ML18230A841

Prospectus: Carolina Power & Light Company, First Mortgage Bonds, 11% Series Due April 15, 1984

ML18230A841
Person / Time
Site:	Harris
Issue date:	04/24/1975
From:	Kidder, Peabody & Co.., Merrill Lynch, Pierce, Fenner & Smith, Solomon Brothers
To:	Carolina Power & Light Co, Office of Nuclear Reactor Regulation
References
Download: ML18230A841 (48)

Text

PROSPECTUS,

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~~~ ~a.i~~ $100,000,000 Carolina Power 4 Light Company First Mortgage Bonds, 11% Series due April 18, 1984 The New Bonds willbe redeemable, in whole or in part, on 30 days'otice at the redemptiop prices set forth herein, provided that, prior to April 15, 1982, no redemption may be made at M general redemption price through refunding at an effective interest cost to the Company of les/~'han the effective interest cost of the New Bonds.

Reference is made to "Description of Nev4 e t Bonds" herein.

I THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY TH SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINALOFFENSE.

K" Per Unit Total.

Price to Public(l) 99.7

$99,750,000 Underwriting Discounts(2) 1.10

$1,100,000 Proceeds to Company(1) (3)

(,

98.6

$98,65O,OOO (1) Plus accrued interest from April 15, 1975.

(2) The Company has agreed to indemnify the several Underwriters against certain civil liabilities,L, including liabilities under the Securities Act of 1933.

(3) Before deduction of expenses payable by the Company estimated at $ 150,000.

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Cr The New Bonds are offered subject to prior sale, when, as and if delivered to and acceptedt: 4 by the Underwriters, and subject to approval of certain legal matters by their counsel and counsel for the Company.

The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that the New Bonds willbe ready for delivery on or about May 1, 1975.

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Incorporated Kidder, Peabody &,Co.

.Iltcorporated Salomon Brother~.

The date of this Prospectus is April24, 1975

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IN CONNECTION WITHTHIS OFFERING, THE UNDERWRITERS MAYOVER-ALLOTOR EFFECT TRANSACTIONS WHICH STABILIZEOR MAINTAINTHE MARKETPRICE OF THE SECURITIES HEREBY OFFERED AT A LEVELABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.

SUCH STABILIZING,IF COMMENCED, MAYBE DISCONTINUED AT ANYTIME.

AVAILABLEINFORMATION The Company is subject to the informational requirements ofthe Securities Exchange Act of 1934 and in accordance therewith/les reports and other i@formation with the Securities and Exchange Commission.

Certain information, as of particular dates, concerning the Company's directors and officers, their remuneration and any material interest of such persons in transactions with the Company is disclosed in proxy statements distributed to stockholders and ftled with the Commission.

Such reports, proxy statements and other information may be inspected at the office ofthe Commission, 1100 L Street, N.W., Washington, D. C, and copies ofsuch material can be obtained from the Commission at prescribed rates.

The Company's Common Stock is listed on the New York Stock Exchange, where reports, proxy material and other information concerning the Company may also be inspected.

THE COMPANY Carolina Power 8t, Light Company (Company) is a public service corporation formed under the laws of North Carolina in 1926, and is engaged in the generation, transmission, distribution and sale of electricity in portions ofNorth Carolina and South Carolina. (See map.) The principal executive oSces of the Company are located at 336 Fayetteville Street, Raleigh, North Carolina 27602, telephone 919-828-8211.

GENERAL PROBLEMS OF THE INDUSTRY The utilityindustry is experiencing significant problems in a number ofareas, including a slowdown in sales growth, fossil fuel shortages and resulting allocations thereof, increases in fuel costs and delays in the

'recovery thereof from customers, delays in receiving rate increase approvals, expenditures for pollution control facilities, increased expenditures and construction delays due to pollution control and environmen-tal considerations, material and equipment shortages, substantial increases in construction costs and difftculties in raising capitaL As discussed herein, certain of these problems have had an impact on the Company's operations.

The Company has experienced rapid increases in fuel costs (see "Business Fossil Fuel Supply").

The Company has made substantial expenditures for environmental control facilities and expects-,to..make

~

substantial expenditures for such purposes over the next several years (see "Application of Proceeds" "Financing Program", "Construction Program" and "Business Environmental Matters" ). The Company g has experienced some construction delays as a result of pollution control and environmental.consid-erations.

Increasing construction costs have resulted in increased capital needs, at a time when costs of, M

2 1

capital are high, and these and other factors have caused significant changes in the Company's construction program. The Company is unable to predict the effect'of such factors on its future operations or on its construction program.

See "Management's Comments on Statement of Income".

Reference is also made to "Application of Proceeds",

"Financing Program" and "Construction Program" for information as to factors afiecting the Company's ability to finance its construction program.

APPLICATION OF PROCEEDS The entire net proceeds (approximately $98,500,000) to be received from the sale of the First Mortgage Bonds offered hereby (New Bonds) will be used for general corporate purposes including the reduction of short-term borrowings'incurred primarily for the construction of new facilities.

Such short-'erm borrowings totaled approximately

$ 111,745,000 at February 28,

1975, and are expected to approximate $75,000,000 immediately prior to the delivery of the New Bonds.

M CONSTRUCTION PROGRAM The Company's construction program for the three-year period 1975 through 1977, subject to continuing review and adjustment, is presently estimated as follows:

Type of Facllit8cs 1975 1976-1977 (Millionsof Dollars)

Generation.......................

240.5

" 597.1 Transmission................................

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32.5 43.7 Distribution...........

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61.1, 145.2 Other..................................

8.5 14.1.

Total.

342.6 800.1 In March and June 1974, the Company's construction program was reduced, including reductions of approximately $86 million for 1974 and approximately $ 181 millionfor 1975.

On December 5, 1974, the Company's construction program was further reduced (to the amounts set forth in the table above) so that the aggregate reduction is approximately $788 million for the years 1975-1977 (including approximately

$ 194 million for 1975).

These reductions were caused by revised energy forecasts and the lack ofcapital on reasonable terms.

The reductions include the elimination of 5 proposed new generating units (3 nuclear and 2 coal) which would have provided an additional 4,890,000 KW of generating capacity; the deferral of each of the first 3 of the 4 proposed 900,000 KW nuclear fueled units of the Shearon Harris Nuclear Power Plant by approximately lib years and the fourth unit by 2 years and'the 2 year deferral of the 720,000 KW coal fired Roxboro No. 4 Unit. The Company expects to retain for future use as much value as possible from the 5 eliminated units but may charge ofi'a significant portion ofthe approximately

$ 15 million'(including $7 millionland costs) it has paid or accrued with respect to the construction ofsuch units. Additionally, the Company willincur charges of an undetermined amount arising out of contracts for generating equipment for such units.

None of such charges have been shown in the Statement of Income for 1974 or for the twelve months ended February 28, 1975 or capsule results for the twelve months ended March 31, 1975 shown in the second paragraph following the Statement ofIncome because the significance and amounts associated with such contract charges are not presently known, although they could be substantial, and the final accounting disposition of any charges relating to the units is not

presently determinable.

The Company willseek regulatory approval to allocate all charge-offs related to the eliminated, units over a period ofyears and to recover them through rates.

Should this not be allowed, earnings for 1974 would be adversely affected with a resulting decline in coverage ratios for first mortgage bonds and preferred stock.

See "Financing Program".

The Company now estimates that one ofthe Harris Plant units willbe completed each year from 1981'o 1984 inclusive.

The entire project is now estimated to cost approximately $2.1 billion of which

$543,741,000 is included in the 1975-1977 construction program. The total project cost has increased over original estimates ofapproximately $ 1 billion primarily because ofincreased estimates ofexpenditures for labor, material and equipment as well as increased costs resulting from the delay ofthe in-service dates of the four units., The Nuclear Regulatory Commission (NRC), a successor to the Atomic Energy Commission, has asked the Company for additional information on its financial qualifications and the need for power from the Harris Plant.

E New generating units, now under construction, are planned for completion in the years and at the costs respectively stated:

Estimated Estimated Completion Estimated Cost Description Date Cost per KW Two 821,000 KW nuclear fueled units at the Brunswick Plant near Southport, N. C..

1975-1976

$707,594,000

$431 720,000 KW fossil fueled Unit No. 4 at the existing Roxboro Plant near Roxboro, N. C..............................

1978

$ 157,525,000

$219 As ofFebruary 28, 1975 the Company's gross investment in the Harris Plant units was $ 146,295,000, in the two nuclear fueled units at the Brunswick Plant was $575,827,000 and in Unit No'. 4 at the Roxboro Plant was $61,520,000.

The costs of the two 821,000 KW nuclear fueled units at the Brunswick Plant have increased over original 1968 estimates of approximately $287 million primarily because of escalation of labor, material and equipment costs, as well as increased expenditures for environmental matters, including a closed-cycle cooling system, design'modifications resulting from NRC licensing review, and delays in construction. The estimated cost of the 720,000 KW Roxbo'ro Unit has increased over'the 1971 estimate of $93,72,5,000 because of its two-year deferral, escalation of labor, equipment and material costs and cooling towers.

I 1

Actual expenditures could vary from the estimates stated above because ofchanges in the Company's plans, cost fluctuations, licensing delays, and other factors.

Th'e Company is continuing to experience increases in costs for construction of,new, facilities as. a result of 'escalation of labor, material, and equipment costs and environmental considerations.

N J

The Company presently estimates that the Brunswick No. 2 Unit and BrunswickNo.

1 Unit,will be placed in commercial operation in June 1975 and March 1976, respectively. The commercial operation of these units is subject to securing all necessary permits, including an operating license from the NRC for Unit No. 1. The operating license for Unit No. 2 was received in December 1974.

Energy conservation, milder weather and reduced economic activity of the Company's customers in 1974 resulted in their utilization ofelectric energy at only slightly above the level experienced in 1973 and the increase in peak load in 1974 was modest compared to previous years (see "Operating Statis-ticsElectric Sales" ). If.such factors continue, and ifincreases in the Company's rates also have the effect

'f reinforcing customer eriergy conservation, the construction program is expected to be sufftcient, to meet

customer requirements through 1984.

If, on the other hand, customer usage patterns and peak load demands return to prior trends of substantially increased

usage, the Company's revised construction

'rogram may not be su5cient to maintain the same degree of reliable se'rvice during some periods after 1979 that it has provided in the past and the Company may be forced to implement load management policies, subject to regulatory approvals, including curtailments at peak times. The'ompany is currently reviewing further revised energy forecasts, and its generation plans and capital requirements.

This review may result in further deferrals of generating units proposed'r now under construction and additional reductions in its estimates of 1976-1977 construction program expenditures.

In the event the Company's load growth exceeds current expectations, the Company may elect to install additional generating'facilities requiring a relatively short construction period provided fuel supplies're available and financial capability permits.

Power purchases under long-term contracts are anticipated to represent approximately 3.4 percent of the Company's total long-term power resources for the summer of 1975.

In addition, the Company has short-term agreements for the temporary purchase of power.

Plant Accounts. During the period from January 1, 1970 through February 28, 1975, there was added to the -Company's 'utility plant accounts, including nuclear fuel, $ 1,641,771,801, there was retired

$63,657,813 ofproperty, there was sold or assigned to lessors $92,263,247, and transfers to other accounts and adjustments resulted in a net decrease of$7,301,480, resulting in net additions during the period of

$ 1,478,549,261, or an increase of approximately 179%.

FINANCINGPROGRAM During 1974, funds amounting to approximately $307 million,were obtained from the issuance and sale of 650,000 shares ofSerial Preferred Stock in February and $ 125 millionofFirst Mortgage blonds in May, the assignment of the Company's rights in eleven turbine generator units and related equipment in June for which it received approximately $44.4 million (see Note 6 to Financial Statements),

the sale and leaseback ofnuclear material in December for which it received approximately $47.6 million (see Note 6 to Financial Statements) and the issuance privately of$27,650,000 of First Mortgage Bonds in December.,'974.

In January 1975 the Company issued $22,350,000 ofFirst Mortgage Bonds privately and sold publicly 4,000,000 shares of Common Stock for $56,000,000, and in March 1975 the Company sold publicly 2,000,000 shares of Preference Stock for $47,900,000.

The Company estimates that it will need, in addition to these funds and the proceeds of this offering, approximately $50 millionof the funds required for the 1975 construction program from long-term sources and willissue securities later in 1975, the type, amount and timing ofwhich willdepend upon market conditions and the needs of the Company.

The proceeds from the foregoing transactions were used for general corporate purposes including the reduction of short-term borrowings incurred primarily for the construction of 'new facilities. Other than any sale and leaseback arrangements that may be made by the Company's coal mining subsidiaries in connection with the development of coal mines (see seventh paragraph under "Business Fossil Fuel Supply"), the Company has no present plans for other such arrangements.

'he Company is presently limited in its ability to issue additional preferred stock under the earnings test in its Charter, which requires among other things, that gross income (after depreciation and taxes) for a period of 12 consecutive months within the 15 preceding months shall have been at least 1.50 times the

sum of annual interest charges and annual preferred dividend requirements on outstanding shares of preferred stock and on any shares proposed to be issued.

At February 28, 1975, such ratio was 1.48 and was 1.51 at March 20, 1975.

In the event the Company fails to receive adequate and timely rate relief when requested from time to time in the future, it may be unable to meet the earnings test required for the issuance ofadditional preferred stock and may experience diflicultyin marketing its first mortgage bonds and be required to further reduce its construction program.

At February 28, 1975, the maximum additional first mortgage bonds that could be issued based on unused property additions at that date and before the issuance of the $ 100,000,000 of New Bonds was $439,919,000; and based on the earnings for

.the 12 months then ended, was $291,000,000 (such earnings reflect deferred fuel costs of$ 13,400,000 and revenues of $8,087,000 billed, which amounts have not yet been approved by regulatory authorities and ar', therefore, subject to refund or adjustment to the extent not finally approved see last paragraph of Note 6 to Financial Statements).

CAPITALIZATION Capitalization as of February 28, 1975, and as adjusted to reflect the issuance and sale of the New Bonds and the sale in March 1975 of 2,000,0QQ shares of Preference Stock, is as follows:

Long-term Debt, net (Note 3)....,.

Preferred Stock (Note 2).....,.....,.

Preference Stock (Note 2)

(2,000,000 shares outstanding as adjusted)......,.........................

Common Stock, without par value 27,502,262 shares outstanding)

Note 2)......................................

Retained Earnings (Note 2)..........

Common Equity.......

Total..................

Authorised (b) 15,300,000 shs.

E 2,000,000 shs.

60,000,000 shs.

February 28, 1975 Outstanding(a)

$ 1,056,426,654 288,118,400 476,354,524 145,120,894 621,475,418

$ 1,966,020,472 Ratio 53.7%

14.7 31.6 100.0%

Adjusted Outstanding(a)

$ 1,156,426,654(c) 288,118,400 47.900,000 476,354,524 145,120,894(EI) 621,475,418

$2,113,920,472 Ratio 54.7%

13.6 2.3 29.4 100.0%

(a) Excluding short-term loans of$ 111,744,782 at February 28, 1975 (see "Application ofProceeds" and Notes I and 4).

(b) Not limited except as set forth in the Company's Mortgage and Deed ofTrust, as supplemented.

(c) Reflects the sale of the New Bonds.

(d) No adjustment has been made for expenses relating to the sale of the Preference Stock.

(e) Notes 1, 2, 3 and 4 refer to Notes to Financial Statements.

STATEMENT OF INCOME The followingstatement ofincome for the five years ended December 31, 1974 has been examined by Haskins 4 Sells, independent certified public'accountants, whose opinion (which is qualified for 1974 as set forth,therein) with respect thereto is included elsewhere herein.

The statement for the twelve months ended February 28, 1975, is unaudited but in the opinion of the Company includes all adjustments (consisting only of normal recurring accruals) necessary to a fair statement of the results of operations.

The statement and its notes should be considered in conjunction with the other financial statements and related notes appearing elsewhere herein and additional information under "Construction Program" and "Business".

,Twelve Months Ended 1970 December 31, 1971 1972 1973 Thousands of Dollars 1974 February 28, 1975 (Unaudited)

Operating Revenues-Electric..............................

Operating Expenses:

Fuel I'orelectric generation................................

Deferred fossil I'uel expense (credit), net (a)...

Purchased electri power...................................

Other operation expnscs...,...,....,....,...,....,,.

Maintenance Depreciation..

Taxes other than on income............................-.

Income tax expense (b) and (c).......................

Total operaung expenses Operating Income Other Income:

Allowance for funds used during construc-uon(d).

Income taxes-credit(b)...................................

Other-net.

Total other income Gross Income.

Interest Charges:

Long-term debt.

Other.

Total interest charges..........................

Net Income.

Preferred Stock Dividend Requirements..............

Earnings For Common Stock.......,...,....,...,.....,

Average Common Shares Outstanding (thou-sands).

Earnings per Common Share (based on average number ofshares outstanding)...,.......,...--.:.

Cash Dividends Dcdared pcr Share ofCommon Stock (outstanding at respective dividend dates)

Ratio ofEarnings to Fixed Charges(f)...............'..

69,014 84,749 88,549 106,191 9,799 23,765 19,849 19,476 19,053 8,289 169,245 35,601 10,422 28,510 23,098 22,820 21,399 14,329 205,327 50,316 11,537 32,979 25,624 27,280 24,021 26,378 236,368 70,768 7,847 41,910 29,749 31,845 28,706 21,268 267,516 73,690 235,842 (35,028) 14,494 46,549 28,591 35,544 40,684 16,947 383,623 77,354 257,141 (21,534) 15,066 48,154 29,092 36,683 43,760 20,588 428.950 82,795 10,505 2,709 (33) 13,1& 1 48,782 14,708 24,759 3,532 6,666 517 49 38,093 10,477 393 18,757 31,474 48,963 69,073 102,242 122,653 54,609 16,068 776 71,453 148,807 56,879 17,241 782 74,902 157,697 19,604 4,353 27,903 39,119 3,696 2,594 50,149 6,505 23,957 31,599 41,713 56,654 24,825 4,699 37,474 60,529 8,371 9,612 65,999 13,017

$ 20,126

$ 29,103

$ 50,917

$ 52,982 12,934 14,776 17,814 20,554 69,878 6,658 76,536 72,271 20,672

$ 51,599 23,324 72,645 7,829 80,474 77 223.

'1,591

$ 55,632 23,767

$ 1.56

$ 1.97

$2.86

$2.5&

$2.21

$2.34

$ 1 46 2.25

$ 1.46

$ 1.49 2.50 2.90

$ 1.56 2.34

$ 1.60 1.92

$ 1.60 1.95

$204,846

$255,643

$307,136

$341,206

$460,977(a)

$511,745(a)

(a) See Notes 1 and 6 to Financial Statements for information relating to the accounting for deferred fossil fuel inventory costs and expenses and for information on revenues subject to refund.

Also see "Retail Rate Increases" and "Wholesale Rate Increases".

(b) See Notes:1 and 5 to Financial Statements for information relating to income tax accounting policy, components ofincome tax expense and the reconciliation ofan amount (computed by applying the statutory income tax rate to pre-tax income) to total income tax expense.

(c) Reference is made to Note 7 to Financial Statements for information on proposed accounting rules concerning interperiod income tax allocations.

(d) In accordance with the uniform systems of accounts piescribed by regulatory authorities, an'llowance for funds'used during construction (AFC) is included in the cost of construction work in progress and credited to income using a composite rate, applied to construction work in progress, which recognizes that funds used for construction were provided by borrowings, preferred stock, and common equity.

This accounting practice results in the inclusion in construction work'in progress of amounts considered by regulatory authorities as an appropriate cost for the purpose of establishing rates for utility charges to customers over the service lifeofthe property suScient to recover such cost. Allowances for the five years ended December 31, 1974, and twelve months ended February 28, 1975, were determined on the basis of the following factors:

(a)

Average amount of applicable construction work in progress during the period, excluding accumulated AFC (b)

Composite rate applied to amounts in column (a) to arrive at AFC Year.

1970.....

~..............

$ 131,313,000 8.0%

1971 183,850,000 8.0 1972 309,488,000 8.0 1973.............................

476,162,000 8.0 1974............,

682,613,000 8.0 Twelve months ended February 28, 1975.

710,988,000 8.0 AFC has totaled 22%, 21%, 24%, 31%, 37% and 36% ofgross income during the years 1970-1974 and the twelve months ended February 28, 1975, respectively.

Although determination of the amount of AFC attributable to each source offunds used for construction is impracticable, based upon a pro rata allocation ofthe cost offunds (interest expense, preferred dividends, and earnings for common stock) on the ratio of AFC to gross income, adjusted for income tax effect ofinterest expense (assumed to be 50%), the portion ofAFC attributable to funds provided by common equity would be approximately 29%, 28%, 30% 40%,

49% and 48% of earnings for common stock for the years 1970-1974 and the twelve months ended February 28, 1975, respectively.

(e) See Note 6 to Financial Statements for information relating to eliminated generating. units.

(f) For purposes of this ratio, earnings represent net income plus income taxes and fixed charges.

Fixed charges represent interest charges plus an imputed interest factor portion of rentals.

The pro forma ratio for the twelve months ended February 28, 1975, giving effect to annual interest requirements on debt assumed to be outstanding aAer the proposed sale of the New Bonds (10% assumed interest rate) and after the application of net proceeds from the proposed sale of the New Bonds and from the March 1975 sale of$2.675 Preference Stock to retire short-term debt, would be 1.74. A change of t/s of 1% in interest rate on the New Bonds would result in a change of approximately.002 in the ratio.

.Charge ofl's, if an/, relating to the Company's proposed generating units eliminated from its authorized construction

budget, as discussed in the next to last paragraph in Note 6 to Financial Statements, would reduce the ratio for 1974, and, in addition'o these possible charge ofi's, refunds and adjustments, ifany, relating to revenues billed and fuel costs deferred in connection with the Company's fossil fuel adjustment clauses, as discussed in the last paragraph in Note 6, would reduce the actual and pro forma ratios for the twelve months ended February 28, 1975.

Such amounts, ifany, are not presently determinable.

Annual interest requirements on the New Bonds will be $ 11,000,000.

~

For the twelve months ended March 31, 1975, operating revenues, net income, earnings for Common Stock and earnings per Common Share were $528,634,000,

$79,193;000,

$57,454,000 and

$2.38, respectively.

The ratio of earnings to fixed charges was 1.96 and the pro forma ratio was 1.79.

(See Note (f) to Statement ofIncome.) These amounts are unaudited but in the opinion of the Company include all adjustments (consisting of only normal recurring accruals) necessary to a fair statement of the results of operations.'hese amounts reflect $ 12,973,000 of revenues billed subject to refund with interest and

$22,181,000 of deferred fossil fuel expense (credit). Of such deferred amounts, $ 19,030,000 is subject to further regulatory review and approval which may necessitate adjustments, if any, ofthe proceedings described under "Retail Rate Increases" and "Wholesale Rate Increases" herein so require.

See also "Construction Program".

MANAGEMENT'SCOMMENTS ON STATEMENT OF INCOME The following factors significantly afiected various income statement items for the years 1973, 1974 and the twelve months ended February 28, 1975:

(a) Operating revenues.

Various rate increases placed into eflect since 1970 resulted in increased revenue in 1971, 1972, 1973, 1974 and the twelve months ended February 28, 1975, ofapproximately

$27,825,000,

$53,312,000,

$68,091,000, $ 180,760,000, and $230,070,000, respectively.

Included in the above increase in revenue in 1974 and the twelve months ended February 28, 1975 are

$73,792,000 and $ 104,035,000, respectively, from fossil fuel adjustment clauses which became efiective in February 1974 for retail customers and in January 1975 for wholesale customers.

See "Retail Rate Increases" and "Wholesale Rate Increases".

Sales ofelectric energy, excluding nonterritorial sales, increased 13% in 1973 over 1972. During 1974 and the twelve months ended February 28, 1975, the combined eflect of energy conservation, relatively milder weather and reduced economic activity was such that such energy sales increased only about 2% over the year 1973.

See "Operating Statistics Electric Sales".

(b) Fuel for electric generation.

Fuel. expense in 1973 reflects increased generation.

Costs of fossil fuel burned increased significantly, averaging 46.5 cents per million BTU in 1972; 50.6 cents in 1973; 118.8 cents during 1974 and 130.1 cents for the twelve months ended February 28, 1975.

See "Fossil Fuel Supply". Fuel expense per million BTU in 1972 reflected the first fullyear ofavailability ofthe Company's nuclear generating unit, thereby reducing the level ofsuch expense.

See "Operating Statistics Electric Energy Generated and Purchased".

V (c) Deferred fossilfuel expense.

This item represents the adoption in 1974, at,the time the fuel adjustment clauses became operative, of the accounting practice ofdeferring increased fuel cost when

incurred and expensing it in the month the related revenue is billed (two months later).

See Notes 1

and 6 to Financial Statements.

(d) Purchased electric po~er. In 1973, the Company generated a greater proportion ofits energy requirements as compared with 1972, thus decreasing purchased power costs.

See "Operating F

Statistics Electric Energy Generated and Purchased".

During 1974 and the twelve months end d n

e ebruary 28, 1975, the Company purchased approximately 15% and 12%, respectively, more power than in 1973; however, fuel cost escalation provisions in contracts resulted in significantly higher cost per KWH for purchased power.

(e) Other operation and maintenance expense.

New facilities, especially for generation, have required additional personnel and maintenance costs.

Higher prices for goods and services of all kinds increased these items of expense.

During 1973, the initial and first annual refueling and maintenance of the low-fuel-cost Robinson Plant nuclear unit was performed, thereby increasing related operations and maintenance expense.

During 1974 and the twelve months ended February 28, 1975, to improve earnings pending rate relief, the Company rescheduled discretionary mainte-nance for some of its facilities and thereby reduced maintenance expense during that period.

(f) Depreciation.

This item of expense increased as new facilities were placed in service.

(g) Taxes other than on income.

State and city franchise taxes increased as revenues increased

'nd ad valorem taxes increased as plant in service increased.

See Note 8 to Financial Statements.

(h) Income tax expense.

Income tax expense net ofincome taxes credit decreased in 1973 from 1972 as the Company's operating income before income taxes decreased and related interest charges increased.

The 1973 decrease in income tax expense would have been less except for the increase in the amount oftax deductible interest charges which were capitalized through the allowance for funds used during construction.

Income tax expense for 1974 and the twelve months ended February 28, 1975, continued to be affected by the increasing amounts ofinterest and the allowance for funds used during construction.

In addition, the latter periods reflect the inadequacy of increases in revenues to cover fully the increases in costs of service, thereby reducing the level ofpre-tax income.

See Note 5 to Financial Statements.

(i) Allowance for funds used during construction.

This item increased as the Company's investment in construction work in progress increased.

(j) Total interest charges.

These costs increased during each ofthe periods because ofadditional debt funds required and increased average interest rates.

. While the Company's revenues and net income for 1973, 1974 and the twelve months ended February 28, 1975, increased over the year 1972, earnings per common share were lower than in 1972.

These decreases resulted primarily from increased capital costs, including preferred dividend requirements reflecting additional preferred stock issues, and increased operating expenses (especially fossil fuel costs which increased from 67.0 cents per million BTU in January 1974 to 175.46 cents in December 1974 before dropping to 147.2 cents in February 1975) which have not been fullyoffset by operating economies or growth in revenues.

In addition, the lower earnings per common share reflected the increased average number of common shares outstanding.

See "Retail Rate Increases" for additional information on retail rate increases and "Wholesale Rate Increases for information on wholesale rate increases especially increases (including a wholesale fossil fuel adjustment clause) placed into effect on January 2, 1975.

10

OPERATING STATISTICS Twelve Months Ended December 31, February 28, 1975 1970 1971 1973 1974 1972 Electric Energy Generated and Purchased (Thousands ofkilowatt-hours):

Generated Net Station Output:

Steam Fossil..

Steam Nuclear.....

Hydro..

Other.

Total Generated..

Purchased and Net Interchange........................

Total Generated and Purchased........

Company

Use, Distribution Losses and counted for.

Total Energy Sold...............................

Average Fossil Fuel Cost per MillionBTU (cen Average Total Fuel Cost (Fossil and Nucl MillionBTU (cents)..

Electric Sales (Thousands ofkilowatt-hours):

Residential.

Commerical.

Industrial.

Government and Municipal..............................

Total General Business.......................'ales for Resale Nonterritorial Sales..

Total Energy Sold...............................

Number ofCustomers (As ofEnd ofPeriod):

Residential.

Commercial.

Industrial.

Government and Municipal..............................

Total General Business.......................

Resale.

Total Customers...............................

Operating Revenues (In thousands):

Residential..

Commercial..

IndustrialTextile Industrial-Other Government and Municipal..............................

Total General Business.......................

Sales for Resale Nontcrritorial Electricity Sales..........................

Total from Energy Sales.....................

Miscellaneous.

Total Operating Revenues.................

Peak Demand ofFirm Load (kw):

WithinService Area.

Nonterritorial.

Total Peak Demand........................-

Total Capability at End ofPeriod (kw):

Steam Plants..

Internal Combustion Turbines.........................

Hydro Plants.

Purchased.

Total Capability(1)...........................

16,134,787 2,414,172 848,789 256,433 16,605,222 4,828,594 881,985 209,526 18,568,590 4,835,200 891,226 212,285 16,310,649 3,335 622,827 315,175 18,602,934 4,813,207 921,183 215,209 19,875,274 3,763,608 890,749 113,545 19,654,181 22,525,327 24,643,176 24,552,533 24,507,301 1,309,355 1,247,164 939,578 1,079,516 1,053,390 17,251,986 1,544,451 18,796,437 20,963,536 23,772,491 25,582,754 25,632,050 25,560,691 Unac-1,248,937 1,306,863 1,671,019 1,501,435 1,555,604 1,429,089 17,547.500 19,656.673 22.101.472 24,081.319 24,076,446 24.131,602 42.1 118.8 46.5 ts).........

ear) per 130.1 48.9 50.6 39.6 44.9 96.6 42.1 105.3

'4.6 5,936,974 5,916,808 6,020,272 3,627,739 3,576,529 3,648,186 7,884,513 8,273,238 8,097,488 922,532 848,996 859,343 5,208,235 3,202,067 7,037,060 872,712 4,973,640 2,944,735 6,231,507 857,930 4,634,149 2,693,338 5,622,593 832,839 13,782,919 3,518,369 246,212 15,007,812 3,852,549 796,312 16,320,074 4,197,433 1,583,965 18,371,758 4,856,882 852,679 18,6151571 4,991,730 469,145 18,625,289 5,124,337 381,976 17,547,500 19,656,673 22,101,472 24,081,319 24,076,446 24,131,602 478,914 82,456 2,745 1,261 495,528 86,292 2,861 1,356 535,607 92,142 3,111 1,538 515,041 90,529 2,995 1,444 550,128 93,293 3',237 1,595 547,337 91,398 3,193 1,592 643,520 54 643,574 648,253 54 648.307 632,398 53 632,451 586,037 52 610,009 52 565,376 49 610,061 565,425 586,089 75,990 40,981 21,174 28,889 8.573 89,711 49,223 26,725 34,096 9,685 103,254 58,246 33,438 41,161 10,827 173,175 97,981 61,583 87,781 17,821 117,559 65,647 36,689 47,677 11,632 156,134 88,420 56,661 78,649 16,034 175,607 25,794 1,225 209,440 31,643 11,967 246,926 35,396 21,040 279,204 43,827 13,608 395,898 438,341 46,015 55,147 13.499 12.637 202,626

, 2,220 253,050 2,593 303,362 3,774 336,639 4,567 506,125 5,620 455,412 5,565 3,484,000 4

4,771,000 143,000 4,9 14,000 4,119,000 516,000 4,771,000 143,0M 4.9 14,00D 4,711,000 212,000 4,923,000 3,625,000 170,000 3,484,000 3,795,000 4,635,000 2,728,000 312,000 211,000 378,000 4,578,000 1,136,000 211,500 280,MD 6.205,500 3,622,000 3,973,000 560,000 560,000 211,000 211,500 245,00D 265,2M 4,593,000 560,000 211,500 280,000 5,644,500 4,578,000 1,136,000 211,500 280,000 6.205,500 3,629,000 4,638,000 5,009,700 204,846 255,643 307,136 341,206 460,977 511,745 (1) Additional reserve capacity is available from neighboring utilities 11 under interchange agreements.

CARL system Map

'lO

<<Henderson 8

l2 Ashevtlle NC,

+ RALHGH 13 Goldsboro

'cru

~ Southern Pines

~Sumter 14 ESSES

~Fbrence tcttxxlt &lact'rtrac 1&erst Legend O

CP&L Senrree Area

~

CP&L DntriCt Ortoee Generslny Ptsra t&rcrear Steam Eiecbc Generany Pknl aak Comrenicnal SksnuEkctnc

=

Generscny Pianl Ol StesmEractnc Generaany Pixnl wiin~ sacr tarctea Vnti Nuclear Steam Eiecbk Gener aany Ptanl Vocal Conctnrcaon cQ Nuclear Stearn Ereanc Generatny Print Sne' Internal Conbucaon vna Gener ainy plant Elecbk Generetlny Ptank 1 ~ Acneuyk Etectrk plant

y. Dkwett ttrrtroekcbk pknl S. Cape Fear Electrk Plant

c. Lee Etecbk plant rn Robinson Etecbk ptsnt 4 Sutton Eiectrk pianl,

r. 1trtertr Nroroelectrk plant 0 waters Nyrtroeketrk Plant

y. weavreiapoon Ekctrk plant

10. Aoxboro Etecbk Plant 11 Brunawkli Nvcka Sile

12. ttsrcbstt Nrrtroelecbk Pknl 1& ikrrk Nuclear Slk Ia. Darynyton County bnemsl Combuatkn vrvt Plant

BUSINESS Territory Served: The territory served, an area of approximately 30,000 square miles, includes a substantial portion of the Coastal Plain in North Carolina extending to the Atlantic coast between the Pamlico River and the South Carolina border, and the lower Piedmont section in North Carolina and in South Carolina, as well as an area in western North Carolina in and around the City of Asheville. The estimated total population of the territory served is in excess of 2,800,000.

Electric service is rendered at retail in 200 communities, each having an estimated population of 500 or more, and wholesale service is supplied to 24 municipalities, to 18 REA cooperatives and to two private electric systems.

At February 28, 1975, the Company was furnishing electric service to approximately 644,000 customers.

During the twelve months ended February 28, 1975, 34.7% of operating revenues, excluding nonterritorial sales, was derived from residential sales, 29.9% from industrial sales, 19.6% from commercial sales and 15.8% from other sources.

Ofsuch operating revenues, approximately 84% was derived in North Carolina and approximately 16% in South Carolina.

For the twelve months ended February 28,

1975, average revenues per kilowatt-hour sold to residential, commercial and industrial customers were 2.88 cents, 2.69 cents and 1.84 cents, respectively.

Sales to residential customers have increased as follows:

Unit Year No. Installed Plant Fuel Coal Coal Coal Coal Coal Coal/Gas Nuclear Coal Coal Coal Coal/Oil Coal/Oil/Gas Coal/Oil 19&MW4 194 MWJ 143 MW 173 MW 252 MW 174MWX 665MWJ 3&5 MW 670 MW 6SOMW i 97 MW 106 MW 351 MW Asheville.

Cape Fear.

13.96 I

1964 2

1971 5

1956 6

1958 3

1962 I

1960 2

1971 I

1966 2

1968 3

1973 I

1954 2

1955 3

1972 2,141,853 15.96 14.68 13.79 7.77 1,746,514 1,886,341 5,752,362 H. F. Lee.

H. B. Robinson........

Roxboro..

8,494,797 L. V. Sutton.....

2,799,339 17.46 13 Average Average Total Total Revenue Period of Use KWHuse Bill per KlVH Year.

1970.

9,795

$ 160.62 1.64e 1971.

10,205 184.08 I.&0 1972.

10,293 204.05 1.98 1973..

11,276 223.29 1.98 1974.

10,861 286.60 2.64 Twelve months ended February 28, 1975....................................

11,015 316.86 2.88 The effect of energy conservation, milder weather and reduced economic activity on the Company's sales to date has been material to the extent that KWH sales for 1974, excluding nonterritorial sales, increased only about 2% over 1973. In 1973 the Company experienced an increase in such KWH sales of about 13% over 1972.

The Company is unable to predict precisely what effect such factors may have on future demand for electric service by its customers.

The Company has taken steps to reduce energy consumption at its own facilities and is supporting conservation programs by promoting elftcient use of energy.

For information with respect to possible eA'ects of the reduced construction program, see third last paragraph under "Construction Program".

Generating Capability: Approximately 72% of the Company's total installed summer generating capability is in units of 97 MW capacity or more. Information with respect to these units is shown below:

Net Station Fuel Generation Cost Summer

. MWH (1974 Avg.)

Capability (Tota11974) mills/KWH

The Company maintains all of its properties in good operating condition in accordance with good management practice.

The life expectancy of the Company's generating facilities (excluding internal combustion turbine units) is 40 years for fossil units installed prior to 1966, 35 years for fossil units installed thereafter, and 30 years for nuclear units. Of the total installed summer generating capability of 5,662 MW, 57.1% is coal, 17.6% is No. 2 oil, 11.7% is nuclear, 9.8% is dual coal/residual oil and 3.8% is hydro. Ofthe total capability, approximately 589 MW (10.4%) can alternately burn gas when available.

The Company's generation by energy source is set forth below:

1973 1974 1975~

Coal.

67.6%

66.3%

71.2%

Nuclear 15.3 19.6 24.4 Residual Oil................................

11.1 8.0

.1 Hydro...........

3.6 3.8 3.0 No.2fueloil..........................;.....5 1.4 L2 Natural gas..

1.9

.9

.1 100%

100%

100%

• Estimated.

Fossil Fuel Supply: The Company expects to receive approximately 66% of its coal requirements for 1975 from long-term agreements.

The remainder of the Company's current coal requirements will be purchased in the spot or open market. During 1973 and 1974, the Company received approximately 66%

(4,100,000 tons) and 41.0% (2,800,000 tons) respectively of its coal requirements from long-term agreements.

The Company purchased 2,050,000 tons of coal in the spot market in 1973 and 4,600,000 tons ofcoal in the spot market in 1974.

The Company's current contract coal purchase prices range from

$8.90 to $29.75 per ton and based upon estimated deliveries have an average weighted price of$20.89 per ton. These prices are subject to escalation under certain circumstances.

The Company is currently paying from $ 18 to $22 per ton for coal purchased in the spot market.

The Company engaged in an arbitration proceeding with Eastern Associated Coal Corporation (Eastern), a contract coal supplier which in 1974 furnished 20% of the Company's coal consumption.

In November 1974, an award was made by the Arbitration Panel which provides that the contract shall continue through 1987, and that Eastern shall receive an additional health.and safety escalation, amounting to approximately $ 1.25 per ton eA'ective January 1, 1974 and revised to $ 1.51 per ton eA'ective July 1, 1974.

In addition, the price of coal was increased eA'ective December 6, 1974 by approximately

$2.26 per ton to reflect additional costs resulting from the settlement of the United Mine Workers strike.

As a result ofthese settlements, the price of coal increased to approximately $ 13.22 per ton as ofFebruary 1, 1975. Commencing with January I, 1976, but not before, Eastern shall not be excused from meeting the full tonnage requirements of 2,500,000 tons per year as a result of productivity loss resulting from compliance with the 1969 Federal Coal Mine Health and Safety Act and the West Virginia Coal Mine Safety Law. The amount of coal to be received from Eastern during 1975 is not presently determinable.

In November 1974, the Company filed suit in federal district court for the Eastern District of North Carolina against Logan 8c Kanawha Coal Company, Inc. and Marvin H. M. Stone for approximately $8 millionin damages for nondelivery ofcontracted for coal. Mr. Stone has counterclaimed for $ 114 million 14

and Logan & Kanawha has not yet answered.

In the opinion of general counsel to the Company the counterclaim is without legal or factual merit. In December 1974, the Company filed suit in federal district court for the Eastern District of North Carolina against Virginia "Iron Coal & Coke Company for approximately $480,000 in damages for nondelivery of coal. Virginia Iron Coal & Coke has answered to the effect that the claim must be arbitrated.

In December 1974, the Company filed suit in federal district court for the Eastern District ofNorth Carolina against General Coal Company and Westmoreland Coal Company for approximately $ 1.8 millionfor nondeliveries of coal. General Coal Company has answered to the effect that delivery had been excused by force majeure and Westmoreland Coal Company has filed a motion to dismiss for lack ofjurisdiction. The failure of the defendants in the above actions to meet their contractual commitments caused the Company to purchase approximately one million tons of coal in the spot market during 1974 at prices substantially above those required by the contracts with the defendants.

In October 1974, Texas Energy Services, Inc. filed suit. against the Company in federal district court for the Eastern District of Kentucky seeking to recover approximately $ 1 million which the Company recouped for poor quality coal delivered by Texas Energy Services, Inc.

In addition to the amount recouped, in March 1975 the Company counterclaimed for approximately $ 1 million for breach of warranty.

The Company is also engaged in arbitration with Island Creek Coal Company in Washington, D. C. over its claim for approximately $ 1 million for health and safety escalation allegedly due Island Creek'or coal delivered pursuant to a contract which expired in 1972. Allof the above matters are in the preliminary stages and the Company cannot now predict the final disposition of any of such claims.

The average cost of coal burned by the Company over the past five years and for the twelve months ended February 28, 1975 is as follows:

1970..

1971

'972

,1973..

1974..

Twelve months ended February 28, 1975.....

$/ton 9.94 11.61 11.14 11.91 25.58 28.68 o/MillionBTV 40.82 47.77 45.44 48.76 108.21 122'. l l As of February 28, 1974 and February 28, 1975,.respectively, the Company had on hand about 64 and 78 days supply of coal based on anticipated burn rate.

The Company considers its present coal inventory suScient to meet its needs based upon its recently revised policy of maintaining a current coal inventory of approximately 70 days supply based on its projected burn rate.

The average sulfur content ofcoal purchased by the Company is less than 1.3%. Such coal purchases presently meet sulfur content limitations which are necessary to comply with emission limitations under the Clean AirAct at the Company's existing plants and Roxboro No. 4 Unit now under construction.

The Company has entered into agreements with Pickands Mather & Co., (PM) a firm engaged in owning, operating and managing mineral properties, to develop two adjacent deep coal mines in Pike County, Kentucky, with an aggregate capacity oftwo million tons ofcoal per year ofwhich the Company is to receive 1.6 million tons ofcoal pcr year for25 years. Studies made on behalf ofthe Company and PM by Paul Weir Company Incorporated,

Chicago, Illinois, independent mining consultants, show estimated 43.6 million tons ofminable and recoverable coal with an average sulfur content of0.58 percha and a BTU content of 12,800 BTU's per pound to be located on the properties.

The Company and have agreed that the coal mines shall be financed through debt and leveraged leases.

In the eve 15

leveraged lease financing is not utilized, the Company is obligated to provide 80 percent of the equity capital for the mines which it estimates would not exceed $20 million.

'The Company's existing coal-fired generating plants and the plant under construction are estimated to'equire an.aggregate of 199 million tons of coal over their remaining useful lives.

Of this total, approximately 40 million tons are expected to be supplied by the Company's coal mining subsidiaries, and approximately 44 million tons pursuant to existing contracts with nonaffiliated coal producers.

The'ompany anticipates that the balance of approximately 115 million tons (58%) will be acquired through the, negotiation of additional long-term contracts, short-term agreements, spot market purchases

and, possibly, the acquisition and development of,additional coal reserves.

There can be no assurance that the Company will receive all of the coal it has presently under contract or that it will be able to successfully complete such negotiations or acquisitions or that the coal supply presently available or acq'uired to meet the balance. ofits future requirements willmeet the sulfur limitations necessary to comply with increasingly strict environmental standards.

In January 1974, a group ofNew,England electric'utilities petitioned the Federal Power Commission (FPC) for emergency relief, under the Federal Power Act, to consist of an order directing a number of utilities in the eastern'part of the United States, including the Company, to operate their non-oil fired generating facilities, and to permit the use ofinterconnected transmission facilities, during'off-peak periods in such a way that the New England utilities'eeds for fuel oil could be reduced during such periods. The FPC issued an order in January 1974 indicating that the petition raises broad electric operating and reliability questions throughout a large area of the nation.

In August 1974 the FPC issued an order permitting withdrawal ofthe petition and accepting certain settlement rate schedules.

In October 1974 the FPC issued an order granting rehearing.

The matter is now b'efore the FPC and the Company cannot predict the ultimate outcome of these proceedings or its effect upon fuel resources available to the Company.

A mandatory allocation program for residual fuel oil and other petroleum products administered by the Federal Energy Administration (FEA) became operative in January 1974.

Under this program the electric utilityindustry is allocated residual fuel oil on the basis ofperiodic computations ofresidual fuel oil supply and demand made by the FEA in corjunction with the FPC.

The Company utilizes residual oil based generation only at its Sutton Plant which may also be fueled by coal.

During the period from February through mid July 1974 the FEA's allocations would not permit the Company to burn contracted for quantities of residual oil at the Sutton Plant and the Company was forced to burn coal which it could only obtain on the spot market. The FEA failed to allocate sufficient quantities ofresidual oil for January and February 1975 and the Company has been required to resume burning coal at its Sutton Plant.

The Company is presently attempting to contract for a long-term supply ofcoal for the Sutton Plant. Untilsuch supply is secured the Company must purchase coal for the Sutton Plant on the spot market. The FEA has notified the Company that the Sutton Plant is one of ten oil generation based plants to be included in a feasibility study for conversion to coal which the FEA may require pursuant to the Energy Supply and Environmental Coordination Act.

The Company primarily uses No. 2 fuel oil for its internal combustion turbine units for emergency backup and peaking purposes.

Pursuant to the mandatory fuel allocation regulations, each electric utility

'. to be allocated that volume of No. 2 fuel oil equal to the volume consumed in 1972 or as otherwise

.termined by the FEA upon advice from the, FPC. AtFebruary 28, 1975 the Company had sufficient No.

uel oil in storage to run all of such turbines 10 hours1.157407e-4 days <br />0.00278 hours <br />1.653439e-5 weeks <br />3.805e-6 months <br />, per day for 20 days which, based on current imption estimates, was.equal to approximately a 363 days supply.

Additionally, the Company has 16

fuel oil supply contracts for its requirements through 1977.

The Company is unable to predict the effect that the mandatory allocation program may have on its future operations or its ability to utilize the No. 2 fuel oil under contract.

The average price of oil burned over the past five years and the twelve months ended February 2S, 1975 in cents per million BTU is as follows:

Residual Oil Ne. 2 Oil 81.12 90.80 90.07 107.79 217.55 February 28, 233.72 1970.

1971.

1972....

,1973.

1974.

Twelve months ended 1975..........

46.93 55.16 169.15 179.90 The Company utilizes natural gas when available is excess pipeline gas (dump gas), but does not rely on it as a regular source of supply.

The Company is experiencing greatly increased costs for all ofits fossil fuels. The availability and cost of fossil fuel could be further adversely affected by legislation pending in Congress, the failure of coal production to meet demand, the availability ofrailroad coal cars, and the production, pricing and embargo policies ofoil producing foreign countries,

', Nuclear Fuel Supply: The Company has contracts for the nuclear fuel supply chain for its Robinson, Brunswick and Harris Units through the years shown below:

Raw Materials and Services Plant Robinson No. 2*........

Brunswick No. 1.........

Brunswick No. 2.'........

Harris No. I.'...............

Harris No.'2................

Harris No. 3 Harris No. 4................

Estimated in-service date

~ ~ ~

1976 1975 1981 1982 1984 1983 Uranium 1985 1985 1985

'985 1985 1985 1985 1985

'985 1985 1985 1985

'1985 1985 2002 2002 2002 2002 2002 2002 2002 1984 1981 1980 1981 1982 1984 1983 1983 1983 1983 1983 1983 Conversion Enrlchlns Pahrlcaoon Reprocesslnn e Robinson No. 2 is in operation.

These services will supply the necessary nuclear fuel to operate Robinson No. 2 through

1986, Brunswick No.

1 through 1982, Brunswick No. 2 through 19S1, Harris No.

1 through 1982, Hams No. 2 through 1983, Harris No. 3 through 1985, and Harris No. 4 through 1984. There can be no assurance that the Company will be able to obtain nuclear fuel services for years later than those mentioned above; however, the Company does not expect to have diSculty in obtaining fabrication services'or its nuclear fuel for years later than those mentioned above.

17

The C e Company has suScient storage space for spent fuel at its Rob' o mson Nuclear Unit to accommodate accommodate spent fuel through the fall of 1977. The Com an o

e a

o

76. Suflicient time and space is available to add underwat r a er storage racks to e

a o

e ompany has contracted for and expects to begin p n ue to its reprocessor in late 1975.

However, hcensmg of t e eprocessor'torag y

be completed prior to initiating fuel,shipments.

This matter is now before the an t e ompany, cannot predict the outcome of these ro shipfueL Sh Id h Co ese proceedings or its effects upon its ability to

'p oKsite or install additional storage racks prior to th ou t e mpany be unable to shi fuel oKsite

, its obinson Nuclear Unit's continued o eratio e

op on would be adversely affected aAer the fall of ou t e mpany be able to install additional storage racks rior to th unable to ship fuel prior to the fall f 1977 adversely affected aAer the fall of 1977.

The two Brunswick e

a o, its obinson Nuclear Unit's conti e two Brunswick and four Hams Nuclear Units (not yet o

a g

p s

esigned to provide for planned operation through o

a ave su cientspentfuelstora es ace asd

, respectively, without either shi in o~si racks.

'pp' oK site to the reprocessor or expansion of storage Interconnections With Other Systems:

The Com an

's fac'

'onnected with the Com s:

e ompany's facilities in Asheville and vicinity are e

mpany s system m the other areas served by the Com an h

Appala hian Power Comp n (APCO) d fD transferred from or to the AshevBle a h

h '

'orn an o

uke Power Com an rDuke ev' area t rough interconnections with such corn a ey Authority (TVA), Virguua Electric and Power A

ho 'SCPSA) d Y dki I

I an a

'n, Inc.

Interconnections between the Company, Duke, SCERG, SCPSA an include 230 kv ties, and 500 kv interconnections with Duke and VEPCO.

The Company has two-party agreements with APCO, Duke, SCERG and VEPCO.

provide for the purchasing of limited term power for earl

. These agreements imi e term power for yearly periods, or for shorter periods where the mutual agreement.

Short-term power m b

h d

generating equipment or by balance of any cal d

k o

er may e pure ased for d

one or more calendar weeks or for the ca en ar wee whenever such power is available.

Additi n made by the Company with SCPSA TV e.

ditionally, two-party agreements purchases may be m d f d

A and the four corn anies n ma e or perio s normally extending less than 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br />.

p 'amed above are such that emergency The Virginia-Carolinas Subregion (VACAR)ofthe Southeastern Electric R li of h Co, D k SCE8:G

SCPSA, d VEPCO I

o p s the Southeastern Power Administra 'o g

mong the VACAR members contribute to th a

'n, nc.

ontractual arran ements a

I I 'ibili o 'o i Idi o

u power supply.

Participation by the members in the activiti organizations, inc u ing t e outheastern Electric Reliability Council and the ec ric e ia 'ty uncil, promotes electric service reliability.

ject to an agreement between the Company, Duke, SCAG and Asheville Plant Unit No. 2 is sub'ect t

, providing for the sale by the Compan to the oth for a limited S

'mi e perio utton Plant Unit No. 3 is also sub'ect t p

y e other companies of a portion of the Unit's capacity mi e j c o an agreement between the Company and

'ng'r t e sa e by the Company to it of one-third of the Unit 3 ca acit for a li period.

These agreements terminate'on April 30 1975 and A an pril 30, 1976, respectively.

e irginia-Carolinas Subregion of the Southeastern Electric Reliabili (installed capacity plus power purchas

'a oa rc ases minus power sales min'us antici ated eak load of 1975, are estimated to be approximately 31% and the Com an '

'ma e y o an t e Company's individual reserv'es are estimated to be e y as compared with approximately 16%'and 18% respectively, for the summer of 1974.

18

Reserves are expressed as a percentage of the anticipated peak load and are derived by dividing the difference between Total Power Resources (installed capacity plus purchases minus sales) and the anticipated peak load by the anticipated peak load. The Company's capability is less in the summer when it experiences its peak.

Retail Rate Increases:

The Company has received the following permanent retail rate. increases effective subsequent to December 31, 1970:

Annualizcd Increased Revenues Based on 1974 Effective Lcvclof Date Description Sales January 1, 1971.........~....~..............

South Carolina

$ 5,632,000 February 1, 1971..........,................

North Carolina 21,105,000 March 1, 1972 North Carolina 28,576,000 April 15, 1972 South Carolina 5,597,000 January 6, 1975.....~..........~............

North Carolina 51,900,000 January15,1975...........................

South Carolina 9,600,000 In October 1973, the Company filed with the North Carolina Utilities Commission (NCUC) and the South Carolina Public Service Commission (SCPSC) applications for authority to increase its permanent retail rates to provide an approximate 21% increase in revenues from retail sales.

In January 1975, the NCUC, by order, granted the Company the requested annual rate increase equal to approximately

$51,900,000 based on 1974 level ofkilowatt-hour sales. Although the order required minor adjustments in rate schedules for certain classes ofservice, all such changes were made prospectively, and the Company is not required to refund amounts previously collected under the North Carolina interim rate increases.

In March

1975, the North Carolina Attorney General and the North Carolina Textile Manufacturers

'Association, Inc. appealed this rate order to the North Carolina Court ofAppeals. This matter is pending.

In January 1975, the SCPSC issued an order granting the Company an approximate 18.2% annual increase equal to approximately $9,600,000 based on 1974 level of kilowatt-hour sales.

The order required refund of approximately $840,000 billed in 1974 in excess of the approved rates and an adjustment for such amount is reflected in 1974 revenues.

By separate order on the same day, the Company's fossil fuel adjustment clause for South Carolina was approved as filed.

The Company was allowed to place into effect an automatic fossil fuel adjustment clause in North Carolina beginning February 6, 1974, and on April2, 1975 (supplementing an order issued in December 1974 which, among other things, approved all revenues billed under the clause through September 30, 1974), the NCUC approved all revenues collected under the fossil fuel adjustment clause through March 31, 1975. In this order, the NCUC found that the fuel adjustment clause "is a reasonable method to adjust rates to reflect changes in fuel expenses experienced by the company" and found that the Company's coal purchasing practices had not been unreasonable, rejecting contentions of the Attorney General of North Carolina that these practices showed poor management.

It approved" the Company's method of calculating the adjustment, with minor changes which willhave prospective effect.

The function of the fossil fuel adjustment clause is to increase or decrease the Company's retail rates to reflect fossil fuel cost changes from the 51.78 cents per million BTU experienced by the Company in 19

June 1973.

Generally the eAects are fullyrefiected in customer billings about two months after the cost changes occur.

Henceforth, the NCUC will hold monthly hearings to determine whether the electric

. utilities within its jurisdiction have reasonably applied the fuel adjustment clause and been reasonable in their fuel purchasing practices.

Each monthly hearing willdeal with fuel expenses incurred in the second preceding month prior to the month ofthe hearing, and revenues billed in the month ofthe hearing which are subject to refund.

As an interim measure, the NCUC had limited the application of the fossil fuel adjustment clause for residential customers to 75% of the excess fossil fuel costs incurred, beginning February 1, 1975, and running for 60 days.

The effect of this reduction was to reduce revenues by approximately $2,500,000.

'fhe NCUC's April2 order allowed the Company to return to applying 100% of the fossil fuel adjustment clause to all customers, including residential customers, beginning April 1, 1975.

In January 1975, the North Carolina Attorney General filed a notice of appeal from the December 1974 NCUC order in the North Carolina Court ofAppeals challenging the validityof the Company's fuel adjustment clause authorized by the NCUC on the ground, among others, that the Commission is without authority to permit the automatic collection of revenues without public hearing prior to implementation of each monthly fuel adjustment.

The Company has recorded $85,639,000 ofrevenues through February 28, 1975 pursuant to such fuel adjustment clause.

The matter is pending.

In January 1975, certain records ofthe Company were subpoenaed by the Federal Trade Commission in connection with its national investigation of fuel adjustment clauses.

In March 1974, the'North Carolina General Assembly passed a bill authorizing the NCUC to permit utilities in rate cases to utilize a forward test period. The bill provides that unless otherwise ordered by the, Commission, the test pe'riod shall be the twelve months beginning with the first day ofthe month following the date the utilityproposes to place its new rates into effect. Ifsuch a forward test period is utilized, it will mitigate the adverse impact on the Company of the time lag between the incurring ofincreased costs and the implementation of rate increases related thereto.

Prior to this new legislation, utilities in North Carolina were required to utilize an historical test period.

The Company presently plans to file for an additional retail rate increase in 1975 but there in no assurance that such increase will be granted.

Consumer dissatisfaction with,the current cost of electric service has prompted the introduction in the North Carolina General Assembly ofseveral bills, any ofwhich iffinallyadopted could have a materially adverse effect on the Company's future operations.

Such bills include proposals to prohibit fossil fuel adjustment clauses, to repeal the forward test period for rate cases, to restructure the NCUC from a five-man Commission to a nine-man Commission sitting with three-member panels, to prohibit interim rate relief, to increase the interest rate on refunds to retail customers of interim rate increases not finally granted; to require additional notices to customers before termination of service, to allow North Carolina municipalities to'.join together for the purposes of building, purchasing and operating electric generation facilities and to issue tax-exempt bonds for these purposes, and to require the popular election of utility commissioners.

The Company is not able to determine at this time whether" or not the General Assembly willpass any of the above legislation.

In March 1975, the North Carolina General Assembly amended the Public Utilities Act to allow the NCUC to hear rate cases in panels of three members.

While it is too early to determine the eKect of this amendment, the Company believes it may expedite action on requests for rate increases.

The ratio of total uncollectible accounts to customer billings averaged approximately

'/~ of 1% for 1974, the twelve months ended February 28, 1975, and for the five years ended December 31, 1974.

On 20

January 30, 1975, the NCUC issued an order extending the period within which residential customers are required to pay their bills.before termination of service from a previous minimum of approximately 24 d

t a minimum of'approximately 55 days aAer the mailing of a bill. The Company is unable to fully

. The assess the impact of this order at this time, although some delay in collections has been experienced.

e NCUC has allowed the Company to implement, beginning with bills rendered in May 1975, a late payment charge of 1% per month on any balance remaining due after 25 days from the date of the bill, which may modify any adverse effect of the extension of the period prior to termination.

Wholesale Rate Increases: Effective May 28, 1971, the Company was granted a rate increase as to its wholesale customers in North Carolina and South Carolina amounting to $6,500,000 annualized increased revenues based on the 1974 level of sales.

Effective March 1, 1973, the Company was granted rate increases applicable to municipalities and private utilities amounting to $2,800,000 annualized increased revenues based on the 1974 level of sales.

Pursuant to settlements reached between the Company and a majority ofits wholesale customers, in connection with these rate increases, and approved by the FPC, no further change or substitution in the rate or other terms and conditions of service was to be applicable to service rendered these wholesale customers prior to January 1, 1975. In July 1974, the Company filed an application with the FPC for an increase in the basic rates and a fossil fuel adjustment clause for its wholesale customers to be effective January 1, 1975. On the average, ifgranted, the filingwould increase basic rates to cooperatives by about 61% and to municipalities and private utilities by about 35% (before effect of the fuel adjustment clause).

The increase in the new basic rates would add approximately $20,300,000 annually to revenues based on 1974 level of KWH sales.

On August 26, 1974, the FPC issued an Order suspending for one day the application for an increase in the basic rates and a fossil fuel adjustment clause to be effective January 1,

1975. Under this Order, the Company placed the new basic rates and the fossil fuel adjustment clause into effect for service rendered on and after January 2, 1975, subject to refund. The majority ofthe Company's wholesale customers (Petitioners) have intervened in'this rate proceeding.

In September 1974 Petitioners filed an application for rehearing on the August Order alleging their right to assert anticompetitive issues in the rate proceeding and that the fossil fuel adjustment clause was improper and should have been rejected.

Petitioners'pplication was denied.

Petitioners then filed a petition for review in the United States Court of Appeals for the District of Columbia which the FPC opposed by motion to dismiss.

In February 1975 the United States Court of Appeals ordered that the motion to dismiss be held in abeyance pending a decision in a similar case before such Court. A decision in that case was handed down on April 4, 1975 remanding to the FPC for consideration the petitioners'ntitrust allegations. The efiect which this decision may have on Petitioners'ase before the United States Court ofAppeals or on the Company's current rate proceeding before the FPC is not presently determinable.

At February 28, 1975 the Company had deferred applicable fossil fuel costs of approximately $6,200,000 which will be billed in March and April 1975 and had included in revenues through February 28, 1975 approximately $5,955,000 representing bills rendered in January and February 1975.

(See Note 6 to Financial Statements.)

Hearings before the FPC commenced April 1, 1975, on the lawfulness and reasonableness of the increase in the basic rates and the fossil fuel adjustment clause.

FPC has also ordered hearings to commence on July 21, 1975 concerning certain alleged anticompetitive provisions of the application for the rate increase and automatic fossil fuel adjustment clause.

The Company cannot predict the outcome of these proceedings.

Environmental Matters: To comply with state and federal laws and regulations dealing with environmental protection, the Company has included

$80 million in the construction program for additional special items at. the Brunswick Units and the Roxboro Unit No. 4 'during the period 1975-1977 of which approximately $ 18 million is scheduled for 1975 and for environmental protection facilities at 21

existing generating plants approximately $25 million during the period 1975-1977 ofwhich $ 15 millionis scheduled for 1975.

Such amounts in the construction program for the proposed Shearon Harris Nuclear Power Plant are expected to approximate

$96.4 million during the period 1976-1982, principally for cooling towers. In addition to the amounts set forth above, the Company may be required to make further expenditures for additional cooling and treatment facilities which may be required.

Regulations under state and federal environmental protection laws have not been fullyimplemented and the additional costs for compliance with such laws in connection with the Company's existing generating units and units under construction are not determinable at this time.

Reference is made to "Construction Program" and "Financing Program".

AirPursuant to the Clean AirAct, the United States Environmental Protection Agency (EPA) has promulgated primary and secondary ambient air quality standards and, for new generating units, emission standards with respect to certain air pollutants, including particulates and sulfur oxides.

In 1972 North

'arolina and South Carolina adopted implementation plans which are designed in general to achieve such primary and secondary standards by 1975, in each case by means of emission limitations.

The implementation plans require registration ofall facilities causing emissions into the air and, in those cases where facilities do not presently meet the applicable emission limitations, the filingof control programs designed to ensu're that such limitations willbe met in accordance with the Clean AirAct. The Company is on an approved compliance schedule with respect to modification of existing facilities for particulate removal and is burning coal with an average sulfur content ofless than 1.3%, which presently meets sulfur oxide emission limitations. The Company proposes to meet the sulfur emission standards for new fossil fueled generatiiig units through the use offuel with sulfur content no greater than.7%. However, there is no assurance that there will be a continuing supply of low sulfur fuel.

Certain delays in completing modifications necessary to comply with particulate emission limitations have been encountered.

Coal distribution and blending difficulties have also resulted in failure to meet sulfur oxide limitations on some occcasions.

The Company is attempting to overcome these problems as expeditiously as possible.

The Company is engaged in discussions with state authorities and the EPA with respect to the possibility of enforcement orders which would have the practical efiect of postponing the final compliance dates.

In March 1975, the EPA ordered the Company to provide detailed information on, the compliance status of the Cape Fear Plant.

In 1972, EPA disapproved all state air implementation plans, whether or not previously approved, to the extent that they lacked procedures for preventing significant deterioration ofair quality in areas where air quality levels are better than the secondary ambient air quality standards.

In December 1974, EPA promulgated rules to prevent significant deterioration of air quality from sulfur dioxide,and particulate emissions.

The Company is unable to determine at this time what impact the new requirements may have on modifications of existing generating facilities or siting and construction of new facilities.

WaterThe Federal Water Pollution Control Act Amendments of 1972 (FWPCA), among other things, created a National Pollutant Discharge Elimination System (NPDES) under which discharges of pollutants (including heat) are prohibited except pursuant to permits issued by the Administrator of the EPA or the Administrator of an approved State program.

Timely permit applications have been filed for all of the Company's existing generating facilities.

On October 8, 1974, the EPA promulgated Effiuent Guidelines and Standards for the Steam Electric Power Generating Point Source Category.

The regulations, among other things, established thermal and chemical limitations for effiuents discharged by 22

both existing and new steam electric generating stations.

A group of independent utilities, including the Company, petitioned the Court of Appeals for the Fourth Circuit in October 1974 for review of those regulations.

Although the impact ofthat, appeal cannot be determined at this time, it is not expected to be significant. In January 1975, the Company received NPDES permits implementing the above regulations at four of its existin'g plants.

In January 1975, the Company filed petitions with EPA (Region IV) requesting tliat an adjudicatory hearing be held in conjunction with each permit and that the permits be modified as necessary to conform to the facts and the law. The Company's requests for hearings have been granted, but no hearing dates have been set. A similar -petition was filed by an adjoining landowner in January 1975 in conjunction with the Robinson permit challenging the permit's thermal discharge provisions, and he has been allowed to intervene in the hearing granted to the Company on that permit.

NPDES permits have not yet been issued for the Company's remaining plants. The legal consequences of EPA's delay in issuing NPDES permits for these plants is unknown. While costs in excess ofthose outlined above may be incurred in complying with NPDES permits; such expenditures are not expected to exceed

$4 million, exclusive of the cost of any additional cooling facilities which may be required at the Robinson Plant, as discussed below.

In November 1973, the North Carolina Board of Water and AirResources granted a variance from North Carolina water quality standards for'operation of Roxboro Unit 3 pending installation of cooling towers which are scheduled for completion in 1976.

NuclearThe Final Environmental Impact Statement on the Robinson Nuclear Unit was published by the NRC Regulatory Staffin April 1975. This report recommends the continued operation ofthe Plant conditioned upon adoption of certain administrative practices to assure protection of the environment.

In July 1973, the NRC published a notice ofopportunity for public hearing on environmental considerations associated with the operation of the Robinson Nuclear,Unit.

A landowner adjoining the Robinson impoundment has intervened, complaining of the water temperature in certain parts of the impoundment.

A hearing board has been named by the NRC, but no hearing date has been established.

In May 1974, the Company applied to EPA for an exemption under Section 316(a) of the FWPCA which would allow the plant to continue operating with the existing cooling system.

Under the terms of the NPDES permit received in January 1975, the Company has until June 30, 1976, to present evidence to EPA in support of its exemption request.

If the Company is ultimately required to install cooling towers, it will cost approximately $30 million by current estimates.

This amount is not included in the construction program.

In February 1974, the Company filed a Petition to amend the Robinson operating license to allow operation ofthe Plant at a core power level of2300 MWthermal. The landowner intervenor in the above

~proceeding has petitioned for intervention in this proceeding seeking'to prevent operation at increased core power levels.

The same hearing board willhear both matters, but no hearing date has been established.

In January 1974, the NRC Regulatory Staff published its Final Environmental Statement for the Brunswick Plant pursuant to which it recommended to the NRC continuation of the construction permits and issuance ofoperating licenses for Brunswick Units 1 and 2 subject to certain conditions for protection of the environment.

The principal condition specified by the Staff was the installation of a closed-cycle cooling system within approximately three and one-half years after issuance ofan operating license for the first Brunswick Unit. Construction and related costs ofthis system are expected to be approximately $72 million which is included in the construction program.

Subsequent to the Company's commitment to install a closed-cycle cooling system, the Atomic Safety 8. Licensing Board (ASLB), a part of the NRC, conducted a public hearing to evaluate the. environmental impacts of operation of this facility.

In December 1974, the Company received its operating license for the first Brunswick Unit. The Company 23

has requested and received permission to demonstrate that adequate protection of the environment does not require 12-month operation of the cooling towers. Ifpermitted, seasonal as opposed to continuous operation of the towers could result in annual operatin'g savings of approximately $4 million.

On April 10, 1975, at the instance of three geologists and several environmental groups, the NRC issued a show cause order requiring the Company to show why its operating license for Brunswick should not be amended to require the Company to install a micro-earthquake seismograph network in the area of the plant and to conduct releveling studies over a two year period.

The Company has 30 days within which to respond.

The initial phase of the hearing on the Company's application for construction permits for the four Shearon Harris Units was held in October 1974.

This contested hearing is expected to resume in 1975 to consider whether the current and projected demand for power justifies construction of the proposed facilities and whether or not the Company is financially qualified to construct such facilities. In addition, issues related to the geological fault discovered at the Harris Plant site in July 1974 willalso be considered at that time.

The fault is a type common to the region and is not expected to impede construction; however, the significance of the fault must be resolved before a construction permit can be granted.

The Company cannot predict the ultimate outcome of the licensing hearings, In December 1973, the NRC adopted new regulations governing the emergency core cooling systems of nuclear power plants.

The Company believes that the Robinson nuclear unit, presently in operation, will meet these new requirements without loss of capacity.

Preliminary analysis to date for Brunswick Units 1 and 2 indicates that there will be no loss of capacity.

In May 1973, Ralph Nader and Friends ofthe Earth filed suit in the United States District Court for the District of Columbia against the NRC seeking a declaratory judgment and injunctive relief. The suit seeks to require the NRC to revoke'the operating licenses and to halt the operation of 20 nuclear plants, including the Robinson nuclear unit. The basis of the suit is an allegation that the interim acceptance criteria adopted by the NRC for einergency core cooling systems for the plants are inadequate and constitute a threat to public health and safety.

In'une'973, the Court dismissed the complaint and granted summary judgment in favor ofdefendants and interv'enors, including the Company. In July 1973, plaintiffs filed a petition with the NRC alleging matters similar to those alleged in the suit. The petition was denied and petitioners have appealed to the United States Court of Appeals, District of Columbia Circuit.

These cases have now been consolidated and are pending before said Court of Appeals.

The Company cannot predict the outcome ofthis litigation, but ifplaintiffs should be successful the Company's operating expenses and ability to meet the energy needs ofits customers would be materially and adversely affected.

In view of the foregoing, the Company may incur increased construction or operating expenditures; and in the further event that the NRC should order the suspension of operation of the Robinson nuclear unit or of construction, or operation of the Brunswick Units or delay construction of the Harris Units beyond the adjusted construction schedule, system power resources may become inadequate.

Other Litigation: In February 1975, the Company was served with a complaint'and summons in an action brought in the Court ofCommon Pleas ofMarlboro County, South Carolina, by an individual, for himself 24

and a puiported class consisting ofother persons residing within one mile of the city limits of the City of Bennettsville, South Carolina, against the Company and the City of Bennettsville.

The complaint 'alleges that the Company and the'City, a wholesale customer of the Company, have conspired to violate the civil rights of the plaintiA and the class, by forcing them to buy electricity, at retail, from the City rather than from the Company and asks for a total of $50 million in actual and punitive damages.

The Company's general counsel is of the opinion that the suit is without foun'dation and can be successfully defended.

DESCRIPTION OF NEW BONDS General: The New Bonds are to be issued under a Mortgage and Deed ofTrust, dated as ofMay 1, 1940, with Irving Trust Company and Frederick G. Herbst (D. W. May, successor),

as

Trustees, as supplemented by twenty-one supplemental indentures, all of which are collectively referred to as the "Mortgage". The statements herein concerning the New Bonds and the Mortgage are merely an outline and do not purport to be complete.

They make use of terms defined in the Mortgage and are qualified in their entirety, by express reference to the cited Sections and Articles.

Form and Exchanges: The'New'onds will be re'gistered bonds without coupons." New Bonds will be exchangeable. without charge for other New Bonds dfde'erent authorized denominations, in each case for a like aggregate principal amount, and may be transferred without charge, other than for applicable stamp taxes or other governmental charges.

Interest and Payment: The New Bonds willmature April 15, 1984, and willbear interest at the rate shown in their title,,payable semi-annually on October 15 and April 15, commencing October 15, 1975. Principal and interest are payable at Irving Trust Company in New York City.

i The Company has covenanted to pay interest on any overdue principal and (to the extent that payment ofsuch interest is enforceable under applicable law) on any overdue instalment ofinterest on the Bonds of all series at the rate of 6% per annum.

(Mortgage, Sec. 78.)

Redemption and Purchase of Bonds: The New Bonds will'be redeemable, in whole or in part, on 30 days'otice (a) at the special redemption prices set, forth below for the. basic improvement fund or for the maintenance and replacement fund or with certain deposited cash or with proceeds of released property, and, (b) at the general redemption prices set forth below for all other redemptions.

General Special Redemption Redemption Year Price (%)

Price (%)

Ifredeemed during the twelve 1 976.........

1 977..

1978. '...

1979.'980....'.

1981.

1982.'.......................:....

1983."

1984.

months period'ending,April 14, 110.75 100.00 109.22 100.00 107.68 100.00 106.15 100.00 104.61

~ 100.00 103.08 100.00 101;54

~

100.00 100.00 100.00 100.00 100.00 25

4 in each case together with accrued interest to the date, fixed for redemption;,provided,, however, that no New Bonds shall be redeemable at the general redemption prices prior to April 15, 1982, with borrowed funds, or in anticipation of funds to be borrowed, having an efiective interest cost to the Company (calculated in accordance with acceptable financial practice) of Jess than 11.2424% per annum.

Ifat the time notice.of. redemption is given the redemption moneys are not on deposit with the Corporate Trustee, the redemption may, be made subject to their deposit with the Corporate Trustee on or before the date fixed for redemption and such notice shall be of no effect unless such moneys are so received.

If

}

l I)

Cash deposited under any provisions ofthe Mortgage (with certain exceptions) may be applied to th purchase of Bonds of any series.

V

'(Mortgage, Art. X; Twenty-first Supplemental, Sec. 1.)

Improvement Fund: As to each outstanding series of Bonds, basic improvement'fund payments a'e required ofi/iof 1% per year ofthe greatest amount ofBonds'of such series outstanding prior to the year in which such payment. is due. Payments may be made in cash or principal amount ofBonds ofthe, particular series, or credit may'be taken for property additions at 70% (100% inthe case, of the 1997 Series Bonds and all subsequently issued series of Bonds, including the NewBonds) of cost or fair value,.or credit may be taken for Bonds of, any series or prior lien bonds retired.

The requirement may be, anticipated at any time.

Additional improvement fund payments of Yi of 1% per year arerequired by the terms of each outstanding series prior to the 1997 Series Bonds, making a total of 1/0 as to each of those series.

The Mortgage may be a'mended,'without 'any conse'nt or other action by the"holders of the 1997 Series" Bonds and all subsequent series of Bonds; including the'New Bonds," to eliminate the basic improvement fund payments of /i of 1% with respect to each series'(including the New Bonds),

(Mo'rtgage,'ec.

39; First through Ninth Supplementals, Sec. 3; Tenth Supplemental, Sec. 5.)

.. ~

I The Twenty-first Series'of Bonds has the additional benefit of 'a sinking fund of 4% of the greatest amount of such bonds outstanding prior to'October "1, 1976. (Twentieth Supplemental, Sec. I.)

Mainfenance and Replacement. Fund: Th'ere shall be expended for'each year 15% of the adjusted gro'ss operating revenues for maintenance and replacements in respect'of the mortgaged property and certain automotive equipment'of the Company.

Excess expenditures for such purposes in any year may be credited against the requirements in any subsequent year.'f th'e Company'is not permitted-by regulatory authority to include 15% of such revenues for such purposes in operating expenses, the requirements are correspondingly reduced.

Such requirements"may be met by depositing cash with the Corporate Trustee, certifying expenditures for maintenance'and repairs, certifying gross property additions, certifying gross expenditures for certain automotive equipment, or by taking credit for Bonds and,prior lien bonds retired.

Such cash may be withdrawn on expenditures for gross property additions or on waiver ofthe right to issue Bonds or be applied to the retirement ofBonds.

(Mortgage, Sec. 38.).,

Special Provisions for Retirement of Bonds: If, during any 12-months'eriod, property is disposed of by order of or to any governmental authority, resulting in the receipt of$ 10 QQQ 000 or more as p oce ds a

r e

s ere or, the Company (subject to certain conditions) must apply such proceeds, less certain deductions, to the retirement ofBonds. The New Bonds are redeemable at the special redeniption prices for this p rpo u

se.

e Mortgage may be amended, without, any consent or other action by holders of the 1996 Series Bonds or any subsequently created series of Bonds, including the New Bonds, to eliminate the foregoing special provisions for retirement of Bonds.

(Mortgage, Sec. 64; Ninth Supplemental, Sec. 6.)

26

Security: The New Bonds and any other Bonds now or hereafter issued under the Mortgage will be secured by the Mortgage, which constitutes, in the opinion of General Counsel for the Company, a first mortgage lien on all of the present properties of the Company (except as stated below), subject to (a) leases ofminor portions ofthe Company's property to others for uses which, in the opinion ofsuch counsel, do not interfere with the Company's business, (b) leases ofcertain property ofthe Conipany not usedin its electric utility business, and (c) excepted encumbrances, minor defects and irregularities.

There are t d f m the lien: all merchandise equipment, materials or supplies held for sale and fuel, oil and similhr consumable materials and supplies; vehicles and automobiles;.cash, securities, receivab es an a

contracts, leases and operating agreements not pledged or required so to be; and electric energy and other products.

The Mortgage contains provisions for subjecting to the lien thereof (subject'o limitations in the case ofconsolidation, merger or sale ofsubstantially all ofthe Company's assets) property, other than property of the kind excepted above, acquired after the date of delivery of the Mortgage.

(Mortgage, Art. XV.)

The Mortgage provides that the Trustees shall'have a lien upon the mortgaged property, prior to the Bonds, for the payment oftheir reasonable compensation and expenses and for indemnity against certain liabilities. (Mortgage, Sec. 96.)

Issuance of Additional Bonds: The maximum principal amount of Bonds which may be issued under the Mortgage is unlimited.

However, until changed by a further supplemental indenture, the amount of future advances and other indebtedness which may be secured by the Mortgage and outstanding at any one time in addition to,the Bonds of other series now outstanding and the New Bonds may not exceed

$500 000 000.

Bonds of any series may be issued from time to time on the basis of (1),70% of property additions after adjustments to offset retirements; (2) retirement of Bonds or prior lien bonds; or ( )

deposit of cash.

With certain exceptions in the case of (2) above, theissuance of Bonds is subject to adjusted net earnings for 12 out ofthe preceding 15 months before interest and income taxes being (a) at least twice the annual interest requirements on, or ( b) at least 10% of th'e principal amount of, all Bonds at the time outstanding, including the additional issue, and all indebtedness.,of prior or equal rank.

Such adjusted net earnings are computed after provision for repairs, maintenance and retirement of property equal to the Maintenance,and Replacement fund requirements for such period. Cash so deposited may be withdrawn upon the bases stated in (1) and (2) above.

P rt additions must consist of electric property, or property used or useful in'onnection rope

. The therewith, acquired aAer December 31, 1939, but may not,include securities, vehicles or automobiles.

e Company estimates that after the issuance of$ 100,000,000 ofNew Bonds against property additions there will be approximately $480,965,000 remaining of property additions available as of February 28, 1975.

The Mortgage contains restrictions upon the issuance of Bonds against property subject to liens and upon the increase of the amount of such liens.

(Mortgage, Secs. 4-7, 20-30 and 46; Twenty-first Supplemental, Sec.'3.)

Dividend Restriction: So 'long as" any New Bonds remain outstanding, cash dividends and dis-tributions on common stock are restricted to aggregate net income available therefor (after preferred dividends) since December 31, 1948, plus $3,000,000.

No portion of retained earnings at February 28, 1975 is at the date ofthis Prospectus restricted by this provision; however, after adjustment for the sale of the New Bonds and the sale in March 1975 of 2,000,000 shares of Preference Stock, retained earnings at February 28, 1975 would be restricted in the amount of$21,127,160.

(Twenty-first Supplemental, Sec. 2.)

27

Modi6cation of the Mortgage: The rights of the Bondholders ma be m d' d 'h ll f

an a series o Bonds are affected, the consent also of 70

'g i

o any consent or other action by holders of ries on s or any subsequently created series of Bonds <includin th o substitute for the foregoing provision a provision to the effect that the ri hts of modified with the.consent'of holders of 66%% f h ff d,

h 1 o of hold of 66'A% of h,Bo d eri affec ed.

I

general, no Co d

S tio 64(

tilth payment o principal-or interest no mod'on un '

e foregoing substitution is made>, and no mo

'ien or reducing the percentage required for modification, is efiective a

Ã(oH' eenth Supplemental, Sec. 5.)

Defaults and Notice Theieof: An event ofdefault is defined as bein: de dfultfo 60das'ym tof t

df 1' in crest; e aulf in payment of interest u on or bonds continued beyond grace periods; default for 60 days in a ment retirement ofBonds (including th acem n e improvement and maintenance and re lacem n in bankruptcy, insolvency or reorganization; and default for 90 da s aA au t for 90 days aAer notice in performance ofother age, ec..

e Trustees may withhold notice of default 'exce t

'rincipal, interest or fund for retirement of Bonds) ifthe think i

'M S

66'hirdS 1

1 S

15 re In case of a default holders of 25% of the Bonds may declare the rinci al an payable, but the holders ofa majority may annul such declaration a b

d (Mo S

67) N hid holder has given the Trustees written notice of a default and unless c..

o o

er of Bonds may enforce the lien of the d

h T h Trustees reasonable opportum y o a wri '

to act and have offered the c..

e rustees are not r'equired to risk their fu bl df bli of a m@ority of the'Bonds may direct th ti th ce or e eving t at repayment is not reasonably assured.

Mort d

il bl <<h T

irect t e time, method and lace (Mortgage, Sec. 71.)

e

rustees, or exercising an trust or g

y st or power conferred -upon the Trustees.

Evidence To Be Furnished to the Corporate Trustee Under the Mort a e:

Mortgage provisions is evidenced by writte t t f

paid by the Company (such as an engineer w'th h

y wri en statements of the Company's officers or an accountant with respect to a net 'fi

'erwi respect tothevalueof ro ert p

p y bemg certified or released, compliance with the Mortgage "generally). In certain moor matters s

a net earnings certificate and counsel with res ect to T

I d A

of1939) 11 c o t e accountant or engineer must be in e oth ap i dtob fild g

alp

'odi id

', 't b f uire to e

e annually and upon the ha enin o, t e absence ofdefault or as to compliance with ire o

e urnished as to th o

Concerning the Trustee: In the regular course of business, the Com an obtain from several be, mcludmg m mrtam int, I

, in ce ain instances, Irving Trust Company.

28

.MANAGEMENT Directors DANIELD. CAMERON, SR.

President, Atlantic Telecasting Corporation Wilmington,'. C., ~...

FELToN J.~ CAPEL egional Manager Century Metalcraft Corporation.,

Southern Pines, N. C.

CHARLES W. COKER, JR.

President, Sonoco Products Company HartsvilleS. C.

E. HERYEY EYANs Farmer, Laurinburg, N. C.

MARGARET HARPER

. Owner, Stevens Agency

, Southport, N. C.

SHEARON HARRIS

'hairman/President of the Company, Raleigh, N. C.

L. H. HARVIN,JR.

President, Rose's Stores, Inc.

Henderson, N. C.

KARLG: HUDSON, JR.

Executive Vice President Hudson-Belk Company Raleigh, N. C.

J. A. JoNas Executive Vice President of the Company Raleigh, N. C.

EDWARD G. LILLY>JR.

Senior Vice President of the Company Raleigh, N. C.

SHERWOOD H. SMITH, JR.

Executive Vice President of the Company, Raleigh, N. C.

HORACE L. TILGHMAN,JR.

Real Estate and investments Marion, S. C.

JOHN B. VEACH Business, Consultant Asheville, N. C.

JOHN F. WATLINGTON>JR.

Chairman of the Board Wachovia Bank & Trust Company, N.A.

Winston-Salem, N. C.

29.

OScers SHEARON HARRIS President J. A. JoNas Executive Vice President (Group Executive)

SHERWOOD H. SMITH, JR.

Executive Vice President (Group Executive)

EDWARD G. LILLY,JR.

'enior Vice President (Group Executive)

W J. RIDOUT, JR.

Senior Vice President (Group Executive)

SAMUEL BEHRENDS, JR..

Vice President E, M. GEDDIE Vice President WILLIAME. GRAHAM, JR.,

'ice President and General Counsel WILLIAMB'. KINCAID',

Vice President, A. MCDUPPIE Vice President DARRELL V. MENSCER Vice President ALBERT L. MORRIS, JR.

Vice President J. R. RTLEY Vice President R. S. TALTON Vice President

'DWIN E. UTLEY Vice President J. L". LANCASTER, JR.

Secretary ROBERT M. WILLIAMS Assistant Secretary JAMas S. CURRIE Treasurer J. R. POWELL

/

Controller C. D. MANN Assistant Treasurer

EXPERTS AND LEGALITY The balance sheet as of December 31, 1974, and the related statements ofincome, retained earnings and source and use of financial resources for the five years then ended contained in this Prospectus have been examined by Haskins 4 Sells, independent certified public accountants, as stated in their opinion (which is qualified for 1974 as set forth therein) included herein.

The statements made as to matters of law and legal conclusions under "Business" and "Description of New Bonds" have been reviewed by William E. Graham, Jr., Esq., Vice President and General Counsel for the Company.

All of such statements are set forth herein in reliance upon the opinions of said firm and individual, respectively, as experts, as expressed in their opinions with respect thereto.

The legality of the securities offered hereby will be passed upon for the Company by William E.

Graham, Jr., Esq., Vice President and General Counsel for the Company, Raleigh, North Carolina, and by Reid k Priest, 40 Wall Street, New York,.New York, counsel to the Company, and for the Underwriters by Winthrop, Stimson, Putnam k Roberts, 40 Wall Street, New York, New York. However, all matters pertaining to the organization of the Company, titles, and local law willbe passed upon only by WilliamE.

Graham, Jr., Esq., who may rely as to all matters of South Carolina law on the opinion of Paulling 8'c James, Darlington, South Carolina.

As of February 28, 1975, WilliamE. Graham, Jr., Esq., owned 479 shares of the Company's common stock. Mr. Graham is acquiring additional shares of common stock at regular intervals as a participant in the Company's Stock Purchase-Savings Program for Employees.

The information appearing in this Prospectus relative to the estimates of the Company's subsidiary's coal reserves

have, as hereinabove

stated, been reviewed and verified by Paul Weir Company Incorporated, Chicago, Illinois, independent mining consultants and engineers, and have been included herein in reliance upon the authority of said firm as experts.

30

OPINION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CAROLINAPOWER & LIGHT COMPANY:

We have examined the balance sheet ofCarolina Power & Light Company as of December 31, 1974 and the related statements ofincome, retained earnings and source and use of financial resources for the five years then ended.

Our examination was made in accordance with generally accepted auditing standards

and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

As discussed in the next to last paragraph ofNote 6, the Company has eliminated from its authorized construction budget five proposed new generating units in connection with which approximately $ 13 million (including $6 millionland costs) had been expended.

Additionally, the Company willincur costs, the amounts of which are presently undeterminable, arising out of contracts related to the units.

The Company will seek regulatory approval to allocate any charge-offs related to the units over a period of years and to recover them through rates.

Should such approval not be granted, results of operations for 1974 would be adversely affected.

The ultimate accounting and disposition of these matters are not presently determinable.

Our original opinion dated February 13, 1975 was subject for 1974 to the effect, if any, of the determination of the ultimate accounting and disposition of certain revenues billed and costs deferred under provisions of a fossil fuel adjustment clause.

As discussed in the last paragraph of Note 6, on April2, 1975 the North Carolina Utilities Commission issued an order affirming such revenues billed and significantly reducing the December 31, 1974 amount of deferred fossil fuel inventory cost subject to further regulatory review and approval.

Accordingly, we have removed the qualification with respect to these matters from our opinion.

In our opiniotr, subject for 1974 to the effect, ifany, of the final determination of the uncertainties described in the second paragraph herein, the financial statements referred to above present fairly the financial position of the Company at December 31, 1974 and the results ofits operations and the source and use of its financial resources for the five years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

Raleigh, North Carolina February 13, 1975 (April2, 1975 as to the last paragraph of Note 6)

HASKINS & SELLS 31

CAROLINAPOWER & LIGHTCOMPANY BALANCESHEET ASSETS December 31, 1974 February 28, 1975 (Unaudited)

ELECIRIC UTILITYPLANT:

Electric utilityplant other than nuclear fuel:

In service Plant held for future use

~.

Construction work in progres's.

Total Less accumulated depreciation.................

Net Nuclear fuel.

Less accumulated amortization............

Net Electric utilityplant, net...

OTHER PRoPERTY ANDINYEPrMENTs......................... - ~

~--.

CURRENT AssEIS:

Cash in banks Special deposits for dividends, interest, etc........

Working funds.

Temporary cash investments.

Accounts receivable:

Refundable income taxes (Note 5)

Other, net.

Deferred fossil fuel inventory costs (Notes 1 and 6)..................

Materials and supplies:

Fuel.

Other........

Prepayments, etc.

Total current assets.....................................................

DEFERRED DEBITS:

Unamortized debt expense...........................................

Other Total deferred debits..

Total

$ 1,364,183,273 7,542,840 826,012,064 2,197,738,177 256,659,461

$ 1,365,970,736 7,542,840 879,199,989

'2,252,713,565 263,536,405 55,117,915 11,466,631 43,651,284 52,814,719 10,950,212 41,864,507 1,984,730,000 2,031,041,667 3,828,783, 4,845,585 9,379,477 19,864 117,833 14,942,360 30,677,344 35,028,046 84,244,486 13,434,110 1,787,436 189,630,956 1,253,151 5,624,404 6,877,555

$2,185,067,294 5,532,364 23,264

133,225 1,200,000 14,942,360

'36,911,290 25,945,328 69,025,443 14,302,759 1,661,276 169,677,309 1,240>111 9,194,268 10,434,379

$2,215,998,940 1,941,078,716,.

1,989,177,160 See Notes to Financial Statements.

32

CAROLINAPOWER 4 LIGHTCOMPANY BALANCESHEET LIABILITIES CAPITALSTocK ANDRETAINEDEARNINGs (Notes 2 and 9):

Preferred stock.

Common stock.

Retained earnings..

Total capital stock and retained earnings...........

LoNG-TERMDEBT (Note 3):

Principal amounts..

Less unamortized discount and premium, net...,................

tung-term debt, net.

CURRENT LIABILITIES:

Notes payable (Note 4):

Banks..

Commercial paper Other Accounts payable:

Construction contract retentions.

Other Customers'eposits Taxes accrued.

Interest accrued Dividends declared..

Current portion ofdeferred income taxes (Note 1)..........

Other.

Total current liabilities..

DEFERRED CREDITS:

Investment tax credits (Note 5)

Customers'dvances for construction Other December 31, 1974 288,118,400 419,701,904 128,762,726 836,583,030 1,036,914,310 2,819,037 1,034,095,273 50,315,000 81,275,000 67,046 5,184,910 54,227,273 2,818,650 11,276,899 19,321,270 19,240,143 13,577,543 1,823,299 259,127,033 4,514,126 125,873 115,406 February 28, 197s (Vuaudited) 288,118,400 476,354,524 14S,120,894 909,593,818 1,059,230,978 2,804,324 1,056,426,654 37,381,000 74,300,000 63,782 5,088,929 15,232,828 2,892,913 17,328,681 23,373,452 4,462,699 9,217,837 2,396,364 191,738,485 4,376,606 133,932 78,328 Total deferred credits..

REsERYE FQR INJURIES AND DAMAGEs.

AccUMULATEDDEFERRED INcoMETAxEs (Note 5).....

CoMMITMENTsAND CoNTINGENGIEs (Note 6)

Total 4,755,405 724,920 49,781,633 4,588,866 729,888 52,921,229

$2,185,067,294

$2,215,998,940 See Notes to Financial Statements.

33

CAROLINAPOWER A LIGHTCOMPANY STATEMENTOF RETAINED EARNINGS Balance at Beginning ofPeriod:

,. As previously reported..........

Adjustments (Note 9)..........

As restated.....................-......

Net Income.

Twelve Months Ended December 31, 1970 1972 1973 66,662,241 66,607 790 72,313,288 24,825,122 37,473,640 60,529,232 94,833,367 65,998,934

$62,502,253

$ 62,447,802

$ 68,153,300

$ 90,673,379 4,159,988 4,159,988 4,159,988 4,159,988 1974

$ 110,816,532 5,246,508

, 116,063,040 72,270,556 February 28, 1975 (Unaudited)

$ 122,221,709 5,246,508 127,468,217 77,223,547 Total...

Deductions:

Cash dividends declared:

$5 Preferred

($5.00 per sharc per annum)...........

Serial preferred:

$4.20 Series ($4.20 per share per annum).......

$5.44 Series ($5.44 per share per annum).......

$9.10 Series ($9.10 per share per annum).......

$7.95 Series ($7.95 per share per annum).......

$7.72 Series ($7.72 per share per annum).......

$8.48 Series ($8.48 per share per annum).......

Preferred Stock A:

$7.45 Series ($7.45 per share per annum).......

Common stock (per share:

$ 1.46 in 1970 and 1971;

$ 1.49 in 1972; $ 1.56 in 1973 and $ 1.60 in 1974 and for the twelve months ended February 28, 1975).........................

Capital stock discount and ex-pense.......................................

Total deductions.........

Balance at End ofPeriod (Note 2)...

91,487,363 104,081,430 132,842,520 160,832,301 188,333,596 204,691,764 1,186,295 1,186,295 1,186,295 1,186,295 1,186,295 1,186,295 420,000 420,000 420,000 420,000

'20,000 1,360,000 420,000 1,360,000 1,360,000 1,360,000 1,360,000 2,730,008 2,782,523 1,360,000 2,730,008

',782,523 2,415,004 2,730,007 2,730,008 2,730,008 2,782,522 3,860,000 3,369,94Q 2,782,521 2,097,835 3,86Q,QQQ 3,86Q,QQQ 5,986,655 5,986,655 678,195 3,725,000 3,725,000 19,012,828 22,121,658 27,173,710 32,691,198 37,374,994 37,374,994 145,395 59,570,870 145,395 258,784 485,446 580,242 147,563 24,879,573 31,768,142 38,009,153 45,855,781 59,570,870

$66,607,790

$ 72,313@88

$ 94,833,367

$ 114,976,520

$ 12&,762,726

$ 145,120,894 See Notes to Financial Statements.

34

CAROLINAPOWER & LIGHTCOMPANY STATEMENT OF SOURCE AND USE OF FINANCIALRESOURCES Twelve Months Ended Dcccmber 31, 1970 1971 1972 1973 Thousands of Dollars February 28, 1974 1975 (Unaudited)

Source ofFinancial Resources:

Current resources provided from operations:

Nct income.

Items not requiring (providing) current resources:

Depreciation and amortization..............................

Allowance for funds used during construction......

Noncurrent deferred income taxes net...............

Investment tax credit adjustments net..............

Total current resources from operations........

Other resources provided:

Additions to plant accounts representing capital-ization ofnet cost offunds used during construction Proceeds from assignment to lessor ol'nternal com-bustion turbine generators.

Proceeds from sale and leaseback ofnuclear fuel........

Miscellaneous-net.

Total resources provided from operations and other'9,965 (10,505) 1,278

( {,505) 34,058 28,327 (14,708) 3,480 1,277 55,850

'7,203 (24,759) 5,972 1,756 80,701 40,430 (38,093)

'7,430 2,948 78,714 10,505 14,708 24,759 38,093 I,228 883 663 45,79 I 71,441, 106,123 109 1169916

$ 24,825

$ 37,474

$ 60,529

$ 65,999

$ 72,271 45,391 (54,609) 11,188 (6,241) 68,000

$ 77,223 46,568 (56,879) 13,276 (6,226) 73,962 54,609 44,455 47,593 3,995 56,879 44,455 47,593 1,271 218,652 224,160 Fina ncings:

Sale of:

First mortgage bonds..

Six-year note

,, Preferred stock Common stock.

'Increase (decrease) in short-term notes payable less temporary cash investments........................,............:

Total resources provided from financings.....

TOTAL....................................,.......,......

Use ofFinancial Resources:

Gross property additions excluding nuclear fuel'................

Nuclear fuel additions'......................................................

Dividends for the year Net increase (decrcasc) in working capital, excluding short-term notes payable and temporary cash in-vestments.

TOTAL.

Increase (Decrease) in Working Capital, Excluding Short-term Notes Payable and Temporary Cash Investments, by Com-ponents:

Materials and supplies (principally fitei).............................

Deferred fossil fuel inventory costs...."..................................,

Accounts receivable.

Accounts payable..

Current portion ofdeferred income taxes.............................

Taxes accrued.....

Interest and dividends payable..

Othernet Net increase (decrease) in working capital, ex-cluding short-term notes payable...........,..........

89,302 29,575

29,186 2,914 150,977

$ 196,768 134,351 34,506 33,910 12,483 215,250

$286,691 99,317 50,000 49,364 125,039 (70,164) 253,556

$359,679 199>755 49,949 63,449 16,356 329,509

$446,425

$ 167,741 3 722 23,712

$239,291 20,232 30,492

$318,382 16,918 36,785

$359,056 37,610 45,708 I,>93 8 I96.768

{3,324)

(l2,406)

$286,69)

$359,679 4,0> I

$446,425 300 (4,374) 5,426 3,519 5,898 1,163 (2,219),.

(8,567) 6,932 (3,222)

(5,656)

(5,876) 828

( l,480) 2,900 3,557 3,036 (5,153)

(395) 1,593

$ (3,324)

$(12,406) 4,051

,. $ 11,419

$ (9,107) 5,576 105 150,979 64,231 3,381 103,301 321,892

$540,544

$382,602 39,939 58,048 59,955

$540.544

$ 69,335 35,028 19,869 40,310) 13,578) 7,693) 6,077) 3,381

$ 59,955 173,217 59,382 99,655 332,254

$556,414

$392,040 36,920 58,966 68,488

$556,414

$ 43,723 21,534 22,640 5,680 (7,101)

(11,240)

(7,032) 284

$ 68,488

'Includes 'amounts charged to utility plant repre'senting the "allowance for (the cost of) funds used during construction".

Certain reclassifications have been made of previously reported amounts in order to conform to current classifications.

See Notes to Financial Statements.

35

CAROLINAPOWER &LIGHTCOMPANY NOTES TO FINANCIALSTATEMENTS For the Five Years Ended December 31, 1974 and (Unaudited) the Twelve Months Ended February 28, 1975 1.

SUMMARY

oP SIGNIPIGANT AccoUNTING PQLIGIES System of Accounts.

The accounting records of the Company are maintained in accordance with uniform systems of accounts prescribed by the Federal Power Commission (FPC) and the regulatory commissions ofNorth Carolina and South Carolina.

Electric UtilityPlant.

Electric utilityplant is stated at original cost. The cost ofadditions, including replacements of units of property and betterments, is charged to utilityplant. The Company includes in such additions an allowance for funds used during construction (8% for 1970 through February 28, 1975).

Maintenance and repairs ofproperty and replacements and renewals of items determined to be less than units ofproperty are charged to maintenance expense.

The cost of units of property replaced of renewed

'plus removal costs, less salvage, is charged to accumulated depreciation.

Utilityplant is subject to the lien of the Company's Mortgage.

Allowancefor Funds Used During Construction.

In accordance with the uniform systems of accounts prescribed by regulatory authorities, an allowance for funds used during construction is included in construction work in progress and credited to income, recognizing that funds used for construction were provided by borrowings, preferred stock, and common equity.

This accounting practice results in the inclusion in utilityplant in service of amounts considered by regulatory authorities as an appropriate cost for the purpose of establishing rates for utilitycharges to customers over the service lives of the property.

Depreciation and Amortiration.

Depreciation of utility plant, other than nuclear fuel, for financial reporting purposes is computed on the straight-line method based on estimated useful lives and charged principally to depreciation expense.

Depreciation provisions as a percent of average depreciable property other than nuclear fuel approximated 2.7% for 1970 through 1972, 2.8% for 1973 and 1974, and 2.9% for the twelve months ended February 28, 1975; Amortization of nuclear fuel is computed on the unit-of-production method and charged to fuel expense.

Compensating Bank Balances.

The Company maintains average balances in various banks in connection with bank lines ofcredit. Such compensating balances include amounts to support outstanding bank loans and to provide back-up for bearer commercial paper'and demand

notes, and may be withdrawn without sanctions on a day-to-day basis so long as the required average balances are

'aintained at the banks.

Average balances, where required, are typically 10% ofline. Furthermore, all of such balances are available for use as general operating funds. At December 31, 1974 and February 28, 1975, outstanding notes payable to banks required average compensating balances of $2,500,000 and

$ 1,800,000, respectively.

Unused bank lines of credit at February 28, 1975 totaled $77,700,000 and required total average compensating balances in the respective banks of $5,500,000.

During the twelve months ended February 28, 1975, average compensating balance requirements reached a maximum month end total of $9,500,000, in support of total lines of credit of $ 120,200,000.

36

CAROLINAPOWER & LIGHTCOMPANY NOTES TO FINANCIALSTATEMENTS-(Continued)

Revenues.

Customers'eters are read and bills are rendered on a cycle basis.

Revenues are recorded when billed, as is the customary practice in the industry.

Deferred Fossil Fuel Inventory Costs.

On February 6, 1974, pursuant to state regulatory commissions'rders, the Company put into eFect retail service fossil fuel adjustment clauses to recover increased fuel costs. The provisions ofthe clauses result in a time lag between the date increased fuel cost is incurred and

,the date such cost is billed to customers.

Accordingly, to properly match increased fuel costs with the related revenues, the Company is deferring the increased fuel cost when incurred and expensing it in the month the related revenues are billed. Therefore, operating expenses in the statement of income for 1974 and the twelve months ended February 28, 1975 have been decreased and Deferred Fossil Fuel Inventory Costs in the balance sheet as of December 31, 1974 and February 28, 1975 have been increased as compared with the respective balance sheets one year earlier by $35,028,046 and $21,534,429, respective-ly, representing the normalization of such cost.

Related deferred income taxes have been recorded by increasing income tax expense in the statement ofincome and are reflected in Current Portion ofDeferred Income Taxes on the balance sheet.

See Note 6 concerning status of the fuel adjustment clauses.

Income Taxes.

Deferred income tax provisions are recorded only to the extent such amounts are currently allowed for rate-making purposes.

In compliance with regulatory accounting, income taxes are allocated between Operating Income and Other Income, principally with respect to interest charges related to construction work in progress.

See Note 5 with respect to certain other income tax information.

Investment Tax Credits.

Investment tax credits generated and utilized aAer 1971 have been deferred and are being amortized over the service lives of the property; substantially all credits prior to 1972 were defe'rred for amortization over five-year periods. At December 31, 1974 the Company had generated but not utilized investment tax credits totaling $9,800,000 (see Note 5 for prior years'nvestment tax credits eliminated in 1974 and included herein).

Preferred Dividends.

Preferred stock dividends declared and charged to retained earnings include amounts applicable to the first quarter ofthe followingyear, except for the Preferred Stock A, $7.45 Series, issued in 1973, which dividends are wholly applicable to the period in which they are declared.

Retirement Plan.

The Company has a non-contributory retirement plan for all regular full-time employees and is funding the costs accrued under the plan.

Retirement plan costs for 1970-1974 and the twelve months ended February 28, 1975 were approximately:

$ 1,383,000,

$ 1,627,000,

$ 1,700,000,

$ 1,748,000,

$2,421,000 and $2,625,000, respectively.

In 1974, the Company amended the plan by changing, among other things, the accrued benefit determination method, the interest assumption from 4%

to 4t/z%, and the amortization of the unfunded prior service cost over a period of twenty years from January 1, 1974 instead offrom January 1, 1971. The effect ofthese changes on periodic net income is not material. The unfunded prior service cost at January 1, 1974, the date ofthe latest actuarial valuation, was approximately $9.6 million and as ofDecember 31, 1974 is estimated at $ 17 million. As of December 31, 1974, the actuarially computed value of vested benefits exceeded assets of the plan by an estimated $5 million.

Other Policies.

Other property and investments are stated principally at cost, less accumulated depreciation where applicable.

Materials and supplies inventories are stated at average cost.

The Company maintains an allowance for doubtful accounts receivable (December 31, 1974$427,876; February 28, 1975$361,247).

Bond premium, discount and expenses are amortized over the life of the related debt.

37

CAROLINAPOWER & LIGHTCOMPANY NOTES TO FINANCIALSTATEMENTS-(Continued)

December 31, 1974 February 28, 1975

2. CAPITALSTOCK Preferred Stock, without par value, cumulative:

$5 (authorized, 300,000 shares; outstanding, 237,259 shares)..

Serial (authorized, 10,000,000 shares):

$4.20 Series (outstanding, 100,000 shaies).........................

$5.44 Series (outstanding, 250,000 shares)................:........

$9.10 Series (outstanding, 300,000 shares)..........'...............

$7.95 Series (outstanding, 350,000 shares).........................

$7.72 Series (outstanding, 500,000 shares).........................

$8.48 Series (outstanding, 650,000 shares).............'............

Preferred Stock A (authorized, 5,000,000 shares):

$7.45 Series (outstanding, 500,000 shares):........................

Total..

Preference Stock (authorized, 2,000,000 shares; none issued)

'ommon

Stock, without par value (authorized, 60,000,000 shares):

Outstanding 23,438,844 shares at December 31, 1974; 27,502,262 at February 28, 1975 Subscribed but not issued 19,875 shares.

Total 10,000,000 25,000,000 30,000,000 35,000,000 49,425,000 64,317,500 50,000,000 10,000,000 25,000,000 30,000,000

'5,000,000 49,425,000 64,317,500 50,000,000

$288,118,400

$288,118,400

$419,458,687 243,217

$476,354,524

$419,701,904

$476,354,524

$ 24,375,900

$ 24,375,900 In March 1975 the Company sold 2,000,000 shares of $2.675,Preference Stock, Series A, in a public oA'ering for proceeds of $47,900,000 before expenses of issuance.

At December 31, 1974, 965,460 (February 28, 1975, 902,042 shares) shares of unissued common stock were reserved for issuance under the Stock Purchase Savings Program for Employees.

The $5 and Serial Preferred stocks are callable, in whole or in part, at redemption prices ranging from

$ 102 to $ 115 a share plus accumulated dividends.

The Preferred'Stock A, $7.45 Series, is presently callable at $ 115 per share plus accumulated dividends unless refunding is involved, in which case there are substantial limitatiohs on redemption" until after September 2, 1980. The Preferred Stock A, $7.45 Series, has a mandatory sinking fund commencing in 1984 to redeem 20,000 shares annually at a redemption price of $ 100 per share plus accrued an'd'unpaid dividends.

In'the event of liquidation, the preferred stocks are 'entitled to $ 100 a share plus accumulated dividends.

The Company's charter,and the indentures relating to the First Mortgage Bonds contain provisions limiting payments of cash dividends on common stock under certain circumstances.

At December 31, 1974, $21,035,987 was so restricted under the charter provisions, which restriction was removed in January 1975 upon the sale of 4,000,000 shares of common stock.

38

CAROLINAPOWER 8c LIGHTCOMPANY NOTES TO FINANCIALSTATEMENTS-(Continued)

For the years 1970 through 1974 and the two months ended February 28, 1975, shares ofcapital stock were issued as follows, representing the total increases in the respective accounts in the periods:

Common Stock Sales Under the Stock Purchasc-Savings Program for Employees Public Oferi as 1,250,000 1,500,000 4,500,000 3,000,000 62,333 69,226 69,442 109,247 205,081 1 970...........................

I97 I...........................

I972...........................

1 973.......................;...

1 974...........................

Two months ended February 28, 1975.

4,000,000 63,418 3.

LONG-TERM DEBT First mortgage bonds (principal amounts):

3'/s% Series, due 1979.

3'/a% Series, due 1979..

2v/s% Series, due 1981 3'%eries, due 1982 4'/s% Series, due 1988.

47/s% Series, due 1990...

4'%eries, due 1991 4t/i% Series, due 1994.

115% Series, due 1994.

5'/s% Series, due 1996.

6s/s% Series, due 1997 6v/s% Series, due 1998.

8'/4% Se;ies, due 2000.

8'/i% Series, due 2000.

7'/s% Series, due 2001 7'/a% Series, due 2001 7'/4% Series, due 2002 7'/a% Series, due 2003.

8t/s% Series, due 2003.

9'/a% Series, due 2004.

Total.

Six-year note payable to a bank, due July 31, 1978 at a fluctuating rate (11.115% at February 28, 1975) related to the bank's prime rate.

Miscellaneous promissory notes (1974, $234,310)...............

Total at February 28, 1975.............................

Preferred Stock Sales Public 'rivate Oiferlngs Placement 300,000 350,000 500,000 500,000 650,000 20,100,000 43,930,000 15,000,000 20,000,000 20,000,000 25,000,000 25,000,000 30,000,000 50,000,000'0,000,000 40,000,000 40,000,000 40,000,000 50,000,000 65,000,000 70,000,000 100,000,000 100,000,000 100,000,000 125,000,000 1,009,030,000 50,000,000 200,978

$ 1,059,230,978

• $22,350,000 issued in January 1975.

39

CAROLINAPOWER 4 LIGHTCOMPANY NOTES TO FINANCIAhSTATEMENTS-(Continued)

The bond indenture, as amended, contains requirements that additional property be certified or that specified amounts in cash and/or principal amount of bonds be delivered annually to the Trustee as an improvement fund. These requirements are approximately $6,100,000 for 1975 and $6,200,000 for each of the years 1976 through 1980.

Current liabilities do not include the current improvement fund requirements since the Compan'y meets such requirements by the certification of additional property.

Bonds of the 1 I I/s% Series due 1994 shall be redeemed under sinking fund provisions at $2,000,000 each year commencing on December 1, 1976, at the principal amount without premium plus accrued interest.

4.

NOTES PAYABLEAND LINES OF CREDIT At December 31, 1974, outstanding notes payable to banks totaled $50,315,000 representing notes due on or before February 27, 1975 with an average ellective interest rate of 10.13%; outstanding commercial paper totaled $81,275,000, with due dates ranging from 2 to 42 days and had an average effective interest rate of 10.04%.

During the twelve months then ended, short-term notes payable outstanding averaged (on a daily weighted basis) $63,162,000 at an average efiectiye interest rate of 9.86% and with terms of up to three months.

At February 28, 1975, outstanding notes payable to banks totaled $37,381,000 representing notes due on or before May 22, 1975 with an average elfective interest rate of 8.24%; outstanding commercial paper totaled $74,300,000 with due dates from date of issue ranging from 26 to 59 days and had an average effective interest rate of 7.21%

During the twelve months then ended, short-term notes payable outstanding averaged (on a daily weighted basis)

$72,450,703 at an average effective interest rate of 10.25% and with terms of up to three months.

During the twelve months ended December 31, 1974 and February-28, 1975, maximum month-end aggregate short-term notes payable totaled $ 161,185,961.

At February 28, 1975, the Company had firm, unused lines of credit with various banks totaling

$77,700,000 including amounts to back up outstanding commercial paper and demand notes. Such lines of credit are periodically reviewed by the various banks and at that time may be renewed or canceled.

5.

INcoME TAxEs Income tax expense is composed of the following:

Twelve Months Ended December 31, 1970 1971 1972 1973 Thousands of Dollars February 28, 1974 1975 Included in Operating Expenses:

Provision (credit) for currently payable (refundable) taxes:

Federal.

State..............

Provision for deferred taxes, net........................

Investment tax credit adjustments;net (credit)

Total charged to operating income........

Reduction in currently payable taxes allocated to Other Income....

Total income tax expense........

$7,461 1,055 1,278 (1,505) 8,289 (2,709)

$5,580

$ 7,893 1,679 3,480 1,277 14,329 (3,532)

$ 10,797

$ 15,879 2,771 5,972 1,756 26,378 (6,666)

$ 19,712

$ 8,952 1,938 7,430 2,948 21,268 (10,477)

$ 10,791

$(3,190) 1,612 24,766 (6,241) 16,947 (16,068) 879

$ 4,688 1,750 20,376 (6,226) 20,588 (17,241)

$ 3,347 40

CAROLINAPOWER 8r.'LIGHT COMPANY NOTES TO FINANCIALSTATEMENTS-(Continued) 8 At December 31, 1974 and February 28, 1975, the Company had recorded income tax refunds receivable totaling "$14,942,360.

The amount represents estimated tax recoveries to result from the carryback ofthe 1974 net operating loss (see Note 1 for accounting policy for Investment Tax Credits and Note'.9 with respect to income tax refund for years 1961 through 1968 totaling $4,159,988).

, Federal income tax returns-through 1970 have been examined and closed.

. Provisions for net deferred income taxes result from timing differences in the recognition of the

,.following items for tax and financial reporting purposes and which tax efiects were as follows:

Twelve Months Ended I'ecember 31,

. February 28, 1970 1971 1972 1973 1974 1975 Thousands of Dollars N

Excess ofaccelerated depreciation deductions over straight-line depreciation otherwise deductible for income tax purposes..

$ 1,278

$3,480

$5,972

$7,430

$ 14,513 Deferred fossil fuel inventory costs..........................

16,814 Taxable gain on sale and leaseback ofpropcrtics...

(3,'325)

Accrual of franchise taxes on books but not deductible until aid.

P (3,236)

Provision for net deferred income taxes...

$ 1,278

$3,480

$5,972

$7,430

$24,766 A reconciliation of an amount, computed by applying the statutory federal income tax income (net income plus in'come tax expense),

to total income tax'xpense follows:

Twelve Months Ended

$ 16,589

• I0,336 (3,313)

(3,236)

$20,376 rate to pre-tax 1970

. December 31,

1971, 1972 1973 1974 Thousands of Dollars February 28, 1975 Amount derived by multiplyingpre-tax income by

. statutory rate Add (deduct):

Investmcnt tax credits (utilized) eliminated (See Note I).

Other specific reconciling items multiplied by the statutory rate:

Allowance for, funds used. during con-struction.

Differences between book and tax depre-ciation for which deferred taxes have not been provided..................................

Taxes and fringe benefit costs capitalized.

State income taxes and other difierences, net.,

Provision for current and deicrred taxes.

Investment tax credit adjustments, net (cred-it).

Total income tax expense...........

(81)

(3,439)

(4,027)

(5,386).,

5,706 5,706 (5,168)

(7,059)

(11,884)

(18,285)

'26,212)

(27,302)

(2,)06I I2,408)

I2,874I I3020I I3,323I '3,7)3) 7,085 9,520 (1,505)

$ 5,580 1,277

$ 10,797 17,956 1,756

$ 19,712 7,843 2,948

$ 10,791 7,120 (6,241) 879 9,573 (6,226)

$ 3,347

$14,959,

$23,170

$38,516

$36,859

$35,112

$38,674 41

CAROLINAPOWER &.LIGHTCOMPANY NOTRS:TO FINANCIALSTATEMENTS-(Continued) 6.

CGMMITMENTsAND CGNTINGENGIES Reference is made to "Construction Program", "Financing Program", and "Business" for information regarding estimated future plant expenditures.

At December 31, 1974, firm commitments for construction aggregated approximately $400 million plus approximately $264 million for initial and replacement nuclear fuel. At February 28, 1975, those commitments were approximately $385 millionplus approximately $264 million, respectively. In addition, the Company has a contract with the Energy Research and Development Administration'for nuclear fuel enrichment requirements through June 30, 2002 which is cancelable without penalty upon five years written notice.

Payments for enrichment services are anticipated to total $79 million during the next five years.

Many contracts include escalation provisions.

The Company has entered into an agreement with Pickands Mather &: Co. (PM), a firm engaged in owning, operating and managing mineral properties, to develop through a subsidiary a deep coal mine in Pike County, Kentucky.

As of Februaiy 28, 1975, the Company had advanced

$2.6 million to the subsidiary.

The Company's investment to date, in its opinion, is not material in relation to its utility properties and business.

The subsidiary is owned 80% by the Company and 20% by PM. The Board of Directors of the subsidiary is comprised of four members named by the Comp*any and one by PM. The currently estimated maximum capital cost of the mine of $50 million will be financed by the subsidiary through equipment'lease arrangements and long-term borrowing.

The Company and PM have entered into coal purchase contracts for 80% and 20%, respectively, of the subsidiary's production at prices suScient to meet all ofits costs, The Company has a contingent liabilityto lend funds to the subsidiary for development cost overruns and for operating cash requirements during any full calendar quarter during which no coal is delivered.

During 1974 the Company assigned its rights to eleven internal combustion turbine generator units and related equipment for approximately $44.4 million. The property assigned excluded various auxiliary facilities, foundations and site preparation costs. The turbines were simultaneously leased to the Company under a 25-year lease arrangement, and nine units were placed in commercial operation during 1974. The Company is contingently liable to repurchase this equipment under certain circumstances.

In December 1974, the Company sold certain nuclear fuel materials for its cost of approximately

$47.6 million and then leased those materials from the purchaser for use when required in the two units of its new Brunswick Plant. The Company is contingently liable to repurchase these materials under certain circumstances.

'lectric utilityplant at December 31, 1974 and February 28, 1975 includes approximately $ 15 million representing cost less accumulated depreciation offour hydroelectric projects licensed by the FPC, which licenses expire in 1976, 1993 and 2008.

Upon or after expiration of each license, the United States may take over the project, or the FPC may issue a new license either to the Company or a new licensee.

In the event ofa takeover or licensing to another licensee, the Company would be paid its "net investment" in the project, not to exceed fair value, plus severance damages, ifany. No provision for amortization reserves as required for the determination of "net investment" has been recorded as such amounts, if any, are considered immaterial.

In 1973, the Company applied for a new 50-year license for the Walters 42

CAROLINAPOWER & LIGHTCOMPANY NOTES TO FINANCIALSTATEMENTS-(Continued)

Hydroelectric Project which original license expires in 1976. A competing application has been filed by a group of rural electric cooperatives.

The Company has committed a total of$3,450,000 for research concerning development ofthe Liquid Metal Fast Breeder Reactor payable in ten equal annual installments>>which commenced in 1972.

e Reference is made to "Business Fossil Fuel Supply" for information with respect to claims against the Company and litigation with regard to coal supply contracts and to "Business Other Litigation"with respect.to another claim.

R Reference is made to."Retail Rate Increases" for information regarding challenges by the North Carolina Attorney General ofthe validityofthe fossil fuel adjustment clause and the reasonableness ofthe amounts billed by the Company for November 1974 and subsequent months.

During 1974 the Company's construction program was reduced, including the elimination from its authorized construction budget of 5 proposed new generating units. The Company expects to retain for future use as much value as possible from the approximately $ 13 million (including $6 millionland costs) it had paid or accrued in connection with such units. (Of the total amount, approximately $7 million is included in plant held for future use and approximately $6 million is included in construction work in progress.) Additionally, the Company, willincur costs of an undetermined amount arising out of related contracts for generating equipment.

The Company willseek regulatory approval to allocate any charge-oQs related to the units over a period ofyears and to recover them through rates.

No provision has been recorded in the statement of income for any losses which may result because the significance and amounts are not presently known, although they could be substantial, and the final accounting disposition is not presently determinable.

Operating revenues for the year ended December 31, 1974 and the twelve months ended February 28, 1975 include $30,444,000 and $55,272,000, respectively, which were billed subject to further regulatory review and refund with interest, subsequent to September 30, 1974 to retail customers in North Carolina under the provisions of a fossil fuel adjustment clause.

On April 2, 1975, the North Carolina Utilities Commission (NCUC) issued an order affirming such revenues and requiring monthly review by the NCUC ofthat month's billing by the Company under the terms ofthe fossil fuel adjustment clause, which review could result in refunds to the extent the NCUC determines the revenues billed were not appropriate.

Additionally, operating revenues for the twelve months ended February 28, 1975 include approximately $8,087,000 of amounts billed (including approximately $5,955,000 under provisions of a fossil fuel adjustment clause) to wholesale customers during January and February 1975 which are subject to refund with interest to the extent, ifany, not finally allowed in pending proceedings before the FPC.

Deferred fossil fuel inventory costs at December 31, 1974 of $35,028,046 and at February 28, 1975 of

$25,945,328, represent approximate amounts to be billed customers during the following two months.

As a result of the April 2, 1975 order, the amount of deferred costs subject to further regulatory review and approval, which may necessitate adjustments ifsuch reviews so require, were approximately $5,500,000 (FPC) at December 31, 1974 and $ 13,400,000 (FPC, $6,200,000; NCUC, $7,200,000) at February 28, 1975.

43

CAROLINAPOWER 4 LIGHTCOMPANY 1

NOTES TO FINANCIALSTATEMENTS-(Concluded) 7.

PROPOSED ACCOUNTING RULES The FPC has under consideration proposed revisions in its Uniform System ofAccounts relating to the deferring or normalizing of interperiod income taxes; 'The revisions would bring the accounting for interperiod income tax allocations into conformity with generally accepted accounting principles for non-regulated businesses and would provide an accounting basis in the Uniform System of Accounts for the inclusion of such deferred taxes for rate-making purposes, except where a regulatory body having rate jurisdiction requires something less than full deferral, in which case, only the lesser amount would be recorded for accounting and rate-making purposes.

The ultimate effect, ifany, on the Company's earnings is not presently determinable pending definitive action on the proposals by the FPC and any actions which may subsequently be taken by state regulatory bodies.

8.

SUPPLEMENTARY INCOME STATEMENT INFORMATION Twelve Months Ended Dcccmbcr 31, 1970

'971 1972 1973 Thousands ofDollars February 28, 1974 1975 Amortization of nuclear Iitel, charged to fuel expense I

~

~

~

~ ~

Taxes Other than on income:

Ad valorem.

State and city franchise..................................

Federal and state social security....................

Miscellaneous

, Total..

Less-Amount charged to plant and sundry accounts.

Remainder-Charged to operating expenses.... ~..................................

K

$ 9,261

$ 7,694

$ 8,757

$ 8,713

$ 4,924

$ 7,352 10,999 1,003 100 19,454

$ 8,106 12,709 1,217 103 22,135

$ 9,406 14,866 1,513 129 25,914

$ 11,804 17,384 2I323 161 31,672

$ 13,273 28,085 2,961 179 44,498

$ 13,531 30,751 3,120 195 47,597 1,893 2,966 3,814 3,837 401 736

$ 19,053

$21,399

$24,021

$28,706

$40,684

$43,760 and February 28, 1975 are not Annual rentals under long-term leases at December 31, 1974 considered material.

Maintenance and repairs, and depreciation, other than amounts set out separately in the statement of income, and rent expense are not significant.

9.

ADJUSTMENTS TO RETAINED EARNINGS, During 1974, the Company received a $4,159,988 refund of federal income taxes paid with respect to the years 1961 through 1968.

The balances of retained earnings at December 31, 1968 and subsequent years. have been restated by such amount.

Received also in connection with the tax refund was $2,089,461 ofrefunded interest and interest earned applicable to years prior to 1974. Accordingly, such interest (net of income tax of $ 1,002,941) has also been added to the December 31, 1973 balance but has not been allocated to 1973 and prior years since the effect on any one year is not material.

44

UNDER The Underwriters named below have severally the Company the principal amounts of New Bond Underwriting Agreement provides that the Underw any are purchased.

Principal Underwriter Amount Principal Amount Underwriter WMTING agreed, subject to certain conditions, to purchase from s set forth below opposite their respective names.

The, riters are obligated to purchase all ofthe New Bonds, if

'7,900,000 s 7900000 7,900,000 1,750,000 1,750,000 1,750,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1;200,000 1,200,000 1,200,000 1,200,000 1,100,000 1,100,000 1,100,000 1,100,000 600,000 600,000 600,000 600)000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 MerrillLynch, Pierce, Fenner &Smith Incorporated..................................

Kidder, Peabody &Co. Incorporated.........'....

Salomon Brothers..

The First Boston Corporation..........................

Goldman, Sachs &Co......................................

Morgan Stanley &,Co. Incorporated...............

Blyth.Eastinan Dillon&Co. Incorporated......

Dillon,Read &,Co. Inc....................................

Drexel Burnham &Co. Incorporated.............'.

Halsey, Stuart &Co. Inc..................................

Hornblower &Weeks-Hemphill, Noyes Incorporated.

E. F. Hutton &Company Inc...........................

Kuhn, Loeb &Co..

Lazard Freres &Co..

Lehman Brothers Incorporated.......................

Loeb, Rhoades &Co...................................,..

Paine, Webber, Jackson &Curtis Incorporated.

Reynolds Securities Inc....................................

Smith, Barney &Co. Incorporated..................

Wertheim &Co., Inc,.....

White, Weld &Co. Incorporated....................

Dean Witter&Co. Incorporated.....................

Warburg Paribas Becker Inc............................

Wheat, First Securities, Inc..............................

L. F. Rothschild &Co......................................

Shearson Hayden Stone Inc.............................

Shields Model Roland Securities Incorporated.

Weeden &Co. Incorporated............................

ABDSecurities Corporation............................

Robert W. Baird & Co. Incorporated..............

Basic Securities Corporation............................

Bateman Eichler, HillRichards, Incorporated J.'C. Bradford & Co...............':......................."..

Alex. Brown &,Sons.........................................

Dain, Kalman & Quail, Incorporated.............

Daiwa Securities America Inc..........................

Eppler, Guerin &Turner, Inc....................'......

EuroPartners Securities Corporation......."........

'aulkner, Dawkins & Sullivan Securities Corp.

Robert Fleming Incorporated..........................

Harrts, Upham &Co. Incorporated................".

I 600,000 Interstate Securities Corporation.........'............

Keefe, Bruyette &Woods, Inc.........'..........'......

Klcinwort;Benson Incorporated......................

Ladenburg, Thalmann &Co. Inc....................

McDonald &Company....................................

Moseley, Hallgarten &Estabrook Inc.............

New Court Securities Corporation...................

The NikkoSecurities Co. International, Inc....

Nomura Securities International, Inc..............

Piper, Jaifray &Hopwood Incorporated.........

Wm. E. Pollock &Co., Inc...............................

Prescott, Ball&Turben....................................

R. W. Prcssprich &Co. Incorporated..............

The Robinson-Humphrey Company, Inc........

SoGenSwiss International Corporation..........

Thomson &McKinnon Auchincloss Kohlmeyer Inc.

Spencer Trask & Co. Incorporated.........,........

VBS-DB Corporation.......................................

UltrafinInternational Corporation..................

Wood, Struthers &Winthrop Inc...................'.

Yamaichi International (America), Inc..........

Advest Co.

American Securities Corporation.....................

A. E. Ames &Co. Incorporated Arnhold and S. Bleichroeder, Inc....................

Bacon, Whipple &Co......................................

WilliamBlair& Company............"...................

Blunt Ellis &Simmons Incorporated...............

Bruns, Nordeman, Rea & Co...........................

Butcher &Singer.

Thc Chicago Corporation................................

Craigie, Mason-Hagan, Inc...,.".......................

Crowell, Weedon& Co...................,.........,......

A. G. Edwards &Sons, Inc.............................,

Edwards &Hanly..

First ofMichigan Corporation.........................

J. J. B. Hilliard,W. L. Lyons, Inc."...................

Hoppin, Watson Inc..

Johnson, Lane, Space, Smith &Co., Inc.........

'ohnston, Lemon &Co. Incorporated.............

Legg Mason/Wood Walker Div.ofFirst Regional Securities, Inc..............

1 45'00,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000, 400,000 400,000

Principal Amount 200,000 200,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,QQQ 150,000 150,000 150,000 150,000 1S0,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000

~ 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 Principal Amount 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 40Q,QQQ 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,00Q 200>000 200,000 200,000 Underwriter Underwriter Stuart Brothers..

Watling, Lcrchen &Co. Incorporated.........

Birr, Wilson &, Co., Inc.................................

The Cherokee Securities Company..............

CitySecurities Corporation..........................

Cunningham, Schmertz &Co., Inc...............

Shelby Cullom Davis &Co...........................

Equitable Securities Corporation..................

First Albany Corporation..........................'....

First Equity Corporation ofFlorida.............

First Southwest Company.............................

Freeman Securities Company, Inc................

Frost, Johnson, Read &Smith, Inc..............

Fulton, Reid &Staples, Inc..........................

Furman Investment Corp. ofS.C., lnc.......

Glickenhaus& Co.

Gradison &Company Incorporated............

Greenshields &.Co Inc.................................

Joscphthal &Co..

Kormendi, Byrd Brothers, Inc......................

Laidlaw-Coggeshall Inc..............................

Lamson Bros. &Co.

Manley, Bennett, McDonald &Co...............

A. E. Mastcn &Co. Incorporated.................

McCormick&Co., Incorporated..................

McLeod, Young, Weir, Incorporated...........

J. Lee Peeler &Company, Inc......................

Raifensperger, Hughes &Co., Inc................

Richardson Securities, Inc.............................

Scherck, Stein &Franc, Inc...........................

Scasongood &Mayer....................................

Stephens Inc.

Stix&Co. Inc..'....

Thomas &Company, Inc..............................

Wagenseller &,Durst, Inc..............................

Wiley Bros., Inc.

Yarnall, Biddle &Co.....................................

Total..

Locwi&Co. Incorporated.........................

McCarley &Company, Inc........................

The Milwaukee Company..........................

Moore, Leonard &Lynch, Incorporated...

Newhard, Cook &Co. Incorporated.........

The Ohio Company.

Parker/Hunter Incorporated......................

Rauscher Pierce Securities Corporation.....

Rcinholdt &Gardner..................,......,........

Rotan Moslc Inc..........................................

Stern Brothers &Co.

Stone &,Youngberg.

Sutro &Co. Incorporated............................

Tucker, Anthony &R. L Day....................

C F Untcrberg, Towbin Co.......................

WilliamD. Witter, Inc................................

Wood Gundy Incorporated.........................

Adams &Peck Almstedt Brothers, Inc....,................,........

Anderson &Strudwick, Incorporated.........

Baker, Watts &Co.

Carolina Securities Corporation..................

Davenport &Co. ofVirginia, Inc...............

Doft&Co., Inc...........................................

Elkins, Stroud, Suplee &Co........................

Evans &,Co. Incorporated......,.......,............

Ferris & Company, Incorporated...............

Heine, Fishbein &Co., Inc..........................

Henfeld &Stern.

Howard, Weil, Labouisse, Friedrichs Incorporated.

The IllinoisCompany Incorporated................

Investment Corporation ofVir'ginia:...............

McDaniel Lewis &Co......................................

Midland Doheny Inc................................"......

Moore &Schley, Cameron &Co.....................

H. O. Peet &Co. Inc.

Rand &Co., Inc....

Scott &Stringfellow, Inc..................................

Through their Representativ Peabody & Co. Incorporated and advised the Company as follows:

200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000

$ 100,000,000 es, Merrill Lynch, Pierce, Fenner 8'c Smith Incorporated,

Kidder, Salomon Brothers, the several Underwriters of the New Bonds have The several Underwriters are offering the New Bonds to the public initiallyat the public offering price set forth on the cover page of this Prospectus and to certain dealers'. at such price less a concession of not in excess of.70% of the principal amount.

The Underwriters may allow, and such dealers may reallow, a discount of not in excess of.375% of such principal amount to certain other dealers.

Afterthe initialpublic offering, the public offering price and the concessions and discounts to dealers may be changed.

Page 2

2 2

3 3

5 6

7 me......

9ll 12 13 13 13 14 17 18 19 21 21 24 25 29 30 untants.

31 32 45 Available Information.

The Company.

General Problems ofthe Indusuy...................

Application ofProceeds.

Construction Program Financing Program.

Capitalization..

Statement ofIncome.

Management's Comments on Statement ofInco Operating Statistics.

System Map..

Business.

Territory Served.

Generating Capability.

Fossil Fuel Supply.

Nuclear Fuel Supply.

Interconnections with Other Systems.......

Retail Rate Increases.

Wholesale Rate Increases.........................

Environmental Matters..

Other Litigation.

Description ofNew Bonds Management Experts and Legality.

Opinion ofIndependent Certified Public Acco Financial Statements......

Underwriting..

No dealer, salesman or other person has been authorized to give any information or to make any representation not contalncd in this Prospectus and, if given or made, such information or rcprcsentatlon must not be relied upon as having been authorized by the Company or the Underwriters.

This Prospectus docs not constitute an offer to sell or a solicitation of an oifer to buy any of thc securities oifcred hereby in any jurisdiction to any person to whom it is unlawful to make such olfcr in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any

~

circumstances, crcatc any implication that there has been no+

change ln the atfalrs of the Company since the date hereof. ia~

C3~i II TABLEOF CONTENTS

$100,000,000 Carolina Power Ez Light Company First Mortgage Bonds 11% Series due April 18, 1984 PROSPECTUS MerrillLynch, Pierce, Fenner & Smith Incorporated Kidder, Peabody V Co.

Incorporated Salomon Brothers Dated April24, 1978

f4 f

~

f 1

fh b

~ Y

'1 A