656 170,126
Accounts payable-affiliates 42,504 39,526
Taxes accrued 28,132 4,401
Interest accrued 37,080 47,117
Advances from parent - 20,180
Short-term obligations 182,668 192,530
Other current liabilities 256,409 219,057
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 744,449 774,937
- ----------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 376,688 427,477
Accumulated deferred investment tax credits 59,688 61,626
Other liabilities and deferred credits 235,627 298,669
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 672,003 787,772
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $4,829,168 $4,958,350
======================================================================================================================
See Notes to financial statements.
8
STATEMENTS of CASH FLOWS
Florida Power Corporation Three Months Ended
March 31,
(In thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 71,606 $ 63,402
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 150,406 94,346
Deferred income taxes and investment tax credits, net 7,903 (1,749)
Deferred fuel cost (credit) 24,113 (10,658)
Changes in working capital:
Net decrease in accounts receivable 41,325 20,399
Net increase in inventories (17,811) (5,208)
Net decrease in prepaids and other current assets 6,681 2,279
Net decrease in accounts payable (51,492) (22,268)
Net decrease in other current liabilities (19,930) (2,714)
Other (67,306) 250
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 145,495 138,079
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Property additions (43,956) (46,809)
Nuclear fuel additions (36,019) -
Other investing activities (4,427) (3,804)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (84,402) (50,613)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net decrease in short-term obligations (9,862) (36,236)
Dividends paid on common stock (54,611) (51,230)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (64,473) (87,466)
- -----------------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (3,380) -
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period 3,380 -
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest (net of amount capitalized) $ 39,032 $ 41,200
income taxes (net of refunds) $ 7,362 $ 3,400
See Notes to financial statements.
9
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. Florida Progress Corporation (the Company or Florida Progress) is a
holding company under the Public Utility Holding Company Act of 1935 (PUHCA).
The Company became subject to the regulations of PUHCA when it was acquired by
CP&L Energy, Inc. on November 30, 2000 (See Note 2). CP&L Energy, Inc.
subsequently changed its name to Progress Energy, Inc. (Progress Energy or the
Parent). Florida Progress' two primary subsidiaries are Florida Power
Corporation (Florida Power) and Electric Fuels Corporation (Electric Fuels).
Florida Power is a regulated public utility engaged in the generation,
transmission, distribution and sale of electricity in portions of Florida.
Florida Power is regulated by the Florida Public Service Commission (FPSC) and
the Federal Energy Regulatory Commission (FERC).
Electric Fuels' Rail Services, Inland Marine Transportation and the non-Florida
portion of its Energy & Related Services operations report their results
one-month in arrears.
Basis of Presentation. These financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (generally accepted accounting principles) for interim financial
information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Because the accompanying consolidated interim financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles, they should be read in conjunction with the audited
financial statements for the period ended December 31, 2000 and notes thereto
included in Florida Progress' and Florida Power's Form 10-K for the year ended
December 31, 2000.
The amounts included in the consolidated interim financial statements are
unaudited but, in the opinion of management, reflect all adjustments necessary
to fairly present Florida Progress' and Florida Power's financial position and
results of operations for the interim periods. Due to seasonal weather
variations and the timing of outages of electric generating units, the results
of operations for interim periods are not necessarily indicative of amounts
expected for the entire year. Certain reclassifications have been made to
prior-year amounts to conform to the current year's presentation.
The financial statements include the financial results of the Company and its
majority-owned operations. All significant intercompany balances and
transactions have been eliminated. Investments in 20% to 50%-owned joint
ventures are accounted for using the equity method.
In preparing financial statements that conform with generally accepted
accounting principles, management must make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and amounts of
revenues and expenses reflected during the reporting period. Actual results
could differ from those estimates.
NOTE 2. ACQUISITION BY PROGRESS ENERGY, INC.
On November 30, 2000, Progress Energy acquired all of the outstanding shares of
Florida Progress' common stock in accordance with the Amended and Restated Plan
of Exchange, including the related Plan of Share Exchange, dated as of August
22, 1999, as amended and restated as of March 3, 2000, among CP&L Energy,
Florida Progress and Carolina Power & Light Company (CP&L). Florida Progress
shareholders received $54.00 in cash or shares of Progress Energy common stock
having a value of $54.00, subject to proration, and one contingent value
obligation (CVO) in exchange for each share of Florida Progress common stock.
The exchange ratio for the shares of Progress Energy common stock issued to
Florida Progress shareholders was 1.3473. Each CVO represents the right to
receive contingent payments based upon the net after-tax cash flow to Progress
Energy generated by four synthetic fuel facilities purchased by subsidiaries of
Florida Progress in 1999.
The acquisition was accounted for by Progress Energy using the purchase method
of accounting; however, due to the significance of the public debt and preferred
securities of the Company and Florida Power, the acquisition cost was not pushed
down to the Company's separate financial statements or Florida Power's.
In connection with the acquisition of the Company by Progress Energy, the
Company began the implementation of a plan to combine operations with Progress
Energy. In the fourth quarter 2000, the Company recorded executive involuntary
10
termination costs of $24.5 million and non-executive involuntary termination
costs of $41.8 million. Substantially all of the executive termination expense
was attributable to lump-sum severance costs paid in December 2000. The first
quarter 2001 activity for the non-executive termination costs is detailed in the
table below:
Non-Executive
In millions Termination Costs
-----------------
Balance at December 31, 2000 $ 41.8
Payments (11.4)
Adjustments -
-----------------------------
Balance at March 31, 2001 $ 30.4
=============================
The Company expects to complete the implementation phase of the non-executive
plan by the end of June 2001 and finalize the plan by the end of 2001. The
majority of the related severance payments are expected to occur in 2001 with
the remaining payments occurring through 2003. The Company expects additional
termination effects related to pension and postretirement benefit plan
curtailments in 2001.
NOTE 3. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company's principal business segment is Florida Power, an electric utility
engaged in the generation, purchase, transmission, distribution and sale of
electricity primarily in Florida. The other reportable business segments are
Electric Fuels' Energy & Related Services, Rail Services and Inland Marine
Transportation units. Energy & Related Services includes coal and synthetic fuel
operations, natural gas production and sales, river terminal services and
off-shore marine transportation. Rail Services' operations include railcar
repair, rail parts reconditioning and sales, railcar leasing and sales,
providing rail and track material, and scrap metal recycling. Inland Marine
provides transportation of coal, agricultural and other dry-bulk commodities as
well as fleet management services. The other category consists primarily of
Progress Telecom, the Company's telecommunications subsidiary, the Company's
investment in FPC Capital Trust, which holds the Preferred Securities, the
holding company, Florida Progress Corporation and elimination entries. Progress
Telecom markets wholesale fiber-optic based capacity service in the Southeastern
United States and also markets wireless structure attachments to wireless
communication companies and governmental entities. Florida Progress allocates a
portion of its operating expenses to business segments.
Financial data for business segments for the periods covered in this Form 10-Q
are presented in the table below:
Energy and
Related Rail Inland Marine
(In thousands) Utility Services Services Transportation Other Consolidated
- ------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31, 2001:
Revenues $ 810,474 $ 84,688 $ 224,165 $ 34,268 $25,585 $1,179,180
Intersegment revenues -- 80,516 37 4,005 (84,558) --
Segment income (loss) 71,606 29,181 (2,098) 362 (23,063) 75,988
Total assets 4,829,168 393,713 822,859 103,171 236,729 6,385,640
========================================================================================================================
Energy and
Related Rail Inland Marine
Utility Services Services Transportation Other Consolidated
- ------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31, 2000:
Revenues $ 625,309 $ 48,678 $ 240,610 $ 37,913 $ 4,338 $ 956,848
Intersegment revenues -- 64,546 -- 4,342 (68,888) --
Segment income (loss) 63,402 12,634 938 1,298 (1,818) 76,454
Total assets 4,824,321 439,941 837,060 109,672 206,288 6,417,282
========================================================================================================================
NOTE 4. IMPACT OF NEW ACCOUNTING STANDARD
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138. SFAS No. 133, as
11
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as assets or liabilities in the consolidated balance
sheet and measure those instruments at fair value. The adoption of SFAS No. 133
did not have any effect on the Company's financial statements.
The application of the new rules is still evolving and further guidance from the
Financial Accounting Standards Board (FASB) is expected, which could
additionally impact the Company's financial statements.
NOTE 5. FLORIDA PROGRESS OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE
QUARTERLY INCOME PREFERRED SECURITIES (QUIPS) OF A SUBSIDIARY TRUST
HOLDING SOLELY FLORIDA PROGRESS GUARANTEED SUBORDINATED DEFERRABLE
INTEREST NOTES
In April 1999, FPC Capital I (the Trust), an indirect wholly owned subsidiary of
the Company, issued 12 million shares of $25 par cumulative Company-obligated
mandatorily redeemable preferred securities (Preferred Securities) due 2039,
with an aggregate liquidation value of $300 million and a quarterly distribution
rate of 7.10%, payable quarterly. Currently, all 12 million shares of the
Preferred Securities that were issued are outstanding. Concurrent with the
issuance of the Preferred Securities, the Trust issued to Florida Progress
Funding Corporation (Funding Corp.) all of the common securities of the Trust
(371,135 shares), for $9.3 million. Funding Corp. is a direct wholly owned
subsidiary of the Company.
The existence of the Trust is for the sole purpose of issuing the Preferred
Securities and the common securities and using the proceeds thereof to purchase
from Funding Corp. its 7.10% Junior Subordinated Deferrable Interest Notes
(subordinated notes) due 2039, for a principal amount of $309.3 million. The
subordinated notes and the Notes Guarantee (as discussed below) are the sole
assets of the Trust. Funding Corp.'s proceeds from the sale of the subordinated
notes were advanced to Progress Capital Holdings, Inc. (PCH), and used for
general corporate purposes including the repayment of a portion of certain
outstanding short-term bank loans and commercial paper.
The Company has fully and unconditionally guaranteed the obligations of Funding
Corp. under the subordinated notes (the Notes Guarantee). In addition, the
Company has guaranteed the payment of all distributions required to be made by
the Trust, but only to the extent that the Trust has funds available for such
distributions (Preferred Securities Guarantee). The Preferred Securities
Guarantee, considered together with the Notes Guarantee, constitutes a full and
unconditional guarantee by the Company of the Trust's obligations under the
Preferred Securities.
The subordinated notes may be redeemed at the option of Funding Corp. beginning
in 2004 at par value plus accrued interest through the redemption date. The
proceeds of any redemption of the subordinated notes will be used by the Trust
to redeem proportional amounts of the Preferred Securities and common securities
in accordance with their terms. Upon liquidation or dissolution of Funding
Corp., holders of the Preferred Securities would be entitled to the liquidation
preference of $25 per share plus all accrued and unpaid dividends thereon to the
date of payment.
These preferred securities are classified as long-term debt on Florida Progress'
balance sheets.
NOTE 6. COMPREHENSIVE INCOME
Comprehensive income for Florida Progress for the three months ended March 31,
2001 and 2000 was $75.7 million and $76.3 million, respectively. Florida Power
does not have any items of other comprehensive income.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Insurance -- Florida Progress and its subsidiaries utilize various risk
management techniques to protect certain assets from risk of loss, including the
purchase of insurance. Risk avoidance, risk transfer and self-insurance
techniques are utilized depending on the Company's 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 a regulatory order,
Florida Power is accruing $6 million annually to a storm damage reserve and may
defer any losses in excess of the reserve.
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
12
exceed $200 million (the amount of currently available commercial liability
insurance), Florida Power could be assessed up to $88.1 million per incident,
with a maximum assessment of $10 million per year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance totaling $1.6 billion.
This insurance coverage is purchased from Nuclear Electric Insurance Ltd.
(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 $8.3 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.
Claims and Uncertainties -- The Company is subject to federal, state and local
regulations addressing air and water quality, hazardous and solid waste
management and other environmental matters.
Various organic materials associated with the production of manufactured gas,
generally referred to as coal tar, are regulated under federal and state laws.
The lead or sole regulatory agency that is responsible for a particular former
coal tar site depends largely upon the state in which the site is located. There
are several MGP sites to which Florida Power has some connection. In this
regard, Florida Power, with other potentially responsible parties, is
participating in investigating and, if necessary, remediating former coal tar
sites with several regulatory agencies, including, but not limited to, the U.S.
Environmental Protection Agency (EPA) and the Florida Department of
Environmental Protection (FDEP). Although the Company may incur costs at these
sites about which it has been notified, based upon current status of these
sites, the Company does not expect those costs to be material to the financial
position or results of operations of the Company. The Company has accrued
amounts to address known costs at certain of these sites.
The Company is periodically notified by regulators such as the EPA and various
state agencies of its involvement or potential involvement in sites, other than
MGP sites, that may require investigation and/or remediation. Although the
Company may incur costs at the sites about which it has been notified, based
upon the current status of these sites, the Company does not expect those costs
to be material to the financial position or results of operations of the
Company.
The EPA has been conducting an enforcement initiative related to a number of
coal-fired utility power plants in an effort to determine whether modifications
at those facilities were subject to New Source Review requirements or New Source
Performance Standards under the Clean Air Act. Florida Power has recently been
asked to provide information to the EPA as part of this initiative and has
cooperated in providing the requested information. The EPA has initiated
enforcement actions against other unaffiliated utilities as part of this
initiative, some of which have resulted in or may result in settlement
agreements, ranging from $1.0 billion to $1.4 billion. These settlement
agreements have generally called for expenditures to be made over extended time
periods, and some of the companies may seek recovery of the related costs
through rate adjustments. The Company cannot predict the outcome of this matter.
In July 1997, the EPA issued final regulations establishing a new eight-hour
ozone standard. In October 1999, the District of Columbia Circuit Court of
Appeals ruled against the EPA with regard to the federal eight-hour ozone
standard. The U.S. Supreme Court has upheld, in part, the District of Columbia
Circuit Court of Appeals decision. Further litigation and rulemaking are
anticipated. The Company cannot predict the outcome of this matter.
Florida Power currently is storing spent nuclear fuel onsite in spent fuel
pools. If Florida Power does not seek renewal of the Crystal River Unit No. 3
(CR3) operating license, with certain modifications to its storage pools
currently underway, CR3 will have sufficient storage capacity in place for fuel
consumed through the end of the expiration of the license in 2016. If Florida
Power extends the CR3 operating license dry storage may be necessary.
Florida Power has filed claims with the Company's general liability insurance
carriers to recover costs arising out of actual or potential liabilities. Some
claims have settled and others are still pending. While management cannot
predict the outcome of these matters, the outcome is not expected to have a
material effect on the financial position or results of operations
LEGAL MATTERS
Age Discrimination Suit -- Florida Power and Florida Progress have been named
defendants in an age discrimination lawsuit. The number of plaintiffs remains at
116, but four of those plaintiffs have had their federal claims dismissed and 74
others have had their state age claims dismissed. 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 Federal Court approved an agreement between the parties to
provisionally certify this case as a class action suit under the Age
Discrimination in Employment Act. Florida Power filed a motion to decertify the
class and in August 1999, the
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Court granted Florida Power's motion. In October 1999, the judge certified the
question of whether the case should be tried as a class action to the Eleventh
Circuit Court of Appeals for immediate appellate review. In December 1999, the
Court of Appeals agreed to review the judge's order decertifying the class and
oral arguments were held in January 2001. In anticipation of a potential ruling
decertifying the case as a class action, plaintiffs filed a virtually identical
lawsuit, which identified all opt-in plaintiffs as named plaintiffs. This case
had been held in abeyance until reactivated in July 2000 upon motion of the
plaintiffs.
In December 1998, during mediation in this age discrimination suit, plaintiffs
alleged damages of $100 million. Company management, while not believing
plaintiffs' claim to have merit, offered $5 million in an attempt to settle all
claims. Plaintiffs rejected that offer. Florida Power and the plaintiffs engaged
in informal settlement discussions, which terminated on December 22, 1998. As a
result of the plaintiffs' claims, management has identified a probable range of
$5 million to $100 million with no amount within that range a better estimate of
probable loss than any other amount; accordingly, Florida Power has accrued $5
million. In December 1999, Florida Power also recorded an accrual of $4.8
million for legal fees associated with defending its position in these
proceedings. There can be no assurance that this litigation will be settled, or
if settled, that the settlement will not exceed $5 million. Additionally, the
ultimate outcome, if litigated, cannot presently be determined.
Advanced Separation Technologies (AST) -- In 1996, Florida Progress sold its 80%
interest in AST to Calgon Carbon Corporation (Calgon) for net proceeds of $56
million in cash. In January 1998, Calgon filed a lawsuit against Florida
Progress and the other selling shareholder and amended it in April 1998,
alleging misstatement of AST's 1996 revenues, assets and liabilities, seeking
damages and granting Calgon the right to rescind the sale. The lawsuit also
accused the sellers of failing to disclose flaws in AST's manufacturing process
and a lack of quality control. Florida Progress believes that the aggregate
total of all legitimate warranty claims by customers of AST for which it is
probable that Florida Progress will be responsible for under the Stock Purchase
Agreement with Calgon is approximately $3.2 million, and accordingly, accrued
$3.2 million in the third quarter of 1999 as an estimate of probable loss.
Florida Progress filed a motion for summary judgement, which is pending.
Qualifying Facilities Contracts -- Florida Power's purchased power contracts
with 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.
The owners of four qualifying facilities filed suits against Florida Power in
state court over the contract payment terms, and one owner also filed suit in
federal court. Three of the state court suits have been settled and the federal
case was dismissed.
In the remaining state court suit, the trial regarding NCP Lake Power (Lake)
concluded in December 1998. In April 1999, the judge entered an order granting
Lake's breach of contract claim and ruled that Lake is entitled to receive
"firm" energy payments during on-peak hours, but for all other hours, Lake is
entitled to the "as-available" rate. The Court also ruled that for purposes of
calculating damages, the breach of contract occurred at the inception of the
contract. In August 1999, a Final Judgement was entered for Lake for
approximately $4.5 million and Lake filed a Notice of Appeal. Also in this case,
in April 1998, Florida Power filed a petition with the FPSC for a Declaratory
Statement that the contract between the parties limits energy payments
thereunder to the avoided costs based upon an analysis of a hypothetical unit
having the characteristics specified in the contract. In October 1998, the FPSC
denied the petition, but Florida Power appealed to the Florida Supreme Court. On
January 26, 2001, the District Court of Appeals reversed the trial court's order
and held that the contract requires Florida Power to pay Lake the firm energy
rate for all hours that the avoided unit operates, less any maintenance
shut-down hours. The District Court of Appeals remanded the case to the trial
court for a new trial to determine the appropriate amount of damages consistent
with the appellate court's ruling. Florida Power has sought rehearing of the
District Court of Appeal's decision. Although granting Florida Power's request,
the District Court of Appeal's confirmed its initial decision.
Management does not expect that the results of these legal actions will have a
material impact on Florida Power's financial position, results of operations or
liquidity. Florida Power anticipates that all fuel and capacity expenses,
including any settlement amounts incurred as a result of the matters discussed
above, will be recovered from its customers.
Easement Litigation -- In December 1998, Florida Power was served with a class
action lawsuit seeking damages, declaratory and injunctive relief for the
alleged improper use of electric transmission easements. The plaintiffs contend
that the licensing of fiber optic telecommunications lines to third parties or
telecommunications companies for other than Florida Power's internal use along
the electric transmission line right-of-way exceeds the authority granted in the
easements. In June 1999, plaintiffs amended their complaint to add Progress
Telecommunications Corporation, an indirect wholly owned subsidiary of Florida
Progress, as a defendant and to add counts for unjust enrichment and
constructive trust. In January 2000, the court conditionally certified the class
statewide. In a mediation held in March 2000, the parties
14
reached a tentative settlement of this claim. In January 2001, the Court
preliminarily approved the amended settlement agreement, certified the
settlement class and approved the class notice. A final settlement hearing date
is set for June 2001. Management does not expect that the results of these legal
actions will have a material impact on Florida Progress' financial position,
results of operations or liquidity. Accordingly, no provision for loss has been
recorded pertaining to this matter.
Other Legal Matters -- Florida Progress and Florida Power are involved in
various other claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect upon either company's
consolidated financial position, results of operations or liquidity.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
Florida Progress' consolidated earnings for the three month period ended March
31, 2001, were $76.0 million compared to earnings of $76.5 million, for the same
period in 2000.
FLORIDA POWER CORPORATION
Florida Power, the largest subsidiary of Florida Progress, reported net income
of $71.6 million for the first quarter of 2001, compared to $63.4 million for
the comparable period in 2000.
Florida Power's total kilowatt-hour sales increased 3.4 percent during the first
quarter of 2001, compared with 2000. The improvement was primarily due to strong
customer growth and colder temperatures in January of 2001.
Retail sales were up 5 percent as Florida Power provided electric service to
approximately 38,400 new customers during the first quarter of 2001 compared
with the same period last year. Weather, a key factor influencing usage among
residential customers, favorably influenced retail sales for the quarter. Usage
among residential customers was nearly 12 percent higher during the quarter when
compared with the same period last year.
Wholesale sales decreased slightly compared to 2000, which is attributable to
lower sales to Seminole Electric Cooperative, Florida Power's largest wholesale
customer.
Fuel used in generation and purchased power increased $78 million and $22
million, respectively, for the first quarter of 2001 when compared to the same
period last year. The increase is due mainly to the increased price of coal, oil
and gas and increased usage. Fuel and purchased power expenses are recovered
primarily through cost recovery clauses and, as such, have no material impact on
operating results.
Operations and maintenance expense decreased slightly during the quarter. The
decrease is due primarily to lower employee-related costs resulting from the
reorganization after the acquisition by Progress Energy.
Depreciation and amortization increased $66.4 million primarily due to
accelerating the amortization of the Tiger Bay regulatory asset in March 2001.
The additional amortization had no significant earnings impact as it was offset
by the recognition of $63 million of revenues that were deferred pursuant to a
regulatory order in the fourth quarter of 2000.
ELECTRIC FUELS CORPORATION
Electric Fuels makes up the majority of Florida Progress' diversified
operations. The results of operations for Electric Fuels' Energy and Related
Services, Rail Services and Inland Marine Transportation units are discussed
below.
Energy and Related Services - Earnings at the Energy and Related Services Group
increased $16.5 million from the same period in the prior year. The increase was
due primarily to higher synthetic fuel sales and related tax credits during the
quarter compared with last year (See "Other Matters" below). Improved operating
results of the gas operations, resulting from increases in the number of wells
and a higher price for natural gas, also contributed to increased earnings in
the Energy and Related Services group.
Rail Services - Results in the Rail Services group decreased $3.0 million when
compared to 2000. Current year results were negatively affected by the
significant downturn in the domestic scrap market and the continuing weak market
for railcar parts.
Inland Marine Transportation - Earnings from the Inland Marine Transportation
group decreased $0.9 million when compared to last year. The decrease was
primarily due to the impact of severe weather conditions and higher diesel fuel
costs.
Progress Energy has hired a financial adviser to assist Florida Progress in
evaluating its strategic alternatives with respect to the Rail Services and
Inland Marine Transportation business segments.
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OTHER
The other group includes telecommunications, holding company and financing
expenses. The increased loss over the first quarter of 2000 is due primarily to
the recording of an intra-period income tax allocation adjustment. Generally
accepted accounting principles require companies to apply a levelized effective
tax rate to interim periods that is consistent with the estimated annual rate.
Income tax expense was increased by $14.8 million for the first quarter of 2001,
and decreased by $7.6 million for the first quarter of 2000, to maintain an
effective tax rate consistent with the estimated annual rate. The tax credits
associated with the Company's synthetic fuel operations lower the overall
effective tax rate. These credits, along with seasonal earnings variations, can
also cause large swings in the effective tax rate for interim periods.
Therefore, this adjustment will vary each quarter, but have no effect on net
income for the year. The telecommunications group also had slightly higher
losses than the first quarter of 2000 due to continued expansion of the
business.
LIQUIDITY AND CAPITAL RESOURCES
Florida Progress' capital expenditures are expected to be funded primarily from
internally generated funds, loans from the non-utility money pool (discussed
below) and debt. During the first three months of 2001, $44.0 million was spent
on the Florida Power construction program and $30.1 million was spent in
diversified operations.
During the first quarter of 2001, Progress Capital Holdings retired a total of
$31 million in Medium-Term Notes. The $6 million of medium-term notes that were
retired in January had a 9.95% coupon rate and the $25 million of medium-term
notes that were retired in February had a 6.13% coupon rate. Progress Capital
issued commercial paper to fund the maturing medium-term notes.
The Company and its subsidiaries participate in two internal money pools,
operated by Progress Energy, to more effectively utilize cash resources and to
reduce outside short-term borrowings. Short-term borrowing needs are met first
by available funds of the money pool participants. Borrowing companies pay
interest at a rate designed to approximate the cost of outside short-term
borrowings. Subsidiaries that invest in the money pool earn interest on a basis
proportionate to their average monthly investment. The interest rate used to
calculate earnings approximates external interest rates. Funds may be withdrawn
from or repaid to the pool at any time without prior notice.
OTHER MATTERS
Regional Transmission Organization
In October 2000, Florida Power, along with Florida Power & Light Company and
Tampa Electric Company, filed with Federal Energy Regulatory Commission (FERC)
an application for approval of a Regional Transmission Organization (RTO) for
peninsular Florida, currently named GridFlorida. On March 28, 2001, FERC gave
preliminary approval for the formation of GridFlorida to manage the power market
for peninsular Florida. In conjunction with the preliminary approval, FERC has
requested that a new approach on market design issues be submitted within 60
days in addition to a better congestion management plan. See "Regulatory
Developments" below for additional GridFlorida developments.
Synthetic Fuels Tax Credits
On April 20, 2001 and May 4, 2001, the Internal Revenue Service (IRS) released
Revenue Procedure 2001-30 and Revenue Procedure 2001-34, respectively, that
outline the conditions that must be met to receive a Private Letter Ruling (PLR)
for Section 29 tax credits from the IRS. PLRs represent advance rulings from the
IRS applying its interpretation of the tax law to an entities' facts for Section
29 credits. The Company continues to pursue PLRs for its two majority-owned
facilities and two minority-owned facilities that have not received PLRs. In
management's opinion, the Company is complying with all the necessary
requirements to be allowed such credits under Section 29, although it cannot
provide with certainty that it will receive PLRs or prevail on any credits
taken.
Regulatory Developments
On May 3, 2001, the FPSC staff recommended to the FPSC that it require Florida
Power to submit minimum filing requirements, based on a 2002 projected calendar
year, by September 15, 2001 to initiate a base rate proceeding regarding Florida
Power's future base rates. The FPSC staff also recommended that pending
completion of the Florida Power rate case, annual revenues of $114 million
should be held subject to refund to Florida Power's customers. The FPSC staff
has asked the FPSC to consider its recommendations on May 15, 2001. Florida
Power's current rate agreement expires on June 30, 2001. On May 14, 2001,
Florida Power filed a proposed rate reduction with the FPSC that includes plans
to increase generating capacity, improve reliability and enhance customer
service. The Company will continue to work with the FPSC staff and other
interested parties to resolve the outstanding issues. The Company cannot predict
the outcome of this matter.
17
In its May 3, 2001 recommendation, the FPSC staff expressed concerns related to
Florida Power's plans to participate in the creation of the GridFlorida RTO
along with Florida Power & Light Company and Tampa Electric Company. The FPSC
staff raised questions about the prudence of establishing the new system and
costs associated with the process. The Company is continuing to evaluate the
concerns the FPSC staff has raised about GridFlorida and the impact those
concerns might have on the implementation of the GridFlorida RTO plan this year.
The Company cannot predict the outcome of this matter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Certain market risks are inherent in Florida Progress' financial instruments,
which arise from transactions entered into in the normal course of business.
Florida Progress' primary exposures are changes in interest rates with respect
to long-term debt, commercial paper and the FPC obligated mandatorily redeemable
securities of trust, and fluctuations in the return on marketable securities
with respect to its nuclear decommissioning trust funds. Florida Progress'
exposure to return on marketable securities for the decommissioning trust funds
has not changed materially since December 31, 2000. The total fixed rate debt at
March 31, 2001 was $1.6 billion, with an average interest rate of 6.79% and the
total commercial paper outstanding at March 31, 2001 was $500 million, with an
average interest rate of 5.86%. Florida Progress also had $300 million
outstanding of FPC mandatorily redeemable securities of trust, with an average
interest rate of 7.10%.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments for the matters discussed in the 2000
Form 10-K, Item 3. Certain legal matters are set forth in Part I, Item 1. See
Note 7 to the Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
During the first quarter of 2001, Florida Progress and Florida Power filed
the following combined reports on Form 8-K:
None
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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 PROGRESS CORPORATION
Date: May 15, 2001 By: /s/ Peter M. Scott III
------------------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
By: /s/ Robert H. Bazemore, Jr.
-----------------------------------
Robert H. Bazemore, Jr.
Vice President and Controller
Chief Accounting Officer
19
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 15, 2001 By: /s/ Peter M. Scott III
------------------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
By: /s/ Robert H. Bazemore, Jr.
-----------------------------------
Robert H. Bazemore, Jr.
Controller
Chief Accounting Officer
20